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Kwok v Bank of Western Australia Limited [2011] FMCA 559 (22 July 2011)

Last Updated: 25 July 2011

FEDERAL MAGISTRATES COURT OF AUSTRALIA

KWOK v BANK OF WESTERN AUSTRALIA LIMITED

BANKRUPTCY – Application to set aside a Bankruptcy Notice brought pursuant to s.41(7) – requirements of section not make out – application dismissed.

Bankruptcy Act 1966 (Cth), ss.40(1)(g), 41(6A), 41(7).
Corporations Act 2001(Cth) s.459.
Federal Magistrates (Bankruptcy) Rules 2006 (Cth) regs.2.01(2), 3.02
Bankruptcy Regulations

Brighten Pty Ltd & Ors v Bank of Western Australia Limited & Anor [2010] NSWSC 133
Brighten Pty Ltd v Bank of Western Australia Ltd [2009] NSWSC 1467
Bryant v Commonwealth Bank of Australia (1994) 217 ALR 251
Clyne v DCT [1982] FCA 257; (1982) 69 FLR 345
Crimmins v Glenview Home Units Pty Ltd [1999] FCA 515
Ebert v Union Trust Co of Australia Limited [1960] HCA 50; (1960) 104 CLR 346
Guss v Johnstone [2000] HCA 26; (2000) 171 ALR 598
James v Abrahams [1981] FCA 46; (1981) 34 ALR 657
Re Brink; Ex parte Commercial Banking Co of Sydney Ltd [1980] FCA 78; (1980) 30 ALR 433
Re Jocumsen [1929] QWN 40
Re Judd; Ex parte Pike (1924) 24 SR (NSW) 537
Re Smith; Ex parte Chesson [1992] FCA 64; (1992) 106 ALR 359
Stec v Orfanos [1999] FCA 457
Vogwell v Vogwell (1939) 11 ABC 83
Webb v Hunter (1995) 59 FCR 24

Applicant:
MICHAEL WILSON KWOK

Respondent:
BANK OF WESTERN AUSTRALIA LIMITED

File Number:
SYG 1127 of 2011

Judgment of:
Lloyd-Jones FM

Hearing date:
21 June 2011

Delivered at:
Sydney

Delivered on:
22 July 2011

REPRESENTATION

Counsel for the Applicant:
Mr C. Lonergan

Solicitors for the Applicant:
W. Susanto of Jackson Lalic Lawyers

Solicitors for the Respondent:
Ms K. Britton of Gadens Lawyers

ORDERS

(1) The Application to Set-Aside Bankruptcy Notice NN3241 dated 12 May 2011, be dismissed.
(2) The Applicant is to pay the Respondent’s costs, as agreed or assessed.
FEDERAL MAGISTRATES
COURT OF AUSTRALIA
AT SYDNEY

SYG 1127 of 2011

MICHAEL WILSON KWOK

Applicant


And


BANK OF WESTERN AUSTRALIA LIMITED

Respondent


REASONS FOR JUDGMENT

  1. This matter appeared in the Registrar’s list on 14 June 2011, at which time the parties required the matter to be referred to this Court for resolution. This is an Application by Michael Wilson Kwok to set-aside a Bankruptcy Notice identified as NN3241 dated 12 May 2011, identifying a debt in the sum of $13,583,412.13 as being owed. The Application to set-aside is brought pursuant to s.41(7) of the Bankruptcy Act 1966. The Bankruptcy Notice was served on 23 May 2011 by facsimile and post. On 3 June 2011, an Application by Mr Kwok was filed seeking to set-aside the Bankruptcy Notice which was supported by an affidavit of Ms Helen James, affirmed on 2 June 2011. On 3 June 2011, Orders were made by Registrar Segal, extending the time for compliance with the Bankruptcy Notice, up to and including 14 June 2011. On 14 June 2011, the matter was mentioned before me but was stood over by consent for hearing on 21 June 2011.
  2. The Bankruptcy Notice was grounded on a judgment entered on 16 March 2011 in the Supreme Court of New South Wales, Equity Division by his Honour Hammerschlag J. That judgment identifies the claimant as the respondent in this matter, the Bank of Western Australia Limited. It also names three cross-defendants, the first being Brighten Pty Ltd (receivers and managers appointed), the second cross-defendant being Noble Growth Investments Limited and the third being Michael Wilson Kwok. Judgment was entered by his Honour against all three cross-defendants.
  3. Mr Lonergan informed the Court that in addition to the issue of the Bankruptcy Notice against Mr Kwok, there were also proceedings on foot in the Supreme Court brought by the Bank of Western Australia Limited, in which they are suing Brighten Pty Ltd (receivers and managers appointed) and have issued a Statutory Demand for exactly the same amount of $13,583,412.13. Consequently, the case is advanced on behalf of Mr Kwok, who claims that in all the circumstances it would be appropriate for this Court to set-aside the Bankruptcy Notice pending the determination of the proceedings in the Supreme Court, which in Mr Kwok’s view, will impact upon the Bank of Western Australia’s claim against him.

