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Croft v Becton Investments Management Ltd (No.2) [2010] FMCA 419 (18 June 2010)

Last Updated: 22 June 2010

FEDERAL MAGISTRATES COURT OF AUSTRALIA

CROFT v BECTON INVESTMENTS MANAGEMENT LTD (No.2)

BANKRUPTCY – Sequestration order – review of sequestration order of Registrar – whether failure to serve originating process – whether default judgment on which bankruptcy based a nullity.

PRACTICE AND PROCEDURE – BANKRUPTCY – Extension of time to file application to set aside sequestration order – factors for consideration.

EVIDENCE – Whether affidavit to be admitted into evidence where deponent unavailable for cross-examination.


Arvanitis v Citigroup Pty Ltd [2010] FMCA 415
Craig v Kanssen [1943] KB 256
Deputy Commissioner of Taxation v Barnes & Anor (No. 2) [2008] FMCA 1229
Jones v Dunkel [1959] HCA 8; (1959) 101 CLR 298
O’Meara v Hitwise Pty Ltd & Anor (2007) 160 FCR 518; [2007] FCAFC 114
Pattison v Hadjimouratis (2006) 155 FCR 226; [2006] FCAFC 153
Rafaraci v Pearce [2003] FCA 1307
Re Ditfort; Ex parte Deputy Commissioner of Taxation (NSW) (1988) 19 FCR 347
Re Marsh & Anor; Ex parte Marsh & Anor v Paramount Leisure Products Pty Ltd [1991] FCA 558; (1991) 32 FCR 482
Re Willshire-Smith; Ex parte Randle & Taylor Services Pty Ltd (1994) 48 FCR 371
Westlawn Finance Ltd v Bennell [2009] FMCA 915

Applicant:
RODNEY KIM CROFT

Respondent:
BECTON INVESTMENTS MANAGEMENT LTD

File Number:
PEG 67 of 2009

Judgment of:
Lucev FM

Hearing dates:
14 July, 4 August, 10 November and 14 December 2009

Date of Last Submission:
14 December 2009

Delivered at:
Perth

Delivered on:
18 June 2010

REPRESENTATION

The Applicant:
In person, and later Mr J. C. Vaughan (of Counsel)

Solicitors for the Applicant:
Murfett Legal

The Respondent:
Mr J. D. Maclaurin (of Counsel)

Solicitors for the Respondent:
Marks & Sands Lawyers

ORDERS

(1) The sequestration order made by Registrar Jan on 4 May 2009 be set aside.
(2) The respondent’s creditor’s petition dated 20 November 2008 be dismissed.
FEDERAL MAGISTRATES
COURT OF AUSTRALIA AT
PERTH

PEG 67 of 2009

RODNEY KIM CROFT

Applicant


And


BECTON INVESTMENTS MANAGEMENT LTD

Respondent


REASONS FOR JUDGMENT

Applications – for an extension of time and amended substantive application

  1. This is an application for review[1] under s.104(2) and (3) of the Federal Magistrates Act 1999 (Cth)[2] of the sequestration order[3] and order for costs made by a Registrar of this Court against the estate of the applicant, Rodney Kim Croft,[4] on 4 May 2009 under ss.52 and 32 of the Bankruptcy Act 1966 (Cth).[5] There is also an application for an extension of time in which to file the Review Application.[6]

Orders sought

  1. Following amendment, the Review Application seeks the following orders:
  2. The application for an order for an extension of time in which to file the Review Application no longer appears in the Review Application following amendment. That is probably because an application for review of the exercise of a power by a Registrar of this Court in bankruptcy proceedings must be made within 21 days,[7] and in this case the application was made 18 days after the exercise of the power by Registrar Jan to issue the Sequestration Order. The application is therefore within time.

Grounds of the Review Application

  1. The grounds of the Review Application are as follows:
    1. the General Procedure Claim issued by the respondent in the Magistrates Court of Western Australia – being the Originating Process[8] pursuant to which the respondent obtained the default judgment[9] which was used to found the bankruptcy notice[10] and debt relied on for the creditor’s petition – was not validly served on Mr Croft;
    2. the Default Judgment entered in the Magistrates Court was not validly entered; and
    1. the debt the subject of the Bankruptcy Notice has been paid.
  2. Ground 3 was not pressed by Mr Croft.

Issues

  1. The issues to be dealt with in this matter are as follows:
    1. whether the General Procedure Claim was served on Mr Croft; and
    2. if the General Procedure Claim was served on Mr Croft, whether the Default Judgment was validly entered.

Background facts

  1. The General Procedure Claim was lodged in the WA Magistrates Court on 27 October 2006. The General Procedure Claim alleged that Mr Croft breached obligations under a retail lease, and in particular had failed to pay rent and other charges in the sum of $36,228.79.[11]
  2. The respondent, Becton Investments Management Ltd,[12] alleges that the General Procedure Claim was personally served on Mr Croft at about 10.00am on 11 November 2006.[13] Alternatively, it is alleged that Mr Croft was personally served with the General Procedure Claim on 15 December 2006.[14]
  3. It is not in dispute that the Default Judgment was entered against Mr Croft on 28 December 2006 in the sum of $37,157.59.[15] An application to set aside the Default Judgment was made on 2 January 2007 by Mr Croft,[16] which application was dismissed on 20 April 2007.[17]
  4. The undated Bankruptcy Notice based upon the Default Judgment was personally served on Mr Croft on 4 October 2008.[18] There was no application to set aside the Bankruptcy Notice or to extend time for compliance with the Bankruptcy Notice.[19] On 6 December 2008 a copy of the creditors petition[20] dated 20 November 2008 was served on Mr Croft.[21] On 4 May 2009 a Registrar of this Court made the Sequestration Order against the estate of Mr Croft.[22] The Sequestration Order has as its basis the judgment debt in the Default Judgment.

