+ Bankruptcy Notice Served by Email

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Despite the fact that service by post of bankruptcy notices has been valid for many years, most practitioners still use the 19th century mechanism of personal service. However, things have moved ahead, and service of bankruptcy notices can also now be effected by email.

In one of the first cases to analyse the validity of service of a bankruptcy notice by email, Smith FM of the Federal Magistrates Court in American Express Australia Ltd -v- Michaels [2010] FMCA 103, heard 9 February 2010, dissected the new reg. 16 of the Bankruptcy Regulations and considered its effectiveness.

He noted that numerous facts have to be proved including the fact of service, the date of service and the location of service. Regulation 16 of the Bankruptcy Regulations deals with the first two, but it was found to be silent on the third. Did that omission destroy the application for a sequestration order?

The Facts

American Express Australia Limited ("AMEX") filed a creditor's petition on 12 August 2009, seeking a sequestration order against Mr Michaels.

The petition alleged an act of bankruptcy arising from the failure of Mr Michaels to comply on or before 7 July 2009 with the requirements of a bankruptcy notice served on him on 16 June 2009. The affidavit of service of the bankruptcy notice established that a PDF electronic copy of it was sent to him by email in the afternoon of 16 June 2009.

Evidence of fact of service

Numerous grounds of opposition were raised by Mr Michaels including the service of the bankruptcy notice by email. The Court noted that provision for service by email is made in Bankruptcy Regulation 16 which has been held to apply to bankruptcy notices ¿ Skalkos -v- T & S Recoveries Pty Ltd [2004] FCAFC 321.

AMEX submitted that the evidence established that Mr Michaels had a "facility maintained by [the debtor] ... for receipt of electronically transmitted documents" within Regulation 16.01(1)(e)(i), consisting of an email mail box on a Yahoo server which was frequently accessed by him. There was abundant evidence of his using this facility over the relevant time, and it appeared to have been his favourite mode of written communication. In particular, he used it to communicate in writing with the representatives of AMEX and also with the agent of his landlord. The court was therefore satisfied that his use of his Yahoo mail box over the relevant period amounted to his 'maintaining' that facility, so as to allow it to come within Regulation 16.01(1)(e)(i).

The court also considered that his demonstrated use of the email address provided sufficient grounds for being satisfied that electronic transmission of documents to the mail box would be received by him 'in the ordinary course of events' within Regulation 16.01(1)(e)(ii).

In her affidavit of service of the bankruptcy notice, Ms Roppolo deposed that "on 16 June 2009, at 03:58pm, I sent an e-mail to the respondent at [his yahoo address] which attached a copy of the bankruptcy notice".

The court accepted this evidence, and was therefore satisfied that service of the bankruptcy notice was effected in accordance with Regulation 16.01(1)(e).

Evidence of when service was effected

The time of service is relevant to calculating exactly when the act of bankruptcy occurred. Pursuant to the terms of the notice, it was to be calculated as: "21 days after service on you of this Bankruptcy Notice".

In relation to receipt, the court accepted that Regulation 16.01(2)(b) raised a presumption that the emailed bankruptcy notice was received by the debtor at the time "when the document is ... transmitted".

The court said that "transmit" can mean either "send" or "communicate". The court noted that section 14 of the Electronic Transactions Act governed the time and place of receipt of electronic communications, subject to a contrary intent in specific legislation.

However, Smith FM eventually concluded that the specific provisions in Bankruptcy Regulations 16.01(1)(e) and (2)(b) were self-supporting and intended to identify a deemed time of receipt of service. He said that these were rebuttable by the recipient.

He turned to consider the meaning of the word 'transmitted' in Regulation 16.01(2)(b) and noted that it appeared to make an understandable assumption that electronic transmissions would normally reach the intended destination almost instantaneously. He concluded that Regulation 16.01(2)(b) raised a rebuttable presumption that receipt occurred when the email was transmitted by its sender, being when it was irretrievably sent by the electronic mail facility used by the person serving the electronic document.

Evidence of where service was effected

Smith FM then turned to consider the place of service of the bankruptcy notice. The place of service was relevant because under section 40(1)(g)(i) of the Act, an act of bankruptcy can only occur if there is no compliance with the notice within the time specified in the notice and it is "served on the debtor in Australia". AMEX conceded that no leave had been obtained to serve it "elsewhere" as provided for in Section 40(1)(g)(ii).

There was no clear evidence showing where Mr Michaels or his Yahoo mail box server were located at the time of service and the Bankruptcy Act is silent on this issue.

So the Court applied sections 14(5) and (6) of the Electronic Transactions Act to determine the 'place' of service.

From the evidence, it was clear that Mr Michaels had a number of places of business in Australia at the time of the email. There were also vague suggestions that he may have had places of business elsewhere in the world.

Assuming that he had more than one place of business and that he had other places outside Australia, the Court noted that section 14(6)(a) of the Electronic Transactions Act applied to deem his "place of business" to be that place of business which has a "closer relationship to the underlying transaction" than the others.

He had a place of business in Kent Street, Sydney. This was evidenced in his application for credit from AMEX. On the evidence the Court found that Mr Michaels' receipt of the bankruptcy notice was deemed to have occurred in Australia (i.e. the Sydney address), since this appeared to be the site of his place of business having the closest relationship to his relevant transactions with AMEX.

The case clearly shows some inadequacies of the Bankruptcy Act in relation to electronic service of a bankruptcy notice and the assistance that the Electronic Transactions Act is able to give to fill in the gap. Legislative intervention is warranted.

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