Samartis v Marsdens Law Group
[2021] FCCA 1630
•16 July 2021
FEDERAL CIRCUIT COURT OF AUSTRALIA
Samartis v Marsdens Law Group [2021] FCCA 1630
File number: SYG 584 of 2021 Judgment of: JUDGE STREET Date of judgment: 16 July 2021 Catchwords: BANKRUPTCY – whether or not an act of bankruptcy occurred before the commencement of the proceedings –whether personal service of the notice was effected – costs – application is dismissed – cost order made. Legislation: Bankruptcy Act 1966 (Cth) ss 32, 41(6A)
Bankruptcy Regulations 1996 (Cth) r 16.01
Electronic Transmissions Act (1999) (Cth) s 14A
Federal Circuit Court of Australia Act 1999 (Cth) s 79
Cases cited: Bell Lawyers Pty Ltd v Pentelow(2019) 372 ALR 555
Deputy Commissioner of Taxation v Mahaffy (2011) FMCA 416
Re Ditfort; Ex parte Deputy Commissioner of Taxation (NSW) (1988) 19 FCR 347
United Petroleum Australia Pty Ltd & Ors v Herbert Smith Freehills [2020] VSCA 15
Number of paragraphs: 35 Date of hearing: 16 July 2021 Place: Sydney Counsel for the Applicant: Mr T Smartt Solicitor for the Applicant: Clayton Utz Solicitor for the Respondent: Mr R Blackstone, Marsdens Law Group ORDERS
SYG 584 of 2021 BETWEEN: NICHOLAS SAMARTIS
Applicant
AND: MARSDENS LAW GROUP ABN 59 874 202 316
Respondent
ORDER MADE BY:
JUDGE STREET
DATE OF ORDER:
16 JULY 2021
THE COURT ORDERS THAT:
1.The application is dismissed.
2.The applicant pay the respondent’s costs fixed in the amount of $7,292.00 within 28 days.
REASONS FOR JUDGMENT
JUDGE STREET:
These proceedings were commenced on 9 April 2021 seeking to engage the Court’s jurisdiction under s 41(6A) of the Bankruptcy Act 1966 (Cth) (“the Act”) which is as follows:
(6a) Where, before the expiration of the time fixed for compliance with a bankruptcy notice:
(a)proceedings to set aside a judgment or order in respect of which the bankruptcy notice was issued have been instituted by the debtor; or
(b)an application has been made to the Court to set aside the bankruptcy notice;
the Court may, subject to subsection (6C), extend the time for compliance with the bankruptcy notice.
That provision is crystal clear that the nature of the relief that can be granted, is one only where the proceedings are commenced before an act of bankruptcy occurred. The issue in the present case, which the Court must deal with as an issue of jurisdiction, is whether or not an act of bankruptcy occurred before the commencement of the proceedings.
It has been suggested by the applicant that this is an issue being raised by the respondent. It is not; it is the duty of every Court to determine whether it has jurisdiction. Whether s 41(6A) of the Act can have application in the present case is a jurisdictional issue that the Court must address. It has also been suggested that the issue was earlier determined by a Registrar of the Court. A decision of the Registrar is not one that binds this Court, and this Court must be satisfied itself that it has jurisdiction in respect of these proceedings.
The evidence in relation to the proceedings identifies the background, in that the applicant was represented by the respondent, who provided legal services. The applicant failed to pay for his legal services, and a final judgment was obtained on 10 May 2016. There was an earlier bankruptcy notice and a payment arrangement that the applicant failed to comply with.
On 8 March 2021, the notice the subject of these proceedings, was issued in respect of the balance of the outstanding judgment debt, being $21,326.27. That bankruptcy notice was the subject of evidence identifying that it was transmitted to the applicant’s email address on 8 May 2021. This transmission was confirmed by Exhibit 1, tendered into evidence by the respondent, as well as the evidence from the Affidavits read by the respondent identifying the email transmission.
