Re Willshire-Smith; Ex parte Randle & Taylor Services Pty Ltd

MR D WILTSHIRE-SMITH v RANDLE AND TAYLOR SERVICES PTY LTD trading as RANDLE
AND TAYLOR
No. SP290 of 1993
FED No. 78/94
Number of pages - 15
Bankruptcy

COURT

IN THE FEDERAL COURT OF AUSTRALIA
BANKRUPTCY DISTRICT OF THE STATE OF SOUTH AUSTRALIA
GENERAL DIVISION
VON DOUSSA J

CATCHWORDS

Bankruptcy - creditor's petition - non-compliance with a bankruptcy notice based on a default judgment entered in the Magistrates Court - originating Claim served by post - Claim sent to out-of-date address - Claim never received - debtor unaware of Magistrates Court action until bankruptcy notice served - whether default judgment a nullity - whether service deemed to be good service by Magistrates Court (Civil) Rules 1992 (S.A.) - whether sequestration order should be made - whether supporting creditor should be substituted - whether creditor's petition should be adjourned or dismissed.

Magistrates Court (Civil) Rules 1992 (S.A.)., rr.9, 46, 49, 50, 51

Re Marsh and Another: Ex parte Marsh v Paramount Leisure Products Pty Ltd (1991) 32 FCR 482 applied

Craig v Kanssen (1943) KB 256

Re Vella; Ex parte Seymour (1983) 67 FLR 287

Re Fabricius; Ex parte Morgan and Associates (Reg'd.) (unreported 15 March 1991, O'Loughlin J)

Re Hanby; Ex parte Flemington Central Spares Pty Ltd (1967) 10 FLR 378

Re Hayes; Ex parte Thomas Borthwick and Sons (Australasia) Ltd (1970) 18 FLR 216

Re Pritchard (deceased); Pritchard v Deakin and Others (1963) 1 Ch 502

White v Weston (1968) 2 QB 647

Re Sarina; Ex parte Council of the Shire of Wollondilly (1980) 43 FLR 163

HEARING

ADELAIDE, 9 February 1994
#DATE 15:2:1994

The debtor appeared

Agent for the petitioning creditor: Mr Taylor

Solicitor for the petitioning creditor: Randle and Taylor

Counsel for the supporting creditor: Mr A Clare

Solicitor for the supporting creditor: Mellor Olsson

ORDER

THE COURT ORDERS THAT:

1. The application by Messrs Mellor Olsson to be substituted as petitioner under s.49 of the Bankruptcy Act is refused.

2. The creditor's petition is dismissed.

3. No order as to costs is made on the application by Messrs Mellor Olsson to be substituted as petitioner.

4. The debtor is to pay the petitioning creditor's costs fixed at $650.

Note: Settlement and entry of order is dealt with in Bankruptcy Rule 124.

JUDGE1

VON DOUSSA J The petitioning creditor seeks a sequestration order which the debtor opposes.

