Federal Court of Australia Haughton v Shanahan [2024] FCA 160 File number: SAD 52 of 2023 Judgment of: CHARLESWORTH J Date of judgment: 23 February 2024 Date of publication of reasons: 28 February 2024 Catchwords: BANKRUPTCY – application for an order annulling a bankruptcy under s 153B of the Bankruptcy Act 1966 (Cth) – joinder of the Inspector-General in Bankruptcy as a respondent – applicant seeking "interim relief" against the Inspector-General – applicant alleging the Inspector-General is legally obliged to apply s 86 of the Bankruptcy Act – applicant otherwise alleging the Inspector-General has a legal obligation to ensure that all Trustees in all bankruptcies properly apply s 86 of the Bankruptcy Act in the administration of all bankrupt estates – originating application including no claim against the Inspector-General having reasonable prospects of success – orders for striking out certain parts of the originating application – order for removal of Inspector-General as a party Legislation: Bankruptcy Act 1966 (Cth) ss 11, 12, 86, 153B Cases cited: Gye v McIntyre (1991) 171 CLR 609 Majeed v Kerr [2016] FCCA 1625 Minister for Immigration and Citizenship v Li (2013) 249 CLR 332 Division: General Division Registry: South Australia National Practice Area: Commercial and Corporations Sub-area: General and Personal Insolvency Number of paragraphs: 31 Date of hearing: 23 February 2024 Counsel for the Applicant: The Applicant appeared in person Counsel for the First Respondent: The First Respondent did not appear Counsel for the Second Respondent: The Second Respondent appeared in person Counsel for the Third Respondent: Mr C Hutchins Solicitor for the Third Respondent: Australian Government Solicitor ORDERS SAD 52 of 2023 BETWEEN: PETER SCOTT HAUGHTON Applicant AND: JOHN GERVASE SHANAHAN First Respondent FUI SAK CHANG Second Respondent TIM BERESFORD Third Respondent order made by: CHARLESWORTH J DATE OF ORDER: 23 FEBRUARY 2024 THE COURT NOTES THAT: 1. The written submissions of the applicant dated 9 February 2024 are marked MFI-2. 2. The third respondent seeks an order for costs of and incidental to his application for orders that he be removed as a party. THE COURT ORDERS THAT: 1. The Registrar lodge on the applicant's behalf and accept for filing the document marked MFI-2. 2. The following parts of the originating application dated 3 April 2023 be struck out: (a) paragraph 3 under the heading "Details of claim"; and (b) paragraph 6 under the heading "Claim for interim relief". 3. The third respondent, Mr Tim Beresford, be removed as a party. 4. The time for the applicant to exercise rights of appeal (if any) in respect of the orders in paragraphs 2 and 3 be extended so as to commence on the date on which the parties are provided with written reasons for those orders. 5. Mr Timothy Beresford, the former third respondent, has liberty to approach the Court in relation to his application for costs at any time in these proceedings, or following judgment on the annulment application. Note: Entry of orders is dealt with in Rule 39.32 of the Federal Court Rules 2011. REASONS FOR JUDGMENT CHARLESWORTH J: 1 On 23 February 2024 I made orders striking out two paragraphs of the originating application in this matter, together with an order that the third named respondent be removed as a party. Oral reasons were given on that day. 2 I now provide written reasons to the same effect. Record of Oral reasons 3 By his originating application lodged on 3 April 2023, the applicant, Mr Peter Scott Haughton, seeks final relief in the form of an order annulling his bankruptcy under s 153B of the Bankruptcy Act 1966 (Cth). An annulment order can be made, relevantly, if the Court is satisfied that the sequestration order that brought about the bankruptcy ought not to have been made. 4 The applicant named the Trustee of his bankrupt estate as the first respondent, the petitioning creditor as the second respondent, and Mr Tim Beresford in his capacity as the Inspector-General in Bankruptcy and Chief Executive of the Australian Financial Security Authority as the third respondent. 5 On the originating application, the applicant seeks the following six additional orders described as "Claim for interim relief": 1. That the administration of the bankruptcy be suspended pending resolution of the disputed matters 2. That the First respondent show cause by Affidavit or otherwise why he should not be compelled to apply the moneys received from the sale of 108 O'Sullivan Beach Road Lonsdale South Australia $3,000,000 minus ANZ debt for the use of the Applicant. 3. That the first respondent show cause by affidavit or otherwise why he sold the applicants Alis Chalmers Ball Mill for sum of $15,000 back to the company it was purchased from for sum of $110,000 after it had had over $80,000 in repairs completed and there was a live purchaser for sum of $350,000. 4. That the first respondent show cause by affidavit or otherwise why he removed without consideration other people's property down to the auctions for sale and sold them, namely, A) Bandit Beast model 3680 Tree Mulcher value $350,000 under repair owned by Ronald Buckingham. B) 5 x off road racing wheels and tyres and spare parts value $20,000 owned by Ronald Buckingham C) 2 x Concrete Vibrating tables value $50,000 owned by Ian Harvey. D) 2 x 20 foot shipping containers full of stored possessions valued at $50,000 owned by Terry Freud. E) 1 x 25,000 litre water tank owned by Greg Trager of Adelaide Wholesale Land scape Supplies. F) 1x Kenworth semi truck and trailer valued at $150,000 owned by Steven Malloy. G) All personal possessions of the applicant including clothes, shoes, fridge, maps, kitchen essential's, washing machine, bed, ropes and personal tools. dog kennel, pushbike, inter alia. H) All Tax records from Peter and Sam Nominee's stored in shipping container. 