Ridley v Secretary, Department of Social Security

[1993] FCA 213

Re: ANTHONY GINNANE
And: DINERS CLUB LTD
No. VG365 of 1992
FED No. 213
Number of pages - 13
Bankruptcy
(1993) 42 FCR 90
(1993) 120 ALR 375

COURT

IN THE FEDERAL COURT OF AUSTRALIA

VICTORIA DISTRICT REGISTRY
GENERAL DIVISION
Northrop(1), Sheppard(1) and Einfeld(1) JJ

CATCHWORDS

Bankruptcy - Powers exercised by Registrars of the Court - review by Court of Registrar's exercise of power - nature of review - exercise of discretion to order substituted service - nature of appearance in bankruptcy proceedings

Bankruptcy Act 1966 (Cth) s309(2)

Bankruptcy Rules r15(b), 20

HEARING

MELBOURNE, 5 March 1993

#DATE 19:4:1993

Counsel for Appellant: Mr H.W. Fraser

Solicitors for Appellant: Kliger Partners

Counsel for Respondent: Mr R.G. Mitchell

Solicitor for Respondent: Peter Eggleston and Associates

JUDGE1

NORTHROP, SHEPPARD AND EINFELD JJ The essential issue raised by this appeal relates to the manner in which the discretion to make an order for substituted service of a petition under sub-section 309(2) of the Bankruptcy Act 1966 should be exercised.

1. Paragraph 52(1)(b) of the Bankruptcy 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.

2. Rule 20 of the Bankruptcy Rules provides for notice of appearance at the hearing of petitions. It provides that a debtor who intends to oppose a petition, or to appear at the hearing of a petition relating to a debt of the debtor, must, not less than three days before the date fixed for the hearing of the petition or, with the consent of the Court, at that hearing, file a notice in accordance with Form 8 in Schedule 1 to the Rules and serve a copy on the petitioner. Form 8 is entitled, "Notice of Intention of Debtor to Appear at Hearing of Petition". It is addressed to the petitioning creditor. The substance of it is, "TAKE NOTICE that (the debtor) intends to appear at the hearing of the petition of ... dated ...". The notice provides for the statement in it of the grounds of opposition to the petition. This is intended to be an optional matter. The provision in this respect is enclosed within square brackets. The reason why the matter is optional stems from Rule 20 which provides for cases where a debtor intends to appear at the hearing but not necessarily to oppose the petition. Thus Rule 20 and Form 8 apply to the common case of a debtor who wishes to appear in order to secure an adjournment, for instance, because he or she may be able to pay out the petitioning creditor's debt or may wish to enter into one or more of the arrangements provided for in Part X of the Bankruptcy Act.

3. Rule 20, in its current form, was inserted into the Bankruptcy Rules on 14 December 1989; see SR No 376 of 1989. Before then Rule 20 required notice to be given only where the debtor intended to deny or dispute a statement in the petition or oppose a petition on any other ground.

4. Although Rule 20 now provides for appearances in cases where a debtor does not intend to oppose the petition, debtors who appear do not usually take that course. Moreover, many judges and registrars do not insist on it being taken. If it is taken and a debtor appears, whether in person or by counsel or solicitor, there will be a submission to the jurisdiction of the Court and an admission of service unless the notice says that it is intended to oppose the petition on the ground that the petition has not been served.

5. In cases where no notice pursuant to Rule 20 has been filed but a debtor appears, whether in person or by counsel or solicitor, there will again be a submission to the jurisdiction of the Court and an admission of service unless the debtor or his or her legal representative indicates an intention to oppose the petition on the ground that it has not been served. That statement ought usually be made at the first appearance. There may be circumstances which will justify its being made at a later appearance but a debtor who appears without indicating an intention to oppose the petition by reason of its not having been served runs the risk that the taking of the point on a later occasion will be too late.

6. 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 Bankruptcy 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 affidavit. 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.

7. The remarks we have made apply to the service of petitions and other process except bankruptcy notices which, because of the need to know precisely when an act of bankruptcy was committed, will usually need to be the subject of affidavits of service or of oral evidence establishing service.

8. Paragraph 47(1)(c) of the Bankruptcy Act provides that a creditor's petition shall be served as prescribed. Rule 15(b) provides that, unless otherwise ordered by the Court under sub-section 309(2) of the Bankruptcy Act, service of a creditor's petition:
   

"... shall be effected on a debtor by delivering:

(i) an official copy of the petition;

(ii) a copy of the affidavit or of each affidavit verifying the petition; and

(iii) ...

to the debtor personally.

(iv) ..."

1. Provision is made for the length of time for service depending on whether the service is effected in Australia or any other case.

2. Sub-section 309(2) of the Bankruptcy Act confers a power on the Court to make an order, often called an order for substituted service, of a document on a person. The sub-section is set out:
   

"309(2) Where a notice or other document is required by this Act to be served on or given to a person, the Court may, in a particular case, order that it be given or served in a manner specified by the Court, whether or not any other manner of giving or serving the notice or other document is prescribed."

