FEDERAL CIRCUIT COURT OF AUSTRALIA
LAHDO v SPEARWOOD HOLDINGS (WA) PTY LTD	[2014] FCCA 2285	

Catchwords: 
BANKRUPTCY – Application to set aside Bankruptcy Notice – alleged set-off – whether alleged set-off raised in judgment debt proceedings – whether alleged set-off able to be raised in judgment debt proceedings – whether alleged set-off would result in an order for payment by respondent to the applicant – whether alleged set-off is mutual – whether evidence establishing amount of set-off exceeds amount in the Bankruptcy Notice – whether other proceedings have a reasonable prospect of success.	

PRACTICE AND PROCEDURE – Application for adjournment – consideration of factors.	

Legislation:
Bankruptcy Act 1966 (Cth), ss.40(1)(g), 52(2)
Federal Circuit Court (Bankruptcy) Rules 2006 (Cth), r.3.02
Federal Circuit Court of Australia Act 1999 (Cth), ss.3, 42
Federal Circuit Court Rules 2001 (Cth), r.1.03	

Aon Risk Services Australia Limited v Australian National University (2009) 239 CLR 175; [2009] HCA 27
Clyne v Deputy Commissioner of Taxation (No. 5) (1982) 69 FLR 345
Covino & Anor v Bandag Manufacturing Pty Ltd [1983] 1 NSWLR 237
Ebert v The Union Trustee Company of Australia Limited (1960) 104 CLR 346
Fair Work Ombudsman v Kentwood Industries Pty Ltd (ACN 086 269 794) [2010] FCA 98
Guss v Johnstone (2000) 171 ALR 598; [2000] HCA 26
James v Abrahams (1981) 51 FLR 16
Patane v Asteron Life Ltd (formerly Royal & Sun Alliance Financial Services Ltd) (ACN 00 69 228) (2004) 2 ABC(NS) 85; [2004] FCA 232
Pegasus Leasing Limited v Cadoroll Pty Limited & Ors (1996) 59 FCR 152
Re Anderson; Ex parte Alexander (1927) 27 SR (NSW) 296
Re Verma; Ex parte Deputy Commissioner of Taxation (1984) 4 FCR 181
Stec v Orfanos [1999] FCA 457
Swarbrick v Burge & Ors (2009) 236 FLR 311; [2009] FMCA 985
Volley Investments Pty Ltd v Asterleigh Pty Ltd [2013] WADC 108	

Applicant:	Abraham Lahdo	

Respondent:	Spearwood Holdings (wa) Pty Ltd	

File Number:	PEG 386 of 2013	

Judgment of:	Judge Antoni Lucev	

Hearing date:	17 April 2014	

Date of Last Submission:	17 April 2014	

Delivered at:	Perth	

Delivered on:	10 October  2014	

REPRESENTATION
For the Applicant:	In person	

Counsel for the Respondent:	Mr DM Benson	

Solicitors for the Respondent:	Clayton Utz	

ORDERS
(1)	The applicant’s oral application at hearing for an adjournment of the application be dismissed.
(2)	The application to set aside bankruptcy notice BN 167103 issued 13 November 2013 be dismissed.

(1)	
FEDERAL CIRCUIT COURT 
OF AUSTRALIA 
AT Perth	
PEG 386 of 2013
Abraham Lahdo	
Applicant

