Pegios in his own capacity and as trustee for Pegios Superannuation Fund v Arambasic
[2022] FedCFamC2G 17
•20 January 2022
FEDERAL CIRCUIT AND FAMILY COURT OF AUSTRALIA
(DIVISION 2)
Pegios in his own capacity and as trustee for Pegios Superannuation Fund v Arambasic [2022] FedCFamC2G 17
File number(s): SYG 1504 of 2021 Judgment of: JUDGE HUMPHREYS Date of judgment: 20 January 2022 Catchwords: BANKRUPTCY – Application to review Registrar’s decision – application to set aside Creditor’s Petition – hearing de novo – whether service of Bankruptcy Notice effected – Bankruptcy Notice not served – Registrar’s orders be set aside – Creditor’s petition be dismissed. Legislation: Bankruptcy Act 1966 (Cth), ss 40, 43, 52, 306
Acts Interpretation Act 1901 (Cth), s 28A
Bankruptcy Regulations 2021 (Cth), reg 102
Electronic Transactions Act 1999 (Cth), s 9Cases cited: ANZ Banking Group Limited, in the matter of James v James [2016] FCA 332
Ciftci, M v Colquhoun A.J.G [1994] FCA 756
Commonwealth Bank of Australia v Lam [2018] FCCA 1568
Pino v Prosser [1967] VR 835
Re Ditford; ex parte Deputy Commissioner of Taxation [1988] FCA 490
reLong; Ex parte Fraser Confirming Pty Ltd (1975) 12 SASR 130
Re Paul Paras Ram and Sarwan Singh Ex Parte: Continental SeagramPty Ltd [1988] FCA 334
Re Robert Henry HanlinEx Parte: South Properties Development Pty Ltd [1985] FCA 447Division: Division 2 General Federal Law Number of paragraphs: 29 Date of last submission/s: 14 January 2022 Date of hearing: 14 December 2021 Place: Parramatta Counsel for the Applicant: Mr Davis Counsel for the Respondent: Dr Lim
Table of Corrections 20 January 2022 In the cover page Counsel for the Applicant “Dr Lim” has been replaced with “Mr Davis”. 20 January 222 In the cover page Counsel for the Respondent “Mr Davis” has been replaced with “Dr Lim”. ORDERS
SYG 1504 of 2021 FEDERAL CIRCUIT AND FAMILY COURT OF AUSTRALIA (DIVISION 2)
BETWEEN: GEORGE PEGIOS IN HIS OWN CAPACITY AND AS TRUSTEE FOR GEORGE PEGIOS SUPPERANNUATION FUND ABN 63 826 586 683
Applicant
AND: MARIANA ARAMBASIC
Respondent
ORDER MADE BY:
JUDGE HUMPHREYS
DATE OF ORDER:
20 JANUARY 2022
THE COURT ORDERS THAT:
1.The orders of the Registrar dated 25 November 2021 be set aside.
2.The Creditor’s Petition be dismissed.
3.Costs reserved.
THE COURT NOTES THAT:
4.Should the applicant take issue in respect of costs written submissions may be provided within 7 days.
Note: The form of the order is subject to the entry in the Court’s records.
Note: The Court may vary or set aside a judgment or order to remedy minor typographical or grammatical errors (r 17.05(2)(g) Federal Circuit and Family Court of Australia (Division 2) (General Federal Law) Rules 2021 (Cth)), or to record a variation to the order pursuant to r 17.05 Federal Circuit and Family Court of Australia (Division 2) (General Federal Law) Rules 2021 (Cth).
REASONS FOR JUDGMENT
JUDGE HUMPHREYS
INTRODUCTION
This judgment relates to an application by Mariana Arambasic (“the respondent”) for a judicial review of a Registrar’s decision of this Court of 25 November 2021, firstly that a sequestration order be made against the estate of the respondent, and secondly that costs fixed in the amount of $7,183.47 be paid from the respondent’s estate in accordance with the Bankruptcy Act 1966 (Cth) (“the Act”).
The applicant and the respondent (“the parties”) were previously married. This litigation appears to relate to various post-separation property issues between the parties.
On 12 May 2021, the applicant obtained a judgment debt by default against the respondent in the District Court of NSW in the amount of $73,860.95 in proceeding 2020/00164436. The respondent disputes that the debt is owing. The Court was advised that proceedings have been commenced in the NSW District Court to have the judgment debt set aside. Those proceedings are returnable in early 2022. It is common ground that the judgment debt remained outstanding as at the date of the hearing of the application on 14 December 2021. Subsequent to the hearing, leave was granted to both parties to file written submissions in support of their positions.
An application for judicial review proceeds on the basis of a de novo hearing. It is thus necessary for the applicant to prove before the Court that all necessary elements are satisfied in order for a sequestration order to be granted.
