FEDERAL COURT OF AUSTRALIA

T & S Recoveries Pty Ltd v Skalkos, in the matter of Skalkos [2004] FCA 816

BANKRUPTCY – Creditor’s petition – Alleged failure to comply with requirements of bankruptcy notice – Bankruptcy notice posted to place of business of debtor’s company –Whether bankruptcy notice validly served – Order for substituted service – Whether requirements of order were cumulative or alternative – Whether existence of order precluded service otherwise than pursuant to the order – Whether reg 16.01 of Bankruptcy Regulations applies to service of a bankruptcy notice – Whether bankruptcy notice was posted to debtor’s ‘last-known address’.

CSR Limited trading as CSR Construction Materials v Antonio Barillaro [2001] FMCA 23; 184 ALR 308 approved

Theodor Silvas (a bankrupt) v Maureen Silvas [1997] FCA 206 referred to

Bankruptcy Act 1966 (Cth) s 40(1)(g)

Bankruptcy Regulations 1996 (Cth)reg 4.02A, 16.01

Federal Court of Australia Act 1976 (Cth) s 4

Federal Court Rules Orders 7, 77

T & S RECOVERIES PTY LIMITED v THEODORE SKALKOS IN THE MATTER OF THEODORE SKALKOS

N 7318 of 2003

WILCOX J

25 JUNE 2004

SYDNEY

IN THE MATTER OF THEODORE SKALKOS

THE COURT ORDERS THAT:

1.         Leave be granted to the applicant to amend the petition filed on 23 October 2003 by deleting from para 4 the words ‘deemed by Order made by the Federal Court in Proceedings Number 7092 of 2003 on 2 April 2003 to have been’.

2.         The petition be deemed to be so amended forthwith.

3.         A sequestration order be made against the estate of the respondent, Theodore Skalkos.

4.         The applicant’s costs of the proceedings be paid out of the bankrupt estate.

Note:    Settlement and entry of orders is dealt with in Order 36 of the Federal Court Rules.

IN THE MATTER OF THEODORE SKALKOS

REASONS FOR JUDGMENT

WILCOX J:

1                     On 8 June 2004, this matter was referred to me, as duty judge, by Deputy District Registrar Hedge.  The matter was included in that day’s Bankruptcy List for hearing of an opposed bankruptcy petition filed on 23 October 2003 (‘the petition’).  The points of opposition related to service of the bankruptcy notice on which the petition was founded.  However, counsel for the respondent, Mr M Broun QC, sought an adjournment of the hearing.  The Registrar refused that application but she acceded to a request for the matter to be referred to the duty judge.

Background

2                     At the date of the bankruptcy notice, the debt upon which the petition was based was claimed to be due to Joseph Assaf and Ethnic Communications Pty Limited (‘the judgment creditors’).  They were apparently successful plaintiffs in a defamation action brought against the respondent in the Supreme Court of New South Wales.  Their costs were assessed at $941,444.77 and they recovered judgment for that amount.  Subsequently, on 14 October 2003, the judgment creditors assigned the debt to the applicant, T & S Recoveries Pty Limited.

3                     The petition claimed the respondent, Theodore Skalkas, had committed an act of bankruptcy within six months before presentation of the petition, on 23 October 2003.  Paragraph 4 of the petition described the act of bankruptcy in this way:

‘The Respondent Debtor failed to comply with the Bankruptcy Notice deemed by Order made by the Federal Court in Proceedings Number 7092 of 2003 on 2 April 2003 to have been served on the Respondent Debtor on 11 April 2003 and accordingly the Respondent Debtor committed an act of bankruptcy on 3 May 2003 pursuant to section 40(1)(g) of the Bankruptcy Act Cth, 1966.  The Bankruptcy Notice relies upon the judgment of the New South Wales Supreme Court in Proceedings Number 18374 of 1993 entered on 4 December 2002.’