Review Application – practice and procedure

  1. On an application for a review of a Registrar’s decision the Court:
    1. is engaged in a fresh proceeding;
    2. does not scrutinise the original reasons to ascertain error;
    1. makes its own decision on the merits of the case; and
    1. in applications for review of a sequestration order, requires the petitioning creditor to prove all necessary matters, including those specified in s.52(1) of the Bankruptcy Act.[23]
  2. Under s.104(3) of the FM Act the Court “may make any order or orders it thinks fit in relation to the matter in respect of which the power was exercised” by the Registrar. Such a power includes a power, in the present circumstances, to annul a bankruptcy under s.153B of the Bankruptcy Act.[24]

Service of Originating Process

Mr and Mrs Croft’s evidence of events of 11 November 2006

  1. Mr Croft, and his wife, Mrs Croft, both gave evidence that they were at the Gosnells Shopping Centre on 11 November 2006 at the time service of the General Procedure Claim is alleged by Becton Investments to have occurred at their home address. In particular, their evidence was that:
    1. on 11 November 2006, at about 9:00-9:15am, Mr and Mrs Croft left their home at 168 Douglas Road, Martin;[25]
    2. Mr and Mrs Croft drove for approximately 10 minutes to the Gosnells Shopping Centre on Albany Highway, Gosnells;[26]
    1. Mrs Croft drove because Mr Croft had the flu;[27]
    1. when Mr and Mrs Croft arrived at the Gosnells Shopping Centre Mrs Croft went to do the grocery shopping, and Mr Croft got out of the car to go to the chemist to have a prescription filled, but as he did so an old friend who he had known as a shearer in Bruce Rock over 20 years ago approached him and started a conversation;[28]
    2. Mr Croft continued to talk to his friend for some time, and eventually Mrs Croft returned from grocery shopping, then re-entered the shopping centre and came out again after some time to ask whether Mr Croft had been to the chemist to fill the prescription;[29]
    3. Mr Croft told Mrs Croft, in response to her question, that he had not yet been to the chemist, and so Mrs Croft took the prescription from Mr Croft and went to the chemist to fill the prescription, which was only able to be partially filled;[30]
    4. at 11:00am Mrs Croft was in the chemist and she knew it was 11:00am because the radio was on in the chemist, and she heard the presenter say that it was time for two minutes silence in commemoration of the end of World War I;[31]
    5. when Mrs Croft returned from the chemist she told Mr Croft that they should go home, and they returned home at about 11.30am[32] or “just before lunchtime”;[33] and
    6. Mr Croft was not served with any documents on 11 November 2006.[34]
  2. The accounts given by each of Mr and Mrs Croft, as set out immediately above, withstood cross-examination, and this served to reiterate rather than reduce the effect of the above evidence.[35]
  3. Mr Croft’s account of events on Remembrance Day 2006 was also enhanced by his ability to recall, in detail, when challenged in cross-examination, what it was that he was doing at 11.00am on Remembrance Day in 2007 and 2008.[36] Mr Croft’s credibility with respect to those answers, as they applied to Remembrance Day in 2006, 2007 and 2008, was also enhanced by the fact that the day is an important one in his family as his mother’s father and two brothers were killed and died from wounds at Gallipoli in World War I, his father and uncles served in World War II, with his father serving in Japan in Hiroshima and Nagasaki after the dropping of atomic bombs on those cities, and the death of uncles in New Guinea.[37] In that context, it is easy to understand why it is that Mr Croft would remember what it was that he was doing, and where he was when he was doing it, on Remembrance Day, and especially relatively recent Remembrance Days.
  4. Mr Croft also gave evidence that he had made arrangements in August/September 2006 with the Armadale Bailiff’s Office and given them his mobile phone details so that if anything needed to be served on him, they could arrange a time with him to do so, and that no such arrangement was made on 11 November 2006.[38]

Mr Smith’s evidence of events of 11 November 2006

  1. Prior to the hearing on 14 December 2009, Becton Investments applied for orders in the following terms:
  2. Order 1 above was not pursued by the respondent.
  3. Section 64(6) of the FM Act provides that where the deponent of an affidavit has been requested for cross-examination and does not attend the Court is to give the matter in the affidavit such weight as the Court thinks fit in the circumstances. In Deputy Commissioner of Taxation v Barnes & Anor (No. 2)[39] the Court observed that:
  4. After hearing short argument from both Counsel, the Court decided on 14 December 2009 that the affidavit of Mr Smith would be admitted into evidence without Mr Smith being made available for cross-examination, and with any question of weight to be placed on the affidavit evidence to be assessed by the Court.[41]
  5. In Mr Smith’s Affidavit, he deposed to the following:
    1. that on 13 November 2006, he executed a “Certificate of Proof of Service by Bailiff”,[42] certifying that he had personally served Mr Croft with the General Procedure Claim at 10:00am, 11 November 2006 by “handing the documents to the individual” at Lot 168, Douglas Road, Martin (which is the Croft’s home address) and signing as “Assistant Bailiff”;[43] and
    2. that on 12 March 2007, he signed an affidavit[44] confirming that on 11 November 2006, at around 10.00am, and in his capacity as an Assistant Bailiff, he had personally served a man answering to the name of “Rodney Kim Croft” by “handing the document to him”.[45]

No issue was taken with the authenticity of the above documents, but their veracity was challenged by Mr Croft.

  1. There is also in evidence a signed written statement (not sworn) by Mr Smith[46] indicating that on 11 November 2006 he “attended Lot 168 Douglas Rd, Martin and to the best of my knowledge served Rodney Kim Croft with a claim. As with all claims my procedure is to identify myself and leave claim with debtor or someone over the age of 18. I recall the person as being 40s and accepting the claim.”[47]

Resolving the conflict in evidence between Mr Smith and Mr and Mrs Croft

  1. There is a direct conflict in the evidence between Mr and Mrs Croft and Mr Smith. It is necessary for the Court to consider:
    1. the weight to be given to Mr Smith’s Affidavit; and
    2. the credibility of Mr and Mrs Croft,

before determining what did or did not occur on 11 November 2006 with respect to service of the General Procedure Claim on Mr Croft.