And

Spearwood Holdings (wa) Pty Ltd	
Respondent

REASONS FOR JUDGMENT
Application
1.	Before the Court is an application for final orders to set aside a bankruptcy notice BN 167103 issued 13 November 2013, served on the applicant, Mr Lahdo, on 5 December 2013, and for costs.
2.	The application to set aside the Bankruptcy Notice is opposed by the respondent, Spearwood Holdings (WA) Pty Ltd.
3.	There was also an oral application made at hearing by Mr Lahdo for an adjournment of the proceedings.
4.	Both the application for an adjournment and the application to set aside the Bankruptcy Notice are considered below.
Bankruptcy Notice
5.	The Bankruptcy Notice is for an amount of $456,891.32, being:
a)	the judgment debt in appeal proceedings in the District Court of Western Australia No. 958 of 2013 in the sum of $452,051.58 comprising:
i)	summary judgment on appeal in the sum of $403,986.56; and
ii)	judgment obtained by consent in the appeal in the sum of $48,065.02; and
b)	interest of $4,839.74 (up to 5 November 2013).
Mr Lahdo’s case
6.	Mr Lahdo’s Affidavit says that:
a)	he was served with the Bankruptcy Notice on 5 December 2013;
b)	the Bankruptcy Notice is based on summary judgment on appeal in the District Court Action. In those proceedings Spearwood Holdings was the second plaintiff (second appellant) and Mr Lahdo the second defendant (second respondent), with Volley Investments Pty Ltd as trustee of the Phoenix Trust being the first plaintiff (first appellant) and Asterleigh Pty Ltd as trustee of the Lahdo Family Trust being the first defendant (first respondent);
c)	Mr Lahdo says that he was the second defendant (second respondent) in the District Court Action by way of being a guarantor under a lease agreement, and that the primary debtor was Asterleigh, which is in liquidation; and
d)	the orders in the District Court Action were as follows:
	2.	Summary judgment be entered in favour of the second appellant/second plaintiff for the sum of $403,986,56, being comprised of:
	(a)	the sum of $84,714.45, being the total sum of the outstanding rent that was due and payable by the respondents/defendants under Lease for the period from 1 November 2011 until 2 March 2012 (being the date upon which the appellants/plaintiffs accepted the respondents/defendants’ abandonment of the premises and repudiation of the Lease and by re-entering the premises);
	(b)	the sum of $52,836.95, being the total sum of the outstanding outgoings that were due and payable by the respondents/defendants under Lease for the period from 1 November 2011 until 2 March 2012 (being the date upon which the appellants/plaintiffs accepted the respondents/defendants’ abandonment of the premises and repudiation of the Lease and by re-entering the premises);
	(c)	the sum of $190,822.83, being the total sum of the outstanding rent that was due and payable by the respondents/defendants under Lease for the period from 2 March 2012 (being the date upon which the appellants/plaintiffs accepted the respondents/defendants’ repudiation of the Lease) until 6 February 2013 (being the date of the sale of the Shopping Centre); and
	(d)	the sum of $75, 612.33, being the total sum of the outstanding outgoings that were due and payable by the respondents/defendants under Lease for the period from 2 March 2012 (being the date upon which the appellants/plaintiffs accepted the respondents/defendants’ repudiation of the Lease) until 6 February 2013 (being the date of the sale of the Shopping Centre).
	3.	Conditional upon the payment into court of the sum of $48,065.02 by 20 September 2013, the defendants do have leave to defend that part of the claim being comprised of:
	(a)	the sum of $21,504.33, being interest claimed on the amounts stated at Order 2(a) and (b) herein, for the period from 1 November 2011 until 2 March 2012 (being the date upon which the appellants/plaintiffs accepted the respondents/defendants’ abandonment of the premises and repudiation of the Lease and by re-entering the premises); and
	(b)	the sum of $26,560.69, being interest on the amounts stated at Order 2(c) and (d) herein, for the period from 2 March 2012 (being the date upon which the appellants/plaintiffs accepted the respondents/defendants’ repudiation of the Lease) until 6 February 2013 (being the date of the sale of the Shopping Centre).
	4.	The defendants do pay to the second respondent/second plaintiff interest on the judgment amount herein of $403,986.56 from 7 February 2013 until the judgment is satisfied at the rate of 6% per annum.
