Federal Court of Australia

Richards v Hutchinson [2023] FCA 1102

ORDERS

THE COURT ORDERS THAT:

1.    The orders of Judicial Registrar Buckingham dated 30 June 2023 be set aside.

2.    The applicant be granted leave pursuant to rule 8.21(1)(a) and/or rule 8.21(1)(g)(i) of the Federal Court Rules 2011 (Cth) to amend her application to set aside Bankruptcy Notice BN259151, in the terms lodged for filing on 11 April 2023.

3.    The applicant be granted leave to file the affidavit of Mr Duke Myrteza dated 11 April 2023.

4.    The parties bear their own costs of and incidental to the hearing of 11 September 2023 and the hearing before Judicial Registrar Buckingham.

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

REASONS FOR JUDGMENT

COLLIER J

1    Before the Court is an interlocutory application filed on 24 July 2023 to set aside orders made by a Judicial Registrar made on 30 June 2023.

2    On 29 March 2023 the applicant filed an application in the Federal Court in the following terms (original application):

…

Details of claim

On the grounds stated in the statement of claim, accompanying affidavit or other document prescribed by the Rules, the Applicant claims:

1.    This is an application pursuant to section 41(6A) Bankruptcy Act 1966 [BA] and Rule 3.03 Federal Court (Bankruptcy) Rules 2016 ['FCBR'] to set aside Bankruptcy Notice BN 259151.

2.    The applicant relies on the attached affidavit of Kate Richards sworn 28 March 2023.

Final Relief

3.    Order pursuant to section 41(6A)(a) BA, set aside Bankruptcy Notice BN 259151 issued 7 March 2023.

Claim for interim relief

The Applicant also claims interim relief.

4.    Order pursuant to s.41 (6A)(a) BA and FCBR rule 3.03, extend the time for compliance with bankruptcy notice BN 259151 to a date specified by the Court after the final and determinative hearing in the Queensland Supreme Court in matter Richards v Hutchinson & Ors (QSC13242/2020) presently before that Court.

5.    Further and in the alternative to [4], Order extending the time for compliance with bankruptcy notice BN 259151 to a time specified by the Court as required on an interim basis from time to time.

…

(markup as original)

3    On the same date the applicant filed an affidavit in support of her application. At this time she was self-represented. On 4 April 2023 the applicant obtained legal representation by her current lawyers.

4    On 12 April 2023 the applicant sought leave to amend the original application pursuant to r 8.21(1)(a) of the Federal Court Rules 2011 (Cth), such that it would read as follows (amended application):

Details of claim

On the grounds stated in the statement of claim, accompanying affidavit or other document prescribed by the Rules, the Applicant claims:

1.    This is an application pursuant to sections 40(1)(g) and/or 41 (6A) Bankruptcy Act 1966 ('BA') and Rules 3.02 and/or 3.03 Federal Court (Bankruptcy) Rules 2016 ('the Bankruptcy Rules') ['FCBR'] to set aside Bankruptcy Notice BN 259151.

2.    The applicant relies on the attached affidavit of Kate Richards sworn 28 March 2023 and the further affidavit of Duke Myrteza sworn 11 April 2023.

Final Relief

2A.    Leave of the Court to amend this Application in the terms set out herein.

3.    Order pursuant to section 40(1)(g) or 41 (6A)(a) BA, setting aside Bankruptcy Notice BN 259151 issued 7 March 2023.

Claim for interim relief

Further or in the alternative, the Applicant also claims interim relief.

4.    Order pursuant to s 41(6A)(a) BA and FCBR rule 3.03, extend the time for compliance with bankruptcy notice BN 259151 to a date specified by the Court after the final and determinative hearing in the Queensland Supreme Court in matter Richards v Hutchinson & Ors [QSC 13242/2020] presently before that Court.

5.    Further and in the alternative to [4], Order extending the time for compliance with bankruptcy notice BN 259151 to a time specified by the Court as required on an interim basis from time to time.

(markup as original)

5    The respondents opposed the applicant being granted leave to amend the original application.

6    On 30 June 2023 the Judicial Registrar ordered as follows:

1.    The application to amend the application to set aside Bankruptcy Notice BN 259151 filed on 28 March 2023 is refused.

2.    The application to set aside is adjourned to a date to be fixed.

3.    The costs of the application to amend the application to set aside are reserved.

4.    Pursuant to r 3.03 of the Federal Court Rules 2011 (Cth), these orders and the reasons for decision in support of these orders are made from Chambers.

7    In the present interlocutory application the applicant seeks the following orders:

Interim orders sought

1.    Pursuant to section 35A(5) of the Federal Court of Australia Act 1976 (Cth) and rule 3.11 of the Federal Court Rules, the orders of Judicial Registrar Buckingham made 30 June 2023 are set aside.

2.    In lieu, it is ordered that leave is granted to the Applicant pursuant to rule 8.21(1)(a) and/or rule 8.21 (1)(g)(i) of the Federal Court Rules to amend her application to set aside Bankruptcy Notice BN259151.

3.    The Respondents are to pay the Applicant's costs of this application, and of the hearing before Judicial Registrar Buckingham on 12 April 2023 on the standard basis, to be agreed or assessed.

Background

8    Relevant background was summarised in the decision of the Judicial Registrar.

9    On 8 December 2022, the applicant commenced proceedings in the Supreme Court of Queensland against the current respondents, alleging that defamation and conspiracy to injury by unlawful means. During the course of the Supreme Court proceedings Williams J made an interlocutory order that the applicant pay the costs of the respondents in the amount of $33,200.94.

10    On 6 March 2023 the Official Receiver issued Bankruptcy Notice BN 259151 (Bankruptcy Notice) addressed to the applicant grounded upon the Supreme Court interlocutory costs order. The Bankruptcy Notice was served on the applicant on 7 March 2023.

11    On 28 March 2023 the applicant filed the original application together with her supporting affidavit.

12    On 4 April 2023 the applicant retained legal representatives, who on 11 April 2023 lodged for filing the amended application and an affidavit of solicitor Mr Duke Myrteza.

REASONS OF THE JUDICIAL REGISTRAR

13    Before the Judicial Registrar the applicant submitted that she had made an inadvertent error in the original application, in that:

    she erroneously applied to set aside the Bankruptcy Notice under s 41(6A) of the Bankruptcy Act 1966 (Cth) and r 3.03 of the Federal Court (Bankruptcy) Rules 2016 (Cth) (FCBR), however those provisions actually related to extensions of time rather than setting aside a bankruptcy notice;

    she should have specifically relied on s 40(l)(g) of the Bankruptcy Act and r 3.02 of the FCBR which related to setting aside on grounds of set-off, counter-claim or cross demands.