The act of bankruptcy alleged in the creditor's petition is the failure to comply with a bankruptcy notice served on the debtor on 15 July 1993. The judgment debt which founded the bankruptcy notice was entered in the Adelaide Magistrates Court Civil (Minor Claims) Division on 26 May 1993. Judgment was signed in a minor civil action commenced by a Claim filed on 30 April 1993 in default of appearance (that is, in default of the filing of a defence to the Claim as required by r.30 of the Magistrates Court (Civil) Rules 1992). According to the records of the Registrar of the Adelaide Magistrates Court the Claim was served by post on 30 April 1993. That notation in the records, if correct, records the day on which the claim was posted by the Registrar pursuant to the provisions of r.46 of the Magistrates Court (Civil) Rules. The claim, including costs, for which judgment by default was signed, was $1,500.55.
The debtor in his affidavit filed in support of the notice of opposition opposes the making of a sequestration order on three grounds: (a) the creditor's petition was not served on him; (b) the Claim in the minor civil action was not served on him; (c) and in any event he is not indebted to the petitioning creditor.
The petitioning creditor carries on business as an incorporated legal practitioner in South Australia. The endorsement on the Claim alleges that the defendant was indebted to the plaintiff "for work done and professional services rendered by the Plaintiff for and at the request of the Defendant for the months (sic) of January 1993 (or thereabouts) full particulars whereof the Defendant has already had..." It is common ground that the petitioning creditor rendered an account for the amount claimed to the debtor on 31 January 1993 for "various" (matters). The debtor however denies that he is personally responsible for these fees.
The petitioning creditor was consulted by the debtor in November 1992. At the time the debtor was managing the Parafield Gardens Newsagency at shops 5 and 6, 382 Salisbury Highway, Parafield Gardens, S.A. 5107. The newsagency business was beneficially owned by Leighton Hill Pty Ltd, a company in which the debtor's wife and his mother-in-law were the shareholders and directors. The debtor was the secretary of the company and the manager of the business. Shops 5 and 6 were leased from an unrelated landlord. The debtor was the lessee, and he was also the licence holder of a lottery licence and newsagents licence both of which could be held only by an individual and not by a company. The debtor has given evidence that he held the lease and licences on trust for Leighton Hill Pty Ltd. By November 1992 there was a substantial dispute in progress with the landlord of shops 5 and 6, and negotiations in which the debtor was taking an active part were also underway to sell the business. The debtor says that he consulted the judgment creditor on a range of matters all relating to the newsagency business. One of those matters was an appeal against a decision of the Commercial Tribunal relating to the dispute with the landlord. In those proceedings the debtor was himself a party as lessee. The debtor's case is that he instructed the judgment creditor as an officer of Leighton Hill Pty Ltd; that the judgment creditor knew all along that he was acting in that capacity; and that the contract for the provision of legal services was between Leighton Hill Pty Ltd and the judgment creditor. The judgment creditor however asserts that the contract was one made personally with the debtor and has tendered correspondence with the debtor regarding the terms of the engagement which it is contended bear out the petitioning creditor's claim. Evidence has been given about the payment of certain moneys to the petitioning creditor at the time the instructions were given as costs in advance which each of the parties, for different reasons, says supports its or his case.
About the time when the debtor gave instructions to the petitioning creditor a matrimonial dispute arose between the debtor and his wife. In proceedings in the Family Court an order was made on 10 March 1993 appointing Mr P I Macks receiver and manager of the newsagency, and by order of the Supreme Court made on 18 March 1993 Mr Macks was also appointed receiver and manager of Leighton Hill Pty Ltd. The receiver and manager immediately took possession of shops 5 and 6. The debtor was excluded from those premises thereafter. The receiver and manager did not pay the outstanding account of the judgment creditor, or other outstanding accounts rendered to the debtor by other firms of solicitors who had been consulted by him, apparently on matters relating to the newsagency.
On 30 April 1993 the minor civil action was commenced against the debtor by the judgment creditor. The Registrar was requested to serve the Claim. The Registrar purported to do so under the service by post provisions in r.46. The defendant's address endorsed on the Claim by the petitioning creditor was that of shops 5 and 6 at Parafield Gardens. It was to this address that the Claim was posted.
The debtor says that he did not receive the Claim through the post, or at all. He assumes that it was received at the shops after the receiver and manager had moved into possession. He says that he first learned of the proceedings when the bankruptcy notice was served on him. He immediately handed the bankruptcy notice to the solicitor then acting for him, Mr McGinn, with a note saying that he was not aware that a summons had been issued for the alleged debt. The note has been produced in evidence. In about September 1993 the debtor obtained a file of papers from Mr McGinn. The debtor says he discovered in the file a letter dated 14 May 1993 from Mr Macks addressed to the debtor at No. 7 Middleton Street, Salisbury, S.A. That letter concludes "I also enclose a minor civil action claim against you personally from (the judgment creditor) which was sent to the company's former trading address".
It is the debtor's evidence that he had lived at Middleton Street, Salisbury until about the end of March 1993. At that time his daughter, who lives at Upper Sturt in the Adelaide hills went to Broome, and he moved to her Upper Sturt address where he has since remained. Mail arriving for him at No. 7 Middleton Street, Salisbury was redirected to Mr McGinn. The debtor says this explains why the letter of 14 May 1993 from Mr Macks came to be in Mr McGinn's file when he received it in September 1993.
Against this background I turn to the grounds upon which the sequestration order is opposed. The first ground is without substance and was abandoned by the debtor during the trial. An affidavit of service on file discloses that the creditor's petition was served on the debtor as he left the building in which the Family Court of Australia is housed in Adelaide. He refused to acknowledge the process server. The creditor's petition was placed on the debtor's shoulder. He allowed it to fall to the ground as he walked away. It is unnecessary to consider the debtor's contentions why the creditor's petition was not validly served as he has subsequently filed a notice of opposition, and has taken part in interlocutory proceedings leading up to trial. By this conduct he has acknowledged that the proceedings have come to his notice, and that he is aware of the substance of them.
As to the contention that the originating Claim was not served, the debtor's evidence on that topic has already been summarised. The petitioning creditor contends that the debtor's evidence should not be accepted, and in any event that by virtue of the provisions of the Magistrates Court (Civil) Rules the Claim is deemed to be validly served.
Whilst there are aspects of the debtor's evidence relating to his dealings with the judgment creditor which I consider to be somewhat unsatisfactory, I accept his evidence as to the non-receipt of the Claim, as to his places of residence in March and May 1993, and his explanation as to why he did not receive the letter from Mr Macks dated 14 May 1993.
Mr Macks letter of 14 May 1993 confirms the debtor's evidence that the claim, posted to shops 5 and 6, was not received by him at that address, but was received by Mr Macks. As I accept the debtor's evidence that the letter of 14 May 1993 did not come to his attention until September 1993, it follows that I find that he was unaware of the minor civil action against him in the Magistrates Court until the bankruptcy notice was served on him.
In his evidence the debtor was vague as to the steps that he would have taken had he become aware of the Claim early in May 1993. Nevertheless, I think it is reasonable to assume from the stance which he has taken generally in relation to proceedings against him concerning the newsagency that if he had realised that the receiver and manager and the shareholders of Leighton Hill Pty Ltd would not pay the debt, he would have defended the action. However that is not a finding which is critical to the outcome of the creditor's petition.
It is a fundamental precept of adjectival law that the process which initiates a claim be brought to the attention of the defendant thereby giving the opportunity to make answer to the claim. This principle is met by a requirement that the originating process be served. The fulfilment of this requirement is one of critical importance where it is sought to enforce a judgment obtained by default by the processes of the Bankruptcy Act 1966: re Marsh and Another; Ex parte Marsh and Another v Paramount Leisure Products Pty Ltd (1991) 32 FCR 482. In that case Pincus J reviewed a sequestration order based on an act of bankruptcy consisting in non-compliance with a bankruptcy notice founded on a District Court judgment. The facts as found were that the plaint which initiated the District Court proceedings was never served on the debtors. Pincus J considered authorities which drew a distinction between situations where there has been an irregularity in some aspect of the service of the originating process, and cases where there has been no service at all. His Honour applied the decision of the English Court of Appeal in Craig v Kanssen (1943) KB 256 where Lord Greene MR said at 262:

"In my opinion, it is beyond question that failure to serve process where service of process is required goes to the root of our conceptions of the proper procedure of litigation. Apart from proper ex parte proceedings, the idea that an order can validly be made against a man who has had no notification of any intention to apply for it has never been adopted in this country."

Pincus J concluded (at 484-485):

"I am of opinion that if a bankruptcy notice is founded on a judgment in default and it is proved or admitted that the originating proceedings were simply not served (I leave aside the case of defective service), the judgment must generally be treated as a nullity; I say 'generally' because of the possibility that a statute or rule might provide otherwise.

If the view just expressed is not correct, still in my opinion, on its being shown that a default judgment (founding the bankruptcy motion) was entered although the proceedings were not served, the court should not, in the exercise of its discretion, make a sequestration order. I think proof or admission of non-service of the originating proceedings would be 'sufficient cause' not to make an order within the meaning of s.52(2)(b) of the Act. It may be that, in practice, if the judgment debtor claims not to have been served, the Registrar might chose to adjourn the petition to allow the question to be tested by an application to the court in which judgment was entered; but where the Federal Court has found that there was simply no service of originating process, that would appear to be a sufficient cause for declining to make a sequestration order."

In the result, Pincus J set aside the sequestration order, even though he expressed the view that the result was not necessarily satisfactory because he was not convinced of the correctness of the applicant's case on the substantial question of whether money was due. In that case, like the present one, the debtor denied the existence of the debt.
It is necessary to consider the petitioning creditor's argument that by force of the Magistrates Court (Civil) Rules there is a statutory provision applicable in this case which deems the claim to have been validly served. The relevant rules are as follows:

"R46(1) Subject to any Act, these rules and any order of the Court, the Registrar may serve a document on a person-

(a) by sending it by pre-paid post-

(i) to the most recent address of the person supplied to the Registrar;

(ii) in the case of a body corporate (other than a strata corporation), to the registered office of the body corporate; or

(iii) to the solicitor acting for the person;

(b) by any other means provided by these rules.