Background

  1. Mr Kwok and the company Brighten Pty Ltd, entered into transactions with Bank of Western Australia to purchase the well known resort in the Blue Mountains called the Fairmont Resort. The resort was purchased for $45,120,000.00. Mr Kwok, as director of Brighten Pty Ltd, signed various documents which resulted in him providing a guarantee for the loan, which was provided by the Bank of Western Australia in the amount of $32,150,000.00. On 14 December 2006, the Bank of Western Australia provided loan and security documents which included:
    1. A facility agreement with Bank of Western Australia as lender, Noble Growth Pty Ltd as borrower, and Mr Kwok as guarantor;
    2. A mortgage over the Fairmont Resort incorporating provisions of memorandum number 9390023 with the Bank of Western Australia as mortgagee and Brighten Pty Ltd as mortgagor;
    1. A fixed and floating charge over the assets and business undertakings of Brighten Pty Ltd including the Fairmont Resort with the bank as charge and Brighten Pty Ltd as charger; and
    1. A personal guarantee by Mr Kwok.

The agreements were finalised on 18 December 2006.

  1. The relationship between the Bank of Western Australia and Brighten Pty Ltd and its Director was without any issue until 20 April 2009 when Channel 9, through it’s ‘A Current Affair’ program, provided a report of the standard condition of the Fairmont Resort. A further and equally critical ‘A Current Affair’ report of the resort was aired on 22 April 2009. The bank interprets the finding of the report as a material adverse breach of the loan agreement. On 23 October 2009, Brighten Pty Ltd commenced proceedings by summons in the Supreme Court seeking a declaration that the A Current Affair programs were not an event of default and orders seeking to restrain the bank from appointing a receiver. On 11 December 2009, his Honour Justice Einstein made various orders that included the appointment of David Lombe of Deloitte Touche Tomatsu as receiver and also ordered that the operation, control, management and administration of the resort shall remain with Brighten Pty Ltd.
  2. On 26 February 2010, Mr Simon John Cathro and David John Frank Lombe of Deloitte were appointed receivers of the company on an unrestricted basis.
  3. On 23 December 2010, the Receivers sold the resort to the Schwartz Family Co. Pty Ltd in the sum of $24,503,135.00. On 16 March 2011, judgment was entered against Brighten Pty Ltd and Mr Kwok in the sum of $13,583,412.13.
  4. Mr Lonergan submits that Mr Kwok alleges that the receivers and managers, by reason of their acts and omissions, including negligence, caused the sale of the Fairmont Resort to be effected at a price far less than its proper market value. Mr Kwok alleges that the acts and omissions by the receivers and managers give rise to a rather unfortunate and tardily presented product for sale to the market, which materially and directly impacted on the amount that was called upon by Mr Kwok, by way of deficiency of sale proceeds over the mortgage, which he has been called upon to pay.

Evidence

  1. Mr Lonergan read the affidavit of Helen James, affirmed 2 June 2011. Ms Britton, appearing for Bank of Western Australia, indicated that there was no objection to the affidavit as a whole, however there was an objection to the opening sentence of paragraph 3.

The deponent does not say this statement is from her knowledge and belief and there is no affidavit sworn by Mr Kwok in these proceedings. A similar objection was raised to para.5.