7.	Mr Lahdo submits that:
a)	his liability as a guarantor cannot be any greater than the liability of Asterleigh as the primary debtor and that he should be entitled to the benefit of any defence and set-off that Asterleigh is entitled to;
b)	he has a set-off against Spearwood Holdings for a sum exceeding that in the Bankruptcy Notice;
c)	Asterleigh and he defended the District Court Action on the basis that Asterleigh had taken proceedings against Volley Investments and Spearwood Holdings in the State Administrative Tribunal in proceedings numbered SAT 424 of 2012 in which Asterleigh claimed damages for unconscionable conduct in relation to the Lease Agreement, and that that was pleaded in paragraph 14 of a defence in the District Court Action, and that the damages claim in SAT would have been Mr Lahdo’s claim for a set-off in the District Court if not for a contractual bar in the Lease Agreement;
d)	the Lease Agreement is the subject of both the District Court Action and SAT Proceedings. In the District Court Action damages were claimed for Asterleigh’s failure to pay rental, outgoings and other monies due and payable under the Lease Agreement. The SAT Proceedings issued by Asterleigh claimed compensation for unconscionable conduct in relation to the Lease Agreement and justification for Asterleigh terminating the Lease Agreement. Asterleigh was not able to use the defence of set-off in the District Court Action because there was a contractual bar to the right of set-off in clause 24.2 of the Lease Agreement. It was this contractual bar which caused Asterleigh to issue the SAT Proceedings;
e)	the details of the set-off are set out in the claim in the SAT Proceedings;
f)	he intends to add a claim for damages against Spearwood Holdings for damage suffered in respect of Shop 38 in the Phoenix Shopping Centre; and
g)	until Asterleigh has had an opportunity to prosecute the claim for set-off in the SAT Proceedings it is not just and equitable for Spearwood Holdings to proceed to initiate bankruptcy proceedings against him.
Spearwood Holdings’ case
8.	Two affidavits were sworn in support of Spearwood Holdings’ opposition to the application by Mr Lahdo to set aside the Bankruptcy Notice. The first was Mr Cuzens’ Affidavit, Mr Cuzens being the managing director of Atlas Point Pty Ltd, which managed the assets of Volley Investments and later, its assignee, Spearwood Holdings, including the Phoenix Shopping Centre from June 2001 until 6 February 2013, when the Phoenix Shopping Centre was sold. The second was by Lauree Danielle Coci, a solicitor employed by Spearwood Holdings’ lawyers, and sworn on 7 March 2014.
9.	Mr Cuzens’ evidence was to the effect that:
a)	as a result of Volley Investments sale of the Phoenix Shopping Centre on 6 February 2013, Volley Investments on or about 27 June 2013 pursuant to a Deed of Assignment – Debt and a Deed of Assignment of Debts and Choses in Action in relation to the Lease Agreement, assigned to a new entity, Spearwood Holdings, all its rights, title and interest in any present or future monies or damages that may be payable or recoverable by Volley Investments, including under the Lease Agreement;
b)	on or about 24 July 2013 Volley Investments gave notice to Asterleigh of the Assignment to Spearwood Holdings by way of Notices of Assignment addressed to Asterleigh dated 27 June 2013;
c)	on 25 March 2013 the District Court Action was commenced by Volley Investments against Asterleigh, now in liquidation, as lessee, and Mr Lahdo, as guarantor, about sums owed to Volley Investments, as landlord, under the Lease Agreement. The claim comprised three parts, as follows:
i)	part 1 was for $403,986.56, being outstanding rental arrears and outgoings and charges, including electricity charges, water rates, council rates, general outgoings, gas supply, promotion levies and GST for the period from 1 November 2011 to 24 March 2013, under the Lease Agreement;
ii)	part 2 was for $48,065.02, being the interest that accrued on each itemised outstanding charge for rent variable outgoings, including the matters set out in (i) immediately above; and
iii)	part 3 was for $203,314,68, being the amount by which the purchase price of the Phoenix Shopping Centre was reduced at the time Volley Investments completed the sale of the Phoenix Shopping Centre as a consequence of Shop 5B being vacant at the time of sale as a result of Asterleigh’s repudiation of the Lease Agreement;
