Federal Court of Australia

Cooper (liquidator), in the matter of Disclinc Pty Ltd (in liq) v Difonzo (No 2) [2021] FCA 679

ORDERS

THE COURT ORDERS THAT:

1.    Pursuant to s 588M of the Corporations Act 2001 (Cth) and r 5.23(2)(b) of the Federal Court Rules 2011 (Cth), judgment be entered in favour of the plaintiff against the defendant in the amount of $329,028.17 (Judgment Sum).

2.    Pursuant to s 51A(1) of the Federal Court of Australia Act 1976 (Cth), the defendant pay interest from 14 May 2014 to the date of judgment on the Judgment Sum in the amount of $123,630.76.

3.    The defendant pay the plaintiff’s costs of the proceedings, such costs to be taxed in default of agreement.

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

REASONS FOR JUDGMENT

BESANKO J:

1    The liquidator of Disclinc Pty Ltd (in liquidation) (the company) applied by Interlocutory Process under r 2.2 of the Federal Court (Corporations) Rules 2000 (Cth) and rr 5.23(2)(b), 5.23(2)(c) and 10.70 of the Federal Court Rules 2011 (Cth) (the Rules) for judgment by default against Guy Anthony Difonzo. The judgment sought in the Interlocutory Process was a declaration that the plaintiff is entitled under s 588M(2) of the Corporations Act 2001 (Cth) to recover from the defendant as a debt due to the company, the amount of $329,028.17 and judgment by default for the plaintiff against the defendant in the sum of $329,028.17. As I understand it, the plaintiff no longer pursues the claim for a declaration. The plaintiff also sought orders for the payment of interest and costs. The default alleged by the plaintiff in the Interlocutory Process was a failure by the defendant to appear or file an address for service.

2    The plaintiff’s claim against the defendant is based on the fact that he was the sole director of the company during the period from 30 June 2012 to 13 May 2014 and an allegation that he failed to prevent the company from trading whilst insolvent in contravention of s 588G(2) of the Corporations Act. The amount claimed by the plaintiff is the loss and damage to the company said to have been caused by the defendant’s failure. Section 588M(2) of the Corporations Act provides that that loss and damage may be recovered as a debt due to the company.

3    The defendant currently resides in the United States of America.

4    By reason of the fact that the defendant resided outside Australia, the plaintiff sought orders under rr 10.43(2) and 10.44(1) of the Rules that he have leave to serve an Originating Process, a Statement of Claim and two affidavits on the defendant in a foreign country. He also sought an order that service on the defendant be in accordance with Article 5 of the Convention on the Service Abroad of Judicial and Extrajudicial Documents in Civil or Commercial Matters (the Convention), by request for service abroad in accordance with rr 10.64 and 10.68 of the Rules.

5    On 12 June 2020, I made the following orders, relevantly:

1.    This action proceed by way of pleadings in lieu of affidavits.

2.    Pursuant to rr 10.43(2) and 10.44(1) of the Federal Court Rules 2011 (Cth), the plaintiff be given leave to serve the originating process filed on 23 April 2020, the statement of claim filed on 23 April 2020, the affidavit of Arnie Subramanian Narayan sworn on 22 April 2020 and the affidavit of Nicholas David Cooper sworn on 11 June 2020 on the defendant with the address at 308 NW Treeline Terrace, Port St Lucie, Florida 34986, United States of America.

3.    Service be in accordance with Art 5 of the Convention on the Service Abroad of Judicial and Extrajudicial Documents in Civil or Commercial Matters done at the Hague on 15 November 1965, by request for service abroad in accordance with the Federal Court Form 25 and otherwise as provided for by rr 10.64 to 10.68 of the Federal Court Rules 2011 (Cth).

(Cooper (liquidator), in the matter of Disclinc Pty Ltd (in liq) v Difonzo [2020] FCA 1011). Those reasons should be read with these reasons.

6    The Request for service abroad which was sent following the above orders identified the forwarding authority as the District Registrar of the South Australia Registry of this Court and the receiving authority as Office of Private International Law, Office of the Legal Adviser, Department of State, Washington, DC. The request is for prompt service of the relevant documents on the defendant:

… by way of personal service by an appropriate agent nominated by the Central Authority of the United States in accordance with the provisions of subparagraph (a) of the first paragraph of Article 5 of the Convention.

