Mbuzi v Favell

Decision of the Federal Magistrate 10 After concluding that the bankruptcy notice was valid, his Honour turned to the issue of service as follows: [4] The bankruptcy notice was purportedly sent by letter to the respondent's address. I am satisfied that the bankruptcy notice was dispatched under cover of a letter from the petitioning creditor to the respondent. I am satisfied by the evidence, and Mr Favell was cross-examined about this, that the letter was posted. He did not physically place it in the post box, but he caused it to be posted in the ordinary course of his practice, and he gave evidence of what occurs with mail to be posted in the ordinary course of his practice. He gave evidence about the records that are kept concerning the posting of articles such as this. He also gave evidence that the envelope in which it was posted bore a return address, that is, his own address on it. [5] The respondent debtor takes issue, and this is largely the issue to be dealt with in this case although not the only one, with the proposition that the bankruptcy notice was served on him. The argument he makes is that there is, first of all, no proof of posting because the person who put the relevant letter in the postal box did not give evidence that he or she did so; but for the reasons that I have already given, I am satisfied that the letter was in fact posted. 11 Next, his Honour considered whether the bankruptcy notice had been delivered. His Honour observed: [7] Regulation 16.01(a) of the Bankruptcy Regulations 1996 permits service of a bankruptcy notice to be done by having it sent by post or by a courier service to the person at his or her last known address, and service is deemed to have occurred unless the person to whom it was sent can prove that it was not delivered. That seems to be the effect of the authorities such as Fancourt v Mercantile Credits [1983] HCA 25; (1983) 154 CLR 87 and Skalkos v T & S Recoveries Proprietary Limited (2004) FCAFC 321. The test is not receipt but rather posting and delivery. In that respect the respondent's point is that because he had no mailbox, Australia Post would not have delivered the mail to him. 12 His Honour accepted Mr Favell's evidence that the letter enclosing the bankruptcy notice had not been returned to him (at [8]). His Honour then dealt in detail with Mr Mbuzi's claim that the letter containing the bankruptcy notice had not been delivered. His Honour observed that the test is not receipt but rather posting and delivery: Fancourt v Mercantile Credits (1983) 154 CLR 87 and Skalkos v T & S Recoveries Pty Ltd (2004) 141 FCR 107. At [11] his Honour found that there was no evidence: of an agreement between Australia Post and Mr Mbuzi that an article addressed to his street address might be deemed to be undeliverable; that the way in which the letter was addressed by Mr Favell to Mr Mbuzi was insufficient; that the article was endorsed or it was otherwise known to Australia Post that Mr Mbuzi was unknown at the address. 13 After determining that it was a matter for evidence about whether Australia Post deemed this particular letter undeliverable on this particular occasion, his Honour observed that the onus of proof was on Mr Mbuzi to prove the alleged non-delivery, given the way in which the deeming provisions of the Bankruptcy Regulations operate. His Honour concluded: [15] There is no direct evidence before me about the relevant decision having been made by Australia Post. The question then becomes, should I draw an inference that Australia Post did not deliver the letter to the debtor's address, given the absence of a mailbox? In favour of drawing the inference is the debtor's deposition, which is unchallenged, that he did not receive the letter and the enclosed bankruptcy notice. Against drawing the inference is Mr Favell's evidence that the letter was not returned to him undelivered. The onus of proof is on the debtor to prove that which he alleges, given the way in which the deeming provisions of the Bankruptcy Regulations 1996 operate. Given that the possibilities - delivery or non-delivery - are equally open on the evidence and in my view one just as likely as the other, the onus of proof upon the debtor is not discharged and he has not proved on the balance of probabilities that Australia Post did not deliver the letter. [16] I am satisfied therefore that service of the bankruptcy notice has occurred in accordance with reg. 16.01 of the Bankruptcy Regulations 1996, and there is no proof of non-delivery. 14 Further, his Honour concluded that there was no evidence before his Honour that Mr Mbuzi was solvent [19]. 15 In relation to Mr Mbuzi's claim that he intended to appeal the District Court judgment, his Honour observed: [20] … It seems to me, however, that given the delay that has passed since the making of the judgment, his prospects of successfully overturning the judgment are remote. The judgment exists, the execution of it has not been stayed and there is nothing else that stands in the way of the petitioning creditor in executing his judgment. 