FEDERAL COURT OF AUSTRALIA

Civic Video Pty Ltd v Warburton [2013] FCA 934

THE COURT ORDERS THAT:

1.    The creditor’s petition filed by the applicant on 22 October 2012 be dismissed with costs.

Note:    Entry of orders is dealt with in Rule 39.32 of the Federal Court Rules 2011.

REASONS FOR JUDGMENT

Introduction

1    The applicant, Civic Video Pty Ltd (Civic) has filed a creditor’s petition seeking a sequestration order under s 43 of the Bankruptcy Act 1966 (Cth) (the Act) against Paul Graham Warburton (Mr Warburton). Two issues arise for consideration.

2    The first issue is whether a statement of claim filed in the District Court of New South Wales upon which a default judgment was obtained was served on Mr Warburton in accordance with Part 10 of the Uniform Civil Procedure Rules 2005 (NSW) (UCP Rules).

3    Mr Warburton contends that the statement of claim was not served and that the effect of the decided authorities on this question is that the judgment is a nullity. If this is correct, the bankruptcy notice which was founded upon the judgment debt cannot give rise to an act of bankruptcy and the petition must be dismissed.

4    The second issue is whether the bankruptcy notice was served on Mr Warburton at his “last-known address” in accordance with reg 16.01 of the Bankruptcy Regulations 1996 (Cth).

5    This issue turns upon the proper construction of the phrase referred to above which appears in reg 16.01(1)(c).

FACTUAL BACKGROUND

6    By a franchise agreement made on 12 October 2005, a company known as Kanone Pty Ltd (Kanone) entered into a franchise with Civic for the operation of a video store in Werrington, NSW. Mr Warburton guaranteed the obligation of Kanone to Civic under the franchise agreement.

7    Mr Warburton gave his address in a schedule to the franchise agreement as 16 Hemingway Crescent, Fairfield NSW. The address of the premises at which the franchise was conducted was shown as Shop 12, Werrington County Shopping Centre, Dunheved Road, Werrington NSW.

8    Mr Warburton’s evidence is that the Fairfield address was the home of his mother but that in fact he was residing at another address in Fairfield when he signed the franchise agreement.

9    In fact the other Fairfield address was recorded by Mr Warburton on a certificate given to him by Civic on 19 September 2005. However, the Hemingway Crescent address appears on the franchise agreement which bears the later date of 12 October 2005.

10    Mr Warburton’s evidence is that in about September 2007 he moved to 13 Bursaria Crescent, Glenmore Park NSW where he lived with his wife and stepchildren for nearly five years until February 2012.

11    On 31 August 2009 Mr Warburton filed with the Australian Securities and Investments Commission (ASIC) a notice of change of company details for Kanone which recorded the change of address of Mr Warburton as a director of that company. The notice described Mr Warburton’s residential address as 13 Bursaria Crescent, Glenmore Park.

12    Civic alleges that on 21 February 2012, without providing any notice to it, Kanone ceased to operate the video franchise at the Werrington County Shopping Centre. That allegation was contained in paragraph [14] of the statement of claim in the District Court.

13    The statement of claim was filed in the District Court on 13 June 2012. It names Kanone as the first defendant and Mr Warburton as the second defendant. Mr Warburton’s address is described on the statement of claim as the Hemingway Crescent address.

14    Mr Nestor Mario Passanante, a process server engaged by Civic, swore an affidavit in the District Court setting out details of his visits to the Hemingway Crescent premises to serve the statement of claim. His affidavit included the following:

I returned to the premises on the 19th June 2012 at 6:15, and the door was answered by a female resident who identified herself as the 2nd defendant’s mother.

I said: “Does Paul Graham Warburton live at this address?”

She said: “Yes, he’s my son, but he is not home.”

I said: “If I left a message with you or correspondence would he receive it on his return?”

She said: “Yes.”

I said: “Do you know when he will be back?”

She said: “No. He comes and goes.”

15    Mr Passanante’s affidavit goes on to say that he returned to the address on several occasions, namely 23, 25 and 27 June 2012. He says that on 27 June, Mrs Warburton advised that her son was not at home. Mr Passanante then says that on 27 June 2012 he served Mr Warburton with the statement of claim by placing it in the letter box at the Hemingway Crescent premises:

…which I have been instructed and verily believe is the defendant’s usual place of abode.