14    The applicant also submitted that paragraphs [12]-[19], [29]-[30] and [40] of her affidavit filed on 28 March 2023 revealed that she had a set-off, counter-claim or cross demand (off-setting claim) for the purpose of s 40(l)(g) of the Bankruptcy Act and r 3.02 (3) of the FCBR, in that:

    The costs order was interlocutory, and the applicant’s off-setting claim was that which arose from her proceedings in the Supreme Court.

    The applicant’s claim was evidenced by the amended statement of claim annexed to Mr Myrteza's affidavit.

    The applicant’s substantive claim was for an unliquidated sum, which Mr Myrteza gave evidence was valued at not less than $200,000.

    The claim could not be litigated in the Supreme Court proceedings on the basis of s 40(3)(b) of the Act and for the reasons discussed in Re Gould; Ex parte Skinner (1983) 72 FLR 393; [1983] FCA 68; Pollnow v Queensboro Pty Ltd (1988) 217 ALR 49 at 51; [1988] FCA 365 and Chesson v Smith (1992) 35 FCR 594 at 596; [1992] FCAFC 240.

15    The applicant further submitted that the respondents had mischaracterised the amended application as an attempt by the applicant to enlarge her set aside application.

16    Before the Judicial Registrar the respondents submitted, in summary, that:

    The terms of the relief sought in the applicant’s original application, together with paragraphs [11]-[26] of her affidavit, suggested that the applicant had made a conscious and forensic decision to confine her original application to grounds other than s 40(1)(g) of the Bankruptcy Act;

    The amended application sought to impermissibly enlarge the grounds of the original application to include references to s 40(1)(g) of the Bankruptcy Act and r 3.02(3) of the FCBR;

    an application to set aside a bankruptcy notice and supporting affidavit must not only be filed before the time required by the FCBR but also be compliant with those rules if it is successfully invoke the jurisdiction of the Court;

    the original application did not identify the sections of the Bankruptcy Act or the relevant rules on which the applicant relied on in relation to the off-setting claim;

    even on a benevolent construction of the applicant’s affidavit, it was not compliant with r 3.02(3) of the FCBR;

    the applicant’s affidavit at its highest only alluded to her having an ongoing claim against the respondents in the Supreme Court, and was insufficient to satisfy the Court that the off-setting claim was competent to invoke the jurisdiction of the Court to set aside the bankruptcy notice;

    the applicant had not put on any evidence about the inadvertent error she submitted she had made; and

    the applicant’s status as a self-represented litigant at the time she filed her original application and supporting affidavit was irrelevant to the disposition of her amendment application. The applicant was required to satisfy the jurisdictional issues set out by the FCBR at the time of filing and a failure, which she did not. The law is that the applicant cannot later correct that error by her amendment application.

17    The Judicial Registrar set out ss 41(6A) and 41(7) of the Bankruptcy Act and rr 2.01, 2.06, 3.02 and 3.03 of the FCBR.

18    The Judicial Registrar noted that Bromwich J had considered applicable principles at length in Coshott v Prentice, in the matter of Coshott (No 2) [2016] FCA 1531. The Judicial Registrar said:

23.    I commence with [16] of Coshott. Having first examined the terms of rr 2.01(3) and 3.02 of the Rules, Bromwich J there observed:

The grounds of the application required to be in the supporting affidavit by the above Rules are necessarily intended and required to be grounds in respect of the sections or regulations identified in that application. That is, the application is required to identify the sections or regulations sought to be relied upon, and the accompanying affidavit is then required to identify the grounds pertaining to such provisions.

19    The Judicial Registrar noted that Bromwich J went on to review several authorities concerning whether a competent application had been filed such that the Court's jurisdiction was engaged, beginning with Re Brink; Ex parte Commercial Banking Co of Sydney Ltd (1980) 44 FLR 135; [1980] FCA 78. The Judicial Registrar in particular referred to paras [28], [40]-[43], [45]-[46] and [49]-[50] of Bromwich J’s judgment.

20    The Judicial Registrar accepted that the respondents had not complied with r 2.06 of the FCBR but did not consider that non-compliance to be fatal to their opposition to the amended application. Materially, the Judicial Registrar stated at [27]:

… Here, I am ultimately satisfied that the amendment application must fail for the reason that Ms Richards' set aside application has not complied with the threshold jurisdictional requirements imposed by rr 2.01 and 3.02(3) of the Rules. Accordingly, I do not consider that Ms Richards' suffers injustice by the respondents' non-compliance with r 2.06: see, eg, Ogbonna v CTI Logistics Ltd [2021] FCA 1491 (Colvin J).

21    The Judicial Registrar continued:

28.    Rules 2.01 and 3.02(3) of the Rules set out the jurisdictional requirements that Ms Richards was required to comply with in order to have a competent application to set aside a bankruptcy notice on the ground of set-off, counter-claim or cross demand.

29.    When regard is had to Ms Richards' set aside application, I do not consider her set aside application can be fairly read, whether in isolation or with Ms Richards' affidavit, as showing that she intended to seek to set aside the Bankruptcy Notice on the ground that she has a setoff, counter-claim or cross demand.

22    At [30] the Judicial Registrar agreed that it seemed incongruous that the applicant’s application sought to set aside the Bankruptcy Notice pursuant to s 41(6A) of the Bankruptcy Act and r 3.03 of the FCBR in circumstances when those provisions related to the extension of time, however the Judicial Registrar did not agree that it was an inadvertent error. The Judicial Registrar continued:

30.    … Rather, I accept the respondents' submissions that Ms Richards has made a conscious and forensic decision to confine her set aside application to s 41(6A) of the Act and r 3.03 of the Rules. This is because neither Bankruptcy Notice nor the approved form contain any reference to s 41(6A) of the Act or r 3.03 of the Rules. The fact that Ms Richards has referred to s 41(6A) of the Act and r 3.03 of the Rules indicate she has had specific regard to the Act and the Rules at the time she prepared her set aside application and she has made a conscious decision to refer to them to the exclusion of other provisions of the Act or the Rules. Moreover, there is no evidence from Ms Richards about the alleged inadvertent error.

23    The Judicial Registrar further at [31] did not consider that the applicant’s original application should be construed any differently when read in the context of her affidavit, but considered that the applicant consciously and forensically decided to confine the set aside application to s 41(6A) of the Bankruptcy Act and r 3.03 of the FCBR.

24    The Judicial Registrar noted particular clauses of the Bankruptcy Notice, specifically:

4.    Applying to extend the time for compliance: You may apply to the Court, within the time stated in paragraph 1 above, for an extension of time for compliance with this Bankruptcy Notice on the grounds that :

(a)    you have instituted proceedings to set aside the judgment/s or order/s in respect of which this Bankruptcy Notice has been issued; and/or

(b)    you have filed with the Court an application to set aside this Bankruptcy Notice (on grounds other than those set out in paragraph 5 below).