4                     The reference to an order made on 2 April 2003 was a reference to an order for substituted service made that day by Deputy District Registrar Kavallaris.  That order read:

‘1         Service of Bankruptcy Notice No 300 of 2003 addressed to Theodore Skalkos may be affected [sic] by serving:

(i)        the Bankruptcy Notice together with a sealed copy of this order as follows:

(a)       by sending on or before 4 April 2003 by pre-paid ordinary post addressed to the judgment debtor at 118-124 Bourke Road, Alexandria;

(b)       by personal service on or before 4 April 2003 on any person apparently over the age of sixteen years at 118-124 Bourke Road, Alexandria.

2                    Service in accordance with this order shall be deemed good and sufficient service of the Bankruptcy Notice upon the Debtor.

3                    The Bankruptcy Notice shall be deemed to be served on the Debtor on 11 April 2003.

4                    A copy of the Bankruptcy Notice to be served pursuant to para. 1 of this order is to be annexed to any affidavit proving that service.

5                    The copies of the Bankruptcy Notice for service and proof of service all be amended by deleting the words in paragraph 3 of the notice “after service on you of this Bankruptcy Notice” and substituting “after 11 April 2003”.

6                    A copy of this order be given to the Official Receiver in Sydney.

7                    Costs of this application be reserved for the purposes of any future creditor’s petition based on this bankruptcy notice.’

5                     The evidence before Registrar Hedge did not suggest the bankruptcy notice had been personally served on any person at 118-124 Bourke Road, Alexandria (‘the Alexandria address’).  However, there was evidence from which it might be inferred that copies of the bankruptcy notice and the order for substituted service had been forwarded by pre-paid ordinary post addressed to Mr Skalkos at that address.  An affidavit filed since the hearing, pursuant to leave granted by me, now plainly states that this occurred.  The documents were posted on 4 April 2003.

6                     Mr Broun contended before the Registrar that postal service was insufficient.  He said the requirements of order 1(i) were cumulative.  In the absence of compliance with order 1(i)(b), there was no proper service of the bankruptcy notice; accordingly, the respondent had not committed the claimed act of bankruptcy.  Mr Broun also sought an adjournment of the hearing of the petition in order to allow his client to pursue an application for leave to appeal to the New South Wales Court of Appeal against a judgment of Master Malpass which dismissed an appeal against the costs assessment that gave rise to the judgment debt claimed in the petition.

7                     As recounted, Registrar Hedge refused Mr Broun’s adjournment application but she acceded to a request from him to refer the matter to the duty judge.  Having heard what Mr Broun had to say about an adjournment, and having considered the history of the Supreme Court proceedings, I came to share the Registrar’s view.  I indicated that the matter should proceed without delay.  I then received and read written submissions that had been prepared by Mr Broun and Mr B Spinks, solicitor for the applicant, in relation to service of the bankruptcy notice.  I heard some supplementary argument on the point.  At the conclusion of the argument, I reserved my decision.

The issues for determination

8                     Four questions arise in relation to the purported service of the bankruptcy notice.  First, as a matter of construction, did the order for substituted service require compliance with both para (a) and para (b) of order 1(i), or was it sufficient for only one of those actions to be effected?  Second, if it was necessary for the applicant, in taking advantage of the order, to comply with both para (a) and para (b), as it admittedly did not, did the existence of the order preclude the applicant from effecting service in another way permitted by law?  Third, if the order did not preclude service in another way, was it open to the applicant to effect service under reg 16.01 of the Bankruptcy Regulations 1996 (Cth) (‘the Regulations’)?  Fourth, if it was open to effect service in this way, was the bankruptcy notice posted to Mr Skalkos’ ‘last-known address’, as required by reg 16.01?

9                     It was common ground between the parties’ legal representatives that, if it was ultimately held that service had been validly effected pursuant to reg 16.01, the applicant would need to amend para 4 of the petition.  Mr Spinks applied for leave to make an appropriate amendment.  Without making any concession, Mr Broun put nothing in opposition to that application.