16    On 3 August 2012 Civic filed a Notice of Motion in the District Court seeking default judgment against Kanone and Mr Warburton. The evidence in support of the Notice of Motion included the affidavit of Mr Passanante referred to above.

17    In the present proceeding, Mrs Warburton has sworn an affidavit which I admitted over the objection of Civic’s solicitor. The affidavit includes the following three paragraphs:

3.    During 2012 and early 2013 I spoke to 2 persons at my front door regarding contact with my son or his current where abouts.

4.    At all times I informed these persons Paul does not reside with me nor am I aware of a forwarding address or contact details.

5.    At no time did I take delivery of any paper work from these people.

18    Default judgment was entered by Civic against Mr Warburton in the District Court on 15 August 2012 for $125,041.65.

19    On 29 August 2012 the Official Receiver issued Bankruptcy Notice 5390 on the application of Civic as judgment creditor. The Bankruptcy Notice was issued against Mr Warburton as judgment debtor.

20    Civic filed the Creditor’s Petition in this matter on 22 October 2012. An order for substituted service of the petition was made by a Registrar of the Court on 9 May 2013.

21    Mr Passanante deposes in an affidavit sworn in this proceeding on 18 September 2012 (that is to say, before the Creditor’s Petition was filed) that on 18 September 2012 at approximately 7.05 am he served Mr Warburton with a copy of the Bankruptcy Notice by delivering it and leaving it in an envelope marked with Mr Warburton’s name:

… at the last known address of the person being a residence situated at 16 Hemingway Crescent, Fairfield, NSW.

22    Nearly a year later, on 16 August 2013, Mr Passanante swore a further affidavit referring to his earlier affidavit in this proceeding, and stating that he served Mr Warburton with a copy of the Bankruptcy Notice at approximately 7.05 am on 18 September 2012 by:

… delivering and leaving the Bankruptcy Notice in an envelope marked with Mr Warburton’s name in the mail box which was inside the property boundary at 16 Hemingway Crescent, Fairfield, NSW.

23    Mr Warburton has given evidence that he first became aware of the Creditor’s Petition on about 6 July 2013 when a friend provided him with a copy of documents given to him by Mrs Warburton. The documents consisted of a letter from the solicitors for Civic dated 15 May 2013 which attached the order for substituted service made by the Registrar, the Creditor’s Petition and certain other documents. The documents did not include the statement of claim filed in the District Court. However, paragraph [1] of the Creditor’s Petition states that Mr Warburton owes Civic the amount of $125,041.65 comprising the judgment obtained in the District Court.

24    On 10 July 2013 the Creditor’s Petition was before a Registrar of the Court and Mr Warburton appeared before the Registrar.

25    The matter was again before a Registrar on 14 August 2013. Mr Warburton appeared for himself on that occasion. The Registrar adjourned the matter to 11 September 2013 to enable Mr Warburton to make an application in the District Court to set aside the default judgment.

26    Mr Warburton did not file an application to set aside the default judgment. He filed an affidavit on 6 September 2013 which deals with his knowledge (or absence of knowledge) of the District Court proceeding and his address history.

Mr Warburton’s affidavit

27    As I have said above, Mr Warburton’s evidence is that he received the order for substituted service of the Creditor’s Petition, and a copy of the Creditor’s Petition with certain other documents on 6 July 2013. He says he did not receive a copy of the District Court statement of claim until 26 August 2013.

28    I have already dealt with the principal aspects of Mr Warburton’s evidence of his residential address. His evidence of where he lived after he left the Bursaria Crescent address in February 2012 is vague. No specific details are provided, other than his current address where he has lived from January 2013.

29    Mr Warburton says that he did not return to the Hemingway Crescent address between late February 2012 and July 2012 but he was present there on one occasion on 15 July 2013.

30    He also says that he did not tell his mother at any time after he moved to Bursaria Crescent that the Hemingway Crescent home was his address or that documents could be left for him at that address.

31    Mr Warburton also deals with an affidavit sworn by Mr Rod Laycock in support of the Creditor’s Petition. Mr Laycock says that Mr Warburton did not provide Civic with an updated address from the Hemingway Crescent address and:

… therefore the Fairfield address was the last known address of Mr Warburton known to Civic Video.

