Gallagher & Anor v Montesalvo [2003] FMCA 51 (29 October 2002)

Last Updated: 7 March 2003

FEDERAL MAGISTRATES COURT OF AUSTRALIA

GALLAGHER & ANOR v MONTESALVO

[2003] FMCA 51

BANKRUPTCY - Creditors petition - appropriate service of notice of bankruptcy.

Bankruptcy Act 1966

Bankruptcy Regulations, r 16

Federal Magistrates Court Rules 2001

Re Ditford; ex parte v Deputy Commissioner of Taxation (1998) 19 FCR 347

Thompson v Pheney (1832) 1 Dowling's Practice Cases 441

Re Wong: ex parte Wong v Robinson [1995] FCA 805

Applicant:

ALLAN GEOFFREY GALLAGHER & PENRITH GARAGES PTY LTD

Respondent:

JOHN MONTESALVO

File No:

BZ305 of 2002

Delivered on:

29 October 2002

Delivered at:

Brisbane

Hearing Date:

29 October 2002

Judgment of:

Rimmer FM

REPRESENTATION

Counsel for the Applicant:

Mr Linlater-Steele of Counsel

Solicitors for the Applicant:

Coode & Corry, Solicitors of Penrith

Solicitors for the Respondent:

Eric Muir, Solicitor of Southport

ORDERS

(1) The Creditor's Petition filed on 24 June 2002 be dismissed.

(2) That the RESPONDENT Debtor's costs be paid by the APPLICANT Creditor to be taxed unless otherwise agreed.

FEDERAL MAGISTRATES COURT OF AUSTRALIA AT BRISBANE

BZ305 of 2002

ALLAN GEOFFREY GALLAGHER & PENRITH GARAGES PTY LTD

Applicant

And

JOHN MONTESALVO

Respondent

REASONS FOR JUDGMENT

1. This is a creditor's petition which was brought by the petitioning creditor on 24 June 2002, and the dispute arises in this matter as to whether or not there was appropriate service of the notice of bankruptcy upon which the petition is founded. It is the position of the respondent that he has not been personally served in accordance with regulation 16 of the Bankruptcy Regulations, and it is the submission of the applicant that there is sufficient evidence before the court to demonstrate that the bankruptcy notice upon which this petition is founded have been properly served and brought to the attention of the respondent.

2. Before me there is material of both parties with respect to the issue of service. The material relied on by the applicant is the creditor's petition filed on 14 June 2002, the affidavit of Allen Geoffrey Gallagher verifying the petition filed on 24 June 2002, a further affidavit of Allen Geoffrey Gallagher filed 23 October 2002, two affidavits of Stephanie Louise Delaney, the first verifying paragraph 4 of the petition filed 24 June 2002, and the second filed by leave today.

3. There are a number of affidavits of service which go to the issue of service of the bankruptcy notice and are relied upon by the applicant. They are the affidavit of Mark Patrick O'Dea filed 24 June 2002, an affidavit of Mark Patrick O'Dea filed 30 August 2002, and an affidavit of Stephen William Corry filed 2 September 2002.

4. The respondent has filed two affidavits, one by himself and one by his daughter, Daniella Montesalvo and both those were filed on 23 August 2002. The applicant seeks by way of orders from the court today that a sequestration order be made against the estate of John Montesalvo and that the applicant creditor's costs be taxed and be paid from the estate of the respondent debtor in accordance with the Bankruptcy Act, and a notation that the court notes that the act of bankruptcy is 27 December 2001.

5. Service of a bankruptcy notice is covered by the regulations and, in particular, regulation 16.011. This permits a document to be:

a) sent by post or courier service to a person's last known address;

b) left in an envelope marked with the person's name and any relevant document exchange number at a document exchange facility where the person maintains a document exchange facility;

c) left in an envelope marked with the person's name at the person's last known address;

d) served personally; or

e) sent by fax or any other electronic mode to a facility maintained by the person to be served for the receipt of electronically transmitted documents or in such manner that the documents should in the ordinary course of events be received by the person to be served.