The applicant put on evidence identifying a recent tragedy in relation to his family and loss of a sibling, and the demands upon his time to look after his elderly mother as well as being a single father and the impact of COVID-19. The applicant contended in his Affidavit that he read the email that was sent on 8 March on 24 March 2021 and refers to emailing the creditor on the same day requesting an extension of time.
The creditor purported to grant an extension of time until 9 April 2021. The jurisdiction of this Court in respect of s 41(6A) of the Act cannot, as a matter of statutory construction, be extended by agreement, and for the same reason the propositions of estoppel raised by the applicant are hollow and do not give rise to any basis upon which this Court can find that it had jurisdiction to entertain the application to set aside the bankruptcy notice, if the proceedings were not commenced before and act of bankruptcy occurred.
It is not a matter of the respondent being estopped; the issue was one that the Court itself had to be satisfied of, and the language of s 41(6A) of the Act is crystal clear in the mandatory requirement that the proceedings must be commenced before an act of bankruptcy.
There are two bases upon which it is apparent on the evidence that there was an act of bankruptcy prior to these proceedings, on 9 April 2021. The first is on the basis of the email transmission to the applicant’s email address that was clearly transmitted on 8 March 2021. In these circumstances, the act of bankruptcy occurred on 29 March 2021.
The alternative basis is in relation to personal service of the notice on the applicant that occurred on 12 March 2021. An affidavit by a process server was read and was not contested. That identified that the bankruptcy notice, together with the judgment, was served by leaving them in the presence of the applicant at the address for service, being 40 General Holmes Drive, Brighton-Le-Sands.
The process server’s affidavit identifies that at the time of service the process server said to the applicant:
Are you Nicholas Samartis, the person referred to in these documents?
The person served replied: Yes, but I’m not accepting that.
The process server identified that he then placed the documents at the front door in the presence of the applicant. It is apparent from that evidence that the process server left the documents the subject of these proceedings in the presence of the applicant. That was effective service pursuant to r 16.01(1)(d), under the then-applicable Bankruptcy Regulations 1996 (Cth) (“the Regulations”), being r 16.01(1) and (2) as follows:
(1)Unless the contrary intention appears, where a document is required or permitted by the Act or these Regulations to be given or sent to, or served on, a person (other than a person mentioned in regulation 16.02), the document may be:
(a)sent by post, or by a courier service, to the person at his or her last‑known address; 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; or
(c)left, in an envelope or similar packaging marked with the person’s name, at the last‑known address of the person; or
(d)personally delivered to the person; or
(e)sent by facsimile transmission or another mode of electronic transmission:
(i)to a facility maintained by the person for receipt of electronically transmitted documents; or
(ii)in such a manner (for example, by electronic mail) that the document should, in the ordinary course of events, be received by the person.
(2)A document given or sent to, or served on, a person in accordance with subregulation (1) is taken, in the absence of proof to the contrary, to have been received by, or served on, the person:
(a)in the case of service in accordance with paragraph (1)(a) or (b)—when the document would, in the due course of post or business practice, as the case requires, be delivered to the person’s address or document exchange facility; and
(b)in the case of service in accordance with paragraph (1)(c), (d) or (e)—when the document is left, delivered or transmitted, as the case requires.
In relation to personal service, r 16.01(2)(b) of the Regulations refers to service being affected when the document is left, as the case requires. It is clear in the present case that the document was left physically in the presence of the applicant and the applicant was aware that these were documents to be served on him. That satisfied the requirement of service under r 16.01(1)(d) of the Regulations.