(Emphasis added.)

7    Article 5 of the Convention provides, relevantly:

The Central Authority of the State addressed shall itself serve the document or shall arrange to have it served by an appropriate agency, either –

a)    by a method prescribed by its internal law for the service of documents in domestic actions upon persons who are within its territory, or

b)    by a particular method requested by the applicant, unless such a method is incompatible with the law of the State addressed.

Subject to sub-paragraph (b) of the first paragraph of this Article, the document may always be served by delivery to an addressee who accepts it voluntarily.

…

8    The affidavit of the plaintiff’s solicitor that supports this Interlocutory Process produces the Certificate of Service received under r 10.66 of the Rules and furthermore, the evidence of the deponent establishes that the defendant has not appeared or filed an address for service in this proceeding.

9    The Certificate of Service establishes that the defendant was personally served or, as the Certificate states, by direct delivery with the relevant documents at 12.52pm on 17 December 2020. The Certificate states that the defendant “accepted service by direct delivery”. The pro forma part of the Certificate contains provision for service in one of the following methods authorised by Article 5 and the method identified by the process server by a cross is “(c) by delivery to the addressee, who accepted it voluntarily” rather than “(a) in accordance with the provisions of sub-paragraph (a) of the first paragraph of Article 5 of the Convention” or “(b) in accordance with the following method: [space to be completed]” by the process server.

10    Rule 10.68 provides that a certificate of service that certifies that service of the document was effected on a specified date (as is the case with the Certificate of Service) is, in the absence of any evidence to the contrary, sufficient proof that service of a document was effected by the method specified in the certificate on that date and if that method of service was requested by the applicant, that method is compatible with the law in force in the Convention country in which service was effected.

11    Rule 10.70 provides for a restriction on the power to enter a default judgment in circumstances where a certificate of service of an initiating process has been filed and a defendant has not appeared or filed an address for services. It provides as follows:

10.70 Restriction on power to enter default judgment if certificate of service filed

(1)    This rule applies if:

(a)    a certificate of service of initiating process has been filed in the proceeding (being a certificate in due form (within the meaning of rule 10.66(2)), stating that service has been duly effected; and

  (b)    the respondent has not appeared or filed a notice of address for service.

(2)    In circumstances to which this rule applies, default judgment may not be given against the respondent unless the Court is satisfied that:

(a)    the initiating process was served on the respondent:

(i)    by a method of service prescribed by the internal law of the Convention country for the service of documents in domestic proceedings on persons who are within its territory; or

(ii)    if the applicant requested a particular method of service (being a method under which the document was actually delivered to the respondent or to the respondent’s residence) and that method is compatible with the law in force in the country, by that method; or

(iii)    if the applicant did not request a particular method of service, in circumstances where the respondent accepted the document voluntarily; and

(b)    the initiating process was served in sufficient time to enable the respondent to enter an appearance in the proceeding.

(3)    In paragraph (2)(b), sufficient time means:

(a)    42 days from the date specified in the certificate of service in relation to the initiating process as the date service of the process was effected; or

(b)    such lesser time as the Court considers, in the circumstances, to be a sufficient time to enable the respondent to enter an appearance in the proceeding.

12    The content of the Request for service and the Certificate of Service is set out above (at [6] and [9]). At the hearing of the plaintiff’s Interlocutory Process, I raised with counsel for the plaintiff whether the passage in the Request for service which I have emphasised had the effect of taking the request outside the terms of paragraph (a) of Article 5 of the Convention and bringing it within the terms of paragraph (b) of Article 5, that is to say, a request for service by the plaintiff by a particular method. If that were to be the case, one consequence may be that service by delivery to the defendant who accepted it voluntarily as recorded in the Certificate of Service may not be sufficient because of the qualification on the effectiveness of that method of service in paragraph (b) of Article 5. Furthermore, even if the service actually effected met the particular method of service requested by the plaintiff so as to satisfy paragraph (b) of Article 5, that was not the method of service identified by the process server in the Certificate of Service.

13    The plaintiff addressed these points in short supplementary written submissions which I had given him leave to file.

