Lal v Surti Pty Limited [2009] FMCA 1229 (1 December 2009)

Last Updated: 15 December 2009

FEDERAL MAGISTRATES COURT OF AUSTRALIA

LAL v SURTI PTY LIMITED

[2009] FMCA 1229

BANKRUPTCY – Application to set aside bankruptcy notice – where applicant claims his solicitors responsible for not raising the cross claim in Local Court proceedings.

Bankruptcy Act 1966 (Cth) s.40(1)(g) Federal Magistrates Court (Bankruptcy) Rules 2006

Ebert v The Union Trustee Company of Australia Limited [1961] HCA 29; (1961) 105 CLR 327 Bhagat v Global Custodians Limited [2002] FCA 223 Walton v National Mutual Life Association of Australasia Limited [1994] FCA 1114; (1994) 49 FCR 406

Applicant:

HASMUKH LAL

Respondent:

SURTI PTY LIMITED

File Number:

SYG 2256 of 2009

Judgment of:

Raphael FM

Hearing date:

1 December 2009

Date of Last Submission:

1 December 2009

Delivered at:

Sydney

Delivered on:

1 December 2009

REPRESENTATION

For the Applicant:

In person

Counsel for the Respondent:

Mr Reed

Solicitors for the Respondent:

Lodhia Lawyers

ORDERS

(1) Application dismissed.
(2) Applicant debtor to pay the Respondent’s costs to be taxed, if not agreed, pursuant to the Federal Magistrates Court (Bankruptcy) Rules 2006.