Mr Smartt, counsel for the applicant, has contended that there was not personal service, because the steps that were allegedly required went further in relation to achieving service under r 16.01 of the Regulations, and he referred in that regard to a decision of the Deputy Commissioner of Taxation v Mahaffy (2011) FMCA 416 (“Mahaffy”), particularly in the passages commencing at [10] through to [12] set out below:
[10] The effect of that requirement was the subject of discussion by Gummow J in Re Ditfort; Ex parte Deputy Commissioner of Taxation (1988) 19 FCR 347 in a passage which has been quoted on many subsequent occasions, including when addressing whether personal delivery to the debtor has occurred under the present bankruptcy regulations. His Honour’s discussion at pp 359 and 360 was considered by Beaumont J in a subsequent case involving Mr Ditfort in relation to a similar provision requiring personal service, Ditfort v Temby (1990) 26 FCR 72. The starting point is, as Beaumont J noted at 79:
It will be recalled that r 126 of the Bankruptcy Rules requires service to be effected by delivering the summons to the person personally. There are thus two requirements (1) there must be a “delivery”, that is to say, a physical delivery (cf Re a Debtor (No 441 of 1938) [1939] Ch 251 at 257); and (2) the delivery must be to the person concerned “personally”, that is to say, to that person and not to some other person, so that, in the absence of an order for substituted service, purported service on a person other than the person named in the summons is not valid service: see N J Williams, Civil Procedure — Victoria, Vol 1, p 2475 and the cases there cited.
[11] In his discussion in the earlier case, Gummow J after discussing older authorities about personal service, said at 360:
I accept the submission by the respondent to the present application that there may be delivery personally to the debtor of process within the meaning of r 15 of the Bankruptcy Rules, even though the process has not been left in what Patteson J described as the “actual corporal possession of the defendant”. If the debtor were refusing to take such actual corporal possession of the process, but the process server informed the debtor of the nature of the process and left it before or near the debtor so that the debtor had unimpeded and immediate access to the documents, that, in my view, should, in general, be sufficient to comply with r 15.
[12] As I understand his Honour’s conclusion that something short of the passing over of the bankruptcy notice from the process server to the debtor might satisfy the concept of personal delivery, it requires three elements to be satisfied:
i) there has been an attempt by the process server at personal delivery in the sense of passing over in circumstances where this would have been physically possible, but for the refusal by a debtor to take “actual corporal possession” of the proffered court process;
ii) the process server earlier or in response to the debtor’s refusal has “informed the debtor of the nature of the process”; and
iii) the process server has “left it before or near the debtor so that the debtor has unimpeded and immediate access to the documents”.
In my opinion, his Honour was suggesting that the second and third elements only arise for consideration if the first element has occurred. That is, there has been a conjunction of the process server with the debtor in a physical sense, in which a physical delivery has been rendered impossible only by the conduct of the debtor in refusing to accept a proffered bankruptcy notice. The second and third elements are then directed at establishing that, in practical effect, an immediate delivery has occurred of the process, allowing the debtor to have immediate knowledge of the nature of the process and to read it, so that he was left in an equivalent position to being left in physical possession of the process upon the departure of the process server. This is achieved by the process server conveying a description of the document of the process to the debtor, and placing it in his immediate locality where he can pick it up
The proposition that the regulation requires a step of informing the debtor of the nature of the process is not a requirement that appears on the face of r 16.0(1) or (2) of the Regulations. The high point in relation to Mr Smartt’s argument are the observations made by the learned Gummow J in Re Ditfort; Ex parte Deputy Commissioner of Taxation (NSW) (1988) 19 FCR 347 where his Honour did say, relevantly, at [36]:
[36] If the debtor were refusing to take such actual corporal possession of the process, but the process server informed the debtor of the nature of the process and left it before or near the debtor so that the debtor had unimpeded and immediate access to the documents, that, in my view, should, in general, be sufficient to comply with r 15.
In the present case, it is clear that the process server did leave the document before or near the debtor so that the debtor had unimpeded and immediate access to the documents, and that, in this Court’s view, is sufficient compliance with the requirements of r 16.01(1)(d) of the Regulations to constitute personal service. The Court does not regard the observation as to the informing of the debtor of the nature of the process as part of the ratio of the decision by the learned Gummow J that would be binding on this Court, but rather, an observation as to the facts that may give rise to circumstances where there is sufficient service without being exhaustive and mandatory, in respect of the requirements of the rules.
