Pearson v Jamaica Blue Pty Ltd
[2023] FedCFamC2G 568
FEDERAL CIRCUIT AND FAMILY COURT OF AUSTRALIA
(DIVISION 2)
Pearson v Jamaica Blue Pty Ltd [2023] FedCFamC2G 568
File number(s): SYG 1745 of 2022 Judgment of: JUDGE MANOUSARIDIS Date of judgment: 30 June 2023 Catchwords: BANKRUPTCY – application to set aside bankruptcy notice on the ground that the debtor has a counter-claim, set-off or cross demand that is equal to or exceeds the amount of the judgment demanded in the bankruptcy notice – whether a claim for costs to be assessed constitutes a counter-claim, set-off or cross demand for the purposes of s 40(1)(g) of the Bankruptcy Act 1966 (Cth) – whether amount for claim for costs is equal to or exceeds the amount demanded by the bankruptcy notice – whether on the proper construction of s 40(1)(g) when determining whether a counter-claim, set-off or cross demand is equal to or exceeds the judgment debt demanded in the bankruptcy notice the Court is required or has a discretion to include any claim the creditor has against the debtor in addition to the judgment debt demanded by the bankruptcy notice – bankruptcy notice set aside. Legislation: Bankruptcy Act 1966 (Cth) ss 40(1)(g), 41
Bankruptcy Regulations 1996 (Cth) reg 4.02
Legal Profession Uniform Law Application Regulation 2015 (NSW) reg 35
Cases cited: Ahern v Deputy Commissioner of Taxation [1987] FCA 312
Alcan (NT) Alumina Pty Ltd v Commissioner of Territory Revenue [2009] HCA 41
Guss v Johnstone [2000] HCA 26
Inco Europe Ltd v First Choice Distribution (a firm) [2000] 1 WLR 586
Ling v Enrobrook (1997) 143 ALR 396
Pearson v Jamaica Blue Pty Ltd [2019] NSWSC 1737
Pearson v Jamaica Blue Pty Ltd [2020] NSWSC 121
Royal v Nazloomian, in the matter of Royal [2019] FCA 555
Smith v Corrective Services Commission (NSW) [1980] HCA 49
State of New South Wales v Kaiser [2022] NSWCA 86
Taylor v The Owners - Strata Plan No 11564 [2014] HCA 9
Vogwell v Vogwell (1939) 11 ABC 83
Wentworth Securities Ltd v Jones [1980] AC 74
Division: General Number of paragraphs: 37 Date of hearing: 19 April 2023 Place: Sydney Counsel for the Applicant: Mr A Rizk Solicitor for the Applicant: Paladin Law Counsel for the Respondent: Mr A Spencer Solicitor for the Respondent: Malcolm Murray & Associates ORDERS
SYG 1745 of 2022 FEDERAL CIRCUIT AND FAMILY COURT OF AUSTRALIA (DIVISION 2)
BETWEEN: ALAN PEARSON
Applicant
AND: JAMAICA BLUE PTY LTD
Respondent
order made by:
JUDGE MANOUSARIDIS
DATE OF ORDER:
30 June 2023
THE COURT ORDERS THAT:
1.Bankruptcy Notice BN 258067 issued on 8 November 2022 and served on the applicant on 9 November 2022 is set aside.
2.Subject to order 3, the respondent pay the applicant’s costs.
3.The parties have liberty to apply within 21 days for an order varying or discharging order 2.
Note: The form of the order is subject to the entry in the Court’s records.
Note: The Court may vary or set aside a judgment or order to remedy minor typographical or grammatical errors (r 17.05(2)(g) Federal Circuit and Family Court of Australia (Division 2) (General Federal Law) Rules 2021 (Cth)), or to record a variation to the order pursuant to r 17.05 Federal Circuit and Family Court of Australia (Division 2) (General Federal Law) Rules 2021 (Cth).
REASONS FOR JUDGMENT
INTRODUCTION
The applicant, Mr Pearson, applies to set aside a bankruptcy notice (Bankruptcy Notice) that was issued on the application of the respondent (JBPL) pursuant to s 41(1) of the Bankruptcy Act 1966 (Cth) (Bankruptcy Act), and served on Mr Pearson on 9 November 2022.