FEDERAL MAGISTRATES COURT OF AUSTRALIA AT SYDNEY

SYG 2256 of 2009

HASKMUKH LAL

Applicant

And

SURTI PTY LIMITED

Respondent

REASONS FOR JUDGMENT

1. This is an application for the review of an order of Registrar Hedge dismissing an application to set aside a bankruptcy notice which had been brought on the grounds that the applicant had a cross-claim, cost demand or set-off equal to, or in excess of, the amount claimed in the bankruptcy notice which he could not have raised in the original proceedings s.40(1)(g) Bankruptcy Act 1966 (Cth) (the “Act”).
2. The applicant, Mr Lal, filed an affidavit on 1 December 2009 and the first part of this morning’s hearing was taken up with issues surrounding the proceedings before Registrar Hedge, including applications for adjournment, arguments relating to medical certificates provided by Mr Lal and other matters. However, as both parties agreed that they were happy for the substantive review application to be heard this is what has occurred. The substantive review application in effect being a rehearing or a first hearing, because Mr Lal did not appear previously, of his application to set aside the bankruptcy notice.
3. The history of the disputes between the parties has been deposed to in the affidavit of Mr Lal. The respondent creditor is in agreement with the fact that there were certain proceedings before Magistrate Curran in the Local Court of New South Wales brought by the creditor against the debtor concerning a cheque which the creditor claimed that the debtor converted. Mr Lal tells this Court that he had an agreement with the respondent pursuant to which the respondent was to sell him the respondent’s post office franchise. Mr Lal says that in pursuance of that agreement he did a number of things, the most important being that he arranged for the sale of his accounting business and he entered into a non-compete clause with the purchaser of that business. He also expended moneys on a training course run by Australia Post. Mr Lal says that the respondent creditor reneged on the agreement for sale of the post office. All these matters had taken place prior to the proceedings brought before Magistrate Curran.
4. The nature of the cross-claim which Mr Lal claims he has against the creditor is set out in a document entitled Amended Statement of Claim. It is Annexure E to Mr Lal’s affidavit of 1 December. Mr Reed agrees that this is the current state of the pleadings in the District Court proceedings which Mr Lal commenced. The statement of claim recites the agreements between the parties for the sale and purchase of the post office. It recites Mr Lal’s decision to sell his accountancy business in order to enter into the post office business. It recites the non-compete clause he was obliged to enter into and the course that he attended with Australia Post and the cost thereof.
5. He then makes four claims. The first is the loss on the sale of the accountancy business of $115,000.00. The second, a loss of income of $50,000.00 p.a. for 3.25 years and continuing, which he states is $162,500.00. The third is the costs of selling the business, $13,125.00. And the fourth is interest on the total amount, which he calculates as $290,625.00. I explained to Mr Lal that in my view claims 1 and 2 suffered from duplicity. He could either claim for the loss on the sale of the business or for the loss of income, but I did not believe that he could sue for both.
6. However, that is only my view and it makes no difference to this case because either one of those claims is in excess of the amount in the bankruptcy notice. Mr Reed argues that cases such as Ebert v The Union Trustee Company of Australia Limited [1961] HCA 29; (1961) 105 CLR 327 indicate that a mere statement of claim is not enough to establish the existence of a cross-claim, cross-demand or set-off. Ebert was a case that was decided before statements of claim were required to be verified by affidavit. This particular statement of claim has been verified by affidavit. He also relies on Bhagat v Global Custodians Limited [2002] FCA 223, a decision of the Full Bench, O’Loughlin, Whitlam and Marshall JJ at paragraphs [52 - 53]. I would distinguish this case from that latter one. To my mind the manner in which the statement of claim has been set out and the manner in which it is referred to in the affidavit of 1 December brings the claim itself further than a mere assertion claimed in a statement of claim. It does indicate what the applicant proposes to establish and provides enough detail of the loss that he has suffered and the manner in which he suffered that loss for the document to constitute sufficient evidence of the existence of the cross-claim. I believe that the first two of the requirements of s.40(1)(g) have been satisfied. However, I cannot be so sanguine about the third requirement.
7. Mr Lal tells me that the reason that the cross-claim was not raised in the proceedings before Magistrate Curran was that he was advised that this should not be done. He was told by his advisers that the claim before Magistrate Curran was a simple one, that he had a complete answer to it and that his case against the creditor was far more complex and involved much greater figures and should be brought in the Supreme Court. Mr Lal says that he accepted that advice.
8. In Walton v National Mutual Life Association of Australasia Limited [1994] FCA 1114; (1994) 49 FCR 406 before the Full Bench, Jenkinson, Burchett and Whitlam JJ, considered an application to set aside a bankruptcy notice where the debtor alleged that he had been unable to set up the cross demand because of his solicitor’s negligence. The Court held that:
   • “no authority was cited to support the proposition that such a case can be maintained; and it is sufficient for us to say that the negligent failure of the solicitor in fact to set up a cross demand would not make the cross demand one which the debtor “could not have set up” within the meaning of s.40(1)(g).”

That case seems to me to put the matter at rest and I would dismiss Mr Lal’s application to set aside the bankruptcy notice.

9. Mr Lal also asks that if the bankruptcy notice is not set aside then the time for compliance be extended until after the hearing of his District Court proceedings. I do not believe that that is an appropriate thing to do. The creditor has a judgment. He is entitled to enforce that judgment. A bankruptcy notice is only one step in the process for the issue of a sequestration order. It is not known how long it will take for the District Court proceedings to be heard but it is probable that they will not be heard within the six months following which the creditor should issue a bankruptcy petition.
10. However, I am of the view that provided the District Court proceedings are going ahead at a proper rate and the matter is likely to be given a reasonably early hearing date then it may not be appropriate for the Court to make a sequestration order. In these circumstances I will order that any application for a sequestration order be brought back before me for hearing and would indicate that if that happens then, provided I am satisfied that the District Court proceedings are being prosecuted expeditiously, it is unlikely that I would make a sequestration order pending the outcome of those proceedings.
11. The application is dismissed. The applicant debtor, Mr Lal, must pay the respondent’s costs to be taxed, if not agreed, pursuant to the Federal Magistrates Court (Bankruptcy) Rules 2006.

I certify that the preceding eleven (11) paragraphs are a true copy of the reasons for judgment of Raphael FM

Associate:

Date: 14 December 2009