  1. Ms Britton sought leave to file in court two affidavits which go to procedural matters, being service of the Bankruptcy Notice. One affidavit of Chris Sabatino sworn 22 May 2011 and a second affidavit of Melanie Louise Skinner, sworn 17 June 2011, pursuant to Regulation 16.01 of the Bankruptcy Regulations. Ms Britton also sought leave to tender in Court a letter from Gadens Lawyers to Jackson Lalic Lawyers dated 15 June 2011, which requests clarification as to the section Mr Kwok was moving on in making the Application to Set-Aside the Bankruptcy Notice.
  2. Mr Lonergan indicated that he had no objection to the filing of the letter from Gadens to William Susanto dated 15 June 2011, nor was there any objection to its contents. Mr Lonergan indicated that the letter deals with the issue of s.41(7) as being the basis for the Application. In respect to the Affidavit of Service and the Affidavit Pursuant to Regulation 16.01, he did not object to them being filed in Court, however, he did object to them being tendered on the basis that he had no notice of them until immediately prior to the hearing and that they were somewhat precipitous as they are usually necessary for the Creditor’s Petition but he was simply without instructions on them and requested for that to be noted. Mr Lonergan stated that he had agreed with Ms Britton that notwithstanding some slight issues about the actual date of service of the Bankruptcy Notice, the Application to Set-Aside the Bankruptcy Notice was made within the 21 day period.
  3. Ms Britton indicated that Mr Lonergan had highlighted the fact that there is an issue with respect to the date of service of the Bankruptcy Notice. The purpose of filing an Affidavit of Service in Court is that she will ask the Court to make a determination on the date of service of that Bankruptcy Notice on the Applicant. There is a further Affidavit in Support of Regulation 16.01 which is a procedural affidavit, required on the final hearing of a Creditor’s Petition where that regulation has been utilised by a creditor. Ms Britton acknowledged that these affidavits would usually be filed at a later stage, but given the Application before the Court it is appropriate that they be filed. Ms Britton observed that Mr Kwok has not made any Application to Set-Aside the Bankruptcy Notice on the basis of non-service so it is conceded that the Bankruptcy Notice has been served. Ms Britton drew the Court’s attention to the requirements of Reg.3.021 in that the Applicant ought to have put before the Court a copy of the Bankruptcy Notice but this has not been done. A copy of the Bankruptcy Notice is attached to the Affiavit of Service of Chris Sabatino sworn 22 May 2011 which is intended to assist the Court. That concludes the evidence relied upon by the Bank of Western Australia.

Mr Kwok’s case

  1. Mr Lonergan referred the Court to the Affidavit of Ms James at p.3 which is the order of the judgment entered on 16 March 2011 against Brighten Pty Ltd, Noble Growth Investments Ltd and Michael Wilson Kwok in the amount of $13,583,412.13 and that there is no dispute in respect to that figure. That $13,583,412.13 debt represents the deficiency between the sale proceeds which were achieved from the sale of the Fairmont Resort, compared with the debt outstanding to the Bank of Western Australia. Then at p.6 of the affidavit, a copy of the Summons filed on 6 May 2011, by Brighten Pty Ltd (receivers and managers appointed) against David John Frank Lomb and Simon John Cathro, who were the receivers and managers appointed to manage the Fairmont Resort. Mr Lonergan brought to the Court’s attention to the orders sought in the Summons which are only, at this stage, orders for preliminary discovery.
  2. At p.47 of the affidavit is a letter from Philip A. Biber, Lawyer, to Blake Dawson, who are the solicitors acting for the receivers, Mr Lombe and Mr Cathro. In the third paragraph, Mr Biber states:
  3. Then Mr Biber seeks access to various documents which are listed at the end of the letter. Mr Lonergan submits that the preliminary discovery is sought because Mr Kwok has never had access to the documents that are identified as the subject matter of the Summons. Ultimately, these proceedings will be founded in an action in negligence and compensation. If successful, Mr Lonergan submits that it will impact significantly, if not to eliminate, the amount ultimately owed to the Bank of Western Australia. Those proceedings are presently listed for hearing in July of this year in the Supreme Court of New South Wales.
  4. Mr Lonergan acknowledged that there is no evidence to support this submission, but did not believe that there would be any dispute about it because Ms Britton’s firm acts for the Bank of Western Australia in respect to this other matter.