5.    Applying to set aside the Bankruptcy Notice : You may apply to the Court, within the time stated in paragraph 1 above, for an order that this Bankruptcy Notice be set aside on the grounds that you have a counter-claim, set-off or cross demand, equal to or exceeding the amount claimed in this Bankruptcy Notice, and you could not have set up that counter-claim, set-off or cross demand in the action or proceeding in which the judgment or order in respect of which this Bankruptcy Notice has been issued was obtained.

25    The Judicial Registrar noted at [32] that the applicant’s affidavit was clearly structured by headings and sub-headings that identified the grounds on which she relied in support of the original application. In this regard:

    Immediately before para 6 of her affidavit was the heading “Grounds: FCR 3.03(1)(a)”, immediately followed by paras 6-11. In para 11 of her affidavit the applicant clearly identified clause 4 of the Bankruptcy Notice (see reasons for decision [32]);

    Following the headings “Facts and Chronology” and “Arrangement” was the heading entitled “Grounds other than grounds specified in clause 5 BN 259151”, setting out multiple grounds from paras [26]-[37].

26    The Judicial Registrar observed:

35.    In my view, even on a benevolent construction of Ms Richards' affidavit, I do not consider that Ms Richards' affidavit shows on its face that she intended rely on s 40(1)(g) of the Act or r 3.02(3) of the Rules in her set aside application.

36.    Furthermore, I do not consider such a conclusion can be drawn when regard is had to paragraphs [12]-[19], [29]-[30] and [40] of Ms Richards' affidavit as cited in Ms Richards' submissions and those paragraphs are benevolently construed.

27    The Judicial Registrar noted the paragraphs of the applicant’s affidavit appearing under the heading “Facts and Chronology” but found:

38.    Paragraphs [12]-[19] simply provided the factual background to the Supreme Court proceeding and therefore the Bankruptcy Notice. The only paragraph within paragraphs [12]-[19] of significance was paragraph [17]. In isolation, paragraph [17] cannot be read any higher than a statement of the fact that the costs order was interlocutory. When paragraph [17] is read in context of the other paragraphs within paragraphs [12]-[19] it only goes as far as showing that the proceeding has not been finally determined as opposed to Ms Richards having a set-off, counter-claim or cross demand because the costs order was interlocutory and the Supreme Court proceeding is ongoing. Accordingly, paragraphs [12]-[l 9] do not satisfy the requirements of r 3.02(3) of the Rules.

28    The Judicial Registrar had regard to paras [29] and [30] of the applicant’s affidavit, which read:

29.    Ground 3 [Pending Final Court Hearing]: The substantive action in the primary cause of action is in the matter of myself vs the Respondent in Supreme Court of Queensland Matter Number QSC 13242/2020. This matter is presently before Justice Williams in the Supreme Court of Queensland and is yet to be listed for final determination.

30.    I attach and mark Annexure copy of the latest orders of the Supreme Court of Queensland matter QSC 13242/2020.

29    The Judicial Registrar found that those paragraphs could not be fairly construed as showing a relevant off-setting claim which met the requirements of r 3.02(3) of the FCBR – rather they only showed that a Supreme Court proceeding was ongoing.

30    The Judicial Registrar then turned to para [40] of the applicant’s affidavit, and continued:

41.    Paragraph [40] of Ms Richards' affidavit detailed her "Conclusion". That paragraph stated:

I verily believe the cause in QSC 13242/2020 should be allowed to run to full completion upon which time all costs orders in either direction will be determined including prospectively the real possibility I may enjoy final orders for costs against the defendants in that cause.

42.    Paragraph [40] is perhaps the closest Ms Richards gets to showing on the face of the affidavit that she has a set-off, counter-claim or cross demand. Paragraph [40] not only indicates that the Supreme Court proceeding is ongoing but also for the first and only time it expressly indicates the costs order might be impacted by other costs orders, but only cost orders, the Supreme Court might make in her favour. Nevertheless, I do not consider that a fair reading of paragraph [40] of Ms Richards' affidavit goes far enough to show a set-off, counter-claim or cross demand whether read in isolation or contextually. In isolation, paragraph amounts to a mere assertion as it does not state the matters is required to state under r 3.02(3) of the Rules. Contextually, paragraph [40] appears in the conclusion to Ms Richards' affidavit and, accordingly, must be read with all other parts of Ms Richards' affidavit. When read with all other parts of Ms Richards' affidavit, I do not regard any other part of Ms Richards' affidavit as informing the conclusion she has reached at paragraph [ 40] and does not otherwise state the matters it is required to state under the 3.02(3) Rules.

43.    When Ms Richards' affidavit is considered as a whole, it fails on its face to identify that she has a set-off, counter-claim or cross demand. Any suggestion that the references in Ms Richards' affidavit to the Supreme Court proceedings, benevolently construed, constitute a setoff, counter-claim or cross demand amount in my view to nothing more than assertions. As I have decided that Ms Richards has failed to identify any set-off, counter-claim or cross demand, there is no occasion to consider the inference Ms Richards' invited me to draw or Mr Myrteza's affidavit to determine if the set-off, counter-claim or cross demand meets the requirements of r 3.02(3) of the Rules.

31    In relation to the applicant’s status as a litigant in person at the relevant time, the Judicial Registrar observed:

44.    I have not ignored the fact that Ms Richards is a self-represented litigant in reaching my decision. But Ms Richards' status as a self-represented litigant at the time she filed her set aside application and supporting affidavit does not change the result. The jurisdictional requirements a party is required to satisfy and the state of satisfaction I must reach in considering the same remains the same whether a litigant is legally or self-represented.

32    Accordingly, the Judicial Registrar refused to grant the applicant leave to amend the original application.

SUBSTANTIVE HEARING

33    At the substantive hearing after the parties had made submissions a consensus position was reached whereby I could make the following order:

Pursuant to section 41(6A)(b) of the Bankruptcy Act 1966 (Cth), time to comply with the court Bankruptcy Notice No. BN259151 is extended, up until and including the day on which the court determines the application to set aside the Bankruptcy Notice.

34    I made an order in those terms.

35    It follows that the issue now for decision is whether the Court should grant leave to the applicant to amend the original application in the terms of the amended application. It was common ground that the hearing before me was a hearing de novo. As the Full Court observed in Bechara v Bates (2021) 286 FCR 166; [2021] FCAFC 34 at [17]:

The review does not hinge, or focus, upon error in the decision of the registrar. It is a hearing de novo, in which the matter is considered afresh on the evidence and on the law at the time of the review, that is at the time of the hearing de novo.