1. The discretion conferred by sub-section 309(2) is unfettered but the authorities show that in relation to a creditor's petition, the discretion is not to be exercised lightly. Normally, before exercising the discretion in relation to a petition, the Court must be satisfied that abnormal difficulties exist in effecting personal service of the petition on the debtor and that there is a reasonable probability that the debtor will be informed of the petition as a result of the form of service identified. With respect to the second principle, Gibbs J said in Re Mendonca; Ex parte Commissioner of Taxation (1969) 15 FLR 256 at 261:
   

"It is a fundamental rule that a method of substituted service will not be allowed which will not in all reasonable probability be effective to bring knowledge of the proceedings to the debtor; Re Stewart; Ex parte Barrett (1967) 10 FLR 99."

1. The facts giving rise to this appeal are unusual, and, to some extent, may be described as artificial and unreal. On 6 March 1992 the respondent, Diners Club Ltd, as petitioning creditor, presented to the Registrar in Bankruptcy a petition for a sequestration order against the estate of the appellant, Anthony Ginnane, the judgment debtor. The petition was to be heard by the Court on 12 May 1992. On that day, there was no appearance by the appellant and the hearing of the petition was adjourned to 22 June 1992.

2. By application dated 12 June 1992, the respondent sought the following order:
   

"Order for substituted service of the Affidavit Verifying Paragraphs 1, 2 and 3 of the Creditor's Petition and of the Affidavit Verifying Paragraph 4 of the Creditor's Petition upon the Judgment Debtor's Solicitors, Messrs Kliger Katz of 469 LaTrobe Street, Melbourne."

1. On 19 June 1992, that application came on for hearing before a Deputy District Registrar of the Federal Court in the exercise of powers of the Court conferred by s31A of the Bankruptcy Act. In support of the application, counsel for the respondent relied upon two affidavits sworn 12 June 1992 and 19 June 1992. Although the application did not seek an order for substituted service of the petition, there was no evidence before the Deputy District Registrar that the petition had been served on the appellant. The affidavits disclosed that on the morning of 12 May 1992, the day on which the petition was due to be heard, a Mr Rothfield of the firm Messrs Kliger Katz rang Mr Jackson, the solicitor for the respondent. Mr Rothfield told Mr Jackson that he was acting for the appellant who was overseas, that he had spoken to the appellant and made an offer to settle the respondent's debt. Negotiations proceeded and further telephone conversations took place between Mr Rothfield and the appellant. Although Mr Rothfield attended the Court for the hearing of the petition on 12 May 1992, he did not announce an appearance before the Deputy District Registrar. He also did not appear on the application for substituted service on 12 June.

2. On 12 June 1992 further discussions took place between Mr Jackson and Mr Rothfield concerning settlement. Mr Rothfield again told Mr Jackson he was acting for the appellant and that he was able to have telephone conversations with the appellant. Further negotiations occurred on 16 June, 18 June and 19 June 1992. There was no material before the Deputy District Registrar of any unsuccessful attempt to serve the petition, or the accompanying documents, on the appellant. There was no evidence that Mr Rothfield had refused to give the address of the appellant to Mr Jackson. There was strong evidence that if the petition was served on Mr Rothfield, the existence of the petition would be brought to the knowledge of the appellant.

3. On 19 June 1992, on the hearing of the ex parte application, the Deputy District Registrar of the Court made the following orders:
   

"1. Personal service of the Creditor's Petition be dispensed with.

2. In lieu thereof the Creditor's Petition be served as follows: By handing a letter addressed to the debtor containing an official copy of the Petition and a copy of each Affidavit verifying it and a copy of today's order to a person apparently over the age of 16 years and working at the offices of Messrs. Kliger Katz, Solicitors, 469 LaTrobe Street, Melbourne in an envelope marked to the attention of Mr Roger Rothfield.

3. Service of the Creditor's Petition be deemed to be effective after the expiration of 7 days from the happening of the event referred to in paragraph 2."

1. These documents were served on 25 June 1992 in conformity with the order.

2. On 22 June 1992, the hearing of the petition was adjourned to 13 July 1992 and on that day was further adjourned to 26 August 1992.

3. By application dated 27 July 1992, the appellant sought an order:
   

"That the Orders made by Registrar Agnew in this proceeding on 19 June 1992 be set aside and service of the Creditor's petition be deemed ineffective."

1. This application was listed for hearing on 26 August, being the same time as the petition was due to be heard. The application was made under sub-sections 31A(6) and (7) of the Bankruptcy Act. These provisions enable the Court to review the exercise of a power delegated to a Registrar of the Court under s31A of the Bankruptcy Act. The application should have been made within 21 days after the order for substituted service was made on 19 June 1992 but the Deputy District Registrar allowed further time to seek the review; see generally Rule 119A. The review is by way of a hearing de novo on the evidence presented to the Court on the hearing of the application; see Re Kwiatek; Ex parte Big J Ltd v Pattison (1989) 21 FCR 374; Re Brindle (1992) 108 ALR 470 per Hill J at 476. In support of the application, the appellant relied upon an affidavit sworn by Mr Rothfield on 9 July 1992. That affidavit exhibited the two earlier affidavits of Mr Jackson and the order of 19 June 1992. The affidavit also stated that the appellant had occupied a residence in Los Angeles, California, in the United States of America since March 1991.