16 Finally, in relation to Mr Mbuzi's claim that pursuit of the bankruptcy proceedings by Mr Favell was an abuse of process, his Honour said: [21] … I am not satisfied that it is an abuse of process. It is a course that is open to the petitioning creditor. The debtor says that there is a difference between a debtor who cannot pay and one who will not pay. Indeed, some authorities make that point. The debtor argues that bankruptcy proceedings are not appropriate to be used against a recalcitrant debtor, somebody who simply refuses to pay rather than cannot pay because of insolvency. [22] But that is not the case here. There is a proved act of bankruptcy, an act of bankruptcy upon which the petitioning creditor is entitled to rely. In those circumstances, I am satisfied that no basis has been shown for opposing the creditor's petition. 17 In a judgment delivered 14 December 2011 (Mbuzi v Favell [2011] FCA 1439), Greenwood J dismissed an application for an order staying the sequestration order pending the hearing and determination of this appeal.

Grounds of appeal 18 In his notice of appeal from the decision of the Federal Magistrate filed 26 September 2011 the grounds of appeal upon which Mr Mbuzi relied were: 1. Error of law as no proof of service. 2. Otherwise contrary to law. 3. Miscarriage of justice by introduction of evidence not introduced into the hearing. 4. Error of fact. 19 Mr Mbuzi sought the following orders: 1. Setting aside orders. 2. Urgent stay of orders until appeal is determined. 3. The stay application be allowed. 20 On 28 November 2011 Mr Mbuzi filed an amended notice of appeal. No application was made to this Court for an order that leave be granted to amend the grounds of appeal pursuant to r 36.11 of the Federal Court Rules 2011 (Cth). The amended notice of appeal was substantially different from the notice of appeal filed on 26 September 2011. It was considerably longer. It also contained more detailed grounds of appeal, including submissions within each ground of appeal, and sought orders different to those sought in the original notice of appeal. 21 At the hearing before me on 6 March 2011, Mr Mbuzi conceded that, fundamentally, the grounds of appeal upon which he sought to rely were that the bankruptcy notice had not been posted, and that he had not received the bankruptcy notice (TS p 12 ll 20-24, p 16 ll 21-32, p 18). Counsel for Mr Favell accepted that those grounds of appeal were encapsulated by the first ground of appeal in the notice of appeal filed 26 September 2011 (TS p 12 ll 31-32), and informed the Court that he was prepared to meet them. As a result Mr Mbuzi did not press his application for leave to amend his notice of appeal. I directed that the material in Mr Mbuzi's amended notice of appeal be treated as submissions in support of the grounds of appeal filed 26 September 2011.

Submissions 22 In summary, Mr Mbuzi submitted as follows: There is no evidence that the bankruptcy notice was ever actually posted to Mr Mbuzi. At its highest, an inference may be drawn that a secretary or receptionist posted the bankruptcy notice on behalf of Mr Favell. However no evidence to that effect is given by any such person. The Federal Magistrate erred in deeming service of the bankruptcy notice to have occurred simply because there was no proof of non-delivery. Evidence that the letter containing the bankruptcy notice was not returned to Mr Favell does not support an inference that it was delivered. Mr Mbuzi has no mailbox on his property, which is situated in semi-rural land north of Brisbane, and any mail to that address is deemed "undeliverable" by Australia Post on account of lacking receptacles for receiving items. The manner in which the bankruptcy notice was purportedly served contrasts starkly with the substituted service of the creditor's petition on Mr Mbuzi. 23 Mr Coulsen on behalf of Mr Favell submitted, in summary: The relevant test in relation to service of the bankruptcy notice in this case is that which is provided for in reg 16.01(1)(a) of the Bankruptcy Regulations, namely whether the documents were "sent by post … to the person at his last-known address". Mr Favell deposed that the letter that was sent has not been returned to sender. The Federal Magistrate accepted the evidence of Mr Favell that the letter accompanying the bankruptcy notice was posted and not returned to him to the address on the back of the envelope. The Federal Magistrate had regard to the conditions under which Australia Post operates under the Australian Postal Corporation Act 1989 (Cth) and in particular clause 24 of the Australia Post Terms and Conditions. The Federal Magistrate also found no case established by Mr Mbuzi that Australia Post had determined as undeliverable a mail article addressed to Mr Mbuzi's physical address. Unlike in Repatriation Commissioner v Gordon (1990) 26 FCR 569, in this case there was evidence of a business system in regular use for the posting of letters. The findings of the Federal Magistrate were open on the material before his Honour and those findings did not involve any mistake in fact or law. The decision of the High Court in Fox v Percy (2003) 214 CLR 118 is authority for the proposition that there are restraints on appellate courts overturning findings of fact or drawing their own inferences contrary to findings of the trial judge.