THE APPLICANT’S CASE
The applicant relied upon the following documents in support of the application for a sequestration order:
1. Affidavit of Search and Debt sworn 13 December 2021;
2. Affidavit of Service of a Bankruptcy Notice sworn 2 September 2021;
3. Affidavit of Service of a Creditor’s Petition sworn 15 September 2021;
4. Amended Creditor’s Petition filed 19 November 2021.
THE RESPONDENT’S CASE
The respondent has raised numerous objections which go to the form and substance of the application. These may be broadly summarised as follows:
1. The Bankruptcy Notice is defective and/or a nullity because the creditor is not identified or it is not otherwise in accordance with the Bankruptcy Rules.
2. The Bankruptcy Notice was irregularly served.
3. There is no trust relationship between Mr Pegios and the George Pegios Superannuation Fund. There is thus no debt due and owing to George Pegios.
4. The respondent is solvent and as a matter of discretion a sequestration order should not be made.
CONSIDERATION
The respondent submitted that the applicant is prima facia entitled to a sequestration order provided that the jurisdiction of the Court is properly enlivened, and secondly that there are proofs as set out in s 52(1) the Act. However, due to the quasi-penal nature of the bankruptcy jurisdiction, the proofs needed in relation to a Bankruptcy Notice need to be strictly construed: (see; ANZ Banking Group Limited, in the matter of James v James [2016] FCA 332 at [26]).
Thus the applicant would need to prove the following:
1. That there was an act of bankruptcy under s 40 of the Act to enliven the jurisdiction of the court under s 43, in that;
a)there was a valid bankruptcy notice;
b)the notice was served in accordance with the requirements of the Act and Regulations;
c)that there was no compliance with the notice within 21 days of service
2. That the applicant has standing to present the Creditors Petition in its amended form;
3. That the matters stated in the petition, inter-alia the debt relied on and the act of bankruptcy relied on;
4. Service of the petition; and
5. That the debt relied upon in the creditor’s petition are still owing.
To have the sequestration order set aside, the respondent need only succeed on one of the points she relies upon. It is convenient to consider the issue of the service of the Bankruptcy Notice first.
WAS THE BANKRUPTCY NOTICE SERVED IN ACCORDANCE WITH THE ACT AND REGULATIONS?
In order to prove service of the Bankruptcy Notice, the applicant relies upon an Affidavit of Service sworn by Eidan Havas, Solicitor sworn 31 August 2021. Mr Havas deposed that he served the relevant Bankruptcy Notice on the respondent on 19 May 2021 by emailing it to her email address of Mariana (redacted)@gmail.com. It is to be noted that the Creditor’s Petition was served in the same manner.
The manner in which Bankruptcy Notices can be served is set out in the following:
a. Regulation 102 of the Bankruptcy Regulations 2021 (Cth);
b. Section 28A of the Acts Interpretation Act 1901 (Cth); and
c. Section 9 of the Electronic Transactions Act 1999 (Cth).
The applicant relies upon the following unchallenged Email exchange of 2 June 2020, between Mr Havas and the respondent, in order to show that that valid service was effected:
Thank you for your response Mariana.
I will attend to the filing of the statement of claim this week then.
Do you intend on instructing a solicitor? If so, I am happy to serve the documents on him/her?
Otherwise do you accept service by email?
Again it is unchallenged that the respondent replied the same day with the following:
Hi Eidan
Yes please… you can serve the documents on me, and understand that your correspondence of threats to bankrupt will be attached to my subpoena, along with your details to witness Alexander’s passport etc. without knowing or ever meeting him.
It is to be noted that service of the documents in the above exchange appears to be related to a Statement of Liquidated Claim that was filed in the NSW District Court, which resulted in a default judgement debt against the respondent and formed the basis for the Bankruptcy Notice. It does not relate to service of the Bankruptcy Notice specifically. Further, the exchange took place in June 2020 and not immediately prior to the service of the Bankruptcy Notice.
In her Affidavit affirmed 8 December 2021, the respondent states that as she did not have a Solicitor at the time she consented to service of the NSW District Court documents on her, but not service by email, and she has never consented to that manner of service. However, as pointed out by the applicant in her Affidavit of 18 October 2021 at paragraph 2, the respondent states:
I was served with the Bankruptcy Notice Number BN252978 issued on 12 May 2021 which was served on me on 19 May 2021.
On behalf of the applicant it was submitted this was an admission against interests and should be taken as an acknowledgement of valid service. Reliance was placed on Commonwealth Bank of Australia v Lam [2018] FCCA 1568 at [20] which dealt with circumstances where the respondent successfully lodged an application to set aside a Bankruptcy Notice, but in respect of which he affirmed in two Affidavits that he was served. The Court in that case relied upon Pino v Prosser [1967] VR 835 at 838 per McInerney J that concluded that, a party had not been validly served would be one which is:
Remarkable to the point of absurdity, in that the defendant who, on his own affidavit admits that he received the writ… should be held not to have been served.