The Bankruptcy Notice demands that Mr Pearson pay $27,553.90. That represents the amount of a judgment for $34,553.90, less $7,000 Mr Pearson paid to JBPL in reduction of the judgment amount. The judgment of $34,553.90, in turn, represents a judgment that was entered by the Local Court of New South Wales (Local Court), as varied by an order made by the Supreme Court of New South Wales (Supreme Court) on 5 February 2020. The Supreme Court made that order in an appeal Mr Pearson brought against a judgment for $63,831.05 the Local Court ordered be entered against Mr Pearson and A.R.P. (Aust) Pty Ltd (ARP), and that Mr Pearson and ARP pay JBPL’s costs (JBPL Claim for Costs). In addition to varying the judgment entered in the Local Court, the Supreme Court ordered that JBPL pay half of Mr Pearson’s costs of the appeal.
Mr Pearson relies on one ground to set aside Bankruptcy Notice, the elements of which are: (a) Mr Pearson has a right to have assessed his costs of the Supreme Court appeal and to recover from JBPL 50% of those costs, as assessed (Pearson Claim for Costs); (b) the amount of the Pearson Claim for Costs exceeds the amount the Bankruptcy Notice demands Mr Pearson pay (Judgment Debt); and (c) the Pearson Claim for Costs is “a counter-claim, set-off or cross demand equal to or exceeding the amount of the judgment debt” within the meaning of s 40(1)(g) of the Bankruptcy Act. If Mr Pearson succeeds on his ground, he will not be bound to comply with the requirements of the Bankruptcy Notice and, for that reason, the Bankruptcy Notice would need to be set aside.
JBPL accepts that a claim to have costs assessed is capable of constituting “a counter-claim, set-off or cross demand” within the meaning of s 40(1)(g) of the Bankruptcy Act and, to that extent, the Pearson Claim for Costs constitutes “a counter-claim, set-off or cross demand”. Further, although JBPL does not concede the evidence establishes that the Pearson Claim for Costs is equal to or exceeds the Judgment Debt, JBPL does not contend the evidence is not capable of supporting a finding that the Pearson Claim for Costs equals or exceeds the Judgment Debt. JBPL instead contends as follows:
(a)On the proper construction of s 40(1)(g) of the Bankruptcy Act, when determining whether the Court is satisfied that “a counter-claim, set-off or cross demand” exceeds the amount of the judgment debt, the Court must (or may) consider the balance of account that exists between the debtor and the creditor; and in so doing, the Court must (or may) consider, not only the debt the bankruptcy notice demands the debtor pay, but any other debt the debtor owes the creditor.
(b)If the sum of the debt demanded in the bankruptcy notice and any other debt the debtor owes the creditor exceeds the amount of the debtor’s “counter-claim, set-off or cross demand”, the Court cannot (or need not) be satisfied that the debtor has “a counter-claim, set-off or cross demand equal to or exceeding the amount of the judgment debt” for the purposes of s 40(1)(g) of the Bankruptcy Act.
(c)In the circumstances of this case, therefore, in determining whether Mr Pearson has a counter-claim, set-off or cross demand “equal to or exceeding the amount of the judgment debt”, the Court must take into account any other liability the evidence shows Mr Pearson has to JBPL, in this case the JBPL Claim for Costs. If account is taken of the JBPL Claim for Costs, the Pearson Claim for Costs is not equal to or does not exceed the sum of the Judgment Debt and the JBPL Claim for Costs; and, for that reason, the Pearson Claim for Costs does not constitute a “counter-claim, set-off or cross demand equal to or exceeding the amount of the judgment debt”.
The principal question that arises, therefore, is whether, as JBPL contends, in determining whether Mr Pearson has a “counter-claim, set-off or cross demand equal to or exceeding the amount of the judgment debt”, it is necessary or open to the Court to take into account, not only the Judgment Debt, but also the JBPL Claim for Costs.
FACTS OUT OF WHICH QUESTION ARISES
Until around September 2017 JBPL and ARP were parties to a franchise agreement under which ARP was appointed franchisee of a “Jamaica Blue” coffee shop in Castle Hill. Mr Pearson guaranteed ARP’s obligations under the franchise agreement.
Following the termination of the franchise agreement JBPL commenced a proceeding in the Local Court against ARP and Mr Pearson. Mr Pearson, but not ARP, defended the claims JBPL made in that proceeding. On 7 June 2019 the Local Court awarded judgment against Mr Pearson in the amount of $63,831.05, together with costs (these being the JBPL Claim for Costs I identify above).
On 3 July 2019 Mr Pearson appealed to the Supreme Court. Wright J heard Mr Pearson’s appeal on 4 November 2019; and on 6 December 2019 Wright J upheld two of Mr Pearson’s grounds of appeal.[1] His Honour ordered that the appeal be stood over to a date to be fixed for the making of orders as to the further determination of the appeal, and as to costs.
[1] Pearson v Jamaica Blue Pty Ltd [2019] NSWSC 1737
The appeal again came before Wright J on 5 February 2020. By that time JBPL and Mr Pearson had agreed that the judgment the Local Court had awarded should be varied from $63,831.05 to $34,553.90. Wright J ordered that the judgment of the Local Court be varied from $63,831.05 to $34,553.90, and that JBPL pay one half of Mr Pearson’s costs of the appeal (these being the Pearson Claim for Costs I identify above).[2]
[2] Pearson v Jamaica Blue Pty Ltd [2020] NSWSC 121
On 5 August 2020 JBPL served a bill of costs on Mr Pearson, together with a notice under reg 35 of the Legal Profession Uniform Law Application Regulation 2015 (NSW). The draft bill of costs claimed $54,892.04, but allowed a discount of $8,510 “for prompt payment”. Mr Pearson served a notice of objection dated 24 November 2020 (Notice of Objection) which noted that $23,057.77 of the costs JBPL claimed were not objected to. JBPL has not applied to have its costs assessed.
On 3 December 2020 Mr Pearson’s solicitors wrote to JBPL’s solicitor in which they stated that they calculated Mr Pearson’s party/party costs in the Supreme Court to be $61,180. The letter requested JBPL’s solicitors inform Mr Pearson’s solicitors by 18 January 2021 whether JBPL agreed to pay $30,590, being 50% of Mr Pearson’s claimed costs. Mr Pearson’s solicitors indicated that if JBPL’s solicitors did not respond by 18 January 2021 “we shall proceed to preparation of our clients [sic] Bill of Costs”.
On 8 April 2021 JBPL’s solicitor sent an email to Mr Pearson’s solicitor attaching a document titled “Costs Applicant’s Submissions in Response to the Costs Respondents’ Objections”. In the email JBPL’s solicitor said “[w]e await the Defendant’s Bill of Costs”.
Mr Pearson has not prepared a bill of costs in relation to the Pearson Claim for Costs. Mr Pearson, however, relies on an affidavit made by his solicitor, Mr Davidson, in which Mr Davidson provides his opinion on the costs Mr Pearson is likely to recover on an assessment of the Pearson Claim for Costs. Mr Davidson annexes to his affidavit what he describes as “my client’s costs schedule” which sets out the costs Mr Pearson incurred in the Supreme Court at $78,531.46. Mr Davidson then expresses the opinion that, based on his experience, those costs would be assessed at around $62,405.66 and, therefore, 50% of those costs are $31,202.83. In other words, $31,202.83 represents the amount of the Pearson Claim for Costs.
PARTIES’ SUBMISSIONS
It would be convenient if I first set out JBPL’s submissions, which are as follows:
(a)In determining whether the debtor has a “counter-claim, set-off or cross demand equal to or exceeding the amount of the judgment debt” for the purposes of s 40(1)(g) of the Bankruptcy Act, the Court is required to determine “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”.[3]
(b)The state of satisfaction referred to in s 40(1)(g) of the Bankruptcy Act “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” (JBPL’s emphasis).[4]
(c)It follows that the debtor bears the onus of satisfying the Court, not only that the debtor’s claim has legal and factual merit, but also that it is just to require the bankruptcy proceeding to await the outcome of the claim.[5]
(d)Whether it is just in the particular circumstances of any case falls to be considered against the object of the Bankruptcy Act in general, and of s 40(1)(g) in particular.[6] The object of the Bankruptcy Act in general is for it to “intervene where the debtor’s property is insufficient to satisfy all the creditors in full and secure a division of that property among the claimants pro rata according to the value of their claims”.[7] As for s 40(1)(g) of the Bankruptcy Act (JBPL’s emphasis):[8]
The object of the Legislature in providing machinery for the setting aside of a bankruptcy notice where a judgment debtor has a cross demand is obviously to prevent a judgment creditor from pursuing bankruptcy proceedings when as between himself and the judgment debtor, the balance of account is in favour of the judgment debtor.
(e)It would be antithetical to these objects to allow a judgment debtor to forestall bankruptcy proceedings to allow a debtor to advance one claim he may have against the judgment creditor, while “ignoring the fact that other claims arising from the same series of transactions will result in that claim making no change to an overall balance in favour of the creditor”.[9]
(f)Further, s 40(1)(g) of the Bankruptcy Act is premised on the need to have the asserted counter-claim, set-off, or cross demand determined, not to prevent the bankruptcy proceeding indefinitely “because in theory a debtor has asserted a claim but has not advanced it”.[10]
[3] Respondent’s Outline Submissions, [19]. The quotation is from the judgment of Latham CJ in Vogwell v Vogwell (1939) 11 ABC 83, at page 85
[4] Respondent’s Outline Submissions, [20]. The quotation (JBPL’s emphasis) is from the judgment of the High Court in Guss v Johnstone [2000] HCA 26, at [40]
[5] Respondent’s Outline Submissions, [21]
[6] Respondent’s Outline Submissions, [21]
[7] Respondent’s Outline Submissions, [22]
[8] Respondent’s Outline Submissions, [24], being a quote from the judgment of Lockhart J in Ling v Enrobrook (1997) 143 ALR 396, at page 402
[9] Respondent’s Outline Submissions, [25]
[10] Respondent’s Outline Submissions, [26]
Mr Pearson, on the other hand, in his written submissions submitted as follows:
(a)The right of a beneficiary of a costs order to have his or her costs assessed is capable of constituting a counter-claim, set-off, or cross demand within the meaning of s 40(1)(g) of the Bankruptcy Act. The right of such beneficiary is “akin to a claim for unliquidated damages”.[11]
(b)There is evidence that the amount of the Pearson Claim for Costs is $31,202.83, which exceeds the amount stated in the bankruptcy notice.[12]
(c)JBPL’s construction of s 40(1)(g) of the Bankruptcy Act does not accord with the usual principles of statutory construction. In particular, JBPL’s construction does not accord with the principles that:
(i)the starting point is always the text of the provision that is to be construed, and the courts must strive to give effect to every word of the provision to be construed;[13] and
(ii)penal statutes, and other statutes that curtail liberty, are to be construed strictly.[14]
[11] Applicant’s outline of submissions, [5]. The quoted passage is from the judgment of Stewart J in Royal v Nazloomian, in the matter of Royal [2019] FCA 555, at [90]: “In my view, a costs claim of that nature is for present purposes akin to a claim for unliquidated damages.”
[12] Applicant’s outline of submissions, [6], [7]
[13] Applicant’s outline of submissions, [11(a)], referring to State of New South Wales v Kaiser [2022] NSWCA 86, at [57].
[14] Applicant’s outline of submissions, [11(b)], referring to Smith v Corrective Services Commission (NSW) [1980] HCA 49, at [8], and also referring to Ahern v Deputy Commissioner of Taxation [1987] FCA 312, at [40], where the Full Federal Court said that making a person bankrupt “involves change of status and has quasi-penal consequences”.
DETERMINATION
The principal question that arises is the proper construction of s 40(1)(g) of the Bankruptcy Act, and in particular the proper construction of the words “the amount of the judgment debt or sum payable under the final order”. The proper construction of s 40(1)(g) “must begin with a consideration of the text itself”, with the “language which has actually been employed in the text of legislation” being “the surest guide to legislative intention”.[15] The meaning of the text, however, “may require consideration of the context, which includes the general purpose and policy of a provision, in particular the mischief it is seeking to remedy”.[16]
[15] Alcan (NT) Alumina Pty Ltd v Commissioner of Territory Revenue [2009] HCA 41, at [47] (Hayne, Heydon, Crennan and Kiefel JJ), cases referred to omitted
[16] Alcan (NT) Alumina Pty Ltd v Commissioner of Territory Revenue [2009] HCA 41, at [47] (Hayne, Heydon, Crennan and Kiefel JJ), cases referred to omitted
The text of s 40(1)(g) of the Bankruptcy Act is as follows (emphasis added):
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 . . . .
The act of bankruptcy provided for by s 40(1)(g) of the Bankruptcy Act is defined by reference to “a bankruptcy notice under this Act”; and the act of bankruptcy consists of a failure to “comply with the requirements of the” bankruptcy notice within “the time fixed for compliance with the notice”. That directs attention to “a bankruptcy notice under this Act”; and this is provided for by s 41 of the Bankruptcy Act. Subsection 41(1) of the Bankruptcy Act provides that “[a]n Official Receiver may issue a bankruptcy notice on the application of a creditor who has obtained against a debtor”, among other things, “a final judgment or final order that (i) is of a kind described in paragraph 40(1)(g); and (ii) is for an amount of at least the statutory minimum”.
Section 41 of the Bankruptcy Act does not specify the contents and, therefore, the requirements of a bankruptcy notice. The contents of a bankruptcy notice are left to be prescribed by the regulations. That is made clear by s 41(2) of the Bankruptcy Act, which provides that the “notice must be in accordance with the form prescribed by the regulations”. A form has been prescribed by reg 4.02 of the Bankruptcy Regulations1996 (Cth) (Regulations), which provides that, for “the purposes of subsection 41(2) of the Act, the form of bankruptcy notice set out in Form 1 is prescribed” (prescribed form of bankruptcy notice). Form 1 is contained in Schedule 1 to the Regulations.
The prescribed form of bankruptcy notice contains two principal parts. The first may be described as a notification part; it requires the creditor to record the creditor’s name, and the creditor’s address; and a statement that the person identified as the creditor claims the person to whom the bankruptcy notice is addressed owes to the creditor “the following debt”. Underneath these words appears a table for the inclusion of up to four amounts, these being:
1. Amount as per the accompanying final judgment/s or final order/s (note A) 2. Add legal costs (note B) 3. Add interest accrued since date of judgment/s or order/s (note C) 4. Sub total (1 + 2 + 3) 5. Less payments made and/or credit allowed since judgment/s or order/s 6. TOTAL DEBT AMOUNT (4 - 5)
The second principal part of the prescribed form of bankruptcy notice is that which specifies the requirements of the bankruptcy notice. The principal requirement is that specified in paragraph 1, namely:
You are required, within [ ] days after service on you of the Bankruptcy Notice, to either:
(a) pay to the creditor the amount of the debt claimed; or
(b) make arrangements to the creditor’s satisfaction for settlement of the debt.
The expression “the amount of the judgment debt or sum payable under the final order” in s 40(1)(g) of the Bankruptcy Act (emphasis added), therefore, means the amount of the judgment (or the amount the order requires be paid) that has not been paid, and for that reason remains “payable” at the time the bankruptcy notice is issued.
Next, there is the question whether the expression “the amount of the judgment debt or sum payable under the final order” in s 40(1)(g) of the Bankruptcy Act can be construed in the manner contended for by JBPL. The immediate point to note is that JBPL’s preferred construction requires the addition of words to the text of s 40(1)(g). In particular, JBPL’s preferred construction requires the addition of words that describe the additional claims (Additional Claims) the creditor has against the debtor which the Court must (or may) take into account when determining the balance of account between the creditor and the debtor. JBPL’s preferred construction also requires the addition of words that specify the standard or standards by which the strength of the Additional Claims is to be assessed before the Court can take into account the Additional Claims when determining the balance of account between the creditor and the debtor.
Given JBPL contends that the JBPL Claim for Costs is an amount that should be taken into account, it is to be taken that JBPL contends that both liquidated and unliquidated claims the creditor may have against the debtor are to be considered when determining the balance of account between the creditor and the debtor. Thus, to give effect to the construction of s 40(1)(g) of the Bankruptcy Act for which JBPL contends, it would be necessary to add into the text of s 40(1)(g) the following underlined words:
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 sum of (a) the amount of the judgment debt or sum payable under the final order, as the case may be, and (b) any other claim the creditor has against the debtor; 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 . . . .
It would also be necessary for JBPL to include words that specify the standard by which the strength of the Additional Claims is to be assessed before the Court would be required to take them into account when determining the balance of account between the creditor and the debtor; but JBPL has not articulated any such words. Are the Additional Claims to be assessed according to the standard by which the debtor’s asserted counter-claim, set-off, or cross demand is assessed, or are the Additional Claims to be assessed by some other standard? If by some other standard, what standard?
It is true that, when construing a statutory text in a particular litigious context, a court will often employ words not found in the text of the provision being construed to illuminate or illustrate or explain the meaning or operation of a given statutory text in that context. This point was explained by Gageler and Keane JJ in Taylor v The Owners - Strata Plan No 11564 (emphasis added):[17]
Statutory construction involves attribution of legal meaning to statutory text, read in context. “Ordinarily, that meaning (the legal meaning) will correspond with the grammatical meaning ... But not always.” Context sometimes favours an ungrammatical legal meaning. Ungrammatical legal meaning sometimes involves reading statutory text as containing implicit words. Implicit words are sometimes words of limitation. They are sometimes words of extension. But they are always words of explanation. The constructional task remains throughout to expound the meaning of the statutory text, not to divine unexpressed legislative intention or to remedy perceived legislative inattention. Construction is not speculation, and it is not repair.
[17] Taylor v The Owners - Strata Plan No 11564 [2014] HCA 9, at [65]
There is, however, a distinction between using words to illuminate, illustrate, or explain the meaning of a text, and adding words to the text of the statutory provision. The border between the two uses is crossed when the words that are used purportedly to explain the meaning of the text are wholly ungrammatical or unnatural meanings of the words they purport to elucidate or explain. This point, too, was explained by Gageler and Keane JJ in Taylor (my emphasis):[18]
Context more often reveals statutory text to be capable of a range of potential meanings, some of which may be less immediately obvious or more awkward than others, but none of which is wholly ungrammatical or unnatural. The choice between alternative meanings then turns less on linguistic fit than on evaluation of the relative coherence of the alternatives with identified statutory objects or policies.
[18] Taylor v The Owners - Strata Plan No 11564 [2014] HCA 9, at [66]
It is clear that the words required to express the construction for which JBPL contends are not words that illuminate, illustrate, or explain the meaning of s 40(1)(g) of the Bankruptcy Act. They are words that are added to the text of s 40(1)(g) of the Bankruptcy Act.
That the construction for which JBPL contends relies on the addition of words to the text of s 40(1)(g) of the Bankruptcy Act does not necessarily mean that the construction for which it contends is incorrect; it is permissible to read words into a statutory text. That can be done, however, only in certain circumstances. Those circumstances were considered by the plurality in Taylor:[19]
The question whether the court is justified in reading a statutory provision as if it contained additional words or omitted words involves a judgment of matters of degree. That judgment is readily answered in favour of addition or omission in the case of simple, grammatical, drafting errors which if uncorrected would defeat the object of the provision. It is answered against a construction that fills “gaps disclosed in legislation” or makes an insertion which is “too big, or too much at variance with the language in fact used by the legislature”.
[19] Taylor v The Owners - Strata Plan No 11564 [2014] HCA 9, at [38]
The plurality in Taylor[20] referred to the three conditions identified by Lord Diplock in Wentworth Securities Ltd v Jones,[21] as reformulated by Lord Nicholls in Inco Europe Ltd v First Choice Distribution (a firm),[22] that must be satisfied before words will be read into a statutory provision. The preconditions identified by Lord Nicholls in Inco Europe are as follows:
So the courts exercise considerable caution before adding or omitting or substituting words. Before interpreting a statute in this way the court must be abundantly sure of three matters: (1) the intended purpose of the statute or provision in question; (2) that by inadvertence the draftsman and Parliament failed to give effect to that purpose in the provision in question; and (3) the substance of the provision Parliament would have made, although not necessarily the precise words Parliament would have used, had the error in the Bill been noticed. The third of these conditions is of crucial importance. Otherwise any attempt to determine the meaning of the enactment would cross the boundary between construction and legislation . . .
[20] Taylor v The Owners - Strata Plan No 11564 [2014] HCA 9, at [39]
[21] Wentworth Securities Ltd v Jones [1980] AC 74, at page 105
[22] Inco Europe Ltd v First Choice Distribution (a firm) [2000] 1 WLR 586, at page 592
The plurality in Taylor said it was unnecessary to decide whether Lord Diplock’s three conditions are always, or even usually, necessary and sufficient.[23] Nevertheless, the plurality noted that Lord Diplock “laid emphasis on the task as construction and not judicial legislation”, that Lord Nicholls in Inco Europe observed that “even when Lord Diplock’s conditions are met, the court may be inhibited from interpreting a provision in accordance with what it is satisfied was the underlying intention of Parliament”, and that in “Australian law the inhibition on the adoption of a purposive construction that departs too far from the statutory text has an added dimension because too great a departure may violate the separation of powers in the Constitution”.[24]
[23] Taylor v The Owners - Strata Plan No 11564 [2014] HCA 9, at [39]
[24] Taylor v The Owners - Strata Plan No 11564 [2014] HCA 9; at [40]
The construction for which JBPL contends requires the addition of words that are “too big, or too much at variance with the language in fact used by the legislature”.[25] It requires the reading into s 40(1)(g) of the Bankruptcy Act of debts or claims the creditor may have against the debtor that are not mentioned by the text of s 40(1)(g). Further, JBPL’s preferred construction is uncertain. As I have already noted, JBPL has not articulated the standard by reference to which the strength of the Additional Claims are to be assessed before the Court must take them into account when determining the balance of account between the creditor and debtor.
[25] Taylor v The Owners - Strata Plan No 11564 [2014] HCA 9, at [38]
There is a final point to note. JBPL has submitted that not to construe s 40(1)(g) of the Bankruptcy Act in the manner for which it contends would allow a judgment debtor to forestall bankruptcy proceedings; and, if not adopted, would allow Mr Pearson to forestall bankruptcy proceedings against him. I do not accept that submission. It has been open to JBPL since 5 February 2020 to have the JBPL Claim for Costs assessed, but JBPL has not arranged to have those costs assessed. Had JBPL assessed its costs, registered the resulting costs certificate as a judgment of a court, JBPL would have been able to include in a bankruptcy notice as a judgment debt such costs as well as the $27,553.90 which the Bankruptcy Notice demands. That JBPL has not attended to these matters has nothing to do with any conduct in which Mr Pearson engaged or did not engage; and it has nothing to do with s 40(1)(g) of the Bankruptcy Act not bearing the construction for which JBPL contends.
For these reasons I do not accept that s 40(1)(g) of the Bankruptcy Act is to be construed as requiring or entitling the Court to taken into account claims the creditor has or may have against the debtor, in addition to the amount of the judgment debt the bankruptcy notice demands the debtor pay, when determining whether the debtor “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”.
Given that the right of a beneficiary of a costs order to have his or her costs assessed is capable of constituting a “counter-claim, set-off, or cross demand” within the meaning of s 40(1)(g) of the Bankruptcy Act, the question I must decide is whether the Pearson Claim for Costs is equal to or exceeds the Judgment Debt ($27,553.90) the Bankruptcy Notice demands Mr Pearson pay. I am satisfied, on the basis of the evidence of Mr Davidson, that the amount of the Pearson Claim for Costs exceeds the Judgment Debt and, for that reason, Mr Pearson has a counter-claim, set-off, or cross demand equal to or greater than the Judgment Debt within the meaning of a s 40(1)(g) of the Bankruptcy Act.
CONCLUSION AND DISPOSITION
The Bankruptcy Notice must be set side, and I will make an order to that effect.
As for costs, I indicated at the hearing that I would order that the unsuccessful party pay the successful party’s costs, but would reserve to the parties liberty to apply to vary or discharge such order. I will also make orders to this effect.
I certify that the preceding thirty-seven (37) numbered paragraphs are a true copy of the Reasons for Judgment of Judge Manousaridis. Associate:
Dated: 30 June 2023
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