Service of bankruptcy notices 24 It is self-evident that a sequestration order against an estate is an event of the utmost seriousness for a putative debtor (cf comments of Burchett J in Re Anthony Edward Millar; Ex parte Commonwealth Development Bank of Australia at 7 (unreported, Burchett J, 27 April 1993)). The jurisdiction of the Court to make a sequestration order is conferred by s 43 of the Bankruptcy Act 1966 (Cth) ("Bankruptcy Act"), which provides that the Court may, on a petition presented by a creditor, make a sequestration order against the estate of the debtor where (inter alia) the debtor has committed an act of bankruptcy. 25 Section 52 of the Bankruptcy Act requires the Court at the hearing of a creditor's petition to require proof of, inter alia, the matters stated in the creditor's petition. The creditor's petition is required to state the act of bankruptcy upon which the petition is founded (s 44(1)(c)). Where the act of bankruptcy upon which the creditor relies is failure of the debtor to comply with a bankruptcy notice, it is beyond contention that effective service of a bankruptcy notice is essential. As Lehane J observed in Re Ferrarese; Ex parte Aloisio (1995) 60 FCR 586 at [6]: Proper service of process is of fundamental importance, and it is perhaps particularly so in the context of bankruptcy proceedings given their potentially penal consequences. It is of great importance that those whose task it is to effect service perform the task meticulously. It is equally important that the evidence given of service be meticulously accurate. Because it is essential that the Court be able to rely on evidence of service, it must be expected that the Court will regard very seriously any departure from that standard. 26 Under the Bankruptcy Act service of a bankruptcy notice may be effected in one of a number of ways. Traditionally bankruptcy notices required personal service, however the Bankruptcy Act also contemplates substituted service where permitted by order of the Court (s 309(2)) or service in one of the methods prescribed in reg 16.01 of the Bankruptcy Regulations. In this case Mr Favell relies upon reg 16.01(1)(a). Regulation 16.01 provides as follows: Service of documents 16.01. (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. 27 That a bankruptcy notice may be served in accordance with methods prescribed by reg 16.01(1)(a) is clear from the decision of the Full Court in Skalkos. However, it is equally clear that the onus lies with the creditor to establish proof of service in accordance with the methods permitted by reg 16.01(1): de Robillard v Carver (2007) 159 FCR 38 at [46], [68]. Further, strict proof of service on the debtor is required. If the creditor is unable to demonstrate strict proof of delivery, the chain of delivery breaks down: de Robillard at [68]. 28 These principles were explained by Buchanan J in de Robillard in relation to reg 16.01(1)(b) of the Bankruptcy Regulations, which allows a document to be served by being 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. His Honour, with whom Moore and Conti JJ agreed, said as follows: [67] First, it is appropriate in principle to require strict proof. Before the introduction of reg 16.01 bankruptcy notices were required to be served personally unless an order for substituted service was made. The requirements for service were strictly enforced (Re Ditfort; Ex parte Deputy Commissioner of Taxation (1988) 19 FCR 347 per Gummow J at 358). For example, in Clyne v Deputy Commissioner of Taxation (No 4) (1982) 13 ATR 302; 42 ALR 703, Lockhart J set aside a bankruptcy notice served by post because, although by order of the Court service was deemed effective 14 days after posting and compliance was required 28 days after due service, the alleged debtor could not know when posting had in fact occurred and therefore could not reliably calculate the time for compliance. Although the introduction of reg 16.01 has removed the need for personal or substituted service, a strict approach to satisfaction of the elements of service remains appropriate. (Emphasis added.) 