6. While at one time under the Bankruptcy Rules a notice had to be served personally, it now seems pursuant to regulation 16.011 that that requirement no longer exists. It is clear that given the strictness of bankruptcy practice, particularly insofar as the service of bankruptcy notice is concerned, that it is the case that courts will not be moved to make sequestration orders on creditor's petitions founded on bankruptcy notices which are served other than in a manner which the court can be satisfied from all of the available evidence falls within one of the required methods of service under regulation 16.011. In this particular matter the applicant relies regulation 16.011(d), and that is that the notice was served personally.

7. The history and background to this matter is that the process server, Mr Mark O'Dea, served he says the respondent, John Montesalvo, with a copy of a bankruptcy notice NN2818 of 2001 on 5 December 2001 at 6.30 pm which was a Wednesday. His affidavit which was filed on

24 June 2002 states in paragraph 2 as follows:

"I identified the person I served as the respondent by asking him, "Are you John Michael Montesalvo, the person named in this bankruptcy notice" to which he replied, "Yes"."

8. Mr Montesalvo says that he has never met nor had a conversation with or been served with a bankruptcy notice as claimed by Mark Patrick O'Dea in his affidavit which is identified as sworn on 21 June 2002 but which is clearly that affidavit to which I referred filed on 24 June 2002. He states that, and confirms in his oral evidence to the court today those facts. Mr O'Dea confirms that the contents of his affidavit are true and correct. Therefore, with respect to these matters, there are both this and a number of other matters which give rise to some serious issues that are raised with respect to the service.

9. Mr O'Dea filed a further affidavit in this court on 30 August 2002. He says in that affidavit in paragraph 6 as follows:

" On 5 December 2001 at the time of effecting service of the second bankruptcy notice, being the one the respondent debtor is now disputing, I once again approached the residential premises from the adjourning property behind the residential premises. On this occasion I observed the respondent debtor in the office study. I recognised the respondent debtor from the previous occasion in which I effected service of a first bankruptcy notice on him on

22 June 2001. He was standing in the office study and a female who appeared to be of approximately 20 years of age was seated at a desk next to where the respondent debtor was standing.

I called to the respondent debtor and said words to the effect, "I have another bankruptcy notice for you, Mr Montesalvo", and at that time I dropped the document to the ground in the courtyard at all times in the presence of the respondent debtor."

10. He enlarged upon that evidence in his oral evidence-in-chief before the court today and his evidence in that regard was that he observed a person whom he recognised as the respondent debtor and who had the same facial features as the respondent debtor standing next to a female whom he now believes to be the daughter of the respondent debtor in an office study of the premises. A number of photographs were then identified by him indicating the position at which he stood at the fence of the adjoining property overlooking the courtyard of the property of Mr Montesalvo, and those are exhibit 1.

11. He indicated in his oral evidence today that he made eye contact with Mr Montesalvo and said words to him to indicate that he had a bankruptcy notice to serve upon him. He says that he dropped the documents whilst the respondent debtor still held eye contact with him into the courtyard, but at that time the respondent debtor left the room and/or made to leave the room and he was therefore unaware of where he went from there. He further says in his affidavit in paragraph 7 of the affidavit which was filed on 30 August 2002 that:

"As he began to leave -

the premises, I assume he means -

the said female picked up the notice, threw it back at me whilst using various expletives. He continued to walk away, left the residential premises satisfied that the notice had clearly been brought to the attention of the respondent debtor."

12. Those matters are clearly in dispute. The affidavit of Mr Montesalvo says as follows in paragraphs 3 to 7 of that affidavit that:

"On 5 December 2001 his daughter, Daniella Montesalvo came to his home at 20B Lennie Avenue in the late afternoon to repair a computer in his office."

He further says:

"Whilst she was working in the downstairs office, he went for a walk to the local shop to purchase a cigar. He purchased a cigar, lit it and went for a stroll to the beach.