32    In addition, Mr Laycock says that, prior to instructing Civic’s solicitors to arrange for service of the Bankruptcy Notice, all previous correspondence from Civic was sent to the Hemingway Crescent address, including correspondence in relation to the franchise agreement. However, Mr Warburton says that correspondence was sent to him at the Werrington County Shopping Centre. He annexes an example of such a letter.

THE ISSUES

Issue 1 – Service of the Statement of Claim

33    Division 3 of Part 10 of the UCP Rules deals with personal service of documents. The relevant Rules contained in that Division are 10.20, 10.21 and 10.26.

34    Rule 10.20(2)(a) states that except as otherwise provided by the Rules, any originating process in proceedings in the District Court must be personally served.

35    Rule 10.21 deals with the way in which personal service is effected. Rule 10.21(1) provides:

Personal service of a document on a person is effected by leaving a copy of the document with the person or, if the person does not accept the copy, by putting the copy down in the person’s presence and telling the person the nature of the document.

36    Rule 10.26 deals with personal service on a person who “keeps house”. Rule 10.26(1)(a)(i) provides, relevantly:

(1)    If a person keeps house (that is, remains in premises to which a person attempting service cannot lawfully or practicably obtain access), the person attempting service may serve the document on the person keeping house:

(a)    by doing one of the following:

(i)    placing the document in the mail-box for the premises,

…

37    Service in accordance with this subrule is then taken to constitute personal service: see Rule 10.26(2).

38    It is plain from Rule 10.20(1) and (2)(a) that the District Court statement of claim was required to be personally served on Mr Warburton.

39    The opening words of Rule 10.20(2) “(e)xcept as otherwise provided”, would have left open the possibility of an order for substituted service in accordance with Rule 10.14. If that course had been adopted, the District Court could have made an order under Rule 10.14(2) that the statement of claim be taken to have been served on Mr Warburton on the happening of a specified event.

40    There is also power under Rule 10.14(3) for a court to make an order, if steps have been taken under the rule for the purpose of bringing the document to the notice of the person, that the document be taken to have been served.

41    However, in the present case no order was obtained by Civic under Rule 10.14. Accordingly, the question of whether the statement of claim was personally served, depends upon whether Rule 10.21(1) or Rule 10.26 was satisfied.

42    Rule 10.21(1) was not satisfied because a copy of the statement of claim was not left with Mr Warburton. Instead, Mr Passanante’s affidavit in the District Court motion states that he placed the document in the letter box of the Hemingway Crescent house which he believed was Mr Warburton’s usual place of abode.

43    Even if placing a document in a letter box amounts to leaving it with the person under Rule 10.21(1), that Rule could not be satisfied by placing the document in a letter box which was not that of the person to be served.

44    Mr Passanante seeks to meet that difficulty by stating his belief that the Hemingway Crescent home was Mr Warburton’s usual place of abode. However, I am not satisfied that it was. Mr Warburton denies this fact and Civic’s evidence does not establish anything other than a belief.

45    The conversation set out in paragraph [5] of Mr Passanante’s affidavit sworn 31 July 2012 does not prove the fact. It is merely proof of the conversation, even if I accept that the conversation took place.

46    Nor in my opinion has Civic proved that it served the statement of claim in accordance with Rule 10.26(1). There are two reasons for this.

47    The first reason is that the definition of “keeps house” was not satisfied. Civic did not adduce any evidence that Mr Passanante could not lawfully or practically obtain access to the house. That fact must be established to satisfy the definition contained in parentheses in the Rule.

48    Second, the Hemingway Crescent premises were not the premises contemplated by the Rule which seems to me to deal with service at premises where the person to be served “remains” or lives.

49    For the reasons stated above, Civic has not demonstrated that Mr Warburton remained or lived at the Hemingway Crescent premises at the time when Mr Passanante placed the statement of claim in the mail box.

50    The question which then arises is what is the effect of the failure of Civic to prove service of the statement of claim. As the solicitor for Civic pointed out with some force, the default judgment remains in place and Mr Warburton has taken no steps to set it aside notwithstanding the opportunity given to him by the Registrar to take that course. Nor do I have any evidence from Mr Warburton that he has an arguable defence to the claim.

