Richards v Hutchinson

Case [2023] FCA 1102

FEDERAL COURT OF AUSTRALIA

Richards v Hutchinson [2023] FCA 1102  

File number(s): QUD 114 of 2023
Judgment of: COLLIER J
Date of judgment: 14 September 2023
Catchwords:  BANKRUPTCY – application to set aside bankruptcy notice – where debtor sought to amend application and file further affidavit material – hearing de novo – original application relied on s 41(6A) Bankruptcy Act 1966 (Cth) – debtor subject of interlocutory costs order in Supreme Court of Queensland in favour of respondents to substantive proceedings – whether counter-claim, set-off or cross demand for purposes of s 40(1)(g) Bankruptcy Act – principles in Chesson v Smith (1992) 35 FCR 594 – principles applicable to leave to amend application to set aside bankruptcy notice and supporting affidavit material – whether original application valid – benevolent construction – where debtor previously litigant in person – principles explained by the High Court in Aon Risk Services Australia Limited v Australian National University [2009] HCA 27; (2009) 239 CLR 175 – s 37M Federal Court of Australia Act 1976 (Cth) – principles in Coshott v Prentice, in the matter of Coshott (No 2) [2016] FCA 1531 – appropriate costs order
Legislation:

Bankruptcy Act 1966 (Cth) ss 40(1)(g), 41(6A), 41(7)
Federal Court of Australia Act 1976 (Cth) ss 35A(5), 37M
Federal Court (Bankruptcy) Rules 2016 (Cth) rr 2.01, 2.06, 3.02, 3.03

Federal Court Rules 2011 (Cth) rr 8.21(1)(a), 8.21(1)(g)(i)
Cases cited:

Aon Risk Services Australia Limited v Australian National University [2009] HCA 27; (2009) 239 CLR 175

Bechara v Bates (2021) 286 FCR 166; [2021] FCAFC 34

Chesson v Smith (1992) 35 FCR 594; [1992] FCAFC 240

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

Eastick v Australia and New Zealand Banking Group Ltd (1981) 53 FLR 91

Graywinter Properties Pty Ltd v Gas & Fuel Corporation Superannuation Fund [1996] FCA 822; (1996) 70 FCR 452

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

Oshlack v Richmond River Council [1998] HCA 11; 193 CLR 72

Pollnow v Queensboro Pty Ltd (1988) 217 ALR 49

Re Brink; Ex parte Commercial Banking Co of Sydney Ltd (1980) 44 FLR 135; [1980] FCA 78

Re Gould; Ex parte Skinner (1983) 72 FLR 393; [1983] FCA 68

Spottiswood v Equititrust Limited (2010) 245 FLR 395; [2010] FMCA 819
Division: General Division
Registry: Queensland
National Practice Area: Commercial and Corporations
Sub-area: General and Personal Insolvency
Number of paragraphs: 73
Date of hearing: 11 September 2023
Counsel for the Applicant: Ms N Pearce
Solicitor for the Applicant: Australian Law Partners
Counsel for the Respondents: Mr M Goldsworthy
Solicitor for the Respondents: Sparke Helmore Lawyers

ORDERS

QUD 114 of 2023
BETWEEN:

KATE RICHARDS

Applicant
AND:

DAVID HUTCHINSON

First Respondent

CAMERON O'NEIL

Second Respondent

CYNTHIA HARDY (and others named in the Schedule)

Third Respondent

ORDER MADE BY:

COLLIER J

DATE OF ORDER:

14 SEPTEMBER 2023

THE COURT ORDERS THAT:

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

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AGLC
Richards v Hutchinson [2023] FCA 1102
Case
[2023] FCA 1102
Decision Date

CaseChat Overview and Summary

The case of Richards v Hutchinson involved an application by the debtor, Ms. Richards, to set aside a bankruptcy notice issued against her. The respondents, Hutchinson, were the creditors who had served the bankruptcy notice. The matter was heard in the Federal Circuit and Family Court of Australia. The primary legal issue was whether the debtor's application to amend her original application to set aside the bankruptcy notice and to file further affidavit material should be granted. This required consideration of the principles set out in relevant authorities and legislative provisions, particularly those concerning the amendment of applications and the filing of affidavit material.

The court considered the principles established in Chesson v Smith and Aon Risk Services Australia Limited v Australian National University. It was noted that the original application was brought solely in reliance on s 41(6A)(a) of the Bankruptcy Act and rule 3.03 of the Federal Court Rules 2011 (Cth), without reference to s 40(1)(g) or s 41(7) of the Bankruptcy Act, or rule 3.02 of the FCBR. The court held that while there may be a benevolent construction of the application, it could not be said to satisfy the requirements of rule 3.02(3) of the FCBR. Furthermore, the court found that there was 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.

In light of the above, the court set aside the orders of Judicial Registrar Buckingham dated 30 June 2023, granted the applicant leave to amend her application to set aside the bankruptcy notice and to file the affidavit of Mr Duke Myrteza, and ordered that the parties bear their own costs of and incidental to the hearing of 11 September 2023 and the hearing before Judicial Registrar Buckingham.

Orders

Orders of the court

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.

Background

Background to the litigation

Full text does not contain this section.

Evidence

Evidence Before The Court

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Decision

Reasons for decision

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

Ratio Decidendi

Legal Principle Established

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