36    It is helpful at this point to examine the respective cases of the applicant and the respondents.

Submissions of the applicant

37    In summary the applicant submitted:

    Rule 8.21(1)(a) of the Federal Court Rules permits the Court to amend an originating process at any time to correct a defect or error that would otherwise prevent the Court from determining the real questions raised by the proceeding, or add or substitute a new claim for relief, or a new foundation in law for a claim for relief, that arises out of the same facts or substantially the same facts as those already pleaded to support an existing claim for relief by the applicant.

    It is settled law that where the debt on which a bankruptcy notice is based is an interlocutory costs order in a separate proceeding between the same parties, the principal claim in those separate proceedings is – subject to the issue of quantum – an off-setting claim of the sort contemplated by s 40(1)(g) of the Bankruptcy Act: Chesson v Smith (1992) 35 FCR 594.

    The applicant’s Supreme Court proceedings involve causes of action in defamation and conspiracy to injury by unlawful means. Plainly the applicant has a counter-claim, set-off or cross demand of the type envisaged in Chesson v Smith.

    At no time have the respondents contended that the applicant’s originating application was invalid, including in their Notice Stating Grounds of Contention filed on 5 July 2023.

    The applicant conceded that any application to enlarge the grounds upon which a bankruptcy notice is sought to be set aside should be closely scrutinised, however this was not such a case.

    The relevant ground under consideration was the existence of an off-setting claim that satisfied s 40(1)(g), arising from the fact of the costs order and the ongoing Supreme Court proceedings. Although the ground was not stated in precisely those words in the original application it was plainly open to the Court to find that information by implication.

    The Court should adopt a benevolent construction to the applicant’s materials.

    It was plain that the face of the original application contained an error, because the provisions referred to did not have the effect stated on the face of that application.

    The applicant clearly sought to set aside the Bankruptcy Notice, and her affidavit deposed to sufficient facts to put s 40(1)(g) Bankruptcy Act into play.

Submissions of the respondents

38    In summary the respondents submitted:

    an application to set aside a bankruptcy notice must identify the sections or regulations sought to be relied on, and a party seeking to invoke the jurisdiction of the Court to extend time for compliance with a bankruptcy notice and/or to set such a notice aside, must file an application and supporting affidavit compliant with the rules prior to the expiration of the time fixed for compliance with a bankruptcy notice: Coshott v Prentice, Re Coshott (No 2) [2016] FCA 1531.

    A party seeking to set aside a bankruptcy notice in reliance on the fact that they have an off-setting claim for the purposes of s 40(1)(g) of the Bankruptcy Act must:

•    file an application compliant with r 2.01(3) of the FCBR which identifies the sections of the Bankruptcy Act relied on; and

•    supports that application with an affidavit compliant with r 3.02(3) of the FCBR.

    In considering whether an application to set aside a bankruptcy notice based on an offsetting claim could be said to be “competent” and to trigger the automatic extension of time for compliance in s 41(7) of the Bankruptcy Act, the offsetting claim must be “effective” or “real” at the time the application is made; it must be bona fide; it must on its face show a relevant offsetting claim: Coshott at [40].

    There is no freestanding right or entitlement to litigate later advanced additional grounds in support of an application to set aside a bankruptcy notice, assuming a valid application was made within the time for compliance with that notice: Coshott at [48].

    The original application was brought solely in reliance upon s 41(6A)(a) of the Bankruptcy Act and r 3.03 of the FCBR. To that extent:

•    No reference was made in that application to s 40(1)(g) or s 41(7) of the Bankruptcy Act, or r 3.02 of the FCBR;

•    Rather the applicant made a conscious and forensic decision to confine her application to grounds other than those contemplated by s 40(1)(g) of the Act;

•    Even on the most benevolent of constructions, the applicant’s affidavit could not be said to satisfy the requirements of r 3.02(3) of the FCBR.

CONSIDERATION

39    Both counsel acknowledged that amendments were made every day to applications of this nature. The respondents’ key submissions however were that it was not possible for the Court to amend the original application, and further the Court ought not grant leave for the applicant to do so.

40    Starting points for consideration of the present proceedings are the relevant legislative provisions, and the principles set out in relevant authorities.

Relevant legislation

41    Section 40(1)(g) of the Bankruptcy Act provides:

(1)    A debtor commits an act of bankruptcy in each of the following cases:

…

(g)    if a creditor who has obtained against the debtor a final judgment or final order, being a judgment or order the execution of which has not been stayed, has served on the debtor in Australia or, by leave of the Court, elsewhere, a bankruptcy notice under this Act and the debtor does not:

(i)    where the notice was served in Australia--within the time fixed for compliance with the notice; or

(ii)    where the notice was served elsewhere--within the time specified by the order giving leave to effect the service;

comply with the requirements of the notice or satisfy the Court that he or she has a counter-claim, set-off or cross demand equal to or exceeding the amount of the judgment debt or sum payable under the final order, as the case may be, being a counter-claim, set-off or cross demand that he or she could not have set up in the action or proceeding in which the judgment or order was obtained;

42    Section 41 of the Bankruptcy Act relevantly provides:

…

(6A)    Where, before the expiration of the time fixed for compliance with a bankruptcy notice:

(a) proceedings to set aside a judgment or order in respect of which the bankruptcy notice was issued have been instituted by the debtor; or

(b) an application has been made to the Court to set aside the bankruptcy notice;

    the Court may, subject to subsection (6C), extend the time for compliance with the bankruptcy notice.

…

(7)    Where, before the expiration of the time fixed for compliance with a bankruptcy notice, the debtor has applied to the Court for an order setting aside the bankruptcy notice on the ground that the debtor has such a counter‑claim, set‑off or cross demand as is referred to in paragraph 40(1)(g), and the Court has not, before the expiration of that time, determined whether it is satisfied that the debtor has such a counter‑claim, set‑off or cross demand, that time shall be deemed to have been extended, immediately before its expiration, until and including the day on which the Court determines whether it is so satisfied.

43    Rules 3.02 and 3.03 of the FCBR provide:

3.02 Setting aside bankruptcy notice

(1)    An application to set aside a bankruptcy notice under the Bankruptcy Act must be accompanied by an affidavit stating:

(a) the grounds in support of the application; and

(b) the date when the bankruptcy notice was served on the applicant.

(2)    A copy of the bankruptcy notice must be attached to the affidavit.

(3)    If the application is based on the ground that the debtor has a counter‑claim, set‑off or cross demand referred to in paragraph 40(1)(g) of the Bankruptcy Act, the affidavit must also state:

(a)     the full details of the counter‑claim, set‑off or cross demand; and

(b)     the amount of the counter‑claim, set‑off or cross demand and the amount by which it exceeds the amount claimed in the bankruptcy notice; and

(c)     why the counter‑claim, set‑off or cross demand was not raised in the proceedings that resulted in the judgments or orders to which the bankruptcy notice relates.