Submissions by Mr Lonergan

  1. Mr Lonergan submits that Mr Kwok is entitled to have the Bankruptcy Notice set-aside as the evidence before the Court establishes that for the purposes of s.41(7) of the Bankruptcy Act 1966 there is valid evidence that there is a claim on foot that will materially change the amount of the debt owed and possibly to eliminate it. The claim that Mr Kwok ceased to bring against the receivers and managers at present is only one step in the process but it is not something that he has manufactured or thought up since the judgment of his Honour Hammerschlag J which was handed down in the Supreme Court on 16 March 2011. The claim was a very live issue as far back as 28 April 2010, which is the date that his then solicitor, Philip Biber had taken instructions (affidavit of Helen James, folio 47). Mr Kwok’s concerns that Mr Biber addressed to Blake Dawson in April 2010, goes to conduct that Mr Kwok claims if ultimately successful, will have an impact upon the amount of the debt in a very significant way. Mr Lonergan contends that there is a very solid argument that the issue did exist in April 2010, in that the acts of omission of the receivers were such to render the ultimate sale and therefore the proceeds of sale the object of the litigation, in other words the sale proceeds from the former resort were far less than they ought to have been.
  2. Mr Lonergan submits on behalf of Mr Kwok that the amount of detail that is contained in Mr Biber’s letter to Blake Dawson goes to the issue of marketing, management and accounting at the Fairmont Resort. Mr Lonergan acknowledges that the claim being brought in the Supreme Court is not by Mr Kwok but rather Brighten Pty Ltd, receivers and managers appointed. Mr Lonergan indicated that there were other proceedings set down for hearing on 19 July 2011 which were setting-aside applications in respect of the corporate statutory demands under the provisions of s.459 of the Corporations Act 2001 (Cth). These demands claim exactly the same amount that is being sought by Mr Kwok. The Court was referred to the High Court decision in Guss v Johnstone [2000] HCA 26; (2000) 171 ALR 598 at [40] where the High Court observed:

At [10] their Honours observed:

[10] The history of the matter is significant when considering the response of Sundberg J...
  1. Mr Lonergan submits that the affidavit of Mr Susanto sets out the history which is significant, as it is simply not a matter of rejecting this Application simply because Mr Kwok hasn’t challenged the judgment of Hammerschlag J. The Court is requested to consider that there is no counter-claim, set-set off or cross-demand in the name of Mr Kwok on foot and as a result s.41(7) is not satisfied. This litigation had its genesis in the instructions from Mr Kwok to Mr Biber in April 2010. In these circumstances, the Court is invited to form the view that it would not be appropriate to allow the bankruptcy proceedings to proceed, pending determination of the acknowledged litigation that is already on foot.

Ms Britton’s submissions

  1. Ms Britton sought to clarify the nature of the proceedings that are before the Supreme Court on 19 July 2011. Those proceedings were commenced by Brighten Pty Ltd (receivers and managers appointed) and is against Mr Lombe and Mr Cartho, whereas her client, Bank of Western Australia had issued a Statutory Demand which is not a Court proceeding. Initially, Ms Britton addressed the issue of the defect in the Application, in that a copy of the Bankruptcy Notice, which is required by the Regulations, is not attached. In respect of s.40(1)(g) and s.41(7) these need to be read in conjunction with Reg.3.02(2) of the Rules which requires the Applicant in any affidavit in support made under s.41(7) is required to:
    1. Set out the full details of the cross-claim, set-off or cross-demand; and
    2. Set out the amount of the cross-claim, set-off or cross-demand and the amount by which it exceeds the amount claimed in the Bankruptcy Notice; and
    1. Why the cross-claim, set-off or cross-demand was not raised in the proceedings that resulted in the judgment or order in relation to which the Bankruptcy Notice was issued.
  2. Ms Britton contends that the affidavit of Helen James sworn 2 June 2011, fails to address the matters set out in Reg.3.02(2)(a) in any significant way. Further, the affidavit fails to address the matters required under Reg.3.02(2)(b) and (c) at all, given that there is no details as to the amount of the proposed cross-claim. There are no evidence that his Honour Hammerschlag J was put on notice that there may have been a cross-claim against the receivers and managers. Ms Britton argues that given the non-compliance with the Rules, and the absence of any evidence in support of the Application, the Court should not dispense with the need for Mr Kwok to comply with those Regulations, and the Application should be dismissed on that basis.
  3. The alternate argument on this issue, advanced by Ms Britton, is the affidavit of Helen James sworn 2 June 2011 which states:

Ms Britton argues that an entitlement to bring proceedings does not constitute a valid cross-claim, set-off or cross-demand as required under s.41(7) and s.40(1)(g) to have the Court exercise its discretion to satisfy the Bankruptcy Notice.

  1. Ms Britton contends that under s.41(7) of the Bankruptcy Act there will be an immediate extension of time to comply with the Bankruptcy Notice while the Court considers the Application: Brink, Re; Ex parte Commercial Banking Co of Sydney Ltd [1980] FCA 78; (1980) 30 ALR 433. Ms Britton submits that it was unnecessary for Registrar Segal to make an order on 3 June 2011 extending the time for compliance with the Bankruptcy Notice up to 14 June 2011, given that Mr Kwok’s application was premised on s.41(7) of the Act, albeit the Application did not clearly state what section at that time. Consequently, the affidavit filed under s.41(7) does not comply with the Rules, the extension of the Bankruptcy Notice would not be effective. So, if s.41(7) operates to extend the time to comply with the Bankruptcy Notice, up to the date of hearing (being 21 June 2011) if the Court finds the Application to Set-Aside the Bankruptcy Notice ought to be dismissed, the Act of Bankruptcy ought to have been committed on the day, being 21 days in which the Applicant had to comply with the Bankruptcy Notice: Webb v Hunter (1995) 59 FCR 24.
  2. Ms Britton contends that the Affidavit of Chris Sabatino, sworn 22 May 2011, states that the date of service was 19 May 2011 and was effected by leaving the notice in the letter box of the last known address of Mr Kwok. The affidavit of Chris Sabatino is supported by an affidavit of Melanie Louise Skinner, sworn 17 June 2011, where she confirms the last known address of Mr Kwok. There is no Application to Set-Aside the Bankruptcy Notice on any issue regarding service. The evidence before the Court by a licensed process server is that the notice was served on 19 May 2011 and there is no reason why that should not be accepted.
  3. In the event that the Court was satisfied that there was an Application made to Set-Aside the Bankruptcy Notice under some other ground, which Ms Britton submits should not be the case given the concession made by Mr Lonergan earlier in the hearing, it is under s.41(7), that the Act of Bankruptcy ought to have been 14 June 2011 given that was the date to which Registrar Segal under the provisions of s.41(6A) had extended the time to comply. However, as Mr Lonergan advanced his application under s.41(7), which was acknowledged by Ms Britton and s.41(6A) does not apply.
  4. Ms Britton challenges the submission that Brighten Pty Ltd and/or Mr Kwok has a good claim against the receivers as the letter from Mr Biber, dated 28 April 2010 (affidavit of Helen James, p.47) at para.[2] states:

Ms Britton argues that these allegations have no basis as nothing has been put before this Court to say how Mr Kwok became aware of this information and considering the extent to his allegations it is surprising that he did not provide further evidence which could have supported his claim in the original proceedings. The Court’s attention is drawn to the fact that this was a contested matter and not a default judgment.

  1. In respect of the s.459E Statutory Demand issued by the Bank of Western Australia against Brighten Pty Ltd, which is based on the judgment debt to which Mr Kwok has now made an Application to Set-Aside the Statutory Demand, significantly, this is the same amount as that being claimed in the Bankruptcy Notice. Ms Britton contends that an application brought to set-aside the Statutory Demand should not have any impact on the proceedings in this Court. Further, it is irrelevant that the Statutory Demand and the Bankruptcy Notice are for the same amount as many creditors will have a judgment against a debtor company and not a guarantor. Ms Britton informed the Court that she had been unable to find any authority that precluded a creditor from issuing a Bankruptcy Notice concurrently with a Statutory Demand.
  2. Ms Britton argues that the Fairmont Resort had receivers and managers appointed on 26 February 2010 and the resort was sold on 23 December 2010 and judgment was entered on 16 March 2011. Although Jackson Lalic Lawyers’ letter of 28 April 2010 requested documents, there is no evidence that his Honour Hammerschlag J, during the hearing on 16 March 2011, was made aware of the attempts to obtain information in order to establish a cross-claim.