2. On 26 August 1992, the application and the petition came on for hearing before the Court constituted by Olney J. The order for substituted service had been acted upon, but counsel for the appellant wanted the application for review of the order for substituted service to be heard and determined before the petition was heard. The learned trial Judge adopted that course. He heard submissions on the application and reserved his decision. On 31 August 1992 he ordered that the order made by Deputy District Registrar Agnew on 19 June 1992 be affirmed and the application for review be dismissed. It is clear that his Honour did not treat the application as a hearing de novo on the evidence presented to the Court. At p 8 of his reasons for judgment, his Honour said:
   

"I turn now to consider the application which came before Deputy Registrar Agnew on 19 June 1992. The evidence established that the debtor was in all probability overseas but that his solicitor in Melbourne was in regular, indeed frequent contact with him, and was in receipt of instructions from him to negotiate with the petitioning creditor in relation to these very proceedings. Clearly, the fact of the debtor being overseas was no impediment to him being served with a petition and equally clearly, the method of service devised by the Deputy Registrar was one calculated to ensure that the debtor would have knowledge of the proceedings. The order made was both within the scope of the Deputy Registrar's authority and in accordance with relevant principles. In the circumstances, the order made on 19 June 1992 should be affirmed and the review application dismissed."

1. His Honour's approach was thus erroneous. Instead of hearing the matter himself, he regarded his task as one which involved the review by an appellate court of the exercise of a discretion. That being so, it is for this Court to decide whether or not an order for substituted service should be made.

2. The main thrust of the submissions of counsel for the appellant was that there were two limbs to the exercise of the discretion conferred by sub-section 309(2) of the Bankruptcy Act, the first limb being that there had to be special reasons to dispense with the requirement of personal service of the petition. The second limb was that the debtor would, in all probability, have knowledge of the petition as a result of the substituted service. It was only if the first limb was established, so it was said, that the second limb applied. The appellant's argument is that there was no evidence before the trial Judge to establish either of the limbs, and in particular the first limb.

3. An order for substituted service should not be made as of course. But the circumstances which may require the making of such an order are many and varied. It is undesirable, therefore, to limit the discretions of judges and registrars by prescribing requirements which lack flexibility. Each case must depend upon its own facts. The fact that a debtor is overseas may not be sufficient, by itself, despite the problems arising in the serving of a document bearing the seal of the Court in an overseas country, see for example Re Trimbole; Ex parte Deputy Commissioner of Taxation (1984) 4 FCR 586. Nevertheless it is a factor to be taken into account.

4. Although as a matter of methodology, it is useful to consider these two limbs separately, it must be remembered that the discretion conferred by sub-section 309(2) of the Bankruptcy Act is unfettered. The two limbs are not separate and distinct compartments. Together, they form a composite basis for the exercise of a discretion. Normally, the evidence must show some need for substituted service and the basis by which the substituted form of service will, in all probability, be effective to bring the petition to the knowledge of the debtor. In some cases, the evidence may establish almost a certainty that the form of substituted service will have the effect of bringing the petition to the knowledge of the debtor. This is such a case. In these circumstances, the evidence justifying the departure from personal service need not be as strong as in other cases. In some cases, the evidence may disclose very strong grounds for substituted service, but that the form of service is less likely to bring the petition to the knowledge of the debtor. In any particular case, it is necessary to weigh the different considerations, the statutory requirement for personal service of the petition, the facts making personal service unusually difficult or impossible and the likelihood of the form of substituted service ordered bringing the petition to the knowledge of the debtor. Having regard to all those factors, it is necessary to exercise the discretion to make or not to make the order for substituted service.

5. The evidence does not disclose how the appellant's solicitor knew that the petition was due to be heard on 12 May 1992, but it seems that he must have known as he attended the Court for the hearing. Moreover, the appellant gave instructions to his solicitor to attempt to settle the claim and to continue negotiations for settlement over several weeks. The appellant was at the time living in California. In all the circumstances, it must be accepted that the appellant knew of the existence of the petition and the fact that it was to be heard on 12 May 1992. There are ample grounds for making an order for substituted service.

6. The order of 19 June 1992 has been acted upon. On review, it would have been open to the Court to make an order deeming service to have been effected in conformity with the order of the Deputy District Registrar. At the conclusion of the appeal this Court was of the opinion that the appeal should be dismissed. It so ordered and reserved costs. It now publishes its reasons for so doing.

7. The appeal having been dismissed, the ordinary rule that the unsuccessful appellant should pay the respondent's costs should be applied. It is true that we have said that his Honour should have heard the matter afresh rather than treating it as the review by him of the exercise of a judicial discretion by the registrar. But we have reached the same conclusion as his Honour with the consequence that the appellant has been unsuccessful. The appellant must pay the respondent's costs of the appeal.