5. That the second respondent show cause by affidavit or otherwise why the true facts regarding the dealings between the applicant and himself should not be determined by a retrial in the Federal Court of Australia and the 'Kable Principle' be extended to all courts exercising jurisdiction between Australians. 6. That the third respondent show cause why he has not applied S 86 Bankruptcy Act 1996 to the administration of this bankruptcy and Gye v McIntyre [1991] HCA 60 to every Bankruptcy administered by the Australian Financial Authority Services. 6 Under the heading "Details of claim" (at [3]), the applicant states: The third respondent, Mr Tim Beresford owes the people of the Commonwealth to ensure the honesty and integrity of the administration of all bankruptcies in the Commonwealth, and should show cause why he has not as the inspector-General in Bankruptcy not inspected this Bankruptcy under S 11 Bankruptcy Act 1966 and find out why the Australian Financial Services Authority is not insisting on the application of S 86 Bankruptcy Act 1966 and the High Court case of Gye v McIntyre [1991] HCA 60 is not applied to routinely in all administrations of all bankruptcies before a sequestration order is made. Without the application of S 86 Bankruptcy Act 1966 the Commonwealth is not acquiring property from an individual in compliance with S 51 Placitum (xxxi) Constitution the just terms guarantee. 7 I have had regard to that paragraph when discerning what the applicant is seeking to achieve by the orders sought at [6] of his claim for interim relief. 8 Section 86 of the Bankruptcy Act has the heading "Mutual credit and set-off". Section 86(1) reads: Subject to this section, where there have been mutual credits, mutual debts or other mutual dealings between a person who has become a bankrupt and a person claiming to prove a debt in the bankruptcy: (a) an account shall be taken of what is due from the one party to the other in respect of those mutual dealings; (b) the sum due from the one party shall be set off against any sum due from the other party; and (c) only the balance of the account may be claimed in the bankruptcy, or is payable to the trustee in the bankruptcy, as the case may be. 9 Section 86(2) of the Bankruptcy Act reads: A person is not entitled under this section to claim the benefit of a set-off if, at the time of giving credit to the person who has become a bankrupt or at the time of receiving credit from that person, he or she had notice of an available act of bankruptcy committed by that person. 10 It is clear that s 86 concerns the identification and disposition of property forming a part of a bankrupt estate. More specifically it relates to the assessment and quantification of debts alleged by persons seeking to prove a debt in the bankruptcy. On its terms it applies in the course of the administration of a bankruptcy that remains on foot. Trustees are bound to observe it. 11 The Inspector-General exists by virtue of s 11(1) of the Bankruptcy Act. The Inspector-General has the general administration of the Bankruptcy Act, and the other powers and functions conferred or imposed on him by it. They include the function conferred under s 11(3) being a discretion to exercise any of the powers or functions of the Official Receiver in the same way as the Official Receiver. It also includes the powers conferred under s 12. Section 12(1)(a) confers an obligation to make such inquiries as the Minister directs. Other powers conferred under s 12 are discretionary, including the discretion to make such inquiries and investigations as the Inspector-General thinks fit with respect to the administration of, or the conduct of a trustee in relation to, a bankruptcy. 12 By his affidavit sworn on 22 May 2023 the applicant made submissions about the intent of s 86 of the Bankruptcy Act by reference to English and High Court authority. Some of those relevant principles are discussed by the High Court in Gye v McIntyre (1991) 171 CLR 609. 13 In a notice stating grounds of opposition to the application dated 21 November 2023, the Inspector-General submitted as follows: The Bankruptcy Act (s 153B) and Division 7.1 of the Federal Court (Bankruptcy) Rules 2016 envisage that the only respondent to an application for annulment of bankruptcy will be the trustee, and, possibly, a creditor of the bankrupt estate or creditor of the estate of a deceased bankrupt. The official trustee did not administer the bankrupt estate of the Applicant, nor is Mr Beresford (in any official capacity) a creditor of the bankrupt estate of the Applicant. Mr Beresford has been wrongly joined as a respondent to the proceeding. 14 At the first case management hearing for this matter on 24 November 2023 the Inspector-General made an application for orders that [3] of the originating application (under the heading "Details of claim") and [6] (under the heading "Claim for interim relief") be struck out, and that he be removed as a respondent from the proceedings. 15 That application was noted in my orders of that day and further submissions have now been made in respect of it. Subsequent to the first case management hearing on 24 November 2023, and relevant to the Inspector-General's application, I made orders that the application would continue on the papers for the applicant to file written submissions in respect of it and for the Inspector-General to file written submissions in reply. 16 As to the remainder of the originating application, I made orders to the effect that relief sought by the applicant in other parts of the application for interim relief, specifically at [2] to [4], be treated as an application for consequential orders and that the first respondent (the Trustee), if so advised, file an application for orders in the nature of summary judgment or striking out by a specified date. 17 The applicant filed submissions in opposition to the Inspector-General's application on 22 January 2024. In those submissions he contended that the Inspector-General had a duty to know and understand the Bankruptcy Act and the High Court's decision in Gye v McIntyre, and to ensure that Trustees did not breach their obligations as Trustees to unjustly enrich themselves by not requiring an account of mutual dealings that led to the bankruptcy as a priority, and to ensure that a sequestration order is not used as "a licence to steal". The applicant further relied on the affidavit of Mr Michael Thomas Holt sworn 31 January 2024. I will refer again to that affidavit in due course. 18 The Inspector-General filed written submissions in reply on 9 February 2024. He referred to and relied on the affidavit of Mr Cameron Robert Hutchins affirmed 21 November 2023. The Inspector-General acknowledged that the Court did have the power to grant interim relief in proceedings for annulment of a bankruptcy, for example, by staying proceedings; however, it was submitted there was no proper basis for the Court to make an order requiring him to "show cause" why he did not apply s 86 of the Bankruptcy Act and Gye v McIntyre to the administration of the applicant's bankrupt estate (or, for that matter, to every bankruptcy administered under the Bankruptcy Act). Even if such an order were to be made, he submitted, the order is hypothetical or advisory in nature. It would have no foreseeable consequences for the parties. He submitted that the obvious answer to the question which [6] of the originating application posed was that the Inspector-General was not the Trustee of the applicant's bankrupt estate. The Inspector-General made reference to the decision of Barnes J in Majeed v Kerr [2016] FCCA 1625 where reference is made to certain mandatory and discretionary powers conferred on the Inspector-General. 19 The applicant has recently provided additional written submissions dated 22 February 2024, supplemented by short oral submissions made today. They include a submission that the Inspector-General has a legal obligation to inspect every bankruptcy administration and an overarching responsibility to supervise all Trustees in bankruptcy. That appears to be the legal basis for the order sought at [6] of the claim for interim relief. 20 The applicant is self-represented and, with respect to him, the documents prepared by him (and possibly by other non-lawyers on his behalf), reflect his lack of legal knowledge and training. Paragraphs of the documents, including the originating application, may be struck out if they are bad in form, but ordinarily that would not provide a basis to preclude a self-represented litigant from having an opportunity to amend the document so that it properly articulates a recognisable for relief. A document that wrongly identifies an order sought as being interlocutory when the order in fact sought is final in nature can readily be cured by an amendment, including by referring to the order in the final relief sought. I, therefore, will not remove the Inspector-General as a party merely on the basis that he is not a party ordinarily joined in an annulment proceeding. 21 A bankrupt who files an originating application for annulment may include in that application other claims for final relief, which may be expressed in the alternative to annulment. Such relief may include an application for orders and directions relating to the ongoing administration of the bankrupt estate, to be determined in the event that the annulment application is unsuccessful. I have already interpreted some of the claims described as interim relief as being of that nature and I have made orders deferring their consideration until the application for an order annulling the bankruptcy has been heard and resolved. Accordingly, I would not strike out [6] of the claim for interim relief on the basis that it wrongly characterises the order in [6] as interlocutory. 22 I will, instead, consider whether the paragraph should be struck out or summarily dismissed because, even if treated as a claim for final relief, it enjoys no reasonable prospects of success. For that purpose, I will assume (without making any findings) that an issue has arisen in the administration of a bankruptcy which involves a dispute about the construction or application of s 86 or its application to agreed or disputed facts. I will also assume (without finding) that the applicant has some factual foundation for a concern that there is a risk that s 86 may not be applied in accordance with its terms by the Trustee of his bankrupt estate with respect to any particular proved debt. 23 The applicant's argument appears to have two aspects to it. The first aspect appears to be that s 86 must be applied at the time when considering whether or not there is a debt owed to a petitioning creditor; that is, it must be applied by the Court when deciding whether to make a sequestration order. If that be an aspect of the case, I do not consider it to enjoy reasonable prospects of success. The basis for making an annulment order is that stated in s 153B. It includes a requirement that the Court be satisfied that the sequestration order ought not to have been made. In part, that may include some consideration with respect to the general law in relation to set-off and cross-claims, as may soon become apparent in these proceedings. But that does not occur by virtue of the application of s 86 of the Bankruptcy Act. Section 86 of the Bankruptcy Act is, as I have already observed, a provision that applies within a bankruptcy. It presumes there to be a valid bankruptcy on foot. 24 The other aspect of the applicant's argument is that the Inspector-General has a legal obligation to inspect every aspect of every bankruptcy administration and to intervene in cases where he identifies any arguable, actual or threatened departure from the requirements of the Bankruptcy Act and that, if he fails to do so, he may be compelled by this Court to provide an explanation for that failure. As a matter of statutory construction, I do not consider that argument to have reasonable prospects of success. That is because the relevant supervisory powers of the Inspector-General are discretionary and because s 86 imposes no obligation directly upon the Inspector-General. It cannot reasonably be argued otherwise. 25 There may, however, be cases in which a discretionary power is one in respect of which there is, on the facts, a legal obligation to act; namely, where it would be legally unreasonable not to exercise a discretionary power or not to exercise it in a particular way: see generally Minister for Immigration and Citizenship v Li (2013) 249 CLR 332. In such cases, this Court may exercise its supervisory powers to compel the exercise of an administrative power cast in discretionary terms. In all such cases, the onus is on the applicant to demonstrate that the repository of the power has exercised or refused to exercise the power in a way that is legally unreasonable in accordance with well established authorities. It is a stringent test, fundamentally turning on the facts of the particular case. 26 The applicant has not cast his proceedings in that way. A date has been fixed for him to file affidavits in support of the originating application and those affidavits have been read. The affidavit of Mr Holt is comprised mostly of submissions that appear to reflect Mr Holt's beliefs about the content of the law. Neither the applicant nor Mr Holt have deposed to facts that on any reasonable view support an order in the nature of mandamus or otherwise compelling the Inspector-General to "show cause" why he has not exercised a supervisory power vis-à-vis the Trustee in a particular way, nor an order in the nature of mandamus compelling him to inspect any part of the administration of the applicant's bankruptcy, nor an order compelling him to ensure the application of s 86 of the Bankruptcy Act to achieve any particular outcome in relation to any identified proof of debt. 27 Ordinarily, if it appeared that the Court had the power to review a decision, or the failure to make a decision, of an officer of the Commonwealth, and if it appeared that that was the truly intended application of a litigant in person, the Court would grant the litigant an opportunity to amend the initiating documents to put the proceedings into a proper form. However, in the present case, I can discern no proper factual foundation to support any such amended claim directed toward the Inspector-General on the alleged facts. 28 Accordingly, I am satisfied that I should strike out [3] under the heading "Details of claim" and [6] under the heading "Claim for interim relief" on the basis that they disclose no cause of action having reasonable prospects of success as against the Inspector-General. 29 I do not consider there to be a proper basis for granting the applicant leave to recast those paragraphs, given the factual context I have described. Leave to amend will, therefore, not be granted. 30 There being no discernible cause of action alleged against the Inspector-General, I will make a consequential order that he be removed as a party. 31 Nothing within these reasons should be understood as expressing any view about the application of s 86 within the bankruptcy of the applicant if the bankruptcy is to remain on foot, nor about any decision that might have been made by the Trustee with respect to any proof of debt, nor any alleged failure by the Trustee to properly apply s 86 in the administration of the applicant's bankrupt estate. Those issues might arise in the proceedings as they remain on foot as between the applicant and the Trustee. I certify that the preceding thirty-one (31) numbered paragraphs are a true copy of the Reasons for Judgment of the Honourable Justice Charlesworth. Associate: Dated: 23 February 2024