Re Millar, A.E. Ex parte Commonwealth Development Bank of Australia

[1993] FCA 388

3=

JUDGMENT No. ........ ........ .. I ........ ....

CATCHWORDS

BANKRUPTCY - review under S. 31A of a decision of a Registrar to make a sequestration order under his delegated powers - personal service of the petition was not effected - petitioning creditor relied on admission that the petition, which had been left lying on the front lawn, was found by the debtor there on his return home - particular requirement of S. 52 of the Act that the Court be satisfied of proof of service of the petition - whether serious default in respect of the requirements regarding service is a default in a requirement made essential by the Act and not capable of being regarded as a formal defect or irregularity under S. 306 - whether serious injustice would in any event be involved - whether the Court's discretion in the making of a sequestration order should be exercised so as to condone a flagrant breach of the requirements of the Act - whether the signing and sealing of a sequestration order made by a Registrar, despite the lodgment within time of a request for review under S. 31A(7), affects the power of the Court to set aside the order and requires resort to the provisions for annulment - whether S. 37 of the Act has any application to the provisions for review in S. 31A.

Bankruptcy Act 1966 (Cth), ss. 31A, 37, 52, 306 and r. 15

Ginnane v Diners Club Limited, Northrop, Sheppard and Einfeld
JJ., 19 April 1993, unreported, applied
Re Florance; E x parte Turimetta Properties Pty Ltd (1979) 36

FLR 256, distinguished

Re Anasis; E x parte Total Australia Ltd (1985) 11 FCR 127,

referred to

27 April 1993

RE: ANTHONY EDWARD MILLAR: EX PARTE: COMMONWEALTH DEVELOPMENT
BANK OF AUSTRALIA

NB 785 of 1993

Burchett J.
Sydney

IN THE FEDERAL COURT OF AUSTRALIA	)
GENERAL DIVISION	1
BANKRUPTCY DISTRICT OF THE	1
STATE OF NEW SOUTH WALES	) NB 785 of 1993

RE :  ANTHONY EDWARD MILLAR

Debtor

EX PARTE:  COMMONWEALTH DEVELOPMENT BANK OF
AUSTRALIA

Creditor

CORAM: Burchett J.
PLACE: Sydney

DATE : 27 April 1993

EX TEMPORE REASONS FOR JUDGMENT

BURCHETT J.:

In this matter, the debtor seeks review, pursuant to S. 31A, of a decision of a Registrar to make a sequestration order by virtue of his delegated powers. The sequestration order was made on the first occasion on which the matter came before the Registrar, less than three weeks after the date of

purported service of the petition. The bankruptcy notice had

been served by substituted service, but no order for

substituted service had been obtained in respect of the
petition.

The debtor, although he did not appear before the Registrar, had filed an affidavit which raised serious questions whether the petition had been served personally upon him, as required by r. 15, and as to whether the affidavits required by that rule to be served with it had been personally served upon him. He had also annexed to his affidavit a report of a specialist radiation oncologist in support of the proposition that a near relative, his mother, was in a serious condition in hospital in Canberra, thus providing a basis upon which his failure to appear at the hearing, although the affidavit had been filed, might be understood. The debtor did not have legal assistance.

In those circumstances it might be thought surprising - and I do find it surprising - that the matter proceeded to a sequestration order without even a single adjournment being granted to enable the true facts to be evaluated. However, counsel points out to me that I am hearing the petition de novo, upon review of the Registrar's decision, and he says that, accordingly, the question whether an adjournment should or should not hsve been granted does not now arise, but the question now is whether a sequestration order should be made at this hearing de novo.

I have called upon counsel to address me, in the first instance, on one issue, on the footing that if it is determined against him the hearing will not need to be prolonged with other issues which I understand the debtor would raise if it were necessary. The one issue with which I will therefore deal in these reasons is the effect of the evidence concerning service of the petition. I have been told, without objection from the bar table, that, at the hearing before the Registrar, the service of the petition was proved by the tender of the affidavit of a process server, but I have not seen the affidavit. In view of the fact that the sequestration order was made, the affidavit must have purportedly verified personal service. Before me, no such affidavit was tendered. The petitioning creditor took the course of tendering in evidence some paragraphs of an affidavit of the debtor. Those paragraphs read as follows:

"1. I am the person named in the Creditor's Petition brought by the Commonwealth Development Bank.