The rules in the present case are of significance in that regard. The rules identify when personal service is taken to have been affected in the absence of proof to the contrary, and expressly refers to the document being left, as the case requires, in accordance with r 16.01(1)(d) of the Regulations, in the context of personally delivering to the person the documents that were left with the applicant. The words “I’m not accepting that” by the applicant at the time of service show an intention to refuse service regardless of the nature of the documents and also reveal a clear knowledge that something of importance was trying to be served upon him. That was in the circumstances of this case sufficient to prove the bankruptcy notice was personally served on the applicant.
The proposition that there can be proof to the contrary is that the documents were not left with the applicant. There is no contrary proof that has been advanced by the applicant in that regard. The applicant’s refusal to take the documents, does not mean that they were not personally served. The Court does not regard the decision in Mahaffy, as a binding authority on this Court, because it is by another Judge of the Court, nor does the Court regard what was being said in [12], as being an exhaustive statement of the circumstances in which there will be effective personal delivery to the person under the Regulations. Insofar as it is contended that it amounts to such an exhaustive statement, it is clearly wrong, and the Court would not follow that decision.
In the circumstances of the present case, there was personal service on the applicant on 12 March, in accordance with the then applicable regulations which means the act of bankruptcy occurred on 3 April, and accordingly, these proceedings were brought out of time. The alternative basis in which it is apparent that there was an act of bankruptcy prior to the commencement of these proceedings, is one arising from the electronic transmission under r 16.01(1)(e) of the Regulations to which the Court has referred and by reason of which again the proceedings were not commenced within time. The Court also notes that there was on the evidence service by reason of the process server’s affidavit that meets the requirement of r 16.01(1)(c) of the Regulations as the Court finds that the letter with the Bankruptcy notice was left at the last known address of the applicant and was appropriately marked with the applicant’s name and in respect of which any misspelling of the address was not a requirement under the said provision and is of no consequence. This also gives rise to the act of bankruptcy occurring prior to the commencement of the proceedings.
Mr Smartt has correctly drawn the Court’s attention to the provisions of s 14A of the Electronic Transmissions Act (1999) (Cth) (“the Electronic Transmissions Act”) subsection (1)(b), which is as follows:
Time of receipt
(1) For the purposes of a law of the Commonwealth, unless otherwise agreed between the originator and the addressee of an electronic communication:
(a) the time of receipt of the electronic communication is the time when the electronic communication becomes capable of being retrieved by the addressee at an electronic address designated by the addressee; or
(b) the time of receipt of the electronic communication at another electronic address of the addressee is the time when both:
(i) the electronic communication has become capable of being retrieved by the addressee at that address; and
(ii) the addressee has become aware that the electronic communication has been sent to that address.
Mr Smartt has submitted that in the circumstances of the present case the evidence is clear that the addressee did not become aware of the electronic communication that had been sent to his email address until 24 March 2021.
In the circumstances of this case, that proposition has not been contested, and accordingly,
s 14A of the Electronic Transmissions Act is not one that gives rise, of itself, to there being effective service from the transmission in the present case. The Regulations, however, do have application, and r 16.01(2)(b) of the Regulations, identifies that service in respect of the electronic transmission is affected when it is transmitted. It was transmitted on 8 March 2021. Mr Smartt has contended that there has been proof advanced to the contrary. There is no proof advanced to the contrary that it was not transmitted on that date. Accordingly, there has been effective service by email transmission on 8 March 2021. In these circumstances the act of bankruptcy in fact first occurred on 29 March 2021. Mr Smartt sought to develop arguments based on the proposition that there should be a construction adopted in relation to s 41(6A) of the Act that permitted the assertion of an estoppel from misrepresentation or unconscionable conduct and contended that that is what arose in the circumstances of the present case.