(4)    If the application is based on the ground that the debtor has instituted proceedings to set aside a judgment or order in relation to which the bankruptcy notice was issued, a copy of the application to set aside the judgment or order and any material in support of that application must also be attached to the affidavit.

(5)    The application and supporting affidavit must be served on the respondent creditor within 3 days after the application is filed.

Note 1: For extensions of time for compliance with a bankruptcy notice where an application has been made to set aside a judgment or order in respect of which the bankruptcy notice was issued, see paragraph 41(6A)(a) and subsection 41(6C) of the Bankruptcy Act and rule 3.03.

Note 2: For extensions of time for compliance with a bankruptcy notice where an application has been made to the Court to set aside the bankruptcy notice, see paragraph 41(6A)(b) of the Bankruptcy Act and rule 3.03.

Note 3: For the deemed extension of time for compliance with a bankruptcy notice where a counter‑claim, set‑off or cross demand is raised under paragraph 40(1)(g) of the Bankruptcy Act, see subsection 41(7) of that Act.

3.03 Extension of time for compliance with bankruptcy notice

(1)     An application for an extension of time, under subsection 41(6A) of the Bankruptcy Act, for compliance with a bankruptcy notice must be accompanied by an affidavit stating:

(a)    the grounds in support of the application; and

(b)     the date when the bankruptcy notice was served on the applicant.

Note: See also subsection 41(6C) of the Bankruptcy Act.

(2)    The following must be attached to the affidavit:

(a)    a copy of the bankruptcy notice;

(b)    a copy of any application to set aside a judgment or order in relation to which the bankruptcy notice was issued and any material in support of that application.

(3)    The application may be made in the absence of a party.

(4)    The application need be heard in open court only if it is for an extension of time to a date after the first directions hearing.

(5)    If, on application, the Court extends the time for compliance with the bankruptcy notice, the following documents must be served on the respondent creditor within 3 days after the order is made:

(a)    the application;

(b)    the supporting affidavit;

(c)    the order.

Relevant authorities

Coshott v Prentice, in the matter of Coshott (No 2) [2016] FCA 1531

44    Both parties relied on principles explained by Bromwich J in Coshott. Coshott was one in a series of decisions emerging from extensive litigation between various parties. Relevantly the basis for bankruptcy notices in Coshott was costs orders obtained against the debtors in that case. Those debtors sought to create, by way of assignment to them, the benefit of an offsetting claim equal to or exceeding the amount claimed in each bankruptcy notice for the purposes of ss 40(1)(g) and 41 (7) of the Bankruptcy Act.

45    Relevantly for present purposes Bromwich J observed as follows:

37.    A number of decisions of the former Federal Magistrates Court of Australia, now the Federal Circuit Court of Australia, which is now the primary forum for bankruptcy disputes, have applied similar reasoning: see for example...

38.    Some additional guidance or support for the reasoning above may be gleaned from the parallel jurisdiction of statutory demands under the Corporations Act 2001 (Cth), paying due regard to the important statutory differences between the two regimes. In Graywinter Properties Pty Ltd v Gas & Fuel Corporation Superannuation Fund [1996] FCA 822; (1996) 70 FCR 452 at 459, a distinction was drawn between the sufficiency of a supporting affidavit to enliven jurisdiction for an application to set aside a statutory demand and the evidence that might be relied upon to make good the case at the hearing of application. The former requirement was regarded as being more in the nature of pleadings and went to the competency of the application in the first place by meeting minimum requirements. The latter went to its ultimate success once validity, if questioned, was established.

39.    In Fitness First Australia Pty Ltd v Dubow [2011] NSWSC 531; (2011) 251 FLR 241, another statutory demand case, compliance with the so-called “Graywinter principles” was considered. Numerous other authorities were considered and at 271 [122] it was noted that although an applicant may supplement the initial affidavit or affidavits filed within time by leading further evidence, reliance could not be placed on any ground not raised in such an affidavit.

40.    It follows from the above authorities that for an application to set aside a bankruptcy notice to be competent and trigger the automatic statutory extension of time for compliance in s 41(7), the offsetting claim must be “effective” or “real” at the time the application is made; it must be bona fide; it must on its face show a relevant offsetting claim. Such a jurisdictional requirement for a competent application cannot be supplemented after the time for compliance has expired because that is too late to engage jurisdiction and trigger an extension of time. The terms of s 41(7) do not contemplate or allow the automatic extension of time to take place unless the application is made within the time for compliance contained in the bankruptcy notice. The application is either competent and thus valid at the time it is made, and triggers the automatic extension of time, or it is not competent and is thus invalid and no such extension of time is triggered.

41.    The above ostensibly bright-line test will not always be easy to assess, because it requires a determination as to what is meant by “effective”, “real”, bona fide or showing a relevant offsetting claim. It may also give rise to a live question as to what must be determined at the outset as a question of validity, and what can properly await the final determination of the application on its merits.

42.    At the very least, on its face the application must be legally capable of succeeding on the basis of the offsetting claim then identified as existing and relied upon, even if more evidence might be required by the time of the hearing in order for the court to reach the requisite degree of satisfaction for a final determination. It is in the nature of a legal capacity test, rather than a sufficiency of evidence test. It is directed to enabling the application to proceed to a hearing, rather than determining its ultimate success. If the application on its face is not capable of succeeding because of a manifest defect or deficiency, then it will not be valid and nothing can later be done to remedy this.

43.    The question of what is necessary for a valid application to set aside a bankruptcy notice based on an offsetting claim to succeed at a final hearing of the application is evaluative in terms of the sufficiency of the case advanced. In Vogwell v Vogwell (1939) 11 ABC 83 at 85, Latham CJ said of the equivalent provision in the Bankruptcy Act 1933 (Cth):

... What the section contemplates is a claim to the enforcement of a right sounding in money. It must be a real claim ; it is insufficient that the debtor believes that he has a claim, and the authorities show that the matter to which the court looks is this,—whether it is just that the claim should be determined before the bankruptcy proceedings are allowed to continue ; in other words, whether it is a claim which it is proper and reasonable to litigate. ...

44.    In this case, there is no issue of any outstanding litigation in relation to the existence of the offsetting claims relied upon by James and Ljiljana, other than arguably as to the quantum of the final entitlement to costs able to be enjoyed by the beneficiaries (or lawful assignees) of the costs orders against Prentice, which are mostly still undergoing a process of taxation.