14    The reference in the Request for service to prompt service by way of personal service conveys the notion that personal service is an example of the methods prescribed by the internal law of the State of Florida for the service of documents in domestic actions upon persons who are within its territory and that the controlling words or critical words in the Request for service are “in accordance with the provisions of subparagraph (a) of the first paragraph of Article 5 of the Convention”. That conclusion means that the case falls within paragraph (a) of the first paragraph of Article 5 of the Convention and not paragraph (b). This, in turn, means that there is no qualification on the fact that a document may always be served by delivery to [the defendant] who accepts it voluntarily. That is what, in fact, occurred in this case. I am satisfied that the initiating process was served on the defendant in accordance with r 10.70(2)(a)(i) or (2)(a)(iii) or both and that the requirements of r 10.70(2)(b) are satisfied. Had it been necessary to do so, I would have accepted the plaintiff’s alternative submission to the effect that even if he requested a particular method of service within the terms of paragraph (b) of Article 5 and the process server had served the defendant by another method (i.e., “by delivery to the addressee, who accepted it voluntarily”), I should dispense with compliance with r 10.70(2) for the following reasons: (1) the method of service requested, that is to say, personal service by an appropriate agent was a method under which the initiating process was actually delivered to the defendant and that method is compatible with the law in force in the State addressed; (2) the evidence indicates that the defendant has been properly identified and served and that the matters and materials relevant to service under the Convention have fairly been brought to the attention of the defendant; and (3) the defendant may apply to set aside any default judgment, although in order to do so successfully, he will need to satisfy the two requirements in r 10.72(2) of the Rules.

15    The defendant has not appeared or filed a notice of address for service or Defence and, as I have said, the plaintiff is not precluded from obtaining default judgment by the provisions of r 10.70 of the Rules.

16    The orders which may be made on default are identified in Div 5.2 of the Rules as are the circumstances that give rise to a relevant default for the purposes of the Rules.

17    Rule 5.22 identifies the circumstances in which a party is in default. It is as follows:

 A party is in default if the party fails to:

(a)    do an act required to be done, or to do an act in the time required, by these Rules; or

 (b)    comply with an order of the Court; or

 (c)    attend a hearing in the proceeding; or

 (d)    prosecute or defend the proceeding with due diligence.

18    The defendant in this case is in default. He has not filed an appearance or an address for service. In addition, the order that the Court made that the proceeding proceed by pleadings in lieu of affidavits means that Div 16.3 of the Rules is engaged (r 16.31) and, subject to r 10.70, the defendant was required to file a Defence within 28 days after service of the Statement of Claim (r 16.32). Furthermore, the effect of r 11.06 is that an address for service should have been filed before a Defence is filed. These failures are defaults within r 5.22 and, subject to r 10.70, engage the power in r 5.23 of the Rules to make orders in default.

19    Judgment may be entered for the plaintiff against the defendant if the plaintiff’s claim is for a debt or liquidated damages (r 5.23(2)(b)). The plaintiff’s claim for $329,028.17 is a claim for debt (see s 588M(2) of the Corporations Act). As the plaintiff’s claim for a declaration is not pressed, it is not necessary to consider the application of r 5.23(2)(c) of the Rules which deals with relief claimed in the statement of claim other than a claim in debt or liquidated damages.

20    An order for interest and an order for costs are also part of the orders which may be made under r 5.23(2)(b).

21    I will make an order that pursuant to s 588M of the Corporations Act and r 5.23(2)(b) of the Rules, judgment be entered in favour of the plaintiff against the defendant in the amount of $329,028.17. That leaves the issue of interest and costs. The issue of costs is straightforward. I will make an order that the defendant pay the plaintiff’s costs of the proceedings, such costs to be taxed in default of agreement.

22    The plaintiff seeks interest pursuant to s 51A of the Federal Court of Australia Act 1976 (Cth) calculated from the date of the liquidation of the company, that is, 14 May 2014 to the date of judgment. The amount sought is $123,630.76 and that amount has been calculated in accordance with the formula in paragraph 2.2 of the Interest on Judgments Practice Note (GPN-INT). The plaintiff has established an entitlement to interest in the amount of $123,630.76.

Associate:    

Dated:    24 June 2021