The power of the Court under s 41(6A) of the Act, like any other jurisdictional requirement, is one for the Court to be satisfied that there is jurisdiction. It is apparent that the respondent does rely both upon personal service and email service upon the applicant as found by the Court above by reason of which there was an act of bankruptcy prior to the commencement of the proceedings. The evidence in the present case identifies that service in accordance with r 16.01 of the Regulations, under subparagraph (1)(c), (1)(d), and paragraph (1)(e) occurred in the circumstances of the present case. There has not been proof to the contrary adduced to establish that the document was not left in the presence of the applicant and thereby personally delivered to the applicant and there has not been proof adduced to the contrary that the email transmission as not sent on 8 March and it is crystal clear that it was in fact received by the applicant, albeit the applicant on the applicant’s evidence did not observe the same until 24 March. The Court also does not accept that there is not proof to the contrary of the leaving of the bankruptcy notice at the applicant’s last known address. The presence of the applicant supports the finding made by the Court of being the applicant’s last known address.
Accordingly the Court is not satisfied that there is proof to the contrary in respect of the service effected under the provisions of r 16.01 of the Regulations. The contention that there is an estoppel is misconceived. There can be no such estoppel in the context of the statutory provisions and the jurisdictional requirement in s 41(6A) of the Act. Mr Smartt referred to other authorities in respect of the strict compliance requirements of bankruptcy notices and the authorities used to identify the significant or consequences of misrepresentation in the bankruptcy notices. These are not matters that give rise to the jurisdictional statutory requirement of s 41(6A) of the Act, being capable of being the subject of an estoppel. The words of the statute must prevail. Those words are clear in the requirement to invoke this Court’s jurisdiction to set aside a bankruptcy notice. The proceedings must be commencement before the act of bankruptcy and no estoppel is able to expand this confined statutory requirement.
The Court’s jurisdiction has not been properly invoked in the circumstances of the present case. Accordingly, it is not necessary for the Court to further deal with the arguments advanced in respect of the alleged defects in the notice. The Court also takes into account that the other contentions being advanced by the applicant are ones where there is a further opportunity for agitation, if of any substance, in respect of other sufficient cause at the time of determining the creditor’s petition. The Court is satisfied that these proceedings must be dismissed for want of jurisdiction.
The applicant then raised the issue of whether the respondent is entitled to costs in circumstances where the respondent was the judgment creditor in respect of the issue of the bankruptcy notice and as such, party to the proceedings. Mr Smartt contends that the principles identified in United Petroleum Australia Pty Ltd & Ors v Herbert Smith Freehills [2020] VSCA 51 (“United Petroleum Australia”), and particularly, particular observations made from paragraphs 119 to 122 that the respondent should not be entitled to costs. The Court accepts the respondent’s submission that paragraph 50 in the High Court of Australia’s decision in Bell Lawyers Pty Ltd v Pentelow(2019) 372 ALR 555 (“Bell Lawyers”) makes clear that there is no such absolute proposition.
This Court has a general power in respect of costs in s 79 of the Federal Circuit Court of Australia Act 1999 (Cth) which is as follows:
FEDERAL CIRCUIT COURT OF AUSTRALIA ACT 1999 - SECT 79
Costs
(1) This section does not apply to family law or child support proceedings or proceedings in relation to a matter arising under the Fair Work Act 2009 or section 14, 15 or 16 of the Public Interest Disclosure Act 2013.
Note: See section 117 of the Family Law Act 1975 in relation to family law or child support proceedings. See section 570 of the Fair Work Act 2009 for proceedings in relation to matters arising under that Act. See section 18 of the Public Interest Disclosure Act 2013 for proceedings in relation to matters arising under section 14, 15 or 16 of that Act.
(2) The Federal Circuit Court of Australia or a Judge has jurisdiction to award costs in all proceedings before the Federal Circuit Court of Australia (including proceedings dismissed for want of jurisdiction) other than proceedings in respect of which any other Act provides that costs must not be awarded.
(3) Except as provided by the Rules of Court or any other Act, the award of costs is in the discretion of the Federal Circuit Court of Australia or Judge.