Whether the requirements of order 1(i) were cumulative

10                  Mr Broun contended that, as a matter of construction, order 1(i) of the order for substituted service required compliance with both para (a) and para (b).  He pointed out that the paragraphs were not linked by the word ‘or’, as might have been expected if the order offered alternative methods of service.  Mr Spinks, by contrast, relied on the absence of a linking word ‘and’.  He said this indicated that compliance with either para (a) or para (b) would be sufficient.

11                  On this issue, the submission of Mr Broun is to be preferred.  The purpose of both para (a) and para (b) is to set out what must be done in order to take advantage of a method of service made permissible, in this case, by the opening words of order 1: ‘[s]ervice … may be affected [sic] by serving … the Bankruptcy Notice … as follows’.  In the absence of an indication of a contrary intention, such as by use of the word ‘or’, the two paragraphs should be taken as setting out cumulative requirements to be satisfied if service was to be effected pursuant to the order.  I agree with Mr Spinks that the drafter of the order should have put this intention beyond dispute by inserting the word ‘and’ between the two paragraphs, but I do not think the absence of this word indicates an intention to specify alternatives.

12                  The order was apparently prepared by the judgment creditors’ solicitors in the absence of the respondent.  Therefore, it is reasonable to resolve any ambiguity in favour of the respondent; especially because it relates to bankruptcy, a matter of status.

13                  It follows from the above that the applicant has not effected service of the bankruptcy notice in accordance with the requirements of the order for substituted service.

Availability of alternative methods of service

14                  Mr Broun argued that the effect of the order of 2 April 2003 was to preclude the applicant effecting service otherwise than in accordance with that order.  His argument was put on two bases: first, this interpretation accords with the intention of the Registrar who made the order for substituted service and, second, the respondent would have been misled if he in fact received a copy of the order for substituted service but knew that the requirements of that order had not been satisfied.  Mr Broun submitted that, in such an event, the respondent would be entitled to proceed on the basis that he had not been served.

15                  Mr Spinks responded that the order for substituted service was permissive; it prescribed a method ‘by which service may be effected.  The order did not mean that any other accepted method of service could not continue to be used’.  (original emphasis)

16                  On this issue I accept Mr Spinks’ argument.  I think there is no doubt that the order for substituted service was merely permissive.  It did not purport to exclude any other method of service permitted by law.  Order 2 deemed service ‘in accordance with this order’ to be good and sufficient service, but it said nothing about service otherwise than in accordance with the order.

17                  I see nothing in the form of the orders to suggest that Registrar Kavillaris intended to exclude any other available method of service.  Therefore, it is not necessary for me to consider whether she would have had power to do that.

18                  Mr Broun’s argument about the effect on the respondent assumes that the respondent in fact received both the bankruptcy notice and the order for substituted service but elected to disregard the requirements of the bankruptcy notice because the documents had not been personally served on a person over 16 years at the Alexandria address.  The argument takes for granted that the respondent read the order for substituted service as prescribing an exclusive method of service.  There is no evidence to that effect.  The respondent did not present any evidence at the hearing.

19                  Moreover, the argument assumes that it would reasonably have been open to the respondent to read the order in this way.  As I have explained, I do not think this is a legitimate interpretation of the order.

The availability of reg 16.01

20                  Regulation 16.01 appears in Part 16 of the Regulations.  That Part sets out some miscellaneous provisions.  Regulation 16.01 reads as follows:

‘(1)      Unless the contrary intention appears, where a document is required or permitted by the Act or these Regulations to be given or sent to, or served on, a person (other than a person mentioned in regulation 16.02), the document may be:

(a)     sent by post, or by a courier service, to the person at his or her last-known address; or

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

(c)     left, in an envelope or similar packaging marked with the person's name, at the last-known address of the person; or

(d)     personally delivered to the person; or

(e)     sent by facsimile transmission or another mode of electronic transmission:

(i)    to a facility maintained by the person for receipt of electronically transmitted documents; or

(ii)   in such a manner (for example, by electronic mail) that the document should, in the ordinary course of events, be received by the person.