He says that when he arrived home just before 7 pm, he went to his office and his daughter advised him that she had just had an argument with a person across the adjoining property that had attempted to serve her with some papers that were intended for him. He said he appeared over the fence, he could not see the papers. He went upstairs to the bedroom that faces the adjoining property and could see from the window what appeared to be some folded papers.

He told his daughter then to go back downstairs and document the event as he felt there could be a need for recollection at some time in the future. He says that next morning the papers were no longer on the next door property and he doesn't know what became of those papers."

13. His evidence was enlarged in his oral evidence and under cross-examination and he consistently asserted to the court in his evidence that he had not met and could not identify the person, Mark Patrick O'Dea and that he had not been served with a bankruptcy notice as claimed by Mr O'Dea. He further said that he had gone to purchase the cigar and that it was about dusk or later in the evening which was consistent with his evidence that he had come home just before 7 pm. He indicated that he was aware that it was likely that these documents may pertain to a bankruptcy because his brother, and also a business associate, had informed him that they had recently been served with a bankruptcy notice and he was aware that the same fate was likely to befall him, and those are my words, not his.

14. He indicated that he did not wish to be bankrupt and that he did not attend the property of his neighbour to pick up the papers because his neighbour was not known to him, it was late in the evening and he did not wish to trespass on his neighbour's property at that late time in the evening.

15. The evidence of Daniella Montesalvo was that she was present at her father's residence on 20B Lennie Avenue, Main Beach on 5 December. She went there to fix his computer, that she was in his office at the rear of the dwelling and at about 6.30 pm she heard someone calling out, "Hello, hello" from over the timber fence and she approached a tall, slim, youngish gentleman who asked her, "Is John there?" She assumed it was her father's next door neighbour. She said she thought that he was upstairs and that she would get him.

16. Her evidence is she went to look for her father, he was not there. She realised that he must have left the premises and gone to the shops. She went back down to the fence and told the gentleman that her father was not at home. She said at this point he leaned over the fence and attempted to hand to her what appeared to be a document. She asked him what it was and he said it was a court order for John Montesalvo, or something to that effect. She said then she was not going to accept the document and turned to walk away and as she did so, the document was thrown by the gentleman at her over the fence.

17. She said she picked the document up off the ground and threw it back over the fence. He then picked it up from where it fell and threw it at her again. She picked up for the second time and threw it over the fence and that profanities were being exchanged at the time. She said that the gentleman left the document where it fell and she says quite literally ran off. She informed her father when he returned home some 20 minutes later and that he informed her to diarise the event for future recollection, which she says she did and attaches as annexure A to her affidavit what she says is her contemporaneous diary note with respect to the incident. That diary note is largely consistent with the matters contained in her affidavit.

18. She remained consistent in her evidence under cross-examination with respect to the matters that she deposed to in her affidavit. It is submitted that it is relevant for the court to look at the affidavit which was given, sworn and deposed to by Mr O'Dea with respect to service of a bankruptcy notice on 22 June 2001 because there are matters within that affidavit which are incorrect and which are serious and material matters which were incorrect and that the court would have some difficulty in relying upon the further evidence of Mr O'Dea as being true and correct given those serious matters which he now concedes are incorrect.

19. Mr O'Dea in his oral evidence and also in his affidavit evidence sets out the matters of difficulty with respect to his affidavit of service. He says that in reading now his affidavit of service of the bankruptcy notice which was sworn by him on 21 June 2002 that the affidavit contained an innocent mistake insofar as service was not effected at

22 Hughes Avenue but was effected at the respondent debtor's resident at 20B Lennie Avenue, Main Beach in the State of Queensland.

20. That bankruptcy notice is not the bankruptcy notice upon which this creditor's petition is founded, and the affidavit of Mr Corry, solicitor, sets out the fact that there were some material errors of calculation in that bankruptcy notice such that it is not relied upon. However, it is clearly evidence that Mr O'Dea has given to the court with respect to service and there is an admission by Mr O'Dea that that affidavit of service contains a mistake.