29 His Honour also referred with approval to In re Long; Ex parte Fraser Confirming Pty Ltd (1975) 12 SASR 130 where Walters J also endorsed the need for strict compliance with the formalities of service of a bankruptcy notice. At 133-134 his Honour said: In taking the view that strict compliance with rules prescribing the method of service of a bankruptcy notice must be insisted upon, I draw support from the rule laid down by the Divisional Court in Re Collier; Ex parte Dan Rylands Ltd [(1891) 64 LT 742 at p 743], where Cave J observed: Due service of a bankruptcy notice is necessary in order to constitute an act of bankruptcy, and it is more important that the rules and regulations should be properly complied with in the case of a bankruptcy notice than in the case of a petition for adjudication. When an act of bankruptcy has been committed, then the petition is a less formal matter, and one as to which it is not necessary to take exactly the same view. Very soon after the Act of 1883 came into operation several cases were brought before the Courts with reference to a bankruptcy notice, and on more than one occasion the Court of Appeal have expressed the opinion that, since the commission of an act of bankruptcy was a serious matter, and involved consequences of what have been called a penal nature, it was important to see that the necessary preliminaries have been complied with. This dictum of Cave J was expressly approved by Vaughan Williams LJ in In re O.C.S. (A Debtor) [[1904] 2 KB 161 at p 162] and by Harman J in Bowmaker's case [[1951] Ch 313 at p 318]… 30 Later in the judgment Walters J continued (at 134): Reference may also be made to the decision of the Court of Appeal In re A Debtor [[1939] 1 Ch 251]. There it was held that the handling of a bankruptcy petition to the debtor in a sealed envelope was not good service, for the reason that, as the petition was in a sealed envelope which bore no reference, and called no attention, to its contents, the debtor could have had no knowledge of what was contained in the envelope. In delivering his judgment (in which other members of the Court concurred), Sir Wilfred Greene MR stressed the necessity for "great strictness" in observing the directions prescribed by the relevant English Bankruptcy Rules for service of a bankruptcy petition. His Lordship said: It is no exaggeration to say that the practice in to writs and the requirements of the law in regard to the service of writs are, and have always been, regarded as matters strictissimu juris. In the case of the service of a bankruptcy petition, I can see nothing in the section and Rules which can fairly be construed as relaxing the strict requirements which are to be found in the case of service of writs and other documents under the Rules of the Supreme Court. 31 The importance of proper proof in respect of service of a bankruptcy notice was also recognised by Gummow J in Re Ditfort; ex parte Deputy Commissioner of Taxation (1988) 19 FCR 347 at 359. 32 I respectfully adopt the principles articulated in these cases.