(2)       A document given or sent to, or served on, a person in accordance with subregulation (1) is taken, in the absence of proof to the contrary, to have been received by, or served on, the person:

(a)     in the case of service in accordance with paragraph (1)(a) or (b)  - when the document would, in the due course of post or business practice, as the case requires, be delivered to the person's address or document exchange facility; and

(b)     in the case of service in accordance with paragraph (1)(c), (d) or (e)  - when the document is left, delivered or transmitted, as the case requires.’

The reference to ‘the Act’ is, of course, a reference to the Bankruptcy Act 1966 (Cth).

21                  A bankruptcy notice is a document required or permitted by the Act or the Regulations to be served on a person.  Section 40(1)(g) of the Act makes it an act of bankruptcy for a person to fail to comply with the requirements of a bankruptcy notice served on him or her.  Division 1 of Part 4 of the Regulations governs the issue, form and service of bankruptcy notices.  Regulation 4.02A deals with service, but only by specifying the period after issue within which a bankruptcy notice must be served.  There is nothing in either the Act or the Regulations that indicates a contrary intention to the application of reg 16.01 to bankruptcy notices.

22                  Mr Broun argued that reg 16.01 is of no assistance to the applicant in this case.  He gave four reasons:

(i)                 it has been the long-standing practice of the Court to require bankruptcy notices to be served personally or in accordance with the requirements of an order for substituted service;

(ii)                there is a lack of evidence that the address to which the bankruptcy notice was posted was the last-known address of the respondent;

(iii)              the respondent would have been misled if he received both the bankruptcy notice and the order for substituted service; and

(iv)              service in this way would not result in an act of bankruptcy that complied with the description in para 4 of the petition.

23                  In CSR Limited trading as CSR Construction Materials v Antonio Barillaro [2001] FMCA 23; 184 ALR 308, Raphael FM considered whether reg 16.01(1) of the Regulations applied to service of a bankruptcy petition.  He held it did not.  His reason was that a bankruptcy petition is an originating process in the Federal Magistrates Court; accordingly, personal service is required by Order 7 rule 1 of the Federal Court Rules (‘the Rules’), which apply also to the Federal Magistrates Court.  As service of a petition was required by the Rules, rather than the Act or the Regulations, Raphael FM thought that reg 16.01(1) was inapplicable to it.

24                  At para 18, Raphael FM said:

‘The Court has, rightly in my view, accepted that bankruptcy notices now being an administrative procedure are regulated by the Regulations and thus service of a bankruptcy notice can be effected in the manner set out in Regulation 16.01. A Bankruptcy Petition, on the other hand, is an originating process in the Federal Magistrates Court. It is not a process which is governed by the Regulations. Order 77 Rule 4 and Order 7 Rule 1 combine to require an originating bankruptcy proceeding to be served personally.’

25                  Raphael FM had earlier (para 13) referred to a comment by Tamberlin J, of this Court, in Theodor Silvas (a bankrupt) v Maureen Silvas [1997] FCA 206 that, prima facie, ‘the effect of reg 16.01 of the Bankruptcy Regulations enables non-personal service of a bankruptcy notice to be effected’.

26                  I agree with the comment of Tamberlin J and the distinction drawn by Raphael FM between service of a bankruptcy notice and service of a bankruptcy petition.  Whatever was the position in the past, the issue and service of a bankruptcy notice is now a purely administrative procedure; unless an application is made to the Court for a particular order, such as an order for substituted service, the Court does not become involved in the process at all.  If an application is made, the Court deals only with that application.  Service upon the debtor is required by the Regulations, not by the Rules.