45.    The above statement of principle in Vogwell was endorsed in Guss v Johnstone [2000] HCA 26; (2000) 171 ALR 598 at 606 [39]. Their Honours went on to say as to the final determination of an application to set aside a bankruptcy notice (at [40]):

The state of satisfaction referred to in s 40(1)(g), and s 41(7) involves weighing up considerations as to the legal and factual merit of the claim relied upon by the debtor, and the justice of allowing the bankruptcy proceedings to go ahead or requiring them to await the determination of the claim.

46.    In Guss v Johnstone at 607 [43], the High Court recorded the observation before the Full Court of this Court in that case before whom counsel had candidly acknowledged that the offsetting claim had to exist also at the time when the application to set aside the bankruptcy notice is heard. However, consistently with the above analysis, a sufficient claim must first be made at the time the application was lodged for the automatic extension of time to be triggered in the first place.

47.    In Ebert v The Union Trustee Company of Australia Limited (1960) 104 CLR 346 it was observed as to the final determination of an application to set aside a bankruptcy notice at 350:

… the debtor must show that he has a prima facie case, even if then and there he does not adduce the admissible evidence which would make out a prima facie case before a court trying the issues that are involved in his counter-claim, set-off or cross demand.    

48.    The burden of authority as to enlarging grounds does not support any freestanding right or entitlement to litigate later advanced additional grounds in support of an application to set aside a bankruptcy notice, assuming a valid application was made within the time for compliance with that notice. Moreover, there is a public interest in ensuring that the enforcement of debts by way of bankruptcy notices does not become mired in the sort of litigation that often gave rise to a judgment debt in the first place. In part that is because bankruptcy notices are an important part of the means by which civil laws are enforced and the orders of courts are thereby given real substance and meaning. While bankruptcy is a dire consequence of not paying debts arising from enforceable orders of the court, it is a vitally important ultimate remedy that helps to enhance the overall integrity of civil justice.

49.    Even if leave may be given to amend an otherwise valid application to set aside a bankruptcy notice and even if leave may be given to supplement the grounds in support of such an amendment such as by way of a further accompanying affidavit, that should be treated in the same manner as final pleadings, with such amendments and supplements not lightly countenanced. The now well established principles in relation to amending pleadings in Aon Risk Services Australia Limited v Australian National University [2009] HCA 27; (2009) 239 CLR 175 at 211-213 [93]-[98] and since reflected in ss 37M, 37N and 37P of the Federal Court of Australia Act 1976 (Cth) should apply to any power to amend the effective pleadings constituted by the affidavit accompanying an application to set aside a bankruptcy notice. An application for leave to enlarge the grounds upon which a bankruptcy notice is sought to be set aside should be closely scrutinised. Leave, assuming there is power to grant it, should not be given to rely upon additional unmeritorious or otherwise questionable claims, especially if they have the effect of inordinately delaying determination of the application.

50.    The focus in considering any permissible application to enlarge the grounds sought to be relied upon in an application to set aside a bankruptcy notice must at all times remain on the dictates of justice and not merely on individualistic ideas of what is fair in a given case, as mandated by Expense Reduction Analysts Group Pty Ltd v Armstrong Strategic Management and Marketing Pty Limited [2013] HCA 46; (2013) 250 CLR 303 at 323 [57]. At the same time, considerable weight should be given to the modern view of bankruptcy notices, namely that any alleged defects sought to be relied upon to set them aside should truly involve the debtor being misled as to what he or she must do in order to comply with the notice: see Adams v Lambert [2006] HCA 10; (2006) 228 CLR 409, discussed in some detail below…

46    His Honour’s reasoning were followed by Perry J in Gelonesi v G. Abignano (Investment) Pty Ltd [2020] FCA 898 at [54].

Kwok v Bank of Western Australia Limited [2011] FMCA 559

47    In Kwok an application was made by an applicant pursuant to s 41(7) of the Bankruptcy Act to set aside a bankruptcy notice. In the application the applicant did not specify a section of the Bankruptcy Act on which he relied as required by the relevant Bankruptcy Rules, nor was there attached a copy of the bankruptcy notice. At [29] the Lloyd-Jones FM nonetheless granted leave to the applicant to amend the application.

48    At [30] the Court noted that the mere filing of an application and an affidavit would not satisfy the Court that the debtor had an off-setting claim, as the satisfaction of the Court must be expressed in a finding and an order giving effect to that finding. His Honour continued:

33.    In order to achieve the level of satisfaction required by the above authorities, it is necessary to have the full details of the counter-claim, set-off or cross-demand. The details of the claim need to be stated in sufficient detail to show the nature and the substance of the cross-action and to demonstrate that the debtor is bona fide in his contention that the cross-action exists: Crimmins v Glenview Home Units Pty Ltd [1999] FCA 515.

…

36.    To succeed in a s.41(7) Application the Debtor, Michael Wilson Kwok, must satisfy the Court that he has a counter-claim, set-off or cross-demand against the creditor, Bank of Western Australia, which is equal to or greater than the amount claimed in the Bankruptcy Notice. The other required element is that the nature of this claim could not have been set up at the time or judgment or order upon which the notice is based, being the decision of his Honour Hammerschlag J. An essential element of this requirement of satisfaction is that the debtor, Michael Wilson Kwok, is required to file an affidavit giving details of the counter-claim, set-off or cross-demand before the time for compliance with the Bankruptcy Notice has expired. Significantly, in this matter, Mr Kwok has not filed an affidavit in this Application and has relied on the affidavit of Helen James.

37.    An analysis of Ms James’ affidavit indicates that the litigation that Mr Kwok is relying upon is against the receivers/managers, Messrs Lombe and Cathro, neither of whom are the petitioning creditor. If the claim was being advanced in the form of a set-off, then that has to be a defence to a creditor’s claim and must be enforceable at the time of the debtor’s application to the Court.

Spottiswood v Equititrust Limited (2010) 245 FLR 395; [2010] FMCA 819

49    In Spottiswood the relevant applicant sought to amend his application to set aside a bankruptcy notice to rely on his appeal against the judgment on which the judgment debt was founded, the bankruptcy notice being an abuse of process and defects in the bankruptcy notice. Burnett FM relevantly observed:

13.    There are difficulties with the debtors initial application because the debtor is not entitled to an automatic extension as provided for by s.41(7) unless there has been compliance with its terms: James v Abrahams (1981) 51 FLR 15 at 21; Thorpe v Bristile Ltd [1997] FCA 720; (1997) 80 FCR 330 at 339. While the application identified it as being in respect of a counterclaim set-off or cross-demand it was not plain that it was in respect of a counterclaim set-off or cross-demand in the s.40(1)(g) context. A permissive approach may be taken to the application particularly if it is informed by compliance with the requirements of Federal Magistrates Court (Bankruptcy) Rules 3.02 and 3.03 which require an affidavit to detail those matters. That approach was adopted in Re Brink ;Ex Parte Commercial Banking Co of Sydney Ltd [1980] FCA 78; [1980] 44 FLR 135 although s.41(7) at that time provided for the debtor to file an affidavit deposing to a counterclaim, set-off or cross-demand and not apply to the court as is now required.