2.   I reside at 9 Hallett Place, Kambah, in the Australian Capital Territory and have lived there continuously for over fifteen years.

6.  I first became aware the bankruptcy proceedings had been initiated against me by the Commonwealth Development Bank when I found, by sheer luck a little over two weeks ago, a copy of a Creditor's Petition lying on the front lawn of my residence in Canberra at approximately 2 o'clock in the morning of Thursday 11 March 1993 upon my return home from a visit to hospital.

8.  I have examined the Creditor's Petition and associated affidavits and can find no order of the court that provides the Commonwealth Development Bank or its agents with permission to serve these documents in the abovementioned

manner. "

Counsel's contention is that these paragraphs acknowledge receipt of the petition, and amount to a waiver of the requirements of r. 15 in respect of personal service, and of the Act itself in respect of service of the petition. I have had regard to the decision in Re Florance: Ex Darte Turimetta Pro~erties Ptv Ltd (1979) 36 FLR 256, but I note that the defect in personal service which appeared in that case was very much less flagrant than that which appears on the evidence in the present case. Nothing in the present case could lead to any supposition that the process server, charged with service of the petition, handed it to anyone who indicated any acceptance of service on behalf of the debtor, or any authority to do so. I note also the remarks of Mr Justice Pincus in Re Hudson: Ex Darte G.E. Crane and Sons Ltd (1990) 25 FCR 318.

There is no indication in the report of Re Florance that any argument was advanced based on the fundamental considerations to which a full court recently adverted in Ginnane v Diners Club Limited (Northrop, Sheppard and Einfeld JJ., 19 April 1993, unreported). In that case, in a joint judgment, their Honours said:

"Paragraph 52(l)(b) of the Bankru~tcv Act provides

that at the hearing of a creditor's petition, the Court shall require proof of the service of the petition and, if it is satisfied with the proof of that service, as well as the other matters specified in sub-section 52(1), it may make a sequestration order against the estate of the debtor. Sub-section 52(2) provides, among other things, that if the Court is not satisfied with the proof of the service of the petition, it may dismiss the petition. These provisions illustrate a unique prescription relating to a petition for a sequestration order. A sequestration order affects the status of a person. The Legislature, in recognition of this feature, has insisted that the petitioner must prove, among other things, service of the petition on the debtor."

Their Honours also said:

"Proof of the service of a bankruptcy petition is usually provided by an affidavit of service of it which is read at the hearing. But that is not the only way in which service may be proved. Rules 16 and 122 of the Bankru~tcv Rules contain provisions relevant to the form and content of the affidavit of service but that does not mean that proof of service may only be given by af fidavit. It may, for instance, be established by oral evidence or by admission and an admission may be express or one which is implied from the overall conduct of a party. A debtor, who has not filed a notice under Form 8, appears and makes no complaint about the petition not having been served, may be taken to have admitted, by implication, service of the petition. In such a case the Court will be satisfied of service of the petition because of the debtor's conduct."

If one turns to S. 52 of the Act, the force of what their Honours say is immediately apparent. It is a peculiar feature of litigation under the Bankru~tcv Act, upon a creditors petition, that the court is expressly required to hear proof of service of the petition, and is expressly required, if it is not satisfied with the proof (among other things) of that

matter, to dismiss the petition.

It seems to me very difficult to regard S. 306 as capable of avoiding the consequences of any serious default, in respect of the requirements regarding service of the petition so specifically stated in S. 52, on the basis that such a serious default would be a mere formal defect or an irregularity. The requirements of S. 52 are essential requirements for proof of the petition. They are made essential, no doubt, because the law recognises that proceedings in bankruptcy have an extraordinarily far reaching effect, not only upon the status of the debtor but also so as to convert, in some cases, actions and omissions of his in the past - which at the time they were done or omitted did not constitute any offence - into serious criminal offences.

A sequestration order which may have such effects may reasonably be regarded as required to be made only upon strict proof of all essential requirements. It is the legislature itself which, by the drafting of S. 52, has made it plain that the service of the petition is one of those requirements. Furthermore, I think, in a case such as this, if the failure to effect personal service in other than a token manner were to be regarded as a formal defect or irregularity, it would nevertheless be impossible for me to form any opinion other than that substantial injustice had been caused by the defect or irregularity, and that the injustice could not be remedied by an order of the court apart from dismissal of the petition.