51    It is of course well established that a default judgment will not set aside unless a defendant provides an explanation for his or her failure to file a defence within the time limit and satisfies the Court that there is an arguable defence to the claim: see Evans v Bartlam [1937] AC 473.

52    Thus, if I were to find that the default judgment was not capable of supporting a valid bankruptcy notice in the present case, the result would be one which is unsatisfactory from a practical or commercial viewpoint. It would turn purely upon the technicalities of the rules of service without regard to the merits (or absence of merits on the part of the judgment debtor).

53    Nevertheless, it seems to me that I am bound by the authorities to find that this is the result.

54    The authorities were thoroughly reviewed by Lucev FM (as his Honour then was) in Croft v Becton Investments Management Ltd (No 2) [2010] FMCA 419 at [56] ff.

55    The issue does not appear to have been considered by an appellate court in Australia but the leading authorities are the decision of Pincus J in Re Marsh; Ex parte Marsh and Paramount Leisure Products Pty Ltd (1991) 32 FCR 482 and the decision of von Doussa J in Re Willshire-Smith; Ex parte Randle & Taylor Services Pty Ltd (1994) 48 FCR 371.

56    The effect of Re Marsh and Re Willshire-Smith was accurately stated by Lucev FM in Croft v Becton at [69]. What follows from those authorities is that if it is found that the originating process which gives rise to a default judgment was not personally served, then the default judgment is a nullity and a court exercising bankruptcy jurisdiction will not make a sequestration order based on the default judgment unless there is a legislative provision or rule of court which deems service to have occurred in the events which happened.

57    Here there was a rule of court which would have enabled Civic to rely upon the deeming effect of service, namely Rule 10.14. However, Civic did not avail itself of that possibility.

58    It follows in my view that the default judgment in the present case was not capable of supporting the bankruptcy notice and a sequestration order cannot be made. Moreover, the authorities establish that even if the default judgment was not a nullity, the Court should not in the exercise of its discretion make a sequestration order: Rafaraci v Pearce [2003] FCA 1307 at [24] per Tamberlin J.

59    Although the abovementioned authorities do not address the question of whether the same approach applies where a debtor has failed to establish a arguable defence to the judgment debtor’s claim, it seems to me to follow from what their Honours said that the principle is not affected by such considerations.

60    That seems to follow from the observations made by Pincus J in Re Marsh at 485 that the result was “not necessarily satisfactory” because his Honour was not convinced of the correctness of the debtor’s case on the substantial question of whether the money was due. See also per von Doussa J in Re Willshire-Smith at 375.

61    There is no room for the possibility of adjourning Civic’s Creditor’s Petition to enable the question of service to be tested in the District Court because that was the question on which evidence was led before me and I have come to the view that service was not effected: Re Willshire-Smith at 381.

Issue 2 – Service of the Bankruptcy Notice

62    As I have said, the issue which arises is whether the bankruptcy notice was left in an envelope marked with Mr Warburton’s name as “the last known address of the person” in accordance with reg 16.01(c) of the Bankruptcy Regulations.

63    The meaning of that phrase was considered by Tamberlin J in Drake v Stanton [1999] FCA 1635. In that case, the evidence established that the bankruptcy notice was left in an envelope at 396 Grey Street, Glenn Innes and was marked with the debtor’s name.

64    However, the bankruptcy notice showed the address of the debtor as 292 Grey Street, Glenn Innes and the creditor’s petition, which was verified by Mr Drake as the judgment creditor and applicant in the matter, stated that the judgment debtor, Mr Stanton resided at that address.

65    Tamberlin J observed in Drake v Stanton at [5] that the expression “the last known address of the person” is difficult because the regulation does not indicate to whom the address must be known. His Honour continued:

On one view of it, it could be taken to be the knowledge of the creditor. Alternatively, as advanced by Mr Skinner, the words could mean the last-known address of the person in an objective sense, namely that address at which the debtor could be said to be located.

66    His Honour went on to say at [7] that the evidence which was relied upon by the judgment creditor was an affidavit sworn by Mr Stanton, the judgment debtor, in December 1998 in which he gave his address as 396 Grey Street. His Honour also said that other evidence had been adduced of a transcript of proceedings in May 1998 in which Mr Stanton stated his address to be 396 Grey Street.