(2)(a) Where service by post is, or appears to be, ineffectual the Registrar must-

(i) set aside any judgment signed in default of the filing of a defence;

(ii) serve on the plaintiff a notice in writing of the fact that service was or appears to be ineffectual; and

(iii) not again attempt service by post, unless the plaintiff has made further reasonable enquiries to ensure that the address for service is the postal address of the defendant.

(b) The Registrar may require the plaintiff to verify on oath the nature and extent of such further enquiries.

(3) The Registrar must cause a stamp showing the date of any postal or other service by the Registrar to be affixed to the Court copy of the document.

(4) ...

...

R49(1) Subject to any Act, a person will be taken to be served-

(a) at the time he or she is personally served;

(b) where service is by Fax during normal business hours on a business day, when the Fax is transmitted; and

(c) in any other case, 2 business days after the document is served in accordance with these rules.

(2) ...

R50 Where a person, on application to the Court, establishes proper cause, the Court may order service by advertisement, substituted service or such other means as the Court considers appropriate, and such service will be effective in the manner ordered.

R51 (1) The records of the Registrar may be accepted as proof of service of a document by the Registrar.

(2) In any other case, service must be proved by affidavit of the person serving the document."

In the present case the Registrar pursuant to r.46(1)(a) posted the claim to the most recent address supplied by the judgment creditor to the Registrar. That address however was not the correct address for the debtor at the time. The debtor is critical of the judgment creditor in this respect but in fairness the address stated on the Claim was the address for the debtor known to the petitioning creditor at the time that their relationship ceased.
The petitioning creditor's argument is that upon literal compliance with r.46(1)(a)(i), the claim is then deemed to be served two business days later in accordance with r.49(1)(c), and that the service is adequately proved by the records of the Registrar pursuant to r.51. I do not accept this argument.
In my opinion r.49 is not a rule which deems service to have occurred regardless of whether the mode of service adopted had the effect of bringing the proceedings to the attention of the defendant. The purpose of the rule is to fix a time at which service, where there has been effectual service, is deemed to occur for the purposes of the rules. It is a provision which operates to fix a notional time of service, where service has otherwise occurred. Rule 51 provides the manner in which service may be proved, but is not a rule which deems a mode service to be good and effectual service.
It is fundamental that the mode of service employed, to be effectual, must bring the proceedings to the notice of the defendant. In my opinion, this concept is incorporated into the rules, and is the reason for r.46(2), and also for r.9 which reads:

"The Court may order reservice of an action or proceeding where the Court is satisfied that it has not come to the attention of a person to whom it is directed and that the person has not attempted to avoid or prevent service."

It is of significance that under r.46(2)(a)(i) the Registrar is under a mandatory direction to set aside a judgment signed in default of the filing of a defence where service by post is or appears to be ineffectual. Where there is doubt about whether the service by post is effectual, a judgment signed in default of the filing of a defence must be set aside.

In the present case, had the debtor, upon receipt of the bankruptcy notice, brought the facts pertaining to the purported service of the Claim by post upon him to the attention of the Registrar, it can be assumed that the Registrar would have determined that service by post had been, or appeared to have been, ineffectual. On so determining, the Registrar would have come under a statutory obligation to set aside the judgment.

Rule 46(2) prescribes no time limit within which the Registrar's power must be exercised. It would seem that the obligation to set aside the default judgment would arise even now if the facts about the service by post of the Claim were brought to the Registrar's attention.
In my opinion I should apply re Marsh. I find that the Claim was not served on the debtor, who remained unaware of the action against him until the bankruptcy notice was served. The judgment by default should be treated as a nullity. A sequestration order should not be made based on that judgment.
In light of the conclusions just expressed it is unnecessary to decide whether the contract for professional services was between the debtor personally, or Leighton Hill Pty Ltd, and the petitioning creditor. That is an issue that should be left for determination in the Adelaide Magistrates Court in the event, which would seem inevitable, that the default judgment is set aside.
I will hear the parties and the creditor who appeared at trial to support the making of a sequestration order as to the orders which should be made to give effect to these reasons for judgment.