Consideration

  1. The Application to Set-Aside Bankruptcy Notice NN 3241 of 2011 has not specified a section of the Bankruptcy Act 1966 on which Mr Kwok seeks to rely in making the Application, as required by Reg.2.01(2) of the Federal Magistrates (Bankruptcy) Rules 2006 (“the Rules”). Nor is there attached a copy of the Bankruptcy Notice as required by Reg.3.02(1) of the Rules. Mr Lonergan, in his opening, brought the Court’s attention to the issue that the Application was brought pursuant to s.41(7) of the Act and acknowledged the receipt of a letter from Gadens Lawyers, dated 15 June 2011. Mr Lonergan indicated to the Court that he had discussed this issue with Ms Britton prior to the commencement of the hearing and that she acknowledged that she understood that the Application was being brought pursuant to s.41(7). The issue was again raised in both written and oral submissions, resulting in Mr Lonergan seeking leave to amend the application to satisfy this requirement. In the circumstances, I am satisfied that it is appropriate that leave be granted to amend the application.
  2. The substantive argument advanced on behalf of Mr Kwok is that he has a counter-claim, set-off or cross-demand, equal to or exceeding the amount of the judgment debt, being in the sum of $13,582,412.13. The authorities clearly establish that the mere filing of an Application and an affidavit will not satisfy the Court that the debtor has a counter-claim, set-off or cross-demand as the satisfaction of the Court must be expressed in a finding and an order giving effect to that finding: Bryant v Commonwealth Bank of Australia (1994) 217 ALR 251 per Davies, Foster and O’Loughlin JJ at [26]:
  3. In Ebert v Union Trust Co of Australia Limited [1960] HCA 50; (1960) 104 CLR 346 the High Court stated:
  4. In Guss v Johnstone (2000) (supra) the High Court stated at [40]:
  5. In order to achieve the level of satisfaction required by the above authorities, it is necessary to have the full details of the counter-claim, set-off or cross-demand. The details of the claim need to be stated in sufficient detail to show the nature and the substance of the cross-action and to demonstrate that the debtor is bona fide in his contention that the cross-action exists: Crimmins v Glenview Home Units Pty Ltd [1999] FCA 515.
  6. Admissions were made from the bar table by Mr Lonergan that the proceedings being brought by Mr Kwok and Brighten Pty Ltd (receivers and managers appointed) are in its early stages but that it had its genesis in the instructions given to Mr Biber in April 2010, which resulted in the letter dated 28 April 2010 from Mr Briber to Blake Dawson, being the solicitors acting for Mr Lombe and Mr Cathro who are the receivers. The essential elements of that letter are set out at [13] above. As a consequence of receiving no response from Blake Dawson, Brighten Pty Ltd (receivers and managers appointed) filed proceedings in the Supreme Court of New South Wales Equity Division, Commercial List in the following form:
  7. This Court has been asked to accept that the consequences of any litigation subsequently pursued by Mr Kwok through Brighten Pty Ltd (receivers and managers appointed) will result in the recovery of damages and compensation exceeding the amount contained in the Bankruptcy Notice, being $13,583,412.13. This figure, briefly stated, represents the difference between the amount borrowed from the Bank of Western Australia to purchase the Fairmont Resort and the ultimate sale price obtained by Messrs Lombe and Cathro on the sale of the resort.
  8. To succeed in a s.41(7) Application the Debtor, Michael Wilson Kwok, must satisfy the Court that he has a counter-claim, set-off or cross-demand against the creditor, Bank of Western Australia, which is equal to or greater than the amount claimed in the Bankruptcy Notice. The other required element is that the nature of this claim could not have been set up at the time or judgment or order upon which the notice is based, being the decision of his Honour Hammerschlag J. An essential element of this requirement of satisfaction is that the debtor, Michael Wilson Kwok, is required to file an affidavit giving details of the counter-claim, set-off or cross-demand before the time for compliance with the Bankruptcy Notice has expired. Significantly, in this matter, Mr Kwok has not filed an affidavit in this Application and has relied on the affidavit of Helen James.
  9. An analysis of Ms James’ affidavit indicates that the litigation that Mr Kwok is relying upon is against the receivers/managers, Messrs Lombe and Cathro, neither of whom are the petitioning creditor. If the claim was being advanced in the form of a set-off, then that has to be a defence to a creditor’s claim and must be enforceable at the time of the debtor’s application to the Court. If the argument being advanced is that it is in the form of a counter-claim, then it is one that could have been raised in the creditor’s action: Re Smith; Ex parte Chesson [1992] FCA 64; (1992) 106 ALR 359. The third alternative is that it is a cross-demand which is the broadest term as it needs to have no connection with the plaintiff’s cause of action: Re Smith; Ex parte Chesson (1992) (supra); Re Brink; Ex parte Commercial Banking Co of Sydney Ltd [1980] FCA 78; (1980) 30 ALR 433. However, all such claims by a debtor must be measurable in money terms, although the claim need not be liquidated Re Jocumsen [1929] QWN 40; James v Abrahams [1981] FCA 46; (1981) 34 ALR 657; Re Judd; Ex parte Pike (1924) 24 SR (NSW) 537. Further, the debtor’s claim against the creditor must be in the same capacity as the creditor’s claim against the debtor Vogwell v Vogwell (1939) 11 ABC 83; Clyne v DCT [1982] FCA 257; (1982) 69 FLR 345; Stec v Orfanos [1999] FCA 457. Clearly, the claim enunciated in Ms James’ affidavit does not meet any of these criteria as the proposed litigation is not directed against the creditor but third parties who are not subject or in any way linked to the Creditor’s Petition. There is no attempt to establish the basis for the quantification of the counter-claim, set-off or cross-demand and that it exceeds the quantum contained in the Bankruptcy Notice. I am not satisfied that the requirements of a s.41(7) Application have been established.
  10. Although not specifically stated, the thrust of the proposed proceedings is that the deficiency in the sale price was due to the lack of diligence by Messrs Lombe and Cathro during the period of their administration. Unfortunately, I do not accept this suggestion as previous decisions of the Supreme Court of New South Wales do not fully support this contention. In Brighten Pty Ltd v Bank of Western Australia Ltd [2009] NSWSC 1467, handed down on 23 December 2009, his Honour Gzell J at [3] makes the following observation:

Then at [6] his Honour observed:

[6] It was submitted that an A Current Affair programme on the York Fairmont Resort at Leura run by Brighten aired in April 2009 has had a devastating effect on the takings of the business and this was not known by the bank when Einstein J set up an interim regime to take the matter through the vacation.
  1. In Brighten Pty Ltd & Ors v Bank of Western Australia Limited & Anor [2010] NSWSC 133, handed down on 1 March 2010, his Honour Einstein J made the following observations at [2] – [4]:
  2. The observations made in these two judgments which were both handed down prior to the decision of his Honour Hammerschlag J, and before the letter was issued by Philip Biber on 28 April 2010, indicate that the issues in the management of the Fairmont Resort are far more complex than the suggestion that the substantial deficiency in the ultimate sale price was due totally to the actions of Messrs Lombe and Cathro during the period of their administration. I cannot be satisfied that the deficiency in sale price would be fully recovered from any action purely against Mr Lombe and Mr Cathro.
  3. Consequently, the Application seeking to set-aside Bankruptcy Notice NN3241 dated 12 May 2011,on the basis of the provisions of s.41(7) of the Bankruptcy Act 1966 cannot succeed and should be dismissed.

I certify that the preceding 41Error! Style not defined.!Syntax Error, !Error! Style not defined.Error! Style not defined.!Syntax Error, !forty-oneforty-one (41) paragraphs are a true copy of the reasons for judgment of Lloyd-Jones FM


Date: 22 July 2011

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