d)	on 29 April 2013 Volley Investments made an application for summary judgment in the District Court Action in respect of parts 1 and 2 of the claim;
e)	the summary judgment application was opposed by Mr Lahdo and Asterleigh, on the basis, amongst others, that Lahdo and Asterleigh were, as a result of the SAT Proceedings, entitled to a set-off against the monies claimed by Volley Investments in the District Court Action, and annexed to Mr Cuzens’ Affidavit were a copy of each of:
i)	the application and proposed amended statement of claim filed by Asterleigh in the SAT Proceedings; and
ii)	the submissions of Asterleigh and Mr Lahdo in the District Court Action in opposition to Volley Investments’ application for summary judgment in which Asterleigh and Mr Lahdo assert that they are entitled to an equitable set-off;
f)	on 18 July 2013 a Deputy Registrar of the District Court dismissed Volley Investments’ application for summary judgment, and in so doing made findings that there was no basis on which either Asterleigh or Mr Lahdo could invoke the SAT Proceedings as a set-off in the District Court Action;
g)	on 18 July 2013 Volley Investments appealed the dismissal of the summary judgment application in Volley Investments (No. 1), and Spearwood Holdings were joined to that proceeding by consent;
h)	the set-off issue was dealt with by the District Court on appeal, and the District Court upheld the findings of the Deputy Registrar of the District Court with respect to Volley Investments’ (and now Spearwood Holdings’) set-off arguments, and made the orders for judgment in the sum of $403,986.56 on part 1 of the claim, plus interest, and Asterleigh and Mr Lahdo were granted leave to defend the claim conditional upon payment into court of the interest sum of $48,065.02, being part 2 of the claim, by 20 September 2013; and
i)	payment of the sums ordered to be paid by the District Court were not made by 20 September 2013, and on 23 September 2013 Volley Investments and Spearwood Holdings moved for judgment in favour of Spearwood Holdings for the sum of $48,065.02 in the District Court Action, to which Asterleigh and Mr Lahdo consented on 26 September 2013 with judgment being entered in favour of Spearwood Holdings in the sum of $48,065.02.
10.	Mr Cuzens also refers in his Affidavit to certain statements made by Mr Lahdo in support of the application to set aside the Bankruptcy Notice and observes that:
a)	Mr Lahdo is not a party to the SAT Proceedings, and therefore says that he cannot be the recipient of any monetary award against Volley Investments in the SAT Proceedings;
b)	the SAT Proceedings were commenced by Asterleigh in or around March 2012, whilst the District Court Action was commenced by Volley Investments on 24 March 2013, about one year later;
c)	the issue of set-off was expressly raised by Asterleigh and Mr Lahdo and dealt with in the District Court Action; and
d)	Asterleigh’s claim in the SAT Proceedings with respect to damages for premises known as Shop 38 at the Phoenix Shopping Centre was the subject of a strike-out application by Volley Investments in the SAT Proceedings, which application was conceded by Asterleigh.
11.	Mr Cuzens also says that the sum demanded in the Bankruptcy Notice of $452,051.51 remains outstanding, and that was not disputed, but rather a set-off was claimed by Mr Lahdo.
12.	Ms Coci’s Affidavit annexes a letter written by Spearwood Holdings’ lawyers to Mr Lahdo’s former lawyers on 17 February 2014 in respect to the application to set aside the Bankruptcy Notice. The substantive content of that letter is as follows:
	Lahdo’s application fails to satisfy the requirements for an application to set aside a bankruptcy notice pursuant to regulation 3.02 of the Federal Court (Bankruptcy) Rules 2005 (Cth) (Rules) for a number of reasons.
	First, Lahdo does not now have, nor at any time has had, a legal basis for a counterclaim, set-off or cross-demand of the judgment debts which are the subject of the Bankruptcy Notice. Lahdo, himself, is not a party to the SAT proceeding, which is relied upon as the basis for a counterclaim, set-off or cross-demand. Nor could Lahdo have become a party as he has no cause of action.
	Secondly, Lahdo (qua guarantor) has never been entitled to rely on any alleged right of Asterleigh Pty Ltd (in liq.) to use the SAT proceeding as a counter-claim, set-off or cross-demand. Any alleged counter-claim, set-off or cross demand claim available to Lahdo must be in the same capacity as Spearwood Holdings’ claim against Lahdo: see Clyne v Deputy Commissioner of Taxation (No. 5) (1982) 69 FLR 345; Stec v Orfanos [1999] FCA 457 at [24]. Further, the judgment on the one hand and the counter-claim, set-off or cross-demand on the other must be mutual and due in the same right. The requirement that the two claims be ‘in the same right’ is directed to the capacities in which the claimants claim: see Re Anderson; Ex parte Alexander (1927) 27 SR (NSW) 296; James v Abrahams (1981) 51 FLR 16 at 27. Accordingly, a claim by Spearwood Holdings against Lahdo personally for debts accrued pursuant to a lease agreement cannot be counter-claimed, set-off or cross-demanded by Asterleigh’s claim against Volley Investments for alleged unconscionable conduct.
	Thirdly, as conceded by Lahdo, neither Asterleigh nor Lahdo were entitled to an abatement of Spearwood Holdings’ claim in the District Court proceeding, which judgment debts are the subject of the Bankruptcy Notice, as such right was excluded by the clear and unequivocal terms of the Shop 5B lease (pursuant to which the debts arise).
	Fourthly, and related to the third point above, regulation 3.02(2)(c) of the Rules presupposes that the counterclaim, set-off or cross demand has not previously been agitated in the proceeding that resulted in the judgment. The SAT proceeding was raised by Lahdo in the District Court proceeding as an attempt to set-off the judgment debts which are now the subject of the Bankruptcy Notice. That contention was rejected by Registrar Hewitt at first instance: see Volley Investments Pty Ltd v Asterleigh Pty Ltd [2013] WADC 108 at [4] and again by Judge Herron on appeal.
	Fifthly, Lahdo has failed in his application to specify the amount of the alleged counterclaim, set-off or cross demand and the amount by which it exceeds the sums demanded in the Bankruptcy Notice as required by regulation 3.02(2)(b) of the Rules.
	Accordingly, we invite your client to write to the Court and to indicate that he wishes to withdraw his application prior to the hearing on 14 March 2014. If your client fails to do so, then our client is likely to instruct us to make an application to the Court seeking orders that the application be dismissed and that our client be awarded indemnity costs. Our client will rely upon this letter in support of its application for indemnity costs.
13.	Spearwood Holdings says that the application to set aside the Bankruptcy Notice must be dismissed because:
a)	the counterclaim, set-off or cross-demand in which Mr Lahdo relies in this application (being the claim sought to be advanced by Asterleigh (in liquidation) in the SAT Proceedings), was expressly raised in the District Court Action which resulted in orders giving rise to the judgment debts in relation to which the Bankruptcy Notice was issued, and that after full argument and considering detailed submissions on Mr Lahdo’s behalf the District Court held that the SAT Proceedings provided no answer to the judgment debts, and that Mr Lahdo was bound by that finding;
b)	the provisions of s.40(1)(g) of the Bankruptcy Act 1966 (Cth) and r.3.02 of the Federal Circuit Court (Bankruptcy) Rules 2006 (Cth) have no application as those provisions only apply to cases where the counterclaim, set-off or cross-demand was unable to be raised in the proceeding that resulted in the judgment or order in relation to which the Bankruptcy Notice was issued, and do not apply to cases where the counterclaim, set-off or cross-demand was raised but rejected;
c)	the attempt to re-agitate the alleged counterclaim, set-off or cross-demand, is an attempt to mount a collateral attack on the judgments in the District Court Action, a course which is impermissible. The time for lodging an appeal in relation to the District Court Action has long since expired;
d)	in any event, there was no right to claim a set-off because of the provisions of cl.24.2 of the Lease Agreement which provides for monies payable under the Lease Agreement to be paid without set-off, either in law or equity, and free and clear of any deduction whatsoever; and
e)	in any event, the application fails to satisfy the requirements in r.3.02 of the FCC (Bankruptcy) Rules, as follows:
i)	the counterclaim, set-off or cross-demand for the purposes of s.40(1)(g) of the Bankruptcy Act must be a claim, set-off or cross-demand which, if ultimately established, will result in an order for the payment of a sum of money by Spearwood Holdings to Mr Lahdo. Mr Lahdo is not however a party to the SAT Proceedings and cannot be the recipient of any monetary award in the SAT Proceedings, and therefore even if the SAT Proceedings were to succeed it can yield nothing to Mr Lahdo which might be set up in answer to the judgment debts the subject of the Bankruptcy Notice;
ii)	the alleged counterclaim, set-off or cross-demand is not mutual and is not due in the same right as the judgment debts, and contrary to Mr Lahdo’s submission Mr Lahdo is not entitled to rely on the claim by Asterleigh (in liquidation) in the SAT Proceedings as a counterclaim, set-off or cross-demand claim against the sums demanded in the Bankruptcy Notice;
iii)	Mr Lahdo has failed to adduce evidence establishing the amount by which the alleged counterclaim, set-off or cross-demand exceeds the amount demanded in the Bankruptcy Notice; and
iv)	Mr Lahdo has failed to adduce evidence to establish that the SAT Proceedings have a reasonable probability of success, and the mere production of a statement of claim alleging facts which if true might give rise to such a claim is not evidence and is insufficient to satisfy a court unless supported by prima facie evidence of their truth.
14.	Spearwood Holdings submit that no other sufficient cause has been demonstrated by Mr Lahdo as to why the Bankruptcy Notice ought to be set aside, and it is in the interests of justice for the bankruptcy proceeding to proceed.
Consideration – adjournment
15.	At the outset of the hearing of the application to set aside the Bankruptcy Notice Mr Lahdo made an oral application that the application be adjourned so as “to provide me with an opportunity to pursue my action in SAT [the SAT Proceedings]”, and to allow him to “appoint new lawyers”, his previous lawyers having withdrawn some days prior to the hearing on 10 April 2014.
16.	The Court did not, and does not, accede to the application to set aside the Bankruptcy Notice being adjourned. In making that determination the Court has had regard to the relevant principles with respect to an adjournment, namely that:
a)	the application for an adjournment must be considered in the relevant statutory, factual and case management context. The role and mode of operation of this Court as set out in the Federal Circuit Court of Australia Act 1999 (Cth) and the Federal Circuit Court Rules 2001 (Cth) and as prescribed by the objects of the FCCA Act in ss.3 and 42 and the objects of the FCC Rules in r.1.03 provide for the Court to operate in a manner:
i)	as informal as possible in the exercise of judicial power;
ii)	which is not protracted in its proceedings;
iii)	which resolves proceedings justly, efficiently and economically;
iv)	which uses streamlined procedures; and
v)	that avoids undue delay, expense and technicality; and
b)	the Court must also take into account the following when determining whether or not to grant leave to allow an adjournment:
i)	the paramount consideration remains the doing of justice between the parties, but a just resolution must have regard to any relevant legislative purpose or object;
ii)	modern principles of case management;
iii)	the avoidance of undue delay; and
iv)	the wastage of public resources,
and the Court refers to the High Court judgment in Aon Risk Services Australia Limited v Australian National University and Fair Work Ombudsman v Kentwood Industries Pty Ltd (ACN 086 269 794), a decision of the Federal Court.
17.	No proper basis for an adjournment has been established. The SAT Proceedings sought to be used as a basis for an adjournment have no connection with these proceedings, in that the outcome of the SAT Proceedings cannot effect whether it is appropriate to grant the application to set aside the Bankruptcy Notice. Further, the appointment of new lawyers for Mr Lahdo would not advance the matter. Mr Lahdo’s evidence is in: Mr Lahdo’s Affidavit deals with the matters which he seeks to rely upon. The difficulty for him, is that for reasons set out in more detail below, those circumstances do not give rise to any basis upon which this Court ought to set aside the Bankruptcy Notice.
18.	It follows that an adjournment would therefore only result in further delay, and that is not in the interests of justice. Further, as the Court pointed out to Mr Lahdo at hearing, non-compliance with the Bankruptcy Notice is only one step on the path to bankruptcy, and if there is a sufficient other cause for a sequestration order not to issue at a later stage, that is an argument which can be put before Court or a Registrar of the Court when that matter is determined. In the circumstances, an adjournment would cause delay for no good purpose