13.    Affidavits filed in compliance with the rules should contain sufficient evidence to demonstrate that there is an effective and bona fide claim which is real. It is not sufficient to merely assert the existence of a counterclaim, set-off or cross-demand without more, although in some circumstances a debtor may be permitted to file an affidavit setting out facts upon which he may rely to show a relevant counter claim set-off or cross-demand. That affidavit, while it might be used to expand matters in a affidavit filed in time and otherwise complying with s.41(7), cannot be used to supplement any deficiency where no sufficient affidavit has been filed within the terms of s.41(7). In Re James and another: Ex Parte Carter Holt Harvey Roofing (Australia) Pty Ltd (1993) 46 FCR at 188-189 Hill J stated in the context of a similar application then before him,

•    “The debtors, within the time limited for compliance with the bankruptcy notice, filed two affidavits. These affidavits, individually or cumulatively, did little more that assert the existence of a cross-claim, cross-demand or set-off, and in my view did not comply with the provisions of s.41(7). The affidavit of which s.41 (7) speaks must do more than merely assert the existence of a cross claim etc of the relevant value. It must contain evidence which establishes that there is an effective cross-claim, a claim that is real... This is so because the affidavit in question is required to “show” a relevant counter-claim, set-off or cross-demand. An insufficient affidavit does not bring the provisions of s.41 (7) into operation

•    Although the debtors filed out of time an affidavit setting out the facts upon which they would rely to show a relevant cross-claim, cross-demand or cross-action, that affidavit, while it might be read to expand matters in an affidavit otherwise complying with s.41 (7) filed in time, cannot be used to supplement any deficiency where no sufficient affidavit has been filed within the terms of s.41 (7).”

The present proceedings

50    Applying these principles and the relevant legislation to the present proceedings, it appears that the following issues arise in respect of whether the Court ought grant leave to the applicant to amend the original application, namely:

    Whether the Court’s jurisdiction to set aside the bankruptcy notice on the grounds contemplated by s 40(1)(g) of the Bankruptcy Act has been invoked;

    Whether the applicant is seeking to amend the original application to insert additional grounds; and

    If the Court is empowered to grant leave to the applicant to amend the original application, whether the Court should do so.

51    These issues are intertwined in these proceedings. The respondents submitted that the proper response of the Court should be in the negative, because in essence:

    The Court’s jurisdiction to set aside a bankruptcy notice and/or extend time for compliance with a bankruptcy notice will only be enlivened where a competent application is made before the expiry of the time for compliance with the bankruptcy notice;

    a “competent” application means an application contemplated by r 2.01 of the FCBR supported by an affidavit which complies with rr 3.02 and 3.03 of the FCBR;

    the applicant’s affidavit could not be said to satisfy the requirements of r 3.02(3) given that it failed to state the amount of the alleged off-setting claim or why the off-setting claim was not raised in the proceedings that resulted in the judgments or orders to which the bankruptcy notice related; and

    at its height, the affidavit only alluded to the fact that the applicant had an ongoing proceeding in the Supreme Court of Queensland whereby she sought relief for alleged defamation and a conspiracy to injure by unlawful means.

52    While there is substance in the respondents’ arguments, on balance I consider that the Court’s jurisdiction to set aside the Bankruptcy Notice has been enlivened, and further that leave ought be granted to the applicant to amend the original application. I have formed this view for the following reasons.

53    First, it did not appear to be in serious dispute in the present proceedings that the original application and the affidavit of the applicant were, at best, imperfectly drafted. At the time of the filing of the original application, the applicant was a litigant in person. There is no evidence, or suggestion, that she is legally qualified, or was in any way experienced in dealing with the complexities of the bankruptcy legislation.

54    The applicant specifically identified in para 3 of the original application that she relied on s 41(6A)(a) of the Bankruptcy Act to set aside the Bankruptcy Notice and to seek an extension of time for compliance. In her affidavit, she similarly relied on “grounds other than grounds specified in clause 5 BN259151” where cl 5 of the Bankruptcy Notice specifically concerned an application for an order that the relevant bankruptcy notice be set aside on the grounds that the applicant had an off-setting claim equal to or exceeding the amount claimed in the bankruptcy notice which could not have been set up in the proceeding in which the relevant judgment or order was obtained. Clause 5 of the Bankruptcy Notice was directly referable to s 40(1)(g) of the Bankruptcy Act (which is framed in similar terms) and s 41(7) of the Bankruptcy Act.

55    Section 41(6A)(a) of the Bankruptcy Act clearly concerns circumstances where the applicant institutes proceedings to set aside the judgment or order in respect of which the bankruptcy notice was issued – which in the present case was the interlocutory costs order of the Supreme Court of Queensland. The evidence of the applicant as set out in her affidavit was in terms of the substantive proceedings in the Supreme Court continuing (para [29] and [39]), and that that substantive litigation:

…should be allowed to run to full completion, upon which time all costs orders in either direction will be determined including prospectively the real possibility I may enjoy final orders for costs against the Defendants in that cause. (para [40])

56    The applicant made no mention in her affidavit of any instituted proceedings to set aside the relevant interlocutory costs orders of the Supreme Court.

57    Notwithstanding this, and also notwithstanding that the applicant submitted that her reliance on s 41(6A)(a) of the Bankruptcy Act was an inadvertent error – to the extent that, at the date of filing the original application, the applicant relied on s 41(6A)(a) of the Bankruptcy Act, it was then presumably still open to the applicant to institute proceedings to set aside the interlocutory costs order of the Supreme Court on which the Bankruptcy Notice was founded. No submissions were made by either the applicant or the respondents on this point.

58    As Bromwich J explained in Coshott, the offsetting claim must be “effective” or “real” at the time the application is made; it must be bona fide; it must on its face show a relevant offsetting claim. His Honour further observed in Coshott at [42]:

…at the very least, on its face the application must be legally capable of succeeding on the basis of the offsetting claim then identified as existing and relied upon, even if more evidence might be required by the time of the hearing in order for the court to reach the requisite degree of satisfaction for a final determination.

59    The applicant submitted before me that she now believes she made an inadvertent error at the time of the filing of the original application. However there is no material before me indicating that, at the time the original application was filed, it was not “effective” or “real”, or that it was not bona fide for the purposes of the Bankruptcy Act or the FCBR.