Regulation 102 of the Bankruptcy Regulations 2021 (Cth) states as follows:
1) Unless the contrary intention appears, if a document is required or permitted by the Act or this instrument to be given or sent to, or served on, a person (other than the Inspector-General, the Official Receiver or the Official Trustee), the document may be:
a)sent by a courier service to the person at the address of the person last known to the person serving the document; or
b)left, in an envelope or similar packaging marked with the person's name and any relevant document exchange number, at a document exchange where the person maintains a document exchange facility.
Note: See also section 28A of the Acts Interpretation Act 1901.
2) In the absence of proof to the contrary, the document is taken to have been received by, or served on, the person when the document would, in the due course of business practice, be delivered to that address or document exchange.
Section 28A of the Acts Interpretation Act 1901 (Cth) states as follows;
1) For the purposes of any Act that requires or permits a document to be served on a person, whether the expression “serve”, “give” or “send” or any other expression is used, then the document may be served:
a)on a natural person:
I.by delivering it to the person personally; or
II.by leaving it at, or by sending it by pre‑paid post to, the address of the place of residence or business of the person last known to the person serving the document; or
b)on a body corporate—by leaving it at, or sending it by pre‑paid post to, the head office, a registered office or a principal office of the body corporate.
Note: The Electronic Transactions Act 1999 deals with giving information in writing by means of an electronic communication.
2) Nothing in subsection (1):
a)affects the operation of any other law of the Commonwealth, or any law of a State or Territory, that authorises the service of a document otherwise than as provided in that subsection; or
b)affects the power of a court to authorise service of a document otherwise than as provided in that subsection.
The Court is not satisfied that in the circumstances described above that valid service of the Bankruptcy Notice as required under Reg 102 of the Bankruptcy Regulations 2021 (Cth) was effected by service via email upon the respondent. First, the Court is not satisfied that the respondent ever consented to the service of any Bankruptcy Notice via email. The respondent’s consent to service personally was only in relation to NSW District Court Notices. Further, it is not clear that the consent the respondent gave related to electronic service as compared to personal service.
In coming to this conclusion, the Court has considered s 306 of the Act which states as follows:
1) Proceedings under this Act are not invalidated by a formal defect or an irregularity, unless the court before which the objection on that ground is made is of opinion that substantial injustice has been caused by the defect or irregularity and that the injustice cannot be remedied by an order of that court.
2) A defect or irregularity in the appointment of any person exercising, or purporting to exercise, a power or function under this Act or under a personal insolvency agreement entered into under this Act does not invalidate an act done by him or her in good faith.
The applicant submitted that this would cure any purported defect in service.
It is well established that actual receipt of a Bankruptcy Notice does not permit s 306 to cure the irregularity in strict service of Bankruptcy Notices. First, the need for strict compliance cannot be waived by the debtor: (see; Re Robert Henry HanlinEx Parte: South Properties Development Pty Ltd [1985] FCA 447). Second, the position is different in relation to Creditor’s Petitions, but not Bankruptcy Notices. In Re Paul Paras Ram and Sarwan Singh Ex Parte: Continental SeagramPty Ltd [1988] FCA 334, Einfield J stated at [19]:
In contra-distinction to the position pertaining to bankruptcy notices, it appears from the authorities that defective service of the petition may be cured by section 306 or (then) rule 195.
In reLong; Ex parte Fraser Confirming Pty Ltd (1975) 12 SASR 130 Walters J said the following:
It is my opinion that the want of … service of the bankruptcy notice on the debtor makes the petition founded on it a nullity, despite the debtors subsequently acquired knowledge of the existence of the notice, and even though there is no proof of substantial injustice having been done to him by the defect in service
The above was subsequently approved of by Gummow J in Re Ditford; ex parte Deputy Commissioner of Taxation [1988] FCA 490.
In Ciftci, M v Colquhoun A.J.G [1994] FCA 756, Einfield J said the following:
[in] many ways such a finding brings about a very unjust result, but the law relating to bankruptcy has always been susceptible not only to a degree of technicality, but to a high degree of strict application.… [the] duty [is] to act in accordance with the law as presently understood, and this would not be the first case in which an apparently unjust result flowed from the application of the appropriate rules.
As the Court is not satisfied that the Bankruptcy Notice upon which the Creditor’s Petition seeking a sequestration order is based was validly served, the application to set aside the sequestration order must succeed.
Given that finding, it is not necessary for the Court to determine the validity of the other grounds relied upon by the respondent. Having said that, the Court has some considerable concerns as to the identity of the creditor, given the apparent very late appointment of George Pegios as a Trustee of the George Pegios Superannuation Fund and, the proper assignment of the debt to the fund.
Further, as a matter of discretion, given the evidence presented by the respondent of her capacity to pay her debts, the Court would have been inclined to exercise the discretion provided in s 52(2) of the Act not to make a sequestration order.
CONCLUSION
The orders of the Court are those set out at the commencement of this judgment.
I certify that the preceding twenty-nine (29) numbered paragraphs are a true copy of the Reasons for Judgment of Judge Humphreys. Dated: 20 January 2022
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