Coote v Forza Marketing Pty Ltd, in the matter of Coote [2025] FCA 1370

1. Section 35A(5) of the FC Act provides: "A party to proceedings in which a Registrar has exercised any of the powers of the Court under subsection (1) may, within the time prescribed by the Rules of Court, or within any further time allowed in accordance with the Rules of Court, apply to the Court to review that exercise of power."
2. There is no dispute that the power exercised by the Registrar was one which had been authorised by s 35A(1) of the FC Act. No party identified the relevant authorisation under subsection (1).
3. In the present case, the delegated power (to set aside a bankruptcy notice and to extend time for compliance with the notice) is prescribed by the Federal Court (Bankruptcy) Rules 2016 (Cth), Schedule 1, Part 1, items 1 and 4: see s 35A(1)(h) of the FC Act.

1. Section 35A(6) provides that: "The Court may, on application under subsection (5) or of its own motion, review an exercise of power by a Registrar pursuant to this section and make such order or orders as it thinks fit with respect to the matter with respect to which the power was exercised". The review is not predicated on any error committed by 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: Bechara v Bates [2021] FCAFC 34; (2021) 286 FCR 166 at [17].
2. In the case of delegated judicial power, the Registrar's order takes effect as an order of the judges of the Court, but on the basis that a judge may be asked to make an order in place of the exercise of delegated authority: Bechara v Bates at [3]. The delegated exercise of power is effectively undone or revoked and a decision by a judge is made in its place: Bechara v Bates at [4].
3. Regarding the stay sought, if there is a concern about steps being taken by a party based upon the Registrar's order, then interim relief could be sought pending the outcome of the review. However, the nature of the review means that matters can be addressed when the decision is made on review because inherent in the nature of the delegation is a reservation by the Court of an ability to revisit the order by way of review and make whatever order may have been made by the officer in the exercise of the power of delegation: Bechara v Bates at [6].
4. If the review results in a different conclusion by a judge from that reached by the Registrar, then an order is required to bring the operation of the existing order to an end. The Court, on review, does not determine that the earlier order was made without authority. The Court makes a new order to replace the Registrar's order in the exercise of the power of review which is a condition of the delegation. The fact that the nature of the review conducted by the Court is a de novo review does not mean that the review proceeds as if no order had been made by the registrar: Bechara v Bates at [7].
5. As a matter of fact, it may be difficult to distinguish between a review application and an application to set aside the Bankruptcy Notice: cf. Kingdom of Spain v Infrastructure Services Luxembourg S.à.r.l. (Security for Costs) [2024] FCAFC 113 at [17]. One is an indirect, and the other a direct, means of asking the same question, i.e., whether the Bankruptcy Notice should be set aside. The difference, of course, is the existence of the Registrar's order, but that does not operate to alter the nature of the judicial enquiry.

1. The subject of the dispute between the parties is the Supreme Court of New South Wales proceeding 2020/00197321 (Forza Marketing Pty Ltd v Sie [2023] NSWSC 658) (Supreme Court proceeding).
2. On 10 March 2023, a principal of McInnes Wilson Lawyers (MW Lawyers) informed the parties to the Supreme Court proceeding that there were unpaid legal costs in respect of work done by MW Layers for the benefit of Forza Marketing Pty Ltd (and another), the plaintiff in the proceeding (and the respondent in the present proceeding). MW Lawyers claimed "an equitable right (or lien) over the fruits of any judgment, costs order or settlement sum which is to be obtained by the Plaintiff in due course", in the order of $136,105.50 (the lien).
3. On 21 June 2023, judgment was handed down in the Supreme Court proceeding in favour of Forza in the amount of $26,478.50 plus pre-judgment interest (after set-off) (judgment monies).
4. By email dated 31 May 2024, MW Lawyers confirmed that they maintained the lien over the judgment monies.
5. The applicants claim that Forza has not "resolved or set aside" the lien over the judgment monies.
6. The respondent responds that: (i) the lien is in dispute, which is a matter between the respondent and its former solicitors; (ii) in any event, the lien is not a debt owed to the first applicant, so that s 40(1)(g) of the Bankruptcy Act does not apply (that is, there is no set-off or cross demand equal to or exceeding the amount of the judgment debt); and (iii) the first applicant has not paid the judgment monies to the respondent (or the former solicitors of the respondent).