The Court also has a power under s 32 of the Bankruptcy Act which is as follows:
BANKRUPTCY ACT 1966 - SECT 32
Costs
The Court may, in any proceeding before it, including a proceeding dismissed for want of jurisdiction, make such orders as to costs as it thinks fit.
The Court must, of course, exercise that power in accordance with binding principle. The Court does not accept that there is a binding principle that precludes the Court from ordering costs in favour of a successful party where the costs have been incurred, as they have in the present case, by work undertaken by a separate solicitor employed by the partnership, Marsdens Law Group, and where there those costs have been identified as part of the Marsden litigation group known as the dispute resolution department and that there is a partner in that department who has overall responsibility for this matter as the solicitor on the record.
The solicitor, Mr Blackstone, has identified his experience at the firm and his employment as a solicitor since being admitted on 21 July 2017 and having worked exclusively in the litigation group since the commencement of his employment. Mr Blackstone has identified in an Affidavit read on 16 July 2021 the professional work undertaken and scale of costs applied in relation to the work undertaken in this particular matter and identified a total cost component of $14,554 as being the party costs that have been incurred. Mr Smartt contends that no order at all should be made as to costs. The ordinary principle is that the successful party is entitled to costs order.
There is also to be taken into account in relation to this area of bankruptcy jurisdiction the public interest in ensuring expeditious proceedings. The legal costs that have been incurred in the present case would inevitably have been incurred in a similar amount had a separate firm been retained to pursue the claim on behalf of the respondent. No doubt, in part having the matter pursued by a separate department, being the dispute resolution department, subject to the overall response of the particular partner, has probably in part benefited the applicant in relation to the costs that might have been incurred if a separate law firm had been retained. The vice that was identified in United Petroleum Australia was a concern in respect of profiting from litigation.
It was not suggested by Mr Smartt that if the Court made an order in the amount of $7,292.00 it would have removed the profit component, the vice in substance identified in United Petroleum Australia. The Court regularly determines costs in the bankruptcy jurisdiction and the costs in the full amount sought by the respondent are costs of an order or range within which the Court ordinarily would make orders in respect of an application of this kind. The Court has found the applicant has purportedly invoked the jurisdiction in circumstances where in fact this Court has no jurisdiction. The ordinary consequence of costs should follow notwithstanding the identity of the respondent by whom and for whom the costs order is sought. The absence of jurisdiction is itself a distinguishing feature that warrants the making of a costs order against the unsuccessful applicant in this case. There is also a public interest in ensuring that costs orders are made by the Court where proceedings have been brought causing another party to incur costs and which have occupied the limited judicial resources in circumstances where there was in fact no jurisdiction to grant the relief sought by the applicant..
There is no question that the respondent has in fact incurred the time and costs identified in the affidavit by Mr Blackstone. The Court is satisfied that reducing the amount to $7, 292.00 removes any vice of the kind identified in United Petroleum Australia. The Court does not regard the observations made in Bell Lawyers, and in particular paragraph 50 as amounting to a proposition that no costs order can be made in favour of a law firm where separate solicitors within the firm and a separate partner have been engaged and have incurred costs in the conduct of the proceedings. That is what has occurred here. The Court has a broad discretion under s 32 of the Act, in exercising this judicially, the Court is satisfied that it is appropriate in the circumstances of the present case that a costs order should be made against the applicant in favour of the respondent.
The Court is also satisfied, given the broad power under s 79 of the Federal Circuit Court of Australia Act 1999 (Cth) that it is appropriate to make a costs order pursuant to those powers as well. Given the circumstances, the Court has identified as a result of these powers the Court is satisfied that a costs order should be made in favour of the respondent in the amount identified. That amount in this case the Court finds does not include a profit component and is a fair and proper costs order for the successful party consistent with the interests of the administration of justice.
Accordingly, the application is dismissed with costs.
I certify that the preceding thirty-five (35) paragraphs are a true copy of the transcript of the published oral reasons for judgment of Judge Street delivered in open Court on 16 July 2021 and the parties were sent a sealed copy of the Court’s orders.
Associate:
Dated: 3 September 2021
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