3 March 1994
28. On 22 February 1994 this matter was relisted for argument as to the orders which should be made consequent upon the reasons for judgment published on 15 February 1994.

The petitioning creditor contended that the petition should be adjourned to await the outcome of an application by the debtor in the Adelaide Magistrates Court to set aside the default judgment entered on 30 April 1993, and in the event that the judgment is set aside, to await the outcome of a trial on the merits of the judgment creditor's claim against the debtor. It was submitted that in the event that the Magistrates Court gave judgment on the merits in favour of the judgment creditor, the judgment creditor would then be able to proceed with the petition. These submissions were based on the proposition that an act of bankruptcy occurred upon non-compliance with the fourteen day bankruptcy notice served on the debtor on 15 July 1993.
Mr Clare appeared for the supporting creditor Messrs Mellor Olsson which had obtained judgments in three separate actions against the debtor in the Adelaide Magistrates Court on 25 March 1993. Mr Clare contended that on the authority of Re Vella; Ex parte Seymour (1983) 67 FLR 287 and Re Fabricius; Ex parte Morgan and Associates (Reg'd.), Federal Court 15 March 1991 (unreported decision of O'Loughlin J), his client firm should be permitted to be substituted as petitioner under s.49 of the Bankruptcy Act as the debts due to that firm were in existence at the time of the act of bankruptcy alleged, that is, on the date when non-compliance with the bankruptcy notice served on 15 July 1993 occurred. It was argued that notwithstanding the findings made by this Court on 15 February 1994, throughout the period from the service of the bankruptcy until the non-compliance therewith, the judgment entered on the judgment creditor's claim stood on the record of the Adelaide Magistrates Court. For that reason, it was contended, the bankruptcy notice operated to require payment within 14 days unless in the meantime steps were taken by the debtor under s.41(6A) or s.41(6B) of the Bankruptcy Act to extend time for compliance with the bankruptcy notice whilst proceedings in the Adelaide Magistrates Court to set aside the judgment, or other proceedings to set aside the bankruptcy notice, were determined.
The debtor contended that the creditor's petition should be dismissed.
In Re Vella the petitioning creditor obtained a default judgment against the debtor in the District Court of New South Wales in December 1982. A bankruptcy notice based on that judgment was issued and served on the debtor on 29 March 1983. At that stage the debtor did not apply to extend time for compliance with the bankruptcy notice. On 2 May 1983 the debtor applied to the District Court to have the judgment set aside, and on the same day applied to the Federal Court to have the bankruptcy notice set aside. In due course the District Court set aside the judgment. On a hearing thereafter in the Federal Court it was submitted on behalf of the debtor that since the basis upon which the bankruptcy notice was founded was the District Court judgment, the setting aside of that judgment gave the Federal Court power to set aside the bankruptcy notice. Morling J at 288 said:

"At first blush this argument has some attraction. But upon reflection I have come to the view that it is not sound. It is necessary to keep clearly in mind the effect of non-compliance with the bankruptcy notice. The effect was, of course, that the debtor committed an act of bankruptcy when she failed either to comply with its terms or to take appropriate action under s.41(6A). The subsequent setting aside of the judgment did not alter the fact that the act of bankruptcy has already been committed. The act of bankruptcy remained extant. No doubt, in the exercise of its discretion, the court would not make a sequestration order if at the time of the hearing of the petition it was shown that the judgment debtor was not in fact indebted to the judgment creditor. But the act of bankruptcy referred to in s.40(1)(g) would be complete."

In reaching this conclusion Morling J applied the decisions of Gibbs J (as he then was) in Re Hanby; Ex parte Flemington Central Spares Pty Ltd (1967) 10 FLR 378 and Street J (as he then was) in Re Hayes; Ex parte Thomas Borthwick and Sons (Australasia) Ltd (1970) 80 FLR 216. In Re Hanby the act of bankruptcy alleged in a creditor's petition was non-compliance with a bankruptcy notice. It was contended on behalf of the debtor that as the judgment on which the bankruptcy notice was based had in the meantime been set aside, it could no longer be treated as a final judgment for the purposes of s.52(j) of the Bankruptcy Act 1924, a provision which finds its counterpart in s.40(1)(g) of the present Act. Gibbs J at 381 said:

"It was, however, said on behalf of the debtor that once the judgment was in fact set aside it could no longer be treated as a final judgment. However, the critical time for determining whether an act of bankruptcy has been committed is the date on which the period limited by the bankruptcy notice expired - see Re Grace; Ex parte Castling (1931) 3 ABC 131; Re McDonald (1934) 8 ABC 184 at 193; Re Edmunds (1936) 9 ABC 1 at 5. At the time when the bankruptcy notice expired in the present case, namely 30 May 1966, the judgment had not been set aside and remained a final judgment. Since the debtor had not by that date complied with the requirements of the notice, the act of bankruptcy was then completed. It is not possible to say that by reason of subsequent circumstances an act of bankruptcy once committed ceases to have been committed or must be treated as though it had never been committed. Of course this does not mean that a sequestration order may be made if a judgment has been set aside in circumstances that show that the debtor was under no liability to the petitioning creditor, for the court must inquire whether there is a debt due by the debtor to the petitioning creditor, and if not, will refuse an order notwithstanding the commission of an act of bankruptcy. If, however, a judgment is set aside after an act of bankruptcy has been completed, and subsequently the existence of the debt is established by a further judgment after a new trial, or by a compromise of the proceedings, the conditions which entitle the petitioning creditor to a sequestration order will have been established."

In Re Fabricius O'Loughlin J allowed the substitution of another creditor in the following circumstances. A creditor's petition had been issued based on an act of bankruptcy constituted by a failure on 1 January 1990 to comply with a bankruptcy notice based on a final judgment obtained by the petitioning creditor in the District Court of Adelaide on 15 April 1988. The debtor opposed the creditor's petition on the ground that he was making application to the District Court to set aside the judgment which had been entered in default of appearance. The application in the District Court succeeded but the judgment creditor appealed against the setting aside of the judgment. Before the appeal was heard the application to substitute another creditor came on for hearing. The debtor argued that as the "real basis" for the prosecution of the creditor's petition had disappeared with the setting aside of the judgment, the petition should be dismissed. O'Loughlin J, following Re Vella said (at p 4):

"Notwithstanding that the District Court judgment has been set aside, the debtor still committed an act of bankruptcy on 1 January 1990 when he failed to comply with the bankruptcy notice..."

Re Hayes was also a case where it was contended on the hearing of a creditor's petition that a sequestration order should not be made at the suit of a substituted creditor where the judgment debt on which the bankruptcy notice giving rise to the act of bankruptcy had been set aside after the creditor's petition was issued. Street J applied the decision of Gibbs J in Re Hanby saying that he considered it clear authority that non-compliance with a bankruptcy notice will bring about an available act of bankruptcy notwithstanding that the judgment may subsequently be set aside. However, Street J went on to make an observation which is pertinent to the present proceedings. His Honour said (at p.218):

"It may be that if the judgment, being a judgment of an inferior tribunal, were a complete nullity in the sense of being made without jurisdiction, then some qualification should be read into the general impression that I have stated from p.381 of Gibbs J's reasons."