Consideration 33 In this case I consider that the Federal Magistrate erred by not having regard to the strictness of proof required for service of a bankruptcy notice in considering whether the evidence before the Court constituted effective service within the meaning of reg 16.01(1)(a) of the Bankruptcy Regulations. The key passages from his Honour's judgment are [4] and [5], which are helpful to repeat: [4] The bankruptcy notice was purportedly sent by letter to the respondent's address. I am satisfied that the bankruptcy notice was dispatched under cover of a letter from the petitioning creditor to the respondent. I am satisfied by the evidence, and Mr Favell was cross-examined about this, that the letter was posted. He did not physically place it in the post box, but he caused it to be posted in the ordinary course of his practice, and he gave evidence of what occurs with mail to be posted in the ordinary course of his practice. He gave evidence about the records that are kept concerning the posting of articles such as this. He also gave evidence that the envelope in which it was posted bore a return address, that is, his own address on it. [5] The respondent debtor takes issue, and this is largely the issue to be dealt with in this case although not the only one, with the proposition that the bankruptcy notice was served on him. The argument he makes is that there is, first of all, no proof of posting because the person who put the relevant letter in the postal box did not give evidence that he or she did so; but for the reasons that I have already given, I am satisfied that the letter was in fact posted. 34 However: It is clear from these passages, and the transcript of the hearing before his Honour, that the only evidence to support Mr Favell's claim that the bankruptcy notice was actually sent to Mr Mbuzi was oral evidence of Mr Favell as to his recollection of leaving the envelope containing the bankruptcy notice to be put in the mail by an unnamed secretary/receptionist in the ordinary course of business of his practice. There was no evidence before the Court of any record of the notice being sent by post, as might be expected if there was a system of postage pursuant to which the bankruptcy notice was posted. Similarly, no evidence was tendered supporting the existence of any register of outgoing mail as claimed orally by Mr Favell. No evidence, either oral or in affidavit form, was given by any third party who might have physically posted the bankruptcy notice that the notice had been posted. 35 While his Honour accepted the evidence of Mr Favell that the bankruptcy notice had been posted, this evidence was not considered by his Honour in accordance with the principles of strict proof of service confirmed by such authorities as de Robillard and Long. It cannot be said from that evidence before the Court below that Mr Favell has adduced strict proof that the bankruptcy notice was actually sent to Mr Mbuzi by post in accordance with reg 16.01(1)(a), or in fact that there was evidence before the Court from which his Honour could be satisfied that the bankruptcy notice had been effectively served on Mr Mbuzi. 36 One may, for example, contrast this case with that before Wilcox J (at first instance) in T & S Recoveries Pty Ltd v Skalkos [2004] FCA 816, where the existence of 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 the relevant address was not in dispute. Perhaps more relevantly, the circumstances of this proceeding may be contrasted with those in Drake v Stanton [1999] FCA 1635 where, in accepting that service of a bankruptcy notice had occurred in accordance with reg 16.01(1)(c) by being left at the last known address of the judgment debtor, the Court accepted evidence from a process server that he had placed the envelope containing the bankruptcy notice under the front door of the relevant premises. 37 Before me however Counsel for Mr Favell submitted that the evidence of Mr Favell demonstrated the existence of a system of postage which, in turn, supported the finding of the learned Federal Magistrate that the bankruptcy notice had been served. In particular, Counsel directed my attention to the decision of Spender J in Gordon. In that case his Honour considered an application for an extension of time in which to lodge an application to review a decision of the Veterans' Review Board and an application to review that decision. The central question before his Honour was whether the provision of the Acts Interpretation Act 1901 (Cth) ("Acts Interpretation Act"), which permitted a document to be served on a natural person by sending it by prepaid post to the address of the place of residence or business of the person last known to the person serving the document, applied to the communication of decisions made by the Veterans' Review Board, or whether personal service was required. Counsel before me directed my attention in particular to the following comments of Spender J at page 577: The object of service, in whatever form, is to bring the contents of the document or documents served to the attention of the person to be served. The mere fact that one might more confidently expect that aim to be achieved if personal service, as opposed to service by pre-paid post, is required, does not permit the conclusion that service by pre-paid post was intended to be excluded. Such a consideration would apply in every case. Accepting, as I do, that the veterans' entitlement legislation is benevolent in purpose, nonetheless in my view there is nothing in its provisions which manifests an intention to preclude service by pre-paid post of the documents that s. 34(2) requires the Commission to cause to be served on the claimant or applicant. In my opinion, the majority of the Veterans' Review Board was in error in holding that the provisions of the Acts Interpretation Act 1901 were inapplicable to the requirement of service in the present case. In the state of the evidence it is necessary to remit the matter to be considered in accordance with law. There are some evidentiary matters to which reference can usefully be made. An affidavit by Mr. James Sharp, who in the relevant period was an advices clerk in the Entitlements Section of the Department of Veterans' Affairs, deposed to the system adopted in relation to the despatch of determinations. At its highest for the Commission that material establishes that a letter notifying the decision as to cervical spondylosis not being service related was processed by him and placed in an out tray. The details of what he did led him to state: This indicates to me that I caused the letter and determination to be posted to Mr. Bongioletti on 25 September 1985. Mr. Sharp's material makes no reference to whether in fact the letter was collected, and if so by whom or when. The evidence is silent as to the system of posting that was then in force. There is no reference to the system of prepaying of postage, or as to what records, if any, were kept of letters or other articles posted. 38 In my view these comments of his Honour must be read in the context of a case where: The primary issue was whether service could be effected by post, and whether the Veteran's Review Board had erred in holding that the provisions of the Acts Interpretation Act were inapplicable to the requirement of service of the particular document in that case. The legislation the subject of his Honour's consideration was benevolent, unlike bankruptcy legislation which is penal in nature (cf for example Bennell v American Express International Incorporated [2006] FCAFC 80 at [20], Re Collier; ex parte Dan Rylands Ltd (1891) 64 LT 742 at 743, Long at 133). The document in question was the decision of the Repatriation Commission advising the applicant that it had rejected his claim for a repatriation pension. A document of this nature can be contrasted with a bankruptcy notice, the service of which is a proceeding in bankruptcy: Long at page 133, Re Copley; ex parte Sundell (1964) 20 ABC 229 at 230. The comments of Spender J concerning the system of postage were general observations in the context of a broader consideration of whether the relevant document was in fact served. In the apparent absence of evidence as to any system of postage or record-keeping in that case his Honour did not need to find that postage of a document in accordance with any such system would have been adequate to constitute effective service. 39 I am not persuaded that Gordon assists Mr Favell in the case before me, particularly in light of what can only be described as thin and vague evidence before the Court below as to the existence of Mr Favell's system of despatching documents by post. 40 Finally I am not persuaded by the submissions of Counsel for Mr Favell that the decision of the High Court in Fox precludes me from allowing this appeal.

Conclusion 41 At the hearing before me extensive submissions were made in respect of the question whether the bankruptcy notice had been delivered to Mr Mbuzi, and whether his Honour had erred in finding that there was no proof of non-delivery of the bankruptcy notice. In the circumstances of this case I do not consider it necessary to deal with this issue. In the clear circumstances of this case and in the absence of proof that the bankruptcy notice was effectively served on Mr Mbuzi, I consider that - to respectfully adopt language of Burchett J in Millar at 6-7 - the creditor's petition later served on Mr Mbuzi was poisoned at its source. There was no proof that an act of bankruptcy based on a failure to comply with the bankruptcy notice had actually occurred. Contrary to the decision below, I consider that a compelling basis was shown by Mr Mbuzi for opposing the creditor's petition, and that there were compelling reasons for his Honour to refuse to make the sequestration order sought by Mr Favell. 42 In my view the appeal ought be allowed. 43 As Mr Mbuzi has been an unrepresented litigant throughout these proceedings no order for costs will be made notwithstanding that he has been successful in this appeal: Cachia v Hanes (1994) 179 CLR 403 at 409, Australian Super Pty Ltd v Woodward (2009) 262 ALR 402 at [60]-[61]. As the Full Court observed in Woodward: 60 A court has no power to award costs in favour of an unrepresented litigant. In Cachia v Hanes [1994] HCA 14; (1994) 179 CLR 403, Mason CJ, Brennan, Deane, Dawson and McHugh JJ held (at 409) that the costs provided for in the New South Wales Supreme Court Rules: ... do not include time spent by a litigant who is not a lawyer in preparing and conducting his case. They are confined to money paid or liabilities incurred for professional legal services. It is only in that sense that the Rules speak of 'costs'. 61 The same rationale can be applied to the award of costs in the Federal Court of Australia. I certify that the preceding forty-three (43) numbered paragraphs are a true copy of the Reasons for Judgment herein of the Honourable Justice Collier.