27                  Order 77 of the Rules has no application to a bankruptcy notice.  The reason for this is that the Order applies only to a ‘proceeding’ in the Court: see rule 4(1) and (2) of Order 77.  The word ‘proceeding’ is defined, by s 4 of the Federal Court of Australia Act 1976 (Cth), as ‘a proceeding in a court’.  A ‘proceeding’ is something that invokes the jurisdiction of the Court by seeking relief that the Court is empowered to grant.  A bankruptcy petition is in this category; it seeks a sequestration order.  A bankruptcy notice is not.  It is directed to the debtor, not to the Court.  As Raphael FM appreciated, a bankruptcy petition is an ‘originating process’ for a bankruptcy proceeding; so Order 7 rule 1 applies to it.  However, the issue and service of a bankruptcy notice, and any compliance with it, are all events that occur away from the Court.  If the debtor applies to the Court to set aside the bankruptcy notice, or to extend time for compliance, that application will be a bankruptcy ‘proceeding’ governed by the Rules; but, even then, the bankruptcy notice itself will not be.

28                  I uphold Mr Spinks’ submission that reg 16.01 applies to the service of a bankruptcy notice.

Whether posted to ‘last-known address’

29                  Regulation 16.01 permits a document to be served by being sent by post to the person ‘at his or her last-known address’.  Mr Broun submits there is no evidence that the Alexandria address was, at that time, Mr Skalkos’ ‘last-known address’.

30                  The petition gave Mr Skalkos’ address as 31A New South Head Road, Vaucluse (‘the Vaucluse address’).  That address was also used in a Notice of Assignment of Debt forwarded by the applicant’s solicitors to him on 15 October 2003.  However, both these documents came into existence some months after the issue of the bankruptcy notice.  In an affidavit sworn on 17 November 2003, Allen Kavanagh, a licensed commercial agent, deposed that Mr Skalkos was listed on the electoral roll at the Vaucluse address; however, he was not listed in the Telstra White Pages telephone directory.  Mr Kavanagh’s evidence does not reveal when Mr Skalkos commenced to be listed on the electoral roll at Vaucluse.

31                  There is some evidence as to the position in March 2003, shortly before the date on which the bankruptcy notice was posted to the Alexandria address.  In an affidavit dated 31 March 2003, John Raprager, a licensed private inquiry agent, states that he went to the Vaucluse address on 12 March 2003.  He found the premises ‘in the process of major renovation’.  Nobody was present at the site.  Two days later, he returned to the property and had a conversation with a neighbour who stated that Mr Skalkos usually came ‘to look at the building work every morning’.  She said he drove ‘a champagne coloured Lexus’ and was the owner-builder for the building work.   In an affidavit dated 17 November 2003, Marcus Opit, a licensed inquiry agent, observed as late as 31 October 2003 that the building at the Vaucluse address was ‘a three-storey house partially constructed’.  Mr Opit said the building ‘appears to consist of not much more than three concrete floors’.  He was satisfied that nobody lived there.

32                  It appears that Mr Skalkos is a director of Foreign Language Publications Pty Ltd.  The registered office of that company is the Alexandria address.  There is evidence, in the form of an affidavit from another licensed private inquiry agent, Paul James Walker, that suggests that, in February 2003, Mr Skalkos worked in the company’s office, at least intermittently.  In that affidavit, dated 20 March 2003, Mr Walker said:

‘1.        On Friday the 14th day of February, 2003 at 3:40 o’clock in the afternoon I attended premises known as 118-124 Bourke Road, Alexandria in an effort to serve THEODORE SKALKOS with a Bankruptcy Notice, signed and dated by the Official Receiver.

2.         At the time I attended this address, his business address, I spoke with a woman who identified herself to me as the debtor’s wife and we had a conversation in words to the following effect, “He’s not in today.  He’s interstate and won’t be back until next Tuesday.”  I then asked, “If I tried at your address at 31A New South Head Road, Vaucluse on the weekend would he be available?”, to which she replied, “We’re not living there at the moment it’s still under construction and I’m not prepared to give you our address.  If you have something for him you can leave it with me.”

3.         I reattended the address on Tuesday the 18^th day of February, 2003 at 3:35 o’clock in the afternoon; Wednesday the 19^th day of February, 2003 at 10:45 o’clock in the forenoon and again at 2:10 o’clock the same afternoon and on each occasion staff advised me that he was not in attendance and were unable to provide me with any additional information as to his whereabouts or when he might be available.