The weight to be given to Mr Smith’s evidence

  1. With respect to the weight to be given to Mr Smith’s Affidavit the Court takes into account that:
    1. Mr Smith was required to attend for cross-examination, but did not do so;[48]
    2. Mr Smith’s failure to attend for cross-examination denied Mr Croft the opportunity to cross-examine Mr Smith in relation to the issue of service on 11 November 2006;
    1. Mr Smith’s failure to attend for cross-examination by Mr Smith was sought to be explained by his absence in Queensland and the fact that he was not responding to attempts to contact him by telephone, and also to serve him with a subpoena to attend Court;[49]
    1. attempts by Becton Investments to secure Mr Smith’s attendance by telephone, and the issuance of a subpoena, were belated, the subpoena not issuing until 4 December 2009[50] in circumstances where Becton Investments’ lawyers knew, on 18 November 2009, that Mr Smith would be in Queensland from 7 December 2009,[51] and where the subpoena was not successfully served;[52]
    2. Mr Smith was not subpoenaed when he should have been, that is on 20 November 2009 when Mr Croft’s solicitors advised that he was required for cross-examination;[53]
    3. if Mr Smith had been subpoenaed arrangements could have been made to take his evidence from Queensland, either by telephone, or if he were in Brisbane, Townsville or Cairns by video link;
    4. in any event, the decision to have Mr Smith file an affidavit was belated, not being taken until after 10 November 2009, in circumstances where the issue of service in these proceedings was:
      1. always possibly going to arise as a live issue;[54] and
      2. a live issue following the amendment to the Review Application filed on 14 August 2009 asserting invalid service of the General Procedure Claim on Mr Croft;

and

  1. Mr Smith’s failure to attend Court to be cross-examined gives rise to an inference that his evidence would not have assisted Becton Investments.[55]
  1. Taking into account the above matters leads the Court to the view that:
    1. minimal weight ought to be attached to the evidence in Mr Smith’s Affidavit; and
    2. if the evidence in Mr Smith’s Affidavit is in conflict with other cogent credible evidence then no weight ought to be attached to that evidence which is the subject of the conflict.
  2. There are however also difficulties with, and minor inconsistencies in, the written evidence of Mr Smith. In relation to the identification of Mr Croft, the November 2006 Proof of Service Certificate gives no indication as to how Mr Croft was identified. Mr Smith’s Service Affidavit indicates that service was made “to a man answering to the name of ‘Rodney Kim Croft’”. Mr Smith’s Written Statement indicates that the person served was “to the best of my knowledge ... Rodney Kim Croft.” However, Mr Smith’s Written Statement does not indicate how that knowledge was obtained.
  3. There are also inconsistencies in relation to the method of service. The November 2006 Proof of Service Certificate and Mr Smith’s Service Affidavit both indicate that service was by hand. However Mr Smith’s Written Statement indicates that it was Mr Smith’s usual procedure to “leave claim with debtor”, and says nothing of how Mr Croft was actually served on this occasion or how the claim was left with him, notwithstanding that there is an assertion that the claim was “accepted” by the person served.
  4. The above inconsistencies do give rise to doubt in relation to the issue of service, and whether service was effected, or properly effected by Mr Smith on Mr Croft on 11 November 2006.
  5. In combination, these further factors reinforce the Court’s view[56] that minimal weight ought to be attached to the evidence in Mr Smith’s Affidavit, and that if the evidence in Mr Smith’s Affidavit is in conflict with other cogent credible evidence then no weight ought to be attached to that evidence which is the subject of the conflict.

Other evidence and the credibility of Mr and Mrs Croft

  1. It is fair to observe that neither Mr nor Mrs Croft were sophisticated witnesses.[57]
  2. Mrs Croft came across as straightforward. There were elements of her evidence which indicated that she was being truthful about the events of 11 November 2006, particularly when she gave evidence that:
    1. she wanted to leave home early on 11 November 2006 to buy chicken necks from the butcher for her dogs, and that she therefore remembers the time at which she and Mr Croft left home, because she was concerned that they were going to be too late to buy the chicken necks;[58] and
    2. she was in the chemist at 11.00am when an announcement was made on the radio with respect to the observance of two minutes silence for Remembrance Day.[59]
  3. Both of the above matters are matters which would cause Mrs Croft to remember the events of 11 November 2006, and what occurred on that day. That is particularly so in circumstances where Mrs Croft was, approximately six and a half weeks later, told by Mr Croft that it was alleged that he had been served with documents at home at 10.00am on 11 November 2006, something which struck Mrs Croft at the time as an “unfair” assertion because she knew that she and Mr Croft were not home to be served at that time on that day.[60]
  4. The Court was invited to find that Mrs Croft was “evasive” in her evidence. Mrs Croft sometimes answered a question with a question, but usually when she did so it was an almost reticent seeking of clarification, rather than any form of evasiveness. That reticence is readily explainable by her clear lack of understanding of the legal process and in particular the purpose and nature of cross-examination. There were also minor inconsistencies between her evidence and that of Mr Croft as to the time at which they left home and arrived home after being at the Gosnells Shopping Centre. Those inconsistencies are however within a band of 15 minutes, not hours,[61] and are more consistent with each of Mr and Mrs Croft having an independent recollection of a time, rather than any contrivance as to that evidence or any gross error in that evidence. In any event, the time difference as to when Mr and Mrs Croft left home is so minimal as to be of little moment, and, in any event not material to alleged service by Mr Smith at a time 45 minutes to an hour later. The Court finds that Mrs Croft was a truthful witness.
  5. Mr Croft, as a person who had been involved in these proceedings as a self-represented litigant, had a slightly better understanding of the legal process than Mrs Croft. But as his performance as a self-represented litigant, and as a witness, proved, he has a limited understanding of legal and hearing process. This caused Mr Croft to make some unwarranted assumptions about issues and process. So, for example, because he asserted that he had not been served with the General Procedure Claim on 11 November 2006, and he then said no more about it, he gave evidence that he assumed that someone, be it Becton Investments or a court, would inquire into that issue.[62] Mr Croft wrongly perceived proceedings as more inquisitorial than adversarial. In his evidence Mr Croft had a tendency to mix his answers with submissions which he thought might assist his case. It is clear that he did so not merely for the sake of doing so, but rather because that is what he thought it was proper and honest to do.[63] Mr Croft was occasionally argumentative, but not unduly so, and not, in the Court’s view, in such a way as to affect the veracity of his evidence. Moreover, the manner of cross-examination was occasionally such as to lend itself to argumentative responses.
  6. The Court was invited not to believe Mr Croft in relation to a variety of incidents, particularly with respect to whether or not he:
    1. had been served on 11 November 2006; and
    2. believed that he had been served on 15 December 2009 when he said he had agreed to accept service on behalf of Mrs Croft.
  7. In relation to service on 11 November 2006 Mr Croft was constant in his assertion that he had not been served. That constancy commenced as soon as Mr Croft says he found out that Default Judgment had issued. The evidence is that:
    1. on 29 December 2006 Mr Croft told the Registry Clerk at the WA Magistrates Court Perth Registry immediately that he had not been served on 11 November 2006 at 10.00am, which was when, so the Registry Clerk told Mr Croft, the WA Magistrates Court records indicated he had been served with the General Procedure Claim; and
    2. Mr Croft was consequently advised by the Registry Clerk at the WA Magistrates Court Perth Registry that he could apply to set aside the Default Judgment.[64]
  8. Mr Croft proceeded to apply to set aside the Default Judgment, again asserting that he had not been served. In an affidavit sworn on 2 January 2007 to set aside the Default Judgment against him Mr Croft’s first reason is that “we were not served correctly.”[65] By 2 January 2007 Mrs Croft, Mr Croft’s wife of 35 years, had also been served with the General Procedure Claim and it is understandable that he might sometimes use “we”, in that context.[66] In a further affidavit sworn on 17 April 2007 Mr Croft said that he swore the affidavit “in support of my application to set aside [D]efault [J]udgment because I was not served”.[67] It was an assertion maintained in the face of cross-examination in these proceedings.[68] It was also an assertion corroborated by Mrs Croft.[69]
  9. Mr Croft gave evidence about his application to set aside the Default Judgment, as follows:
    1. on 2 January 2007 he applied to the Magistrates Court set aside the Default Judgment;
    2. the first hearing date of the set-aside application listed for 19 January 2007 was adjourned;
    1. on 16 February 2007 Becton Investments objected to the orders sought by him;
    1. he recalled at one hearing:
      1. the Magistrate asking Becton Investments’ lawyers where the affidavit of service of the General Procedure Claim was, and that the response was to the effect that the lawyers did not have a copy of it on them; and
      2. the hearing was adjourned indefinitely; and
    2. as far as he was aware, his set-aside application was never determined by the WA Magistrates Court.[70]
  10. Becton Investments’ solicitor asserts that following the hearing on 19 January 2007 the matter was adjourned to subsequent hearings on 9 and 26 February 2007, 19 March 2007, 2 and 20 April 2007.[71] The solicitor then asserts that:
  11. There is an order of the WA Magistrates Court which says “Application lodged 2/1/07 dismissed.”[73]
  12. There is no evidence, and it is not apparent from the form of the Default Judgment Set Aside Dismissal Order as to why the WA Magistrates Court dismissed Mr Croft’s application to set aside the Default Judgment. In an affidavit sworn on 17 April 2007 Mr Croft swore the affidavit “in support of my application to set aside [D]efault [J]udgment because I was not served”,[74] but also said that he was asking the Court to set aside the Default Judgment so that he could join the receivers and managers to the proceedings. It is not apparent that the evidence of Mr Croft or Mr Smith was considered or tested before the WA Magistrates Court. The evidence does not indicate on what basis the Default Judgment Set Aside Dismissal Order was made. Becton Investments’ solicitor’s evidence concerning the hearing on 20 April 2007 in the WA Magistrates Court:
    1. indicates only that submissions were made, but not what submissions; and
    2. does not indicate what, if any, reasons were given by the WA Magistrates Court Registrar in relation to the Default Judgment Set Aside Dismissal Order.
  13. Mr Croft is clearly mistaken as to the final outcome of his application to set aside the Default Judgment. However, having regard to his evidence and lack of understanding of legal and hearing process, the Court is not persuaded that Mr Croft understood that the Default Judgment Set Aside Dismissal Order had been made.[75]
  14. It was suggested that Mr Croft ought not be believed with respect to when he first became aware of the Default Judgment because he swore an affidavit in which he indicated that he first became aware of the Default Judgment on 27 December 2006.[76] However, under cross-examination, Mr Croft gave evidence that:
    1. the date was inserted in error, and that the error in the dates was one made by his daughter who assisted him with the preparation of the affidavit; and
    2. he first became aware of the Default Judgment entered on 28 December 2006 when he attended the WA Magistrates Court Perth Registry on 29 December 2006.[77]
  15. The error aside, Mr Croft’s evidence has been consistent throughout that he first became aware of the Default Judgment on 29 December 2006 before applying to set aside that Default Judgment on 2 January 2007. The admission by Mr Croft concerning the error was a candid and believable admission. There is no reason for the Court to doubt Mr Croft’s evidence that the reference to 27 December 2006 is an error.

The events of 15 December 2006

  1. Becton Investments also submitted, forcibly, that Mr Croft’s evidence was unreliable because he had been served on 15 December 2006 with the General Procedure Claim, and that his version of events, that that service was accepted by him on behalf of Mrs Croft, was false, and designed to avoid any finding that he had in fact been served with the General Procedure Claim.
  2. Mr Croft’s evidence is that on 15 December 2006 the Armadale Bailiff’s Office telephoned him to arrange a time to serve his wife with documents. He arranged with the Armadale Bailiff to meet at the front gate at 168 Douglas Road in Martin. Mr Croft says that the Bailiff arrived at about 10.30am and that Mr Croft introduced himself to the Bailiff. Mr Croft says that the Bailiff handed him some documents, and in response to a question from Mr Croft, indicated that it was not necessary for Mr Croft to sign for the documents. Mr Croft looked at the documents and then asked the Bailiff if he had any documents for Mr Croft personally. Mr Croft said that the Bailiff responded with words to the effect that there were no documents for Mr Croft because there were doubts as to whether or not Mr Croft had been served with the General Procedure Claim at all because the person who was supposed to have served him (by inference a reference to Mr Smith) could not remember whether Mr Croft had been served or not.[78] Cross-examined on this issue Mr Croft maintained that the Bailiff asserted that the documents were only for service upon Mrs Croft, and not Mr Croft.[79]
  3. Mrs Croft was unable to assist the Court with what actually happened on 15 December 2006 when Mr Croft met the Assistant Bailiff. Mrs Croft remained inside the house, isolated from events at the front gate.[80]
  4. The suggestion that the service of documents on 15 December 2006 was, or was intended to be, service upon Mr Croft is refuted by evidence from the Assistant Bailiff who served the documents. The Certificate of Proof of Service by Bailiff dated 15 December 2006[81] and tendered into evidence in these proceedings, by consent, provides as follows:
  5. The December 2006 Proof of Service Certificate corroborates the version of events given by Mr Croft, save as to:
    1. the time of service; and
    2. the fact that it was the Assistant Bailiff rather than the Bailiff who attended.
  6. Although the documents to be served were handed to Mr Croft it was for the purposes of service on Mrs Croft, and the Assistant Bailiff has certified that the documents were served on Mrs Croft. The Assistant Bailiff was not called to give evidence by Becton Investments, and the December 2006 Proof of Service Certificate does not assert that the documents were served on Mr Croft.
  7. In the circumstances, the attack on Mr Croft’s credibility by reason of the assertion that he knew that he was being served rather than Mrs Croft on 15 December 2006 fails. That assertion is inconsistent with Mr Croft’s evidence, and with the December 2006 Proof of Service Certificate sworn by the Assistant Bailiff.
  8. There is therefore no evidence that the General Procedure Claim was served on Mr Croft on 15 December 2006.

Conclusion re credibility of Mr and Mrs Croft and conflict with Mr Smith

  1. In the Court’s view Mr Croft was basically a truthful witness, but particularly so as to the issue of alleged service of the General Procedure Claim on 11 November 2006 and 15 December 2006.
  2. Having regard to the matters set out above, there is no cause, in the Court’s view, to doubt the credibility of the evidence given by either Mr or Mrs Croft. Where Mr and Mrs Croft’s evidence conflicts with that of Mr Smith, Mr Smith’s evidence is to be given no weight for the reasons set out above.[83]

Conclusion – whether originating process served

  1. Having regard to:
    1. the Court’s findings on the credibility of Mr and Mrs Croft;
    2. the weight to be attached to Mr Smith’s evidence;
    1. the evidence of Mr and Mrs Croft concerning the events of 11 November 2006 and 15 December 2006, and
    1. the contents of the December 2006 Proof of Service Certificate,

the Court finds that the General Procedure Claim was not served on Mr Croft on 11 November 2006 or 15 December 2006.

Law re service of originating process

  1. In Re Marsh & Anor; Ex parte Marsh & Anor v Paramount Leisure Products Pty Ltd[84] the respondent had petitioned for a sequestration order against the applicants because of the applicant’s failure to satisfy a judgment debt in accordance with the terms of a bankruptcy notice. At the hearing of the petition before a Deputy District Registrar of the Federal Court it was established that the applicants had not been served with the originating process upon which the judgment was founded. The Deputy District Registrar nevertheless proceeded to make a sequestration order. The matter came before a single Judge of the Federal Court on an application for review of the sequestration order. In Marsh the Federal Court cited Craig v Kanssen[85] where it was said:
  2. In Kanssen the English Court of Appeal went on to say that:
  3. In Kanssen the insufficiency of the affidavit of service was that the summons was not sent to the correct address for service of the defendant.[88]
  4. The Federal Court in Marsh went on to observe that one difficulty in applying Kanssen was “that rules providing for judgment in default of appearance do not ordinarily stipulate actual service as an express condition of the right to enter judgment.”[89] Examples were given from the Rules of the Supreme Court of Victoria and the Queensland District Court. The Federal Court went on to observe that:
  5. The Federal Court then said that even if the preceding view was not correct that the sequestration order still ought not be made in the exercise of the discretion, that is, that there would be sufficient cause under s.52(2)(b) of the Bankruptcy Act not to make the sequestration order where a default judgment founding the bankruptcy motion was entered although the proceedings were not served.[91] The Federal Court concluded that where it “has found that there was simply no service of originating process, that would appear to be a sufficient cause for declining to make the Sequestration Order.”[92]
  6. The result was not one which the Federal Court necessarily considered satisfactory, because the Federal Court was not necessarily persuaded that there was not a debt due, but because the judgment relied on was a nullity it concluded that the application for review “must succeed” and the sequestration order was to be set aside.[93]
  7. In Re Willshire-Smith; Ex parte Randle & Taylor Services Pty Ltd[94] a creditors petition for a sequestration order was opposed by the debtor on the ground that the claim upon which the judgment debt in the bankruptcy notice was founded had not been served on the debtor. Under the rules of the South Australian Magistrates Court the Registrar of the South Australian Magistrates Court had sent the claim by post to the debtor at the most recent, but incorrect, address supplied by the creditor to the Registrar. This was done by way of service, and the rules provided that a person was taken to be served two business days after a document was sent by post.
  8. The Federal Court made a factual finding that because of the sending of the claim to the wrong address the debtor was unaware of the action until the bankruptcy notice was served on him.[95] The Federal Court observed that:
  9. The Federal Court said that the rules with respect to service by post were rules the purpose of which was to fix a time for service, not to remove the requirement for effective service.[97]
  10. The Federal Court went on to observe that:
  11. The Federal Court also said that a default judgment should be treated as a nullity provided there “is no rule of court or other provisions which deem service to have occurred in the events which happened.”[99]
  12. The Federal Court also agreed with the observations in Marsh that even if the default judgment is not a nullity, if it can be shown that judgment was entered although the proceedings were not served a court exercising bankruptcy jurisdiction should not in the exercise of its discretion make a sequestration order.[100]
  13. Marsh and Willshire-Smith were followed in Rafaraci v Pearce[101] where the Federal Court was dealing with several service issues, but principally whether service had been properly made in relation to a New South Wales District Court statement of claim giving rise to the judgment debt.[102] The Federal Court observed that:
  14. The essence of the Marsh, Willshire-Smith and Rafaraci line of authority is that if it is found that the originating process giving rise to a default judgment was not served, then the default judgment is a nullity, and a federal court exercising bankruptcy jurisdiction will not make a sequestration order on the basis of such a default judgment, unless there is a legislative provision or rule of a court which deems service to have occurred in the events which happened.

Consideration – service of originating process

  1. For reasons set out above, the Court is satisfied that the originating process, the General Procedure Claim, which gave rise to the Default Judgment was not served on Mr Croft on 11 November 2006, and therefore the Default Judgment is a nullity, unless there is a legislative provision or rule of a court which deems service of the Default Judgment to have occurred “in the events which happened”.[104]
  2. In relation to service on 11 November 2006 Becton Investments relies upon r.103(3) of the Magistrates Court (Civil Proceedings) Rules 2005 (WA)[105] which provides that a Certificate of Proof of Service is “admissible as evidence and, in the absence of proof to the contrary, is proof that the document was served by the enforcement officer”. It suffices to observe that, in the events which happened, there is proof that the General Procedure Claim was not served by Mr Smith on 11 November 2006. Therefore, r.103(3) of the WA Magistrates Court Rules does not affect the nullity of the Default Judgment.
  3. In the alternative, Becton Investments relied upon the fact that, on 15 December 2006, Mr Croft accepted service of a copy of the General Procedure Claim on behalf of his wife. Rule 105 of the WA Magistrates Court Rules is relied upon. Rule 105 is in the following terms:
  4. Having regard to “the events which happened”[106] Mr Croft was not served on 15 December 2006. This is because the Assistant Bailiff was intending “to serve a document on an individual personally”, that individual being Mrs Croft and not Mr Croft. Service on Mrs Croft was effected by the means prescribed in r.105(d) of the WA Magistrates Court Rules, and attested to in those terms by the Assistant Bailiff. By serving Mrs Croft, and attesting to that, the Assistant Bailiff cannot have served Mr Croft.[107] Further, Mr Croft did not accept service for himself. Mr Croft accepted service for Mrs Croft: he said in evidence “they [the documents] were for my wife”.[108] The December 2006 Proof of Service Certificate also makes that clear. Service on Mrs Croft cannot be service on Mr Croft, particularly where service is of “a document” and that document is served “on an individual personally”. Therefore, Becton Investments’ argument based on r.105 of the WA Magistrates Court Rules must fail.
  5. The Court also considers that it can be inferred that Mr Croft would not have sought to avoid service in any event. The evidence shows that he:
    1. had given to the Armadale Bailiff his mobile telephone number so as to facilitate service of documents on him;[109]
    2. was prepared to meet the Bailiff or one of his officers to accept service of documents, albeit that on the occasion he did so it was service upon Mrs Croft.[110]

To the extent that there is a suggestion that Mr Croft was seeking to avoid service of the General Procedure Claim the Court rejects that suggestion.

  1. Becton Investments also sought to distinguish the Marsh, Willshire-Smith and Rafaraci line of authority on the basis that in those cases the debtor did not become aware of the action until after the bankruptcy notice was served; whereas, in this case, Mr Croft knew of the Default Judgment prior to the Bankruptcy Notice being served and took action to set aside the Default Judgment, which action failed.[111]
  2. The Marsh, Willshire-Smith and Rafaraci line of authority provides that where service has not been properly made, or where there is some doubt about whether service was made, a default judgment founding a bankruptcy notice is a nullity. Further, this is the primary position: the fact that the debtor did not become aware of the action against him until the bankruptcy notice was served is not the distinguishing factor. It is simply a fact in the course of the debt recovery litigation. So too is any application to set aside a default judgment. The principle is that if the claim or originating process is not served, and default judgment is obtained in relation to the claim or process which was not served, that default judgment is, for bankruptcy purposes, a nullity and no sequestration order ought to be made, unless there is a legislative provision or rule of a court which deems service of the Default Judgment to have occurred, in the events that happened. Therefore, the attempts by Becton Investments to distinguish the Marsh, Willshire-Smith and Rafaraci line of authority must fail. Whilst the factual position in this matter is different because of Mr Croft becoming aware of the Default Judgment before the Bankruptcy Notice issued the applicable principle still renders the Default Judgment a nullity because of the failure to serve the General Procedure Claim. The Default Judgment was already a nullity by the time that Mr Croft came to have knowledge of its existence.
  3. Even if the Default Judgment is not a nullity a sequestration order ought not issue in the circumstances of this case there being “sufficient cause” not to do so in the exercise of the discretion under s.52(2)(b) of the Bankruptcy Act, by reason of the fact that Mr Croft has proved in these proceedings that the General Procedure Claim was not served.
  4. There is a further reason why the purported service on Mr Croft on 15 December 2006 cannot have been service of the General Procedure Claim so as to found the Default Judgment. That is because the Default Judgment application was made to the WA Magistrates Court on 28 November 2006.[112] Therefore, the application which actually founded the Default Judgment did not itself rely upon service on 15 December 2006, as the WA Magistrates Court Registry Clerk seemingly pointed out to Mr Croft on 29 December 2006.[113] Further, even if it had done so, the Default Judgment could not have issued on 28 December 2006, because Mr Croft was still within the 14 day period provided under the WA Magistrates Court Rules to file a response.[114]
  5. In this case the Court is satisfied that the General Procedure Claim was not served on Mr Croft, and therefore the Default Judgment is a nullity for bankruptcy purposes (and remains so notwithstanding the Default Judgment Set Aside Dismissal Order). Therefore, no sequestration order ought to be made in these proceedings, and the Sequestration Order which was made by the Registrar on 4 May 2009 ought to be set aside, and the Creditors Petition be dismissed. Even if the Default Judgment is not a nullity the same result follows because the Court will exercise its discretion not to make a sequestration order by reason of the provisions of s.52(2)(b) of the Bankruptcy Act for reasons set out above.[115]

Entry of default judgment

  1. In view of the conclusion reached above it is unnecessary to consider this ground (ground 2).

Payment of the judgment debt

  1. This ground (ground 3) was not pressed by Mr Croft.

Conclusion and orders

  1. The Court has concluded that:
    1. the Default Judgment is a nullity because the General Procedure Claim was not served on Mr Croft, and therefore no sequestration order ought to have been made; and
    2. even if the Default Judgment is not a nullity, the failure to serve the General Procedure Claim means that there is other sufficient cause under s.52(2)(b) of the Bankruptcy Act for not making the Sequestration Order in these proceedings,
  2. It follows from the above conclusions that:
    1. the Sequestration Order made by the Registrar on 4 May 2009 must be set aside; and
    2. the Creditors Petition must be dismissed.

There will be orders accordingly.

  1. The Court will hear the parties as to costs.

I certify that the preceding 84Error! Style not defined.!Syntax Error, !Error! Style not defined.Error! Style not defined.!Syntax Error, !eighty-foureighty-four (84) paragraphs are a true copy of the reasons for judgment of Lucev FM


Associate:


Date: 18 June 2010

[1] “Review Application”.
[2] “FM Act”.
[3] “Sequestration Order”.
[4] “Mr Croft”.
[5] “Bankruptcy Act”.
[6] FM Act, s.104(2)(b).
[7] Federal Magistrates Court (Bankruptcy) Rules 2006 (Cth), r.2.03(1).
[8] In Magistrates Court of Western Australia (“WA Magistrates Court”) case no. 15501 of 2006 (“General Procedure Claim”).
[9] “Default Judgment”.
[10] “Bankruptcy Notice”.
[11] Affidavit of Rodney Kim Croft, sworn 3 August 2009, Annexure RKC3 (“Mr Croft’s August 2009 Affidavit”).
[12] “Becton Investments”.
[13] Affidavit of Robert Smith, sworn 1 December 2009, Annexure RS1 (“Mr Smith’s Affidavit”).
[14] See Respondent’s Supplementary Submission; also Transcript 14 December 2009 at 58-59 and
91-92.
[15] Mr Croft’s August 2009 Affidavit, Annexure RKC4.
[16] Affidavit of Belinda Woan Zhi Wong, sworn 6 November 2009, Annexure BW3 (“Ms Wong’s November 2009 Affidavit”).
[17] Ms Wong’s November 2009 Affidavit, para.12 and Annexure BW7.
[18] Affidavit of Belinda Woan Zhi Wong, sworn 9 July 2009, Annexure BW1. (“Ms Wong’s July 2009 Affidavit”).
[19] Ms Wong’s July 2009 Affidavit, Annexure BW2.
[20] “Creditors Petition”.
[21] Ms Wong’s July 2009 Affidavit, Annexure BW3.
[22] Affidavit of Rodney Kim Croft, sworn 25 June 2009, part of Annexure RKC 3.
[23] Pattison v Hadjimouratis (2006) 155 FCR 226 at 235 per Jacobson J and 251-252 per Lander J; [2006] FCAFC 153 at para.43 per Jacobson J and para.156 per Lander J (“Pattison”); O’Meara v Hitwise Pty Ltd & Anor [2007] FCAFC 114; (2007) 160 FCR 518 at 521 per Kiefel J, Sundberg and Gyles JJ; [2007] FCAFC 114 at para.9 per Kiefel J, Sundberg and Gyles JJ.
[24] Pattison FCR at 231-232 per Nicholson J and 237 per Jacobson J; FCAFC at para.13 per Nicholson J and para.63 per Jacobson J.
[25] Affidavit of Rodney Kim Croft, sworn 23 October 2009, para.4 (“Mr Croft’s October 2009 Affidavit”); affidavit of Janice Ann Croft, sworn 23 October 2009, para.4 (“Mrs Croft’s Affidavit”).
[26] Mr Croft’s October 2009 Affidavit, para.6; Mrs Croft’s Affidavit, para.4.
[27] Mr Croft’s October 2009 Affidavit, para.5.
[28] Mr Croft’s October 2009 Affidavit, paras.7-8; Mrs Croft’s Affidavit, paras.6 and 8.
[29] Mr Croft’s October 2009 Affidavit, paras.11-15; Mrs Croft’s Affidavit, paras.9-12.
[30] Mr Croft’s October 2009 Affidavit, paras.15-17; Mrs Croft’s Affidavit, paras.12-13.
[31] Mrs Croft’s Affidavit, paras.14-15.
[32] Mr Croft’s October 2009 Affidavit, paras.18 and 20.
[33] Mrs Croft’s Affidavit, para.18.
[34] Mr Croft’s October 2009 Affidavit, para.21; Mrs Croft’s Affidavit, para.19.
[35] Transcript, 14 December 2009 at 17-20, 27-28, 40-45 and 48 (Mr Croft) and 65-74 and 79 (Mrs Croft).
[36] Transcript, 14 December 2009 at 17-18.
[37] Transcript, 14 December 2009 at 61.
[38] Mr Croft’s October 2009 Affidavit, paras.22 and 24.
[39] [2008] FMCA 1229 (“Barnes (No. 2)”).
[40] Barnes (No. 2) at para.33 per Lucev FM. See also Westlawn Finance Ltd v Bennell [2009] FMCA 915 at para.36 per Lloyd-Jones FM.