The proceedings have gone too far, at this stage, for it to be reasonable to say that the consequences of the manner in which the process server chose to carry out his task can simply be brushed aside, and, to the extent that they cannot, that some order of the court granting further time would be a sufficient remedy in respect of the resulting injustice. In my view, this petition was poisoned at its source, when it was commenced by such a method of service as was adopted. I do not think that was a formal defect, or an irregularity, and I do not think it was, in any event, capable of being regarded as cured under S. 306.

There is yet another aspect from which I think the method of purported service that was adopted was fatal to the creditor's petition. The making of an order under S. 52 always has an element of discretion. I cannot think that it would be in accord with a proper discharge of my duty, and exercise of my discretion, to condone so flagrant a breach of the requirements of the Bankru~tcv Act in respect of so serious a matter as the initiation of the proceedings by which a debtor may be declared a bankrupt. In my view, even if it were open to me to do so, I ought not to make a sequestration order upon this creditor's petition in the circumstances, but should insist that the requirements of the Act ought at least substantially to be complied with - and that, I think, is the effect of S . 306. It is concerned with formal defects and irregularities which do not deny substantial compliance with

the policy and requirements of the Act.

For these reasons, subject to a matter to be mentioned, the petition will be dismissed.

My attention has been drawn to the fact that, although review was sought within the time prescribed in S. 31A(6) of the Act, it somehow happened that the sequestration order was sealed and issued. Subsection 7 of the same section is the provision by virtue of which I have been reviewing the decision of the Registrar. It plainly contemplates, as would, I think, be constitutionally necessary to the validity of the scheme under which the Registrar exercises delegated powers, that the Court looks at the matter de novo when a party requires review of what the Registrar has done. I cannot think it was contemplated that where review is duly sought in accordance with the statutory scheme the original order made by a Registrar can be regarded as having had effect for any period of time, unless it is confirmed by the order of the court under subs. 7.

The decision of the Full Court, to which I have already referred, in Ginnane v Diners Club Limited, affirms what I think is not really controversial, and have already stated in these reasons, that the review is by way of a hearing de novo on the evidence presented to the court on the hearing of the application. The Full Court made reference to earlier decisions in Re Kwiatek: Ex ~arte Bia J Ltd v Pattison (1989)

21 FCR 374 and Re Brindle: Ex Darte F B & F A McMahon Ptv Ltd

(1992) 108 ALR 470 at 476. In these circumstances, the

question is whether there is any scope for the rule which applied formerly. and still may apply in cases where a judge makes a sequestration order, but subsequently a question is raised as to whether that order ought not to be set aside. The problem is whether it is necessary to annul the previous order, rather than simply to set it aside. I discussed it in Re Anasis: Ex Darte Total Australia Ltd (1985) 11 FCR 127, where I referred to the principal previous authorities. The same point was raised before me recently in Re Youna: Ex Darte Hunter MM1 Finance Ltd (unreported, 23 March 1993), a review of a decision of a Registrar, where attention was drawn to S. 37 of the Act which, as comparatively recently amended, provides explicitly that the Court does not have power to rescind or discharge or to suspend the operation of a sequestration order.

I then held that S. 37 had nothing to say to S. 31A. I

adhere to that view. I think the review of decisions made by virtue of delegated power by registrars is a special matter to which the general provision in S. 37 is not directed. I also think the considerations discussed in Re Anasis in respect of the unaffected consequences of a sequestration order, once made, even after it has been set aside, do not apply in this situation where no sequestration order was ever made by a judge. Accordingly, I do not think it is necessary that I do other than make the order I have already indicated, that is,

petition. In particular, I do not think it is necessary to	that I set aside the order of the Registrar and I dismiss the
make an order of annulment, and for that reason only I do not do so.

I certify that this and the preceding eight (8) pages are a true copy of the Reasons for Judgment herein of his Honour Mr Justice Burchett.

Associate: S+	QLS	1	4
Date: 9 June 1993

Debtor appeared in person.

Counsel for the Creditor:  M r R.A. Parsons

Solicitors for the Creditor:	Messrs Abbott Tout Russell Kennedy
Date of hearing:	27 April 1993