4.         On Thursday the 20^th day of February, 2003 at 10:25 o’clock in the forenoon I reattended the abovenamed address and spoke with a male employee who identified himself to me as one of the firm’s accountants and who said to me in words to the effect, “He’s not here at the moment and I don’t know when he’ll be in.”

5.         I again attended the address on Monday the 24^th day of February, 2003 at 2:05 o’clock in the afternoon and was advised by the receptionist that the debtor was not in attendance.  Upon reattending the address the same afternoon at 3:35 o’clock I spoke to a male employee who identified himself to me as another of the firm’s accountants and who said to me in words to the effect, “Yes, he’s here.  I’ll get him.”  He then went to get the debtor, however, upon his return he said to me in words to the effect, “He apparently left an hour ago.  I don’t know when he’ll be back.”

6.         On Wednesday the 26^th day of February, 2003 I again attended the address and found both the receptionist and one of the accountants at reception.  The female receptionist said to me as I approached the desk, “He’s not here.”  The accountant then said to me in words to the following effect, “Why do you keep calling here all the time.  I’ve personally given him your messages, if he wants to call you, he will.”

7.         On each occasion I have called at the address I have left urgent messages for the debtor to contact me but I have yet to receive a call from him.’

33                  Mr Raprager also attempted to contact Mr Skalkos at Alexandria.  In his affidavit dated 31 March 2003, he said he attended ‘the respondent’s business premises at 118-124 Bourke Road, Alexandria’ on 7 March 2003.  He found the premises to ‘comprise a commercial property with open-air parking, a two storey building and large security gates which were open’.  He did not locate Mr Skalkos.  However, on a later visit, he spoke to the gatekeeper and asked whether Mr Skalkos was in the office.  The gatekeeper said: ‘Not at the moment’ and informed him that Mr Skalkos drove a Lexus sedan.  On 12 March 2003, Mr Raprager rang the office and asked the person who answered the telephone whether he could speak to Mr Skalkos.  She said: ‘He is in a meeting at the moment.’  Mr Raprager then went to the premises where he was again told that Mr Skalkos was in a meeting.

34                  It seems to be clear that, in March 2003, Mr Skalkos did not reside at the Vaucluse address; though he may have been on the electoral roll for that address.  There is no reason to believe that he resided at the Alexandria address, but he seems to have been using the premises at that address for business purposes.  Even though those premises may have been occupied by the company, rather than Mr Skalkos personally, I am satisfied that he had such a degree of connection with the premises that they may properly be described as his last-known address.  It seems that the solicitors for the judgment creditors were not aware of any other premises frequented by Mr Skalkos.

35                  I am satisfied that service of the bankruptcy notice was effected in accordance with reg 16.01(i) of the Regulations.  No evidence of non-receipt having been offered, it is appropriate to find, pursuant to reg 16.01(2), that the bankruptcy notice was served on the date upon which, in the due course of post, it would have been delivered to the Alexandria address.  If the document was posted on 4 April 2003, that date would be not later than 11 April 2003.  As the stipulated time for compliance was 21 days after service of the bankruptcy notice, Mr Skalkos committed an act of bankruptcy on 3 May 2003 by failing to comply with the notice by that day.

Amendment of the petition

36                  The dates just mentioned are consistent with those set out in para 4 of the petition.  However, the petition departs from the position as found by me in that it includes the words ‘deemed by Order made by the Federal Court in Proceedings Number 7092 of 2003 on 2 April to have been’.  There being no suggestion that the deletion of those words will cause any prejudice to Mr Skalkos, leave should be granted to the applicant to amend the petition by deleting them from para 4.  I deem the petition to be so amended forthwith.

Disposition

37                  I am satisfied of all the matters requiring proof under s 52 of the Act.  I make a sequestration order against the estate of the respondent, Theodore Skalkos.  The applicant’s costs are to be paid out of the estate.

Associate:

Dated:              25 June 2004