67    Tamberlin J then said (at [8]):

In my view, on the language of reg 16.01(1)(c), the reference to “last-known address of the person” is to that address which has been made known by the applicant (sic) as at the time closest to the date in question. In the present case the evidence indicates clearly that the address which was last asserted by the applicant (sic) was the address at 396 Grey Street. The applicant (sic) has not been called to give any evidence to the contrary.

68    It is plain in my view that the word “applicant” which I have marked with a “sic” where it appears in [8] is an error. It is clear from the previous paragraph of the judgment that his Honour meant to say the “debtor”.

69    The meaning of the expression “last-known address” in reg 16.01 was considered by a Full Court in Skalkos v T & S Recoveries Pty Ltd [2004] FCAFC 321 (Sundberg, Finkelstein and Hely JJ).

70    Their Honours referred at [32] ff to an English authority, Robertson v Banham & Co [1997] 1 WLR 446 which dealt with a similar phrase, “usual or last known address”. The proposition which follows from that case is that the phrase is to construed in light of the fact that the purpose of the rule is that the court process should be brought to the person’s attention.

71    The Full Court in Skalkos also referred with apparent approval to the decision of Tamberlin J in Drake v Stanton. They set out a part of [5] of Drake v Stanton in which his Honour said the relevant expression in “the last-known address of the person” and it does not matter whether or not the debtor lives there.

72    In addition, their Honours in Skalkos set out [8] of Tamberlin J’s judgment in full, but without drawing attention to the error which I have mentioned above. This may well have been because it was unnecessary to do so in the context of the case where the relevant issue was whether service at a business address was sufficient to satisfy the regulation.

73    The issue of construction was also considered last year by Raphael FM (as his Honour then was) in QBE Insurance (Aust) Ltd v Mahaffy (No 2) (2012) 271 FLR 1. His Honour referred to Drake v Stanton, setting out [8] of Tamberlin J’s judgment, and to the Full Court in Skalkos. He also referred to an earlier decision which had been given on the question, Magafas v Carantinos (2008) 222 FLR 185 and set out a passage from [15] of that judgment which included the following:

The phrase “last known” necessarily implies a temporal constituent. But who is to be the recipient of this intelligence? It is to be the world at large or the creditor? I cannot see that it should be the creditor.

74    In my opinion, the effect of these authorities is that the last known address of the person is the address made known by the debtor. So much is clear because the purpose of the rule is that the bankruptcy notice should be brought to the attention of the debtor.

75    But that does not answer the question posed in Magafas, namely, who is to be the recipient of the intelligence made known by the debtor.

76    In my view that question is to be determined objectively on all of the facts of the case. In some instances it may be information that has been supplied to the world at large, as for example in QBE where the debtor conducted his practice as an accountant at premises on which there was a sign indicating it to be the office of the debtor’s firm. In others it may be the most recent address supplied to the creditor.

77    It would be wrong to confine the expression, in all instances, to the last address made known to the creditor. That is demonstrated in the present case. How can an address made known by Mr Warburton to Civic in 2005 be the last known address? What is required is a consideration of all the circumstances of the case.

78    In addition, since the purpose of the rule is that the bankruptcy notice should be brought to the debtor’s attention, it seems to me that ordinarily the creditor is under an obligation to take steps to ascertain the debtor’s most recent address as made known by him or her in readily accessible public records.

79    Here, Mr Warburton made known his Glenmore Park address in the details supplied to ASIC with respect to his directorship of Kanone. That company is the principal debtor of Civic under the franchise agreement and Mr Warburton’s address was easily accessible to Civic if it had conducted a search. The change of address filed with ASIC in 2009 was still in effect as a public notification by Mr Warburton of his address at the time that was closest to the date of service.

80    It is not to the point that Mr Warburton has given evidence that he was not living at the address stated in the ASIC notice when Mr Passanante endeavoured to effect service. As Tamberlin J pointed out in Drake v Stanton at [5], it does not matter where he debtor is living at the time because the relevant expression is “the last-known address of the person”.

Conclusion and Orders

81    It follows in my view that the creditor’s petition filed by Civic must be dismissed with costs.

Associate:

Dated:    18 September 2013