21. The evidence of Mr O'Dea given to the court today was that the affidavit of service was prepared by solicitors in Sydney and forwarded to him as a pre-prepared affidavit of service with respect to service, and that when he signed the affidavit of service, given that he was very busy and that he signs a number of affidavits of service in the ordinary course of conduct of his business as a commercial agent, that he inadvertently overlooked the error contained in that affidavit with respect to the address.

22. He says that the signing of the affidavit with the error was an oversight on his part. He did not make the necessary amendment to delete the old address in place of the new address for the respondent debtor, and also noted then in his affidavit of 30 August 2002 that it contained another error in that the affidavit stated it was sworn at Penrith when it was correctly sworn at Bundall.

23. Mr O'Dea also gives evidence that he has had significant difficulties in effecting service of both of the bankruptcy notices upon the respondent debtor. In his oral evidence he outlined that he had on what he believed to be approximately seven occasions, either telephoned on the telephone number of the respondent debtor or attended at his premises and buzzed through on an intercom system of the respondent debtor in an endeavour to establish that he was home in the premises, gain entry to the premises and serve him with the documents and that he had been unsuccessful in so doing.

24. He says again in his affidavit of 30 August in paragraph 5 that he had further difficulties with respect to effecting service of the respondent debtor on 22 June and that he had attended on a number of occasions in the residential premises. On at least two occasions the front gate to the premises was locked preventing access to the front door and on 22 June he approached his residence from the adjoining property behind the residential premises and that he stood on the adjoining property overlooking the fence to the residential premises again observing the office study at the rear of those premises, that he saw the respondent debtor was inside the office study and obtained his attention.

25. He says that on this occasion, some six months after the December service in 2001 he was successful in having the respondent debtor come to the back fence and at that time he was clearly able to identify the respondent debtor and effect personal service of the notice upon him in accordance with his affidavit of service sworn on 25 June 2002. I have already indicated that the respondent debtor denies those facts by stating that he has never been served with a bankruptcy notice either in December or in June by Mr O'Dea.

26. Clearly there is procedure now set down in the regulations which provide for a number of methods of service. One of those is personal service, and if personal service is relied upon to satisfy the court in a creditor's petition that the bankruptcy notice has been served as required, then there is certain principles with respect to personal service that have been referred to me in the submissions of the applicant as being well founded principles as determined in various decisions of the Federal Court of Australia.

27. In particular, reference is made to a decision of Re Wong; ex parte Wong v Robinson [1995] FCA 805 which is unreported Federal Court decision of New South Wales, Sackville J delivered on 11 September 1995. It was submitted that it is not necessary for the personal service requirements that the document actually be physically handed to the respondent debtor and that in that case it was accepted by his Honour that it was not necessary for the commercial agent to specifically say that it was a creditor's petition that was being served and that it had been found by the court that the applicant had deliberately moved away in order to avoid taking possession of the documents. However he was satisfied she understood it was a creditor's petition that the commercial agent was attempting to serve.

28. I am of the view that decision is distinguishable from the facts which were outlined in the evidence of both Mr Montesalvo and Mr O'Dea with respect of the service of the notice of bankruptcy on 5 December 2001. In those circumstances Mr O'Dea's evidence taken at its highest is that he saw a person who had the same facial features as the respondent debtor in a room which he thought was an office or study next to a young woman which he now believes is the respondent debtor's daughter, and that he made eye contact with him and that he stated that he had the bankruptcy notice for you, Mr Montesalvo.

29. He conceded in cross-examination that he was unaware whether given the distance from the fence to the office and the fact that it was an office in an internal part of the home, the respondent debtor could have in fact heard the words that he spoke. His evidence is that the person he "thought" was Mr Montesalvo saw him drop the documents into the courtyard thereby, in his view, establishing that the person he conceded in cross- examination that he thought was Mr Montesalvo had unimpeded access to the documents and could have obtained them if he so wished.

30. In the decision of re Ditford; ex parte Deputy Commissioner of Taxation (1998) 19 FCR 347, Gummow J said at page 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 then rule 15 of the Bankruptcy Rules even though the process has not been left in what Patterson J described in Thompson v Pheney (1832) 1 Dowling's Practice Cases 441, 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 rule 15 as it then was.