[41] Transcript, 14 December 2009 at 4.
[42] “November 2006 Proof of Service Certificate”.
[43] Mr Smith’s Affidavit, Annexure RS1.
[44] “Mr Smith’s Service Affidavit”
[45] Mr Smith’s Affidavit, Annexure RS2.
[46] “Mr Smith’s Written Statement”.
[47] Ms Wong’s November 2009 Affidavit, Annexure BW4.
[48] Affidavit of Belinda Woan Zhi Wong, sworn 11 December 2009, para.17 and Annexure BW2 (“Ms Wong’s December 2009 Affidavit”).
[49] Ms Wong’s December 2009 Affidavit, paras.10-16 and 29-32.
[50] Ms Wong’s December 2009 Affidavit, para.29.
[51] Ms Wong’s December 2009 Affidavit, para.13.
[52] Ms Wong’s December 2009 Affidavit, para.30.
[53] See para.24(a) and footnote 48 above.
[54] See para.36 and footnotes 65 and 67 below. See also Mr Croft’s submission at Transcript, 14 July 2009 at 67: “[Becton Investments] ... got a ruling against me without me even knowing about it.”
[55] Jones v Dunkel (1959) 101 CLR 298.
[56] See para.25 above.
[57] Observations to this effect were made by the Court with respect to Mr and Mrs Croft at hearing: see Transcript, 14 December 2009 at 89 and 93.
[58] Transcript, 14 December 2009 at 65.
[59] See para.13(g) above.
[60] Transcript, 14 December 2009 at 67 (see also 73).
[61] Transcript, 14 December 2009 at 41.
[62] Transcript, 14 December 2009 at 27 and 29.
[63] Transcript, 14 December 2009 at 31-32.
[64] Mr Croft’s October 2009 Affidavit, paras.34-35.
[65] Affidavit of Rodney Kim Croft, sworn 2 January 2007, para.2, being Annexure BW3 to Ms Wong’s November 2009 Affidavit.
[66] Transcript, 14 December 2009 at 51.
[67] Affidavit of Rodney Kim Croft, sworn 17 April 2007, para.2, being part of Annexure BW8 to Ms Wong’s November 2009 Affidavit (“Mr Croft’s April 2007 Affidavit”).
[68] See Transcript, 14 December 2009 at 27, 28, 29, 30, 39, 44, 48 and 49.
[69] Transcript, 14 December 2009 at 69-74.
[70] Mr Croft’s October 2009 Affidavit, paras.39-43; Transcript, 14 December 2009 at 32-34 and 37.
[71] Ms Wong’s November 2009 Affidavit, paras.6-12.
[72] Ms Wong’s November 2009 Affidavit, para.12.
[73] Ms Wong’s November 2009 Affidavit, Annexure BW 7 (“Default Judgment Set Aside Dismissal Order”).
[74] See para.37 above.
[75] Transcript, 14 December 2009 at 33.
[76] Mr Croft’s April 2007 Affidavit, para.4(e).
[77] Transcript, 14 December 2009 at 23 and 26.
[78] Mr Croft’s October 2009 Affidavit, paras.25-30 and Transcript, 14 December 2009 at 49-55.
[79] Transcript, 14 December 2009 at 15 (“I got served with the claim for the debt for my wife, not me”) and 48-55.
[80] Transcript, 14 December 2009 at 49-50 and 75-76.
[81] “December 2006 Proof of Service Certificate”; Exhibit 19.
[82] December 2006 Proof of Service Certificate.
[83] See paras.24-25 above.
[84] [1991] FCA 558; (1991) 32 FCR 482 (“Marsh”).
[85] [1943] KB 256 (“Kanssen”).
[86] Kanssen at 262 per Lord Greene MR (with whom Goddard LJ agreed: at 263), cited in Marsh at 484 per Pincus J.
[87] Kanssen at 262-263 per Lord Greene MR.
[88] Kanseen at 263 per Lord Greene MR.
[89] Marsh at 484 per Pincus J.
[90] Marsh at 484-485 per Pincus J.
[91] Marsh at 485 per Pincus J.
[92] Marsh at 485 per Pincus J.
[93] Marsh at 485 per Pincus J.
[94] (1994) 48 FCR 371 (“Willshire-Smith”).
[95] Willshire-Smith at 374 per von Doussa J.
[96] Willshire-Smith at 374-375 per von Doussa J.
[97] Willshire-Smith at 376-377 per von Doussa J.
[98] Willshire-Smith at 377 per von Doussa J.
[99] Willshire-Smith at 380 per von Doussa J.
[100] Willshire-Smith at 381 per von Doussa J.
[101] [2003] FCA 1307 at para.24 per Tamberlin J (“Rafaraci”).
[102] Rafaraci at para.2 per Tamberlin J.
[103] Rafaraci at para.24 per Tamberlin J.
[104] Willshire-Smith at 380 per von Doussa J.
[105] “WA Magistrates Court Rules”.
[106] Willshire-Smith at 380 per von Doussa J.
[107] Re Ditfort; Ex parte Deputy Commissioner of Taxation (NSW) (1988) 19 FCR 347; Arvanitis v Citigroup Pty Ltd [2010] FMCA 415.
[108] Transcript, 14 December 2009 at 51.
[109] Transcript, 14 December 2009 at 46.
[110] Transcript, 14 December 2009 at 15.
[111] See paras.37-40 above.
[112] Exhibit 20.
[113] See para.36(a) above.
[114] WA Magistrates Court Rules, r.9(1).
[115] See paras.76-78 above.

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