Bassal v CMC Lawyers
[2021] FCCA 424
•8 April 2021
FEDERAL CIRCUIT COURT OF AUSTRALIA
Bassal v CMC Lawyers [2021] FCCA 424
File number(s): SYG 2690 of 2018
SYG 1441 of 2019Judgment of: JUDGE DRIVER Date of judgment: 8 April 2021 Catchwords: BANKRUPTCY – Application to set aside bankruptcy notices – asserted cross demand – consideration of the opportunity said to have been lost by the respondent’s alleged negligence and the value of that opportunity – applications dismissed. Legislation: Australian Consumer Law
Bankruptcy Act 1966 (Cth), ss 40, 41
Corporations Act 2001 (Cth), s 237
Legal Profession Act 2004 (Cth), ss 368, 373
Trade Practices Act 1974 (Cth)
Federal Circuit Court (Bankruptcy) Rules 2006 (Cth)
Cases cited: Bakewell v Anchorage Capital Master Offshore Ltd (2019) 372 ALR 349
Bassal v Savalls (NSW) Pty Ltd [2019] NSWSC 696
Bhagat v Global Custodians Ltd [2002] FCAFC 51
Blair v The Owners-Strata Plan 71656 [2016] FCA 1522
Bryant v Commonwealth Bank of Australia (1994) 217 ALR 251
Coshott v Prentice, in the matter of Coshott (No 2) [2016] FCA 1531
Dekkan v Evans [2008] FCA 1004
Ebert v The Union Trustee Co of Australia Ltd (1960) 104 CLR 346
Glew v Harrowell (2003) 198 ALR 331
Guss v Johnstone (2000) 171 ALR 598
Massih v Esber [2008] FCA 1452
Re Brink; Ex parte Commercial Banking Co of Sydney Ltd (1980) 44 FLR 135
Re Cox (1934) 7 ABC 98
Re Duncan; ex parte Modlin (1916) 17 SR NSW 152
Re Foster; Ex parte Basan (1885) 2 Morr 29
Re Verma; ex parte Deputy Commissioner of Taxation (1985) 4 FCR 181
Vogwell v Vogwell (1939) 11 ABC 83
Number of paragraphs: 58 Date of hearing: 5 March 2021 Place: Sydney Counsel for the Applicant: Mr G Babe, with Mr J Sharpe Solicitors for the Applicant: Circle Bridge Legal Counsel for the Respondent: Ms M Castle Solicitors for the Respondent: O’Neill Partners Commercial Lawyers ORDERS
SYG 2690 of 2018 BETWEEN: TERRY BASSAL
Applicant
AND: CMC LAWYERS ABN 51 104 727 308
Respondent
SYG 1441 of 2019 BETWEEN: ALBERT MOUTALB BASSAL
Applicant
AND: CMC LAWYERS ABN 51 104 727 308
Respondent
ORDER MADE BY:
JUDGE DRIVER
DATE OF ORDER:
8 APRIL 2021
THE COURT ORDERS THAT:
1.The applications, filed on 21 September 2018 and 12 June 2019, are dismissed.
REASONS FOR JUDGMENT
JUDGE DRIVER:
INTRODUCTION AND BACKGROUND
These are two applications by Terry Bassal (Mr Bassal Jnr) and Albert Moutalb Bassal (Mr Bassal Snr) seeking orders that Bankruptcy Notices served upon them on 31 August 2018 and 21 May 2019 respectively be set aside under ss 40(1)(g) and 41(7) of the Bankruptcy Act 1966 (Cth) (Bankruptcy Act) and rule 3.02 of the Federal Circuit Court (Bankruptcy) Rules 2006 (Cth). The applicants also seek costs.
The applications are opposed by the respondent, CMC Lawyers, by notices stating grounds of opposition filed on 7 November 2018 and 25 June 2019 respectively.
The following statement of background facts is derived from the submissions of the parties.
The Bankruptcy Notices in these matters were each issued in respect of the same judgment, being a judgment entered in favour of CMC Lawyers by the District Court of NSW against each of Mr Bassal Jnr (as first defendant) and Mr Bassal Snr (as second defendant) on 27 March 2017 in the amount of $320,286.99. The judgment was entered as a result of the registration of a costs assessment certificate under NSW legal profession legislation.[1]
[1] apparently s 368(5) of the Legal Profession Act 2004 (NSW) (Legal Profession Act).
The costs assessment certificate, which underlies the judgment and thereby the Bankruptcy Notices, arises from work completed by CMC Lawyers for the applicants in proceedings commenced in the Supreme Court of New South Wales, numbered 2011/278952, against Savills (NSW) Pty Ltd (Savills Proceedings). It is the allegedly negligent conduct of CMC Lawyers in the course of those proceedings that underlies the applicants’ cross-demand.
The Savills Proceedings arose out of a failed commercial venture of the applicants, together with other investors, to develop, build, and operate a retail centre in Campbelltown known as the “Campbelltown Factory Outlet” or “Brands on Sale”. Campbelltown Factory Outlet Pty Ltd (CFO) was the corporate vehicle created for that purpose.[2] The development was debt-financed, and CFO was required to make repayments to Suncorp-Metway of about $270,000 a month.[3]
[2] Second Affidavit of Mr Bassal Jnr (Second Bassal Jnr Affidavit) at [5]-[6].
[3] Second Bassal Jnr Affidavit at [7].
Development commenced in 2006, and in 2008 CFO engaged Savills (NSW) Pty Ltd (Savills) as the leasing agent for the centre, with a brief to secure as many tenants as possible prior to the centre opening. However, owing to what the applicants assert was negligence on the part of the agent, when the centre opened in December 2009 it was only about 50 per cent tenanted. The result was that CFO could not repay its debts to Suncorp-Metway, and receivers were subsequently appointed in November 2010.[4]
[4] Second Bassal Jnr Affidavit at [8]-[12].
At about that same time, with the business venture failing, the applicants and CFO engaged a solicitor named Peter Antoniou, then a sole-practitioner trading as PA Lawyers, to advise and represent them in a claim against Savills. Mr Antoniou was informed that CFO was in receivership. Investigations were undertaken, Mr Adrian Canceri of counsel was briefed, and on 30 August 2011 the statement of claim commencing the Savills Proceedings was issued.[5] CFO was named as plaintiff in the statement of claim, despite the fact that Mr Antoniou had not obtained the receivers’ consent or approval to commence the proceedings in the name of the company.
[5] Second Bassal Jnr Affidavit at [13]-[31].
From the start, the proceedings centred around allegations that Savills did not take enough steps, or engage enough resources, to ensure the retail centre was sufficiently tenanted at opening. That lack of action, it was alleged, was a breach by Savills of its duty of care to CFO.
Shortly after the statement of claim was issued, Mr Antoniou ceased trading as a sole-practitioner and commenced as an employed solicitor of CMC Lawyers. CMC Lawyers subsequently continued to conduct the proceedings on behalf of CFO, with Mr Antoniou continuing to have day-to-day carriage of the matter.[6]
[6] Second Bassal Jnr Affidavit at [32]-[34].
Throughout the proceedings, Mr Bassal Snr took a minimal role, and Mr Bassal Jnr instead dealt with CMC Lawyers on a day-to-day basis.[7]
[7] Second Affidavit of Mr Bassal Snr (Bassal Snr Second Affidavit) made 23 July 2019 at [5].
The fact of CFO’s joinder as plaintiff in the Savills Proceedings became an issue shortly afterwards, and CMC Lawyers entered into negotiations with the receivers’ solicitors, as well as Savills’ solicitors, between March 2012 and August 2012. Those negotiations finished with an agreement that CFO would assign to the applicants any rights CFO had to the causes of action pleaded in the statement of claim, and the applicants would then be joined to the Savills Proceedings as substituted plaintiffs. Orders were then made on 2 August 2012 for that to occur, including orders that the applicants pay Savills’ legal costs of various interlocutory procedures.[8] Those costs were assessed, and on 10 September 2014, a costs assessment certificate was issued in the amount of $28,380.89.[9]
[8] Second Bassal Jnr Affidavit at [35]-[56].
[9] Affidavit of Mr Bassal Snr made 11 June 2019 (Bassal Snr Affidavit) at [21], Annexure I.
After that initial issue was resolved, the Savills Proceedings are said to have been impacted by continued ongoing delays by CMC Lawyers in getting the matter ready for hearing.
The applicants draw attention to the alleged failure by CMC Lawyers, by its employees and agents, to speak to and obtain statements or affidavits from appropriate lay witnesses. The most important of the witnesses were retailers who had expressed interest in leasing a tenancy in the centre but had then failed to do so, as the reasons for the failure to lease would be relevant both to the issues of breach by Savills of its duty of care, as well as causation of loss and damage. The applicants assert that the need for those statements was brought to CMC Lawyers’ attention a number of times, at times by Mr Bassal Jnr,[10] and at times by Mr Canceri in a Memorandum of Advice dated 2 October 2013.[11] By the end of CMC Lawyers’ retainer, the only statements taken were from a limited number of lay witnesses, and none from possible retail tenants.[12]
[10] See, for example Second Bassal Jnr Affidavit at [93], Exhibit 1 at page 407.
[11] Second Affidavit of Mr Bassal Jnr at [94]-[95].
[12] Second Bassal Jnr Affidavit at [189].
CMC Lawyers’ retainer was terminated on 28 April 2015.[13]
[13] Second Bassal Jnr Affidavit at [188]; Exhibit 1 at page 906.
Attempts were then made by the applicants’ new solicitors, Mitry Lawyers, to obtain statements from the possible retail tenants. However, they were unable to do so, as each potential tenant who was approached claimed to have no memory or documents from the time, which was by then over seven years prior.[14]
[14] Second Bassal Jnr Affidavit at [192]-[201]; Exhibit 1 at pages 907-933.
CMC Lawyers subsequently made application for assessment of its costs on a solicitor-client basis, which resulted in the issue of a Certificate of Determination of Costs with reasons on 18 November 2016.[15]
[15] Second Affidavit of Mark Capolupo (Second Capolupo Affidavit) made 6 August 2019, Exhibit MC-1, page 140.
On 27 March 2017, CMC Lawyers filed the certificate of determination issued by the Costs Assessor with the District Court of New South Wales as a certificate judgment.[16] This was at a point in time after the expiration of the 30 day period prescribed by s 373(1) of the Legal Profession Act.
[16] Second Capolupo Affidavit at [9], [10] and Exhibit MC-1, pages 152, 153 (Certificate judgment issued on 28 March 2017)
On 10 July 2018, a Bankruptcy Notice numbered BN 225724 was issued by the Official Receiver to CMC Lawyers on the basis of the certificate judgment, directed to Mr Bassal Jnr.[17]
[17] First Bassal Snr Affidavit at [3] and Annexure “B”, pages 11-15 (Bankruptcy Notice BN 225724 and certificate judgment).
On 31 August 2018, the Bankruptcy Notice was served on Mr Bassal Jnr.[18]
[18] Referenced in prayer 1 of the Application filed 21 September 2018 in SYG 2690 of 2018.
On 20 September 2018, Mr Bassal Jnr sought to set aside the certificate judgment issued by the District Court of New South Wales.[19]
[19] Second Capolupo Affidavit at [13].
On 21 September 2018, Mr Bassal Jnr made application in this Court for orders for the setting aside of the Bankruptcy Notice.
On 26 October 2018, Mr Bassal Jnr’s application to set aside the certificate judgment was dismissed by consent with an order for costs fixed in the sum of $1,500.[20]
[20] Second Capolupo Affidavit at [14] and Exhibit MC-1, pages 161-165 (Consent orders dated 25 October 2018).
The applicants sought to appeal the determination of the Costs Assessor.[21] Both Mr Bassal Snr[22] and Mr Bassal Jnr were granted an extension of time within which to do so.[23]
[21] Second Capolupo Affidavit at [15]. Although not in evidence explicitly, that appeal was commenced on 10 December 2018, and it had a first return date on 31 January 2019.
[22] Second Capolupo Affidavit at [15].
[23] Second Capolupo Affidavit at [15].
On 26 April 2019, the appeal from the Costs Assessor’s determination was dismissed,[24] with both applicants being ordered to pay CMC Lawyers’ costs. The costs associated with that appeal have not been quantified.
[24] Second Capolupo Affidavit at [16] and Exhibit MC-1, pages 166, 167 (orders dismissing the appeal).
On 17 May 2019, a separate Bankruptcy Notice numbered BN 241126 was issued by the Official Receiver to CMC Lawyers on the basis of the Certificate Judgment, directed to Mr Bassal Snr.[25]
[25] Second Capolupo Affidavit at [11] and Exhibit MC-1 at pages 155-157.
On 21 May 2019, Bankruptcy Notice BN 241126 was served on Mr Bassal Snr.[26]
[26] Second Capolupo Affidavit at [12] and Exhibit MC-1, pages 154-160 (Bankruptcy Notice BN 241126 and certificate judgment).
The Savills Proceedings finally came on for trial in August 2018 before Adams J, who, on 24 July 2019, entered a judgment for the defendant with costs.[27]
[27] See Bassal v Savills (NSW) Pty Ltd [2019] NSWSC 696; a copy of her Honour’s reasons for judgment is at page 2ff of Exhibit MC-1 to the Second Capolupo Affidavit, filed and served by CMC Lawyers.
THE EVIDENCE AND SUBMISSIONS
At the trial I ordered that the evidence in Mr Bassal Jnr’s proceeding also be evidence in the proceeding instituted by Mr Bassal Snr.
There was no dispute between the parties as to the admissibility of the evidence. I received the following affidavits, some with deletions:
(a)affidavits by Mr Bassal Jnr made on 17 December 2018 (and the exhibit thereto), 17 June 2019 (and the exhibit thereto), 21 September 2018 (and the annexures thereto), 19 March 2020, 14 July 2020 and 2 March 2021 (by leave);
(b)affidavits by Mr Bassal Snr made on 12 June 2019 and 23 July 2019 (and the exhibits thereto);
(c)the affidavit of Jamie Lee Mounter filed on 6 May 2019; and
(d)two affidavits by Mark Capolupo made on 23 July 2019 and 6 August 2019 (and the exhibit thereto).
I also received documents tendered on behalf of CMC Lawyers which became Exhibit R1.
The parties filed several sets of pre-hearing written submissions and made oral submissions through their counsel at the trial on 5 March 2021.
CONSIDERATION
This matter has had a very long and rather tortuous procedural history. It has been before the Court for approximately two and a half years. The early stage of the proceeding coincided with efforts by the applicants to set aside the judgment debt. Those efforts were not successful. The balance of the proceedings focused on efforts by the applicants to make good their assertion that they had a counterclaim, set-off or cross demand of equal or greater value than the judgment debt that could not have been set up in the proceedings leading to the judgment debt. Those efforts culminated in the final affidavit of Mr Bassal Jnr made on 2 March 2021 which I received by leave, and the statement of claim annexed to that affidavit alleging professional negligence against CMC Lawyers and their former legal advisor, Mr Antoniou.
As noted above, Mr Antoniou initially acted for the applicants in a personal capacity and later joined CMC Lawyers. He died on 2 July 2017. That fact would necessitate an amendment to the statement of claim which at the moment is brought against a deceased person. Mr Antoniou is of course no longer able to give evidence in defence of the professional negligence action. There may also be an issue of the limitation period governing actions in tort such as the professional negligence action. The statement of claim was only filed on 23 February 2021 and to date has not been served. There is, of course, as yet no defence to it. Nevertheless, the parties in oral submissions at the trial put the proposition that the Court, sitting in bankruptcy, could deal with the question of whether the necessary elements of a claim exist for the purposes of s 40(1)(g) of the Bankruptcy Act. I agree and have dealt with the case on that basis.
Applicants’ contentions
The professional negligence claim agitated in the Supreme Court is, in substance, particularised at [12] of the statement of claim. Those particulars include, albeit in slightly different language, the two allegations, an invalid commencement allegation being particular (f); and a failure to obtain relevant evidence falling within particulars (j), (k), (m), and (n).
In addition to those bases, further grounds of cross-demand are said to arise from the statement of claim under particulars (h) and (p), being that:
(a)first, pursuant to particular (h), CMC Lawyers failed to advise the applicants in relation to the legal restrictions on which causes of action may validly be assigned to them by CFO, possibly resulting in the ability to bring a claim in tort, or any statutory claim under the former Trade Practices Act 1974 (Cth) (Trade Practices Act) or alternatively the Australian Consumer Law (Australian Consumer Law), being lost;
(b)secondly, under particular (p), which itself is based on all the particulars, CMC Lawyers’ overall lack of competent action is said to have resulted in the applicants incurring significant and unnecessary further legal fees.
These claims are said also said to satisfy the requirements of the first two elements summarised by Lindgren J in Glew v Harrowell[28] at [9].
[28] (2003) 198 ALR 331.
As to the first claim:
(a)the correspondence between the parties leading up to the assignment[29] demonstrates that CMC Lawyers proposed the assignment in hindsight, as an attempt to fix the earlier negligence of commencing and carrying on the proceedings without the receivers’ consent;
(b)that correspondence, together with Mr Bassal Jnr’s evidence at [70] of the Second Bassal Jnr Affidavit is also said to demonstrate that CMC Lawyers failed to advise the applicants that the law as to the assignability of causes of action was not certain, and that the proposed assignment may be limited or possibly ineffective in relation to some or all of the causes of action pleaded in the Savills Proceedings;
(c)the purported assignment was effected on 26 July 2012;[30]
(d)the possible issues with an assignment of that nature were first raised by the legal representatives of Savills (NSW) Pty Ltd by letter dated 24 July 2013, and again by letter dated 6 August 2013,[31] but CMC Lawyers did not bring that correspondence to the applicants’ notice until 9 August 2013;[32]
(e)the allegations were denied by CMC Lawyers on 9 August 2013, and ultimately disregarded when, on 4 October 2013, it filed a further amended statement of claim.[33] That further amended statement of claim pleaded identical causes of action to the previous pleading, subject to necessary amendments to reflect the assignment, as well as changing references from the Australian Consumer Law to equivalent provisions of the former Trade Practices Act;
(f)when the proceedings reached trial, Adams J did not determine the issue as it was ultimately unnecessary to do so (see [7] and [614] of her Honour’s judgment);
(g)the assignability of such causes of action is still unsettled law, and it is said to be inappropriate for that question to be determined on a summary basis;[34] and
(h)in the absence of advice as to the potential risks of taking an assignment of causes of action (as opposed to, say, seeking leave to carry on the proceedings pursuant to s 237 of the Corporations Act 2001 (Cth)) CMC Lawyers is said to have “set the points without even informing the applicants that another railway track was available”, potentially depriving the applicants of the opportunity to maintain certain claims.
[29] Second Bassal Jnr Affidavit, pages 162-247 of Exhibit 1.
[30] Second Bassal Jnr Affidavit at [50]-[51], pages 214-232 of Exhibit 1.
[31] Second Bassal Jnr Affidavit, pages 272-274 and 295 of Exhibit 1.
[32] Second Bassal Jnr Affidavit at [70].
[33] Second Bassal Jnr Affidavit, pages 310-312 and 421 to 431 of Exhibit 1.
[34] Bakewell v Anchorage Capital Master Offshore Ltd (2019) 372 ALR 349 at [51] and [72] per Bell P (with whom Macfarlan and White JJA agreed).
As to the second claim:
(a)the weight of the applicants’ evidence, and in particular the opinions of senior counsel[35] is said to demonstrate, in broad terms, a number of issues with CMC Lawyers’ conduct of the Savills Proceedings;
(b)the Court should bear in mind the High Court’s observations in Ebert v Union Trustee Co of Australia Ltd[36] that such matters in the present bankruptcy context are not to be determined on the basis of a trial of issues with wholly admissible evidence. Significant weight should therefore be given to the opinions of learned senior counsel referred to above;
(c)the applicants terminated CMC Lawyers’ retainer as a result of failures to adequately prosecute the Savills Proceedings;[37]
(d)having terminated CMC Lawyers’ retainer, the applicants were required to obtain new legal representation to carry on those complex proceedings. The costs of that further representation amounted to $465,812.79;[38] and
(e)the applicants claim that sum by way of cross-demand.[39]
[35] Second Bassal Jnr Affidavit, page 88; page 907 of Exhibit TB-1.
[36] (1960) 104 CLR 346 at 350.
[37] First Affidavit of Mr Bassal Jnr made 17 December 2018 at [24].
[38] see First Bassal Jnr Affidavit at [61] and Exhibit TB-1 at pages 114 to 154.
[39] Expressly claimed at [16(a)] and [16(b)] of the statement of claim.
The applicants submit that, in the alternative, to adopt the High Court’s terminology from Guss v Johnstone,[40] the justice of the case requires these bankruptcy proceedings to await the determination of the statement of claim now filed in the Supreme Court of New South Wales.
Whether the applicants’ cross-demand is bona fide
[40] (2000) 171 ALR 598 at 606.
The applicants contend that, having satisfied the first two of three elements summarised in Glew v Harrowell, the third element, namely the bona fides of the cross-demand, remains in issue.
The central fact proven by the filing of the statement of claim is said to be that the applicants’ cross-demand against CMC Lawyers is brought bona fide. It is no longer a mere allegation, but one which the applicants have now brought to a court of competent jurisdiction on peril of adverse costs orders.
While their attempts to bring the claim have something of a tortured history,[41] that history is said to be predominantly attributable to delays in finding suitable legal representation and, subsequently, those legal representatives performing their obligations in a timely manner. The delay is said to be adequately explained, and in any event cannot be attributed to any lack of bona fides on the parts of the applicants.
[41] Affidavits of Mr Bassal Jnr, made in July 2020 and March 2021.
Finally, the applicants note that it is often put in applications such as these that “a statement of claim is not evidence of anything”.[42] However, that phrase must be approached with caution and not misapplied. The observation applies to circumstances in which the recipient of a bankruptcy notice applies to set it aside on the grounds of a cross demand, and produces no evidence to establish the factual basis of that cross demand other than a filed statement of claim. In that sense, it applies when an applicant seeks to rely on a statement of claim as the only, or at least the principal evidence to support the first two elements of the Glew v Harrowell test.
[42] See, for example, Coshott v Prentice, in the Matter of Coshott (No 2) [2016] FCA 1531 at [158], cited in CMC Lawyers’ submissions.
That is said not to be the case in the present applications, in which the cross demand and the statement of claim itself are supported by significant affidavit and contemporaneous documentary evidence. While the applicants concede that the Statement of Claim might be tangentially relevant to the first two elements of Lindgren J’s test, in these proceedings it is principally relevant to the third element. That is, by putting themselves at further financial risk and further expenditure, the statement of claim evidences the bona fide nature of the applicants’ cross-demand.
CMC Laywers’ contentions
CMC Lawyers submits that, before the Bankruptcy Notice is set aside, an applicant must “satisfy” the Court of the existence of the counter-claim, set-off or cross demand. What is required is:[43]
… As an affidavit is required, it must verify the cross-claim or set-off, it must verify that the cross-claim or set-off equals or exceeds the amount of the judgment debt, and it must verify the fact that the cross claim is one which could not have been set up in the action which the judgment order was obtained. In Re Brink, Ex parte The Commercial Banking Co of Sydney Ltd (1980) 44 FLR 135 Lockhart J said at 142:
In my opinion the affidavit cannot merely contain an assertion that the debtor has a counter-claim, set-off or cross demand which he could not have set up in the action in which the judgment or order was obtained. The affidavit must show a counterclaim, set-off or cross demand which equals or exceeds the amount of the judgment debt and which the debtor could not have set up in the action in which the judgment or order was obtained…
(citations omitted)
[43] Bryant v Commonwealth Bank of Australia (1994) 217 ALR 251.
CMC Lawyers contends that a filed statement of claim, without more, has been held not to meet the requirements of s 41(7).[44] Further, a statement of claim drafted with facts pleaded which if proven would support the claim does not do so either.[45] Equally, an affidavit filed propounding a claim with a statement as to how the debtor intends to prove the case does not pass the statutory threshold.[46] A party in the position of the applicants must adduce evidence providing reasonable grounds for the institution of the proceedings.[47] Such a party cannot do so by showing the fact that a claim is made and how it is made out,[48] nor can he or she rely upon a statement of belief as to its genuineness.[49]
[44] Coshott at [158].
[45] Re Foster; Ex parte Basan (1885) 2 Morr 29 per Brett MR at 33, Re Cox (1934) 7 ABC 98 at 101 and Re Verma; ex parte Deputy Commissioner of Taxation (1985) 4 FCR 181 at 187, referred to in Bhagat v Global Custodians Ltd [2002] FCAFC 51 at [53].
[46] Ebert at 350 in Bhagat at [53].
[47] Vogwell v Vogwell (1939) 11 ABC 83 per Latham CJ at 85 in Bhagat at [53].
[48] Re Duncan; ex parte Modlin (1916) 17 SR NSW 152, referred to in Massih v Esber [2008] FCA 1452 at [18].
[49] Dekkan v Evans [2008] FCA 1004 at [54], referred to in Massih at [18].
Resolution
Section 41(7) of the Bankruptcy Act, relevantly provides:
Where, before the expiration of the time fixed for compliance with the bankruptcy notice, the debtor has applied to the Court for an order setting aside the bankruptcy notice on the ground that the debtor has a counter-claim, set-off or cross-demand as is referred to in paragraph 40(1)(g), and the Court has not, before the expiration of that time, determined whether it is satisfied that the debtor has such a counter-claim, set-off or cross-demand, that time shall be deemed to have been extended, immediately before its expiration, until and including the day on which the Court determines it is so satisfied.
Section 40(1)(g) provides relevantly:
(1) A debtor commits an act of bankruptcy in each of the following cases:
…
(g) if a creditor has obtained against the debtor a final judgment or final order, being a judgment or order the execution of which has not been stayed, has served on the debtor in Australia or, by leave of the Court, elsewhere, a bankruptcy notice under this Act and the debtor does not:
(i) where the notice was served in Australia – within the time specified in the notice; or
…
comply with the requirements of the notice or satisfy the Court that he or she has a counter-claim, set-off or cross demand equal to or exceeding the amount of the judgment debt or sum payable under the final order, as the case may be, being a counter-claim, set-off or cross demand that he or she could not have set up in the action or proceeding in which the judgment or order was obtained;
Used in s 40(1)(g) and also in s 41(7), the expression “counterclaim” likely refers to claims in equity, “set-off” to a set off at common law and “cross demand” to claims otherwise including unliquidated damages arising in tort or claims for breach of contract.[50] The applicants’ asserted claim in negligence clearly being within “cross demand”.
[50] Re Brink; Ex parte Commercial Banking Co of Sydney Ltd (1980) 44 FLR 135 at 138, 139, referred to with approval in Blair v The Owners-Strata Plan 71656 [2016] FCA 1522 at [19], [20].
The assertion by the applicants in the present case faces a number of difficulties. A significant one is delay. The proceedings claiming damages for professional negligence were only instituted in February this year and, not being yet served, could be served as late as six months after that. The proceedings could take years and no undertaking has been offered to CMC Lawyers that the assets of the applicants will not be dissipated over that period.
As noted above, the proceedings in this Court have had a very lengthy history and it was only less than a month before the final hearing date when the statement of claim evidencing the asserted counterclaim, set-off or cross demand was finally filed. Mr Bassal Jnr’s final affidavit detailing the explanation for the delay paints a picture of some lassitude. Mr Bassal Jnr took it upon himself to pursue the issue of the pleading with a solicitor who seemed unwilling or incapable of attaching the necessary priority to it. Surprisingly, counsel was not involved in the preparation of the statement of claim until a late stage. There is an obvious defect in the statement of claim in that the first respondent is a person who has died.
CMC Lawyers concede that there is an issue relating to the failure of Mr Antoniou to seek the consent of the receivers of CFO to commence the proceedings which are the subject of the alleged professional negligence. However, as pointed out by counsel for CMC Lawyers, that issue was raised on the assessment of costs and costs were reduced or disallowed on the assessment to a significant degree. I am far from convinced that any further amount would be recoverable on the basis of professional negligence.
More generally, as the applicants themselves concede, what has been lost is a chance or opportunity. It is no easy matter to put a value on that opportunity, if indeed it has been lost. I am far from convinced that the value of the professional negligence claim is equal to or greater than the judgment debt.
In my opinion, the applicants’ claim falls at three hurdles. The first is the value of the claim which is in my view imponderable. The second is the proposition that the claim could not have been set up in proceedings leading to the judgment debt. At least in part, it was in fact set up in the costs assessment process and a result was achieved.
The third problem is that of bona fides. The applicants seek to establish their bona fides from the preparation and filing of the statement of claim. The extraordinary delay in producing what is a defective document, however, counts against them. I have real doubt whether the professional negligence action would have been commenced at all, but for the Bankruptcy Notice. I have even more doubt that the proceeding would be continued if the Bankruptcy Notices were set aside.
Further delay in the bankruptcy process while awaiting an outcome in the Supreme Court of NSW could take years, and is no longer an acceptable option. The applicants have had ample time to make good their claims and they have failed to satisfy me that they have done so or that they could do so.
CONCLUSION
I conclude that the applicants have failed to establish their case under s 40(1)(g) of the Bankruptcy Act. I will order that the applications be dismissed.
I certify that the preceding fifty-eight (58) numbered paragraphs are a true copy of the Reasons for Judgment of Judge Driver. Associate:
Dated: 8 April 2021
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