31. That decision of course was before the amendments in 1996 to the rules which were replaced by the bankruptcy regulations. Those regulations now provide for alternative means of service other than personal service, and they provide relevantly that the documents can be left in an envelope marked with the person's name at the person's last known address. There is no explanation given by Mr O'Dea as to why he did not choose such means of service when clearly Mr Montesalvo's last known address was then known to him.

32. I am satisfied given that personal service was the method of service chosen in this instance and further that when one looks at the serious outcomes that flow to the respondent as to his legal status with respect to bankruptcy, the applicant must demonstrate on the balance of probabilities that the bankruptcy notice was served upon the respondent debtor on 5 December in a manner which brought that to the notice of the respondent debtor and allowed him by means of such personal service to have unimpeded and immediate access to the documents.

33. On the balance of probabilities I am satisfied that where there is demonstrated on the evidence of a process server before the court that there is in an affidavit of service which this court should be in a position to rely upon material errors of fact which go to material matters such as the very address at which a person is served and the very place at which the person signs and swears a document, that the court should indeed view his evidence very carefully where there is a dispute upon the evidence as to the circumstances of service of later process by that same process server and be satisfied on the balance of probabilities that the evidence with respect to service in fact is clear and unequivocal.

34. I am not for one moment making a finding of fact that Mr O'Dea has other than given evidence to the best of his ability in this court, however, process servers who are called upon to serve process are people that courts rely upon with respect to the service of process and particularly in relation to their evidence as to service of process. On a daily basis courts in this jurisdiction and other jurisdictions must rely upon the evidence given by process servers, often unchallenged by any other evidence to establish a basic premise of our legal system, proper and fair notice of proceedings to a respondent. It is an onerous responsibility that is borne to prove proper service of legal process and it is clearly the case that Mr O'Dea at its lowest has been very lax with respect to ensuring the truth of the evidence he gave in his affidavit of service sworn on 21 June and filed in relation to this matter.

35. I am satisfied that to leave a document in a courtyard where a process server believes that the person being served is the person required to be served but where he cannot be sure that it is in fact the respondent and that person has seen him leave the documents, but in circumstances where clearly that process server cannot be satisfied that the person hears the remarks that he makes to bring to his attention the nature of the documents served, does not properly satisfy the requirements of personal service.

36. On the balance of probabilities I am satisfied that the benefit of the doubt should be given to the respondent debtor in circumstances where such important outcome with respect to his legal status position into the future arise such as they do upon the service of a notice of bankruptcy.

37. As I have already indicated, I have not found it necessary in this decision to find that Mr O'Dea is a witness of no credit and I have not found it necessary to find that Mr Montesalvo is a witness of no credit. I have made this decision upon the evidence of Mr O'Dea himself, that is, that he left the documents by dropping them over the fence on

5 December 2001 into the courtyard of Mr Montesalvo and that at the time he clearly could not ascertain whether or not the words which he spoke to Mr Montesalvo indicating to him that he had another bankruptcy notice for you, Mr Montesalvo could in fact be heard by him.

38. I have taken into account in my findings that clearly if there are difficulties with service of process of important documents such as a bankruptcy notice, there are other avenues available to the creditor to ensure that proper service is effected, either under regulation 16.01 itself or under order 7 or the rules of the Federal Magistrates Court with respect to service that provide for an application for substituted service to be made to the court. Where clearly there were such issues in relation to service of such an important document, the creditor had available to it those other methods of service and there is no proper explanation before the court as to why those methods of service weren't availed.

39. I am satisfied therefore that the application of the applicant, for the reasons which I have already given, must fail and that the creditor's petition which was filed on 24 June 2002 should be dismissed.

40. In such an application costs will follow the cause. I am satisfied that the costs of the respondent should be paid by the applicant such cost to be agreed upon or as taxed.

I certify that the preceding forty (40) paragraphs are a true copy of the reasons for judgment of Rimmer FM

Associate:

Date: