Baycorp Collection PDL (Australia) Pty Ltd v Osborne [2010] FMCA 719 (8 September 2010)

Last Updated: 6 October 2010

FEDERAL MAGISTRATES COURT OF AUSTRALIA

BAYCORP COLLECTION PDL (AUSTRALIA) PTY LTD v OSBORNE

[2010] FMCA 719

BANKRUPTCY – Sequestration order – act of bankruptcy – procedural irregularities – service of bankruptcy notice – amendment of creditor’s petition – initiating application being a nullity.

Bankruptcy Act 1966 (Cth)

Carlton International PLC & Anor v Crayford Freight Services Limited & Ors [1997] FCA 726 Crayford Freight Service Ltd v Coral Seatel Navigation Co & Ors [1998] FCA 263 Dorrough v Bank of Melbourne Limited [1996] FCA 816 James v Deputy Commissioner of Taxation [1957] HCA 36; [1957] 97 CLR 23 Re Ditfort; ex parte Deputy Commissioner of Taxation (1988) 19 FCR 347 Weldon v Neal [1887] LR 19 QBD 394

Applicant:

BAYCORP COLLECTION PDL (AUSTRALIA) PTY LTD

Respondent:

RAYMOND H OSBORNE

File Number:

BRG 608 of 2009

Judgment of:

Burnett FM

Hearing date:

8 September 2010

Date of Last Submission:

8 September 2010

Delivered at:

Brisbane

Delivered on:

8 September 2010

REPRESENTATION

Counsel for the Applicant:

Solicitors for the Applicant:

Clarke Kann Lawyers

There was no appearance by or on behalf of the Respondent

ORDERS

(1) That the application filed 9 September 2009 be dismissed.

FEDERAL MAGISTRATES COURT OF AUSTRALIA AT BRISBANE

BRG 608 of 2009

BAYCORP COLLECTION PDL (AUSTRALIA) PTY LTD

Applicant

and

RAYMOND H. OSBORNE

Respondent

REASONS FOR JUDGMENT

(Revised from transcript)

Introduction

1. This is a creditor’s application for sequestration of the respondent, Raymond Osborne. The application itself is, in my view, resplendent with procedural difficulties constituted by errors and omissions in respect of various matters required to be demonstrated in the course of an application of this kind.
2. By way of background, the applicant obtained a judgment in the local court of New South Wales against the respondent on 21 November 2008 in the sum of $12,819.44. A bankruptcy notice issued on
   15 December 2008 in respect of that judgment sum.
3. The first purported service of that notice was said to have been effected on 16 July 2009. It is significant to note that, in this regard, the service of the bankruptcy notice was after six months beyond the date of issue, the time for service of the notice not having been extended: Bankruptcy Regulation 4.02A.
4. There are further issues in relation to service, which I will address shortly. In any event, following the purported service of the bankruptcy notice, a further 21 days passed without the respondent taking any action, and it follows that on 9 September 2009 the applicant presented its first creditor’s petition.
5. It appears that, some time after this, the applicant realised that the bankruptcy notice which had been served had not been extended beyond its original date of issue and, to that end, it was not efficacious.
6. It subsequently made an application for an extension of time for the service of the bankruptcy notice which was granted by the Official Receiver on 5 November 2009. The Official Receiver extended the time for service of the bankruptcy notice to 15 December 2009. The extended bankruptcy notice was subsequently served within the extended time.
7. There was a failure by the respondent to comply with the extended bankruptcy notice and the applicant submits that that failure constituted the relevant act of bankruptcy, which was then alleged to have been committed on 7 December 2009.
8. On 23 February 2010 the applicant filed an amended creditor’s petition seeking to rely upon the act of bankruptcy allegedly committed on 7 December 2009. On 6 April 2010 that amended creditor’s petition together with all supporting material was personally served upon the respondent.

Irregularities

9. As I noted at the outset, there are a number of irregularities in the procedure relevant to this application, the two most significant of which relate to the service of the first bankruptcy notice, and the efficacy of the amended petition.

Service of the Bankruptcy Notice

10. Dealing first with the matter of service: Section 40(1)(g) provides for the commission of acts of bankruptcy. Where a creditor who has obtained a final judgment, being one which has not been stayed, has served on the debtor in Australia a bankruptcy notice under the Act, and the debtor then fails to comply with its provisions, an act of bankruptcy is committed.
11. The bankruptcy rules, themselves, do not expressly provide for service but rather infer service of a personal nature. Part 3 of the rules only deal with applications for substituted service. The rules are supplemented by the regulations and, in particular, Regulation 16, which provides for the service of documents in these terms:
    • “Service of documents
    • (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;
    • ...”
12. Subparagraphs (a), (c), and (d) are relevant to this application.
13. As a matter of best practice it is considered that bankruptcy notices ought be served personally, although personal service is not required if service is effected in terms of one of the other methods prescribed by regulation 16.01. See generally the comments in McDonald Henry & Meek[1] at paragraph BR16.01.08, and the observations Gummow J in Re Ditfort; ex parte Deputy Commissioner of Taxation (1988) 19 FCR 347, at page 275 commencing at line 20 where his Honour said this:
    • “In Re Long; Ex parte Fraser Confirming Pty Ltd (1975) 12 SASR 130, Walters J reviewed the authorities which indicate the necessity for strictness of proof in observance of the requirements for service of bankruptcy notices and bankruptcy petitions. The applicant properly placed much reliance upon this decision; it was he who drew it to the attention of the court. The dispute before Walters J arose as an application to set aside for want of due service a bankruptcy notice on which a petition had been based. Although an affidavit of service by a process server deposed to personal service of a bankruptcy notice on the debtor, Walters J found, after hearing evidence, that the notice had been handed to the wife of the debtor at his house, and the notice had not been brought to his attention until some eight or ten days had elapsed.
    • Walters J held: (i) that the failure of the petitioner to prove personal service of the bankruptcy notice was not a formal defect or irregularity which might be corrected by bringing it within the umbrella of s 306 of the Bankruptcy Act; and (ii); that the want of personal service of the bankruptcy notice rendered defective the petition founded on it, despite the debtor’s subsequently acquired knowledge of the existence of the notice, and even though there was no proof of substantial injustice having been done to the debtor by the defect in service. In the result, Walters J ordered that the bankruptcy notice be set aside, and it followed that the petition was dismissed.
    • Whilst not necessarily being of the view that s 306 can never apply in such a case in any circumstances, I respectfully agree with what was said by his Honour as to the importance of proper proof in these cases, and as to the salutary consequences for creditors of failure to comply with the rules; similar views were expressed by Fisher J in Re Williams; Ex parte Alberton Electrical Service Pty Ltd (1982) 43 ALR 552 at 558. These considerations have particular force where the petitioning creditor, as in this case, is a frequent litigant before the court and there may be a tendency to follow routine procedures in the preparation of affidavits of service.”
14. It is important to note that since the decision in Re: Ditfort, the rules for service have changed. Under former regulation, proof of personal service was required. This strict requirement appears to have been since abrogated by Regulation 16.
15. For completeness, I also refer to the rules of this court in relation to service which, in any event, in my view, defer to the more specific rules provided in the bankruptcy regulations. Part 6 of the Court’s rules provide that in rule 6.06:
    • “Service by hand is required for an application starting a proceeding or for a subpoena requiring attendance of a person.”
16. The bankruptcy notice itself is not “an application starting a proceeding” but gives rise to an essential jurisdictional prerequisite, that is the act of bankruptcy. Although personal service may not be required, I consider the rules call for strict compliance in the absence of personal service.
17. In this case, the first bankruptcy notice was purportedly served by a licensed commercial subagent, Matthew Crowther. In an affidavit sworn 19 July 2009, he deposed that on 16 July 2009, he served the respondent with the bankruptcy notice. He said that was done pursuant to regulation 16 of the Bankruptcy Regulations, by the bankruptcy notice being placed in a sealed envelope addressed to the respondent and handing it to a male resident at 35 Oleander Street, Holloways Beach, who advised him that his name was Allen Osborne, brother of the respondent, and by placing a second copy of a sealed envelope addressed to the respondent in a letterbox associated with 35 Oleander Street, Holloways Beach, Queensland.
18. He gave some evidence of having attempted service of documents on a previous occasion, where he says he attended the residence at 35 Oleander Street and spoke to a male occupant there. Significantly, however, his affidavit does not depose to the address at 35 Oleander St, Holloways Beach, being the respondent’s last known address. It is quite plain, from the material, that the application is one where an order could readily have been obtained for substituted service, but no such order appears to have been made. But, equally, the regulation, in its expression, makes it clear that the service of a non-personal nature must be done by leaving at the last known address of the person proposed to be served. There is no evidence of this matter.
19. The omission has significance in this case particularly because, as later evidence suggests, this address may not have been his last place of address. Later evidence demonstrates he was personally served with the creditor’s petition at another address. That fact does not prove that the address at 35 Oleander Street was not an appropriate place for service at the time. However it does give rise to concerns about the purported earlier service and warrants the need for strict compliance with the regulations when service, other than personal service, is being relied upon.
20. I will also address the matter of service of the second bankruptcy notice. In an affidavit sworn by Gemma Michelle Tremlow on 30 November 2009, Ms Tremlow swears to the obtaining of the extension to serve the bankruptcy notice until 15 December 2009 and then forwarding the bankruptcy notice by express post to the respondent at the respondent’s last known address of 35 Oleander Street, Holloways Beach. Insofar as she has deposed to the matters required under the regulations, it would seem then that that service was, at least, prima facie efficacious. She did not provide any basis for her belief that the address at 35 Oleander Street was the last known address of the debtor, but given later personal service of this notice and no challenge being made to the service of the extended bankruptcy notice, I accept that notice was brought to his attention at or about the time of service.

The amended petition

21. The second matter which arose and, perhaps, which is more troubling than the first is the matter of the application itself; that is, whether the amended creditor’s petition is efficacious. That is particularly so given that, in due course, the applicant, was able to serve the respondent personally with a copy of the original creditor’s petition, the amended creditor’s petition, affidavits verifying and a copy of the bankruptcy notice, together with the consent to act by serving those documents personally on him at 71 Aumuller Street, Cairns on 6 April 2010.
22. In this instance the facts are plainly that the bankruptcy notice which had been delivered to the respondent (irrespective of whether the issue of effective service) was one which was not efficacious at the time, it being a notice which had expired as it had not been extended before service as required under Regulation 4.02A. A debtor does not commit an act of bankruptcy if, before service, the bankruptcy notice has expired and time for service has not been extended; James v Deputy Commissioner of Taxation (Cth) [1957] HCA 36.
23. It follows in my view that the creditor’s application sought in respect of that particular notice was premised upon no act of bankruptcy, given that the respondent could not have committed an act of bankruptcy in circumstances where no efficacious bankruptcy notice had been served upon him. Accordingly, no creditor’s petition could have been presented against the debtor: s.44 Bankruptcy Act; the court therefore cannot make a sequestration order against his estate: s.43 Bankruptcy Act on that basis.
24. The question that remains, however, is whether the original petition, which is a nullity, can be amended to incorporate a new cause of action being the cause of action which arose after the commencement of the original petition, by relying upon the act of bankruptcy which occurred after the date of the petition.
25. In other words, accepting that efficacious service of the extended bankruptcy notice occurred and that the respondent failed to comply with the notice, the question is whether the original creditor’s petition can be amended to incorporate the cause of action which now arises having regard to those later facts. In my view, the answer is no.
26. The court does have power to amend initiating applications. For convenience I will refer to the Federal Court Rules, which are more comprehensive than this court’s rules on these matters, and of course to which this court must defer when this court’s rules are insufficient, see FMCR 1.05 (2).
27. In this instance, Federal Court Rule order 13(2)1 provides that at any stage of the proceeding, the court may order that any document in a proceeding may be amended. Order 1 rule 4 defines “originating process” to include a document filed in the court that commences the proceeding, so it follows that order 13 serves to affect an originating process, because an originating process in the court comes into being by the filing of an application in accordance with Part 4 of the FMCA Rules. However the rules or orders provided for in the Court rules are premised upon there being a valid proceeding on foot.
28. Commonly, this issue arises in the context of applications to join causes of action after limitations, particularly in respect of difficulties occasioned by the rule in Weldon v Neal [1887] LR 19 QBD 394 which now has been abrogated by the court’s rules. Occasionally, applications are sought to join not simply causes of action which are common to those which are already on foot, but also causes of action which arose after the initiating application and which are not necessarily immediately related to the action on foot, irrespective of whether the additional action proposed is within, or outside, the relevant limitation period. Significantly, in those cases, a proper cause of action is already on foot in the proceeding. It is from those circumstances that most of the authorities arise.
29. However, cases dealing with those situations are of no assistance in the case here. As I have earlier noted, the initiating application in this instance is a nullity for the reasons that I have earlier outlined. The question is really whether a new cause of action arising after the initiating application can be incorporated by amendment into a barren proceeding in the manner contemplated by the rules.
30. To my mind, there is some assistance to be gleaned from the observations made by the Federal Court, both at first instance and on appeal, in the decision of Carlton International PLC & Anor v Crayford Freight Services Limited & Ors [1997] FCA 726 (8 September 1997); Crayford Freight Service Ltd v Coral Seatel Navigation Co & Ors [1998] FCA 263 (26 March 1998).
31. Carlton International concerned an application to entertain a cross claim after discontinuance. In that case, the initial proceedings had been discontinued. At the time a cross claim was filed (that is, before the discontinuance filed 22 days later), leave or an extension of time for the filing of the cross claim was required. It had not been given. It was contended at first instance that as at the date of discontinuance, there was no effective cross claim because no leave had been given and it ought to have been struck out. It was not in issue that leave was required and had not been given. The concern was whether the court could retrospectively grant an extension of time for filing the cross claim, given the proceedings had by that time been discontinued.
32. For the principal applicant, it was contended the court could not exercise power to extend time because there were, at the time, no proceedings on foot in which to ground such an application. In following and applying the decision of Dorrough v Bank of Melbourne [1996] FCA 816 (unreported 1 August 1966 per Cooper J). Tamberlin J held that the rules contemplate there must be in existence a proceeding at the time the cross claim was brought, or the leave application made. He considered the cross claim filed in that instance had no legal effect.
33. His Honour’s decision was taken on appeal to the Full Court and although the appeal was successful, the points that I have just referred to, incorporated in his Honour’s judgment were not disturbed by the Full Court. In fact, the Full Court endorsed the approach of his Honour on this point.
34. The Full Court, in particular, noting his Honour’s observations concerning Dorrough v Bank of Melbourne Limited, said this:
    • “Cooper J there dealt with an application to file a cross-claim after the principal action had been settled. There is nothing exceptional about his Honour’s view in Dorrough that a proceeding must be in existence at the time when a cross-claim is to be filed, pursuant to an application for leave to do so.”
35. Taking, then, the principle expressed by Tamberlin J at first instance and endorsed by the Full Court to the case before me it follows, in my view, there must be an efficacious proceeding in existence at the time when the application is made for an amendment of the creditor’s petition. If there was no efficacious proceeding on foot then the purported amendment cannot enliven the proceeding. The new cause must be prosecuted in a fresh proceeding.
36. It follows from my view of the authorities that in this instance, there was no basis for the amendment to the creditor’s petition. The creditor’s petition must therefore fail and accordingly, the application is dismissed.
37. For the benefit of the applicant, I particularly emphasise the observations expressed by Gummow J in Ditfort, and note that those particular observations have particular force in a case such as this where the petitioning creditor is a frequent litigant before the court and where there may be tendency to follow routine procedures in the preparation of, in this instance, affidavits of service and other matters relevant to these applications and the delegation of these matters to junior or inexperienced legal staff, as was clearly the case here.
38. These applications are serious applications. They are not simply debt collection exercises. The court’s jurisdiction is being invoked to sequestrate the estate of the respondent. The implications are quasi-criminal and the court, in my view, ought not exercise its powers lightly and in a routine manner. There is no reason why, in my view, these matters cannot be attended to appropriately in terms of process and procedure. It really is only in cases where the exercise of the court’s discretion under section 306 can properly be invoked that the court ought excuse parties from strict compliance with the rules and regulations provided under the Act.

Order

39. The application is dismissed.

I certify that the preceding 39Error! Style not defined.!Syntax Error, !Error! Style not defined.Error! Style not defined.!Syntax Error, !thirty-ninethirty-nine (39) paragraphs are a true copy of the reasons for judgment of Burnett FM

Date: 6 October 2010

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[1] Thompson Reuters edited by P. McQuade & M. Gronow 6th Ed.