In each of Re Vella, Re Hanby, Re Hayes and Re Fabricius there is no suggestion that the originating plaint or summons had not been regularly served. The cases are therefore immediately distinguishable from one where the judgment by default on which the bankruptcy notice is based has been entered in an action where the originating proceeding has not been served at all. The present case falls into the latter category where, at least for the purposes of proceedings in bankruptcy, the non-service of the originating proceeding on the defendant will generally result in the default judgment being treated as a nullity. Besides the decision of the English Court of Appeal in Craig v Kanssen (1943) KB 256 to which I referred in the reasons for judgment published on 15 February 1994, reference may also be made to in Re Pritchard (deceased); Pritchard v Deakin and Others (1963) 1 Ch 502. Upjohn LJ, at 523-524 (with whose judgment Danckwerts LJ agreed) was of opinion that the authorities established as a class of nullity, proceedings which ought to have been served but had never come to the notice of the defendant at all. In White v Weston (1968) 2 QB 647 the Court of Appeal considered whether a District Court had power to make an order for costs upon setting aside a default judgment, where the summons had been sent to the defendant by post to an address which he had left some five months previously. It was held that the purported service by post was not service at all under the relevant rules of court. Both Russell LJ at 659 and Sachs LJ at 662 did not attach much importance in the circumstances of that case to the question whether it was proper to label a judgment obtained where service had not occurred as a nullity or only as an irregularity because in either event the defendant was entitled to have the judgment avoided and set aside. Sachs LJ however recognised that the point may be one of importance in bankruptcy proceedings.
In my opinion, in the circumstances of this case where there is no rule of court or other provision which deems service to have occurred in the events which happened, the default judgment should be treated as a nullity. It follows that any further proceedings that are based on that judgment will also be affected by a fundamental vice: see Craig v Kanssen per Lord Greene MR at 263. For this reason the bankruptcy notice served on the debtor on 15 July 1993 is also to be treated as a nullity with the result that no act of bankruptcy occurred upon the non-compliance with its terms. As there is no act of bankruptcy it would be futile to allow substitution of another creditor as the petition must inevitably fail.
Even if it is not correct to characterise the default judgment entered on 30 April 1993 as a nullity, it is my view nonetheless that the application by the supporting creditor to be substituted as the petitioning creditor should be refused. I respectfully agree with the view expressed by Pincus J in Re Marsh to which I referred in the earlier judgment that even if the default judgment is not a nullity, upon it being shown that the judgment was entered although the proceedings were not served, the Court should not, in the exercise of its discretion, make a sequestration order. That situation is not altered by substituting for the judgment creditor who obtained the default judgment, some other creditor.
In Re Marsh Pincus J observed at p 485 that in practice it might be that if the judgment debtor claims not to have been served, the Registrar might chose to adjourn the petition to allow the question to be tested by an application to the court in which the judgment was entered. His Honour was there referring to adjourning the creditor's petition to enable the question of service to be tested, not the question whether in reality there was a debt due by the debtor to the judgment creditor as claimed in the proceedings in the other court. In the present case, the question of service has already been tested. That was the very question on which evidence was led before this Court, and a ruling has been made between the parties that the Claim, the originating proceeding, in the Magistrates Court was not served.
In my opinion the application by Messrs Mellor Olsson under s.49 to be substituted as petitioner should be refused and the petition should be dismissed.
It remains to determine the question of costs. The petitioning creditor seeks its costs on the petition on the ground that had the debtor taken steps that were open to him either under s.41(6A) or (6B), or had made immediate application to have the judgment set aside to the Registrar of the Magistrates Court under r.46(2)(a)(i), the true position regarding service would have been immediately revealed, and the petitioning creditor would not have been put to the expense of preparing, issuing and serving a petition. As it was, it was not until after the petition was served that the grounds of opposition became known, including the allegation that the summons was not received by the debtor.
The petitioning creditor was not to anticipate opposition to the creditor's petition based on the ground that the proceedings in the Magistrates Court had not been served. The petitioning creditor was entitled to assume that if that were a ground of complaint, the complaint would have been raised at the time that the bankruptcy notice was served. The judgment creditor acted reasonably in issuing the petition and is entitled to recover its costs for taking that step: cf Re Sarina; Ex parte Council of the Shire of Wollondilly (1980) 43 FLR 163 at 166. However once the question of service was raised, rather than conceding the point, the petitioning creditor challenged the veracity of the debtor's evidence, and on that point failed. The petitioning creditor is not entitled to its costs of the trial. On the contrary I consider the debtor is entitled to recover out of pocket expenses that he may have incurred in representing himself at the trial.
In the ordinary course, where a sequestration order is made on a creditor's petition, the bill of costs of the petitioning creditor will include items in respect of the preparation, issuing and service of the bankruptcy notice. In the present case however the bankruptcy notice was itself affected by the invalidity of the default judgment and in those circumstances I do not consider the costs in respect of the bankruptcy notice can at this stage be awarded against the debtor: cf White v Weston.
I consider the question of costs on the creditor's petition should be dealt with broadly. I consider there should be an award in favour of the petitioning creditor against the debtor for $650 including the $300 disbursement incurred on the filing of the creditor's petition. This award takes into account that on some aspects of the case the debtor is entitled to recover his out of pocket expenses. But for that fact, the award in favour of the petitioning creditor would have been somewhat higher.
The order of the Court will be that the application by Messrs Mellor Olsson to be substituted as petitioner under s.49 of the Bankruptcy Act is refused. There will be no order as to costs on the application for substitution. The creditor's petition is dismissed. The debtor is to pay the petitioning creditor costs fixed at $650.

[1994] FCA 78

15 FEBRUARY 1994