Does the lien prevent payment of the judgment debt?

1. The question to be resolved is whether the unresolved solicitors' lien prevents payment of the judgment debt by the applicants to the respondent.
2. In my view, it does not.
3. First, there is an order of the Supreme Court on 21 June 2023 that directs the (then) defendants to pay the (then) plaintiff the judgment sum. It was not explained how the operation of the lien defeats that order.
4. Second, it was not explained how payment of the judgment debt to the respondent would negate or undermine the equitable right that resides in the lien. The solicitor's right exists over the amount of a judgment (including an order of costs) in favour of the client, which amount is either in the possession of the solicitor, in the court, or otherwise owed to the client but not paid into court: Firth v Centrelink [2002] NSWSC 564; (2002) 55 NSWLR 451 at [35(b) and (c)]. The location of the monies owed does not alter the right.
5. Third, in any event, it was not explained why the judgment debt could not have been paid: (a) in court, as it ultimately was by order of Lindsay J of the NSW Supreme Court on 21 February 2025 after negotiation between the parties, and now held in the respondent's solicitors' trust account pursuant to later orders of the Supreme Court; or (b) directly to Harrington Hall Lawyers, as directed in the Bankruptcy Notice.
6. Fourth, it was not explained how the failure of the respondent to set aside the lien (over judgment monies payable to the respondent) should lead to the conclusion that the Bankruptcy Notice should be set aside. If the purported reason is the operation of the lien, which the applicants claim prevents them from paying the judgment debt, that is wrong for the three preceding reasons. Furthermore, the applicants expressly disclaimed reliance on s 40(1)(g) of the Bankruptcy Act and the prospect of a counter-claim, set-off or cross-demand to deny the commission of an act of bankruptcy.

SERVICE OF THE BANKRUPTCY NOTICE ON THE SECOND APPLICANT

1. On 4 October 2024, the Bankruptcy Notice was issued by the Official Receiver naming the applicants as the debtors, in the amount of $33,669.54.
2. The Bankruptcy Notice requires payment of the debt within 21 days after service of the notice (or the making of arrangements to the creditor's (Forza's) satisfaction). It indicates that payment of the debt can be made to Harrington Hall Lawyers (Canberra).
3. The Bankruptcy Notice was served by email (and letter) addressed only to the first applicant on 13 December 2024.
4. The respondent accepts that it has not purported to serve the second applicant with the Bankruptcy Notice, but that she may be taken to have been served: (a) on 13 December 2024, given she has instructed solicitors to file the present application, thereby admitting that the Bankruptcy Notice has come to her attention; or (b) at least by 6 January 2025, at which point the respondent says instructions were held on behalf of the second applicant to make the present application. In the first scenario, the applicants have not complied with the Bankruptcy Notice within the given 21 day period, and are out of time by which they can seek an extension of the time for compliance with the notice.
5. The respondent foreshadowed in its notice of opposition filed on 7 February 2025 that it intended to seek an order for substituted service at the hearing of the application. That order is not pressed.
6. Three questions arise from these circumstances: (1) Was the notice served on the second applicant in circumstances where it is accepted that it was served by email addressed to her co‑habitant partner? (2) If so, when was it served (for the purposes of computing the time for compliance with the notice and thereby determining whether the Court has jurisdiction to set aside the Bankruptcy Notice or extend time for compliance)? (3) If not, should the notice be set aside?

Service by email address of the first applicant

1. In relation to the first question, the applicants rely on reg 102(1)(d) of the Bankruptcy Regulations 2021 (Cth), which provides relevantly as follows:

(1) Unless the contrary intention appears, if a document is required or permitted by the Act or this instrument to be given or sent to, or served on, a person (other than the Inspector-General, the Official Receiver or the Official Trustee), the document may be:

...

(d) sent, in accordance with the information technology requirements in subsection (3) of this section:

(i) by a kind of electronic communication that transmits the document to a facility maintained by the person for receipt of electronically transmitted documents; or

(ii) by a kind of electronic communication such that, in the ordinary course of events, the document could be reasonably expected to be received by the person.

1. The requirements of reg 102(3) of the Bankruptcy Regulations are not presently relevant.
2. The applicants' argument on service is twofold: (i) service was not effected in accordance with reg 102(1)(d); and (ii) the respondent accepted in its notice of opposition that it had "not purported to serve the Second Applicant with the Bankruptcy Notice".
3. In relation to the first aspect, the respondent argued that the kind of electronic communication mentioned in both reg 102(1)(d)(i) and (ii) must be "maintained by the person" ("the person" being the person to be served). I do not accept that submission for three reasons.
4. First, it is at odds with the text of the regulation, which expressly requires that the kind of electronic communication be maintained by the person in reg 102(1)(d)(i), but not in reg 102(1)(d)(ii).
5. Second, it is at odds with the context of reg 102(1)(d)(ii), which by contradistinction with reg 102(1)(d)(i) is intended to be expansive. To imply such a requirement into reg 102(1)(d)(ii) would be to limit that expanse in a way that would render the reasonable expectation of receipt otiose. That is, delivery of a document to a kind of electronic communication that transmits the document to a facility maintained by the person carries with it the reasonable expectation of receipt by the person who maintains the facility.
6. Third, the argument ignores the disjunctive conjunction ("or") that sits between reg 102(1)(d)(i) and (ii), which thereby presents two separate options. It is not necessary to satisfy both in order to serve a document in accordance with reg 102(1)(d).
7. The question is then one of fact: viz., whether the Bankruptcy Notice was sent by a kind of electronic communication such that, in the ordinary course of events, the document could be reasonably expected to be received by the second applicant (reg 102(1)(d)(ii)).
8. I find that, by sending the Bankruptcy Notice by email addressed to the first applicant via the first applicant's email, in the ordinary course of events, the document could be reasonably expected to be received by the second applicant, in the following circumstances: (i) the first applicant is the husband of the second applicant; (ii) the second applicant was co-habiting with the first applicant and their children at the time that the document was sent to the first applicant; (iii) the Bankruptcy Notice is addressed to both applicants; and (iv) the subject of the Bankruptcy Notice is a judgment debt in proceedings to which both applicants were parties.
9. In those circumstances, on the basis that the email facility is maintained by the first applicant, it is reasonable to expect that the first applicant would bring the Bankruptcy Notice to the attention of the second applicant. On that basis, the Bankruptcy Notice was sent by a kind of electronic communication such that, in the ordinary course of events, it could be reasonably expected to be received by the second applicant.
10. I note that, while it was accepted that the Bankruptcy Notice was served on the first applicant by means of the email addressed to the first applicant, there was no evidence as to who maintained the email facility. Therefore, I cannot find that it was maintained by the second applicant. At the same time, I cannot assume the contrary, i.e., that it was not maintained (otherwise) by the second applicant. Given my finding on the accepted basis that the email facility is maintained (at least) by the first applicant, the absence of that evidence is of no moment.
11. Furthermore, the fact that another mode of service was possible, e.g., per reg 102(1)(a) of the Bankruptcy Regulations, but not utilised, is of no moment. There is no hierarchy in reg 102, preferencing one mode of service over another, nor a necessity to exhaust one mode before proceeding to another.
12. In relation to the second aspect of the applicants' argument on service, the respondent's 'concession' that it did not purport to serve the second applicant with the Bankruptcy Notice should be seen in light of the reasonable expectation that the Bankruptcy Notice could be received by the second applicant by means of delivery to the second applicant's email address. In that light, the concession should be seen as an absence of intention to separately serve the second applicant (i.e., by other means). Contrary to the submission of the applicants, there is no absence of intention to serve the Bankruptcy Notice on the second applicant for the purposes of reg 102(1)(d) of the Bankruptcy Regulations, should that be required by the regulation, although the test is one of reasonable expectation of receipt of the document by the person.
13. At the hearing of the application, there was some discussion of the distinction between serving a document on a person and bringing a document to the attention of a person. It is not necessary to resolve that debate as a matter of theory. The relevant question is whether the requirements of reg 102(1)(d)(ii) are satisfied. In my view, they are.
14. Accordingly, I find that service on the second applicant was effected by sending the Bankruptcy Notice to the email address of the first applicant on 13 December 2024. In view of that finding, it is not necessary to entertain the possibility of service (i.e., satisfaction of the requirements of reg 102(1)(d)(ii)) on a later date. It was accepted by all parties that, at the very latest, the Bankruptcy Notice was brought to the attention of the second applicant by 6 January 2025, at which time, the applicants' legal representative was instructed to file an application to set aside the Bankruptcy Notice.
15. It may be that the accepted fact of receipt shortly after service on the first applicant contributes to the assessment of the reasonableness of the expectation that the Bankruptcy Notice could be expected to be received by the second applicant by means of the first applicant's email address. However, the factors that subsisted at the time the document was served on the first applicant are sufficient to warrant the reasonableness of the expectation. It must be remembered that it is necessary to assess what "could be" (not "would be") reasonably expected. This is a lower threshold.

No extension of time for compliance with Bankruptcy Notice

1. In relation to the second question, the applicants seek an extension of time for compliance with the Bankruptcy Notice to 30 June 2025, noting that the judgment sum was paid into court as per the orders of Lindsay J on 21 February 2025. In view of my finding on service, the time for compliance with the Bankruptcy Notice (21 days) expired before the application to set aside the Bankruptcy Notice was filed (6 January 2025).
2. As the application was brought outside the 21 day compliance period, the statutory pre‑condition in s 41(6A)(b) of the Bankruptcy Act is not met. Accordingly, the Court does not have jurisdiction to set aside the Bankruptcy Notice or extend the time for compliance for any reason.
3. This means that, even if I were of the view that the unresolved lien was a reason to set aside the Bankruptcy Notice, the Court would not have jurisdiction to do so.
4. I observe that, if I had found that 'constructive' service of the Bankruptcy Notice took place on 6 January 2025 (which I do not by reason of the finding of earlier service), such that the application to the Court was made within time, and the Court's discretion to extend the time fixed for compliance was enlivened, notwithstanding that the grounds of the application to set aside the Notice have no merit, there may still be utility in granting an extension of time to allow compliance with the requirements of the Notice, thus avoiding the commission of an act of bankruptcy as per s 40(1)(g) of the Bankruptcy Act. This demonstrates the disjuncture between that enquiry and the grounds of the application to set aside the Bankruptcy Notice (which do not rely on s 40(1)(g)).

Service as a reason to set aside Bankruptcy Notice

1. Given the answers to the first two questions, it is not necessary to answer the third question.
2. Nevertheless, I note that the applicants accept that the Bankruptcy Notice was properly served on the first applicant, but not on the second applicant (even by 6 January 2025), who was described as "the present" or "the real" applicant in this proceeding. In maintaining that the Bankruptcy Notice should be set aside on that basis, the applicants' argument presents a logical inconsistency: namely, that the Bankruptcy Notice should be upheld in relation to the first applicant, but set aside as against the second applicant. It was not explained how the Bankruptcy Notice should be both set aside and upheld, nor how the manner of service might undermine the validity of the notice, as distinct from affecting the running of time for the purpose of compliance with the notice (with the result that there is no act of bankruptcy for the purposes of s 40(1)(g) of the Bankruptcy Act).

1. The originating application filed on 6 January 2025 is to be dismissed. The applicants are to pay the respondent's costs of the application, including the review under s 35A(5) of the FC Act, as agreed or taxed.
2. In its notice of opposition, the respondent foreshadowed that it would seek an order for indemnity costs "given the wilful disregard of the clearly established law on the time to file the application". That claim was not pressed at the hearing of the application.

I certify that the preceding fifty-five (55) numbered paragraphs are a true copy of the Reasons for Judgment of the Honourable Justice Younan.