my item didn't arrive to the buyer

[brosiskk23]

I sent an item and the buyer just sent me a message that the envelope did arrive but it was ripped in half and the item that was inside was not there.   The post office stamped it "Received without Contents".   I want to refund the  purchase price and shipping (want to make it right)how do I do that or does the buyer need to post a claim through ebay first.   They paid through paypal.   This will be my first experience with this happening.