60    The affidavit accompanying the application must identify the grounds pertaining to the provisions on which the application relies. Examination of the applicant’s affidavit filed in support of the original application demonstrates that grounds were identified by the applicant at paras [6]-[11] and [26]-[37]. As Bromwich J explained in Coshott, a distinction was drawn in such cases as Graywinter Properties Pty Ltd v Gas & Fuel Corporation Superannuation Fund [1996] FCA 822; (1996) 70 FCR 452 at 459 between the sufficiency of a supporting affidavit to enliven jurisdiction for an application to set aside a statutory demand, and the evidence that might be relied upon to make good the case at the hearing of application. Similarly in this case there is a distinction between the sufficiency of a supporting affidavit to enliven jurisdiction for an application to set aside a bankruptcy notice, and the evidence which might make it good.

61    It follows that, while poorly drafted, I am not persuaded that, at the time the original application or the applicant’s supporting affidavit were filed, relying as they did on s 41(6A) of the Bankruptcy Act, that they were incompetent for the purposes of either s 41(6A) of the Bankruptcy Act or r 3.03(1)(a) of the FCBR.

62    Second, the applicant now seeks to amend the original application by reference to the availability to her of an off-setting claim within the meaning of s 40(1)(g) of the Bankruptcy Act. As I have already noted, the applicant was the subject of an interlocutory costs order against her in the Supreme Court proceedings, which were the substantive proceedings between the parties. The Full Court in Chesson v Smith (1992) 35 FCR 594 explained that such an order not only constitutes an off-setting claim to the substantive proceedings between the parties within the meaning of s 40(1)(g), it is an off-setting claim which was not capable of being set up by the applicant in the relevant action or proceeding to which s 40(1)(g) of the Bankruptcy Act refers (see also Burchett J in Pollnow v Queensboro Pty Ltd (1988) 217 ALR 49 at 51).

63    In such circumstances at all times it appears to have been open to the applicant to seek to set aside the Bankruptcy Notice by reference to either s 41(6A) of the Bankruptcy Act, or because she had an off-setting claim relating to the existence of the interlocutory costs order within the meaning of s 40(1)(g) of the Bankruptcy Act.

64    Third, it is well-settled that Courts should adopt a benevolent construction to the initial affidavit of an applicant in these circumstances: see for example Re Brink; ex parte Commercial Banking Company of Sydney Ltd [1980] FCA 78; (1980) 44 FLR 135 at 142, Eastick v Australia and New Zealand Banking Group Ltd (1981) 53 FLR 91 at 95. There is material before the Court indicating that the applicant had offered on 22 March 2023 to make arrangements with the respondents concerning the payment of the debt arising from the costs order, and that the respondents rejected that offer on 24 March 2023, leaving her four days to make the original application and supporting affidavit. As Lockhart J observed in Re Brink at 142, the exigencies of time might render it difficult, if not impossible, for a debtor to present more than a mere outline of their case in the time available.

65    Fourth, I do not accept that the applicant is unable at this stage amend either her original application or supporting affidavit, including by adding additional grounds to set aside the Bankruptcy Notice. While, as Bromwich J observed in Coshott, the burden of authority as to enlarging grounds does not support any freestanding right or entitlement to litigate later advanced additional grounds in support of an application to set aside a bankruptcy notice, threshold issues for consideration of such an amendment appear to be that:

    The original application to set aside the bankruptcy notice and supporting affidavit were valid, and

    In accordance with the principles articulated by the High Court in Aon Risk Services Australia Limited v Australian National University [2009] HCA 27; (2009) 239 CLR 175 at 211-213 [93]-[98], the issue should be treated in the same manner as amendment to final pleadings, with such amendments and supplements not lightly countenanced.

66    I have already found that the original application and supporting affidavit were valid. Insofar as concerns whether the Court should now grant leave to amend that material, I note:

    The interlocutory costs order made by the Supreme Court were made in the same proceedings as the substantive litigation between the parties. In this respect, I consider it likely that the respondents were well aware of the prospect of the existence of an off-setting claim of the applicant referable to that costs order, and would accordingly suffer no prejudice from the proposed amendment to the original application and supporting affidavit in this Court.

    The off-setting claim on which the applicant wishes to rely for the purposes of s 40(1)(g) of the Bankruptcy Act concerned costs awarded against her in the same Supreme Court proceedings in the respondents’ favour. This case is accordingly distinguishable from such cases as Coshott (where the off-setting claim was the result of an assignment to the applicant by a third party) and Kwok (where the litigation on which the applicant there relied was against persons who were not the petitioning creditor).

    In balance are the competing objectives of recognising, on the one hand, that bankruptcy notices are an important part of the means by which civil laws are enforced and orders of courts are thereby given real substance and meaning, and on the other hand, that the consequences of bankruptcy are dire for the debtor. In this context I am again mindful of the benevolent approach to construction of the application and affidavit before the Court, also bearing in mind the status of the applicant at the relevant time as a litigant in person. In circumstances where I am satisfied that the respondents would have been aware of the applicant’s potential off-setting claim, I am not persuaded that the public interest would be imperilled by granting leave to the applicant to amend her application and supporting materials as she has sought to do.

    Finally I note the principles discussed by the High Court referable to amending pleadings in Aon and the case management principles recognised in s 37M of the Federal Court of Australia Act 1976 (Cth). At this point of the proceedings I am neither able nor required to make any conclusive findings concerning whether an off-setting claim on the part of the applicant would succeed. Rather, as Counsel for the applicant correctly submitted, the applicant has properly sought at this interlocutory stage to get her material into order, utilising the clear rules that are available for the specific purpose of allowing the court to determine the real issues between the parties. In this light I am satisfied that it is appropriate at the present stage of proceedings to permit the applicant to amend her original application and supporting affidavit.

CONCLUSION

67    I am satisfied that the applicant should be granted leave pursuant to r 8.21(1)(a) and/or r 8.21(1)(g)(i) of the Federal Court Rules 2011 (Cth) to amend her application to set aside Bankruptcy Notice BN 259151, in the terms lodged for filing on 11 April 2023.

68    I further order that leave be granted to the applicant to file the affidavit of Mr Duke Myrteza dated 11 April 2023.

69    I have already ordered that time to comply with the Bankruptcy Notice be extended up until and including the day on which the Court determines the application to set aside the Bankruptcy Notice.

70    The orders of the Judicial Registrar dated 30 June 2023 are set aside.

71    The parties made submissions in respect of costs. Costs as a general rule follow the event: Oshlack v Richmond River Council [1998] HCA 11; 193 CLR 72. However as Counsel for the respondents correctly pointed out, the applicant sought an indulgence from the Court for the amendment of her application and supporting material.

72    In the circumstances I consider that the appropriate order is that the parties bear their own costs of and incidental to the hearing of 11 September 2023 before me, and the hearing before the Judicial Registrar.

73    I will also hear the parties in respect of case management orders to take the application forward.

Associate:

Dated:    14 September 2023

SCHEDULE OF PARTIES