Background
Mohan Natch commenced Federal Court proceedings in 2019 against Stennson Pty Ltd and others, alleging losses from the installation of underground anchors on his land during neighbouring building works. Midway through a five-day trial in October 2021, Natch settled with all respondents except Stennson and obtained leave to discontinue against Stennson — on the condition that he pay Stennson’s costs. Over the following five years, Natch pursued a cascade of applications and appeals challenging those costs orders. All were substantially unsuccessful, generating additional adverse costs orders that, together with the original taxed costs of $154,377.86 and $26,238.25, brought the cumulative judgment debt to approximately $209,548.20. Stennson also obtained a permanent stay of parallel Supreme Court of Victoria proceedings Natch had commenced arising from the same facts, on the ground that they constituted an abuse of process. On 24 December 2025, Stennson caused Bankruptcy Notice BN284090 to be served on Natch for that debt.
Natch filed this proceeding on 12 January 2026, applying to set aside the bankruptcy notice. He appeared in person and advanced four main grounds: (1) pending appeals, including an asserted High Court application and a reserved leave-to-appeal judgment in this Court (proceeding 1688), meant the debt was not finally established; (2) claims before the Victorian Building Appeals Board (BAB) and in the stayed Supreme Court proceeding, each valued at over $2.4 million, constituted an equitable set-off extinguishing the debt; (3) those same claims satisfied the counter-claim, set-off or cross-demand test in s 40(1)(g) of the Bankruptcy Act 1966 (Cth); and (4) the bankruptcy notice was issued for a collateral and illegitimate purpose constituting an abuse of process. He also sought a permanent stay of the bankruptcy proceedings pending resolution of all related matters. Shortly before the hearing, Natch filed a 22-page interlocutory application and, in breach of the Registrar’s timetabling orders, an Amended Application; leave was sought and ultimately granted to rely on the amended form.
Button J heard the matter on 4 June 2026. Natch was refused leave to rely on a last-minute affidavit filed the afternoon before the hearing, and applications to subpoena Stennson’s solicitors and its director for oral evidence were also refused. The Court allowed two emails from Stennson’s director to be tendered as relevant to the abuse-of-process claim, and gave Natch leave to file a short supplementary submission on two points he said had taken him by surprise.
The Court’s Holding
Button J dismissed both the Amended Application and the Interlocutory Application. On the appeals grounds, the Court held that orders of a superior court remain final and binding unless and until set aside; the mere pendency of leave-to-appeal or other review proceedings does not deprive the underlying costs orders of their status as final judgments capable of founding a bankruptcy notice. The appropriate statutory mechanism for a debtor whose judgment is under genuine challenge is an application for an extension of time for compliance under ss 41(6A) and 41(6C) of the Act — a course Natch never pursued. The asserted “High Court appeal” was not supported by any evidence of an actual application that had been accepted or that had any prospects, and proceeding 1688 (leave to appeal Natch No 6) had been heard and was reserved but remained an application for leave, not a pending appeal.
On the equitable set-off and s 40(1)(g) grounds, the Court found that neither the BAB proceeding nor the Supreme Court claims satisfied the statutory test. Section 40(1)(g) requires legal inability — not mere practical inconvenience — to have raised the claim in the proceeding in which the relevant judgment was obtained. The claims now advanced against Stennson were either the same as or arose from the same facts as those that Natch had the opportunity to press (or did press) in the principal Federal Court proceeding before discontinuing mid-trial. The Supreme Court proceedings had, in any event, been permanently stayed as an abuse of process. The BAB proceeding concerned statutory rights under the Building Act 1993 (Vic) that could not ground the kind of liquidated, presently-enforceable demand s 40(1)(g) contemplates. No equitable set-off was made out either, as the asserted claims were not so closely connected to the judgment debts as to make enforcement of those debts unconscionable.
On abuse of process, the Court found no credible basis for the contention that the bankruptcy notice was issued for a collateral or illegitimate purpose. The debt was real, long-established, and unpaid. Stennson’s conduct in issuing the notice was consistent with ordinary enforcement of a legitimately obtained judgment. No permanent stay of the bankruptcy proceedings was warranted.
Key Takeaways
- A bankruptcy notice founded on final costs orders is not invalidated merely because the debtor has pending appeals or review applications; the correct remedy for a debtor challenging the underlying judgment is an application under ss 41(6A)–(6C) of the Bankruptcy Act 1966 (Cth) to extend the time for compliance, not an application to set aside the notice.
- A counter-claim, set-off or cross-demand under s 40(1)(g) must reflect a legal inability — not a practical difficulty — to have raised the claim in the original proceeding; claims abandoned mid-trial or arising from identical facts will not ordinarily satisfy that requirement.
- A creditor who issues a bankruptcy notice to enforce a real and unpaid judgment debt does not commit an abuse of process simply because the debtor characterises the notice as pressure or collateral to other disputes; clear evidence of an illegitimate purpose is required.
- Persistent, serially unsuccessful litigation attacking costs orders can itself result in compounding adverse costs liability, further entrenching the very debt a debtor seeks to resist.
Why It Matters
This decision reinforces the limited grounds on which a bankruptcy notice can be set aside under Australian law and clarifies the interaction between pending appellate proceedings and a creditor’s right to enforce a final judgment debt through insolvency machinery. Courts will not treat an active leave-to-appeal application — let alone an unsubstantiated claim of a High Court filing — as automatically freezing the enforcement of judgment costs. Debtors who wish to protect themselves while genuinely challenging an underlying judgment must use the statutory extension mechanism in s 41(6A), not resist the notice on finality grounds.
The judgment also illustrates the practical dangers of protracted satellite litigation around a costs order. Over five years, Natch’s efforts to contest a routine discontinuance-costs order generated at least eight further judgments, several additional adverse costs orders, the permanent stay of parallel State Court proceedings as an abuse of process, and ultimately a bankruptcy notice for a debt that had more than doubled in real terms through accumulated orders. For practitioners advising clients in similar situations, the case is a pointed reminder that the s 40(1)(g) counter-claim pathway is narrow and demands rigorous analysis of whether claims were legally incapable of being raised in the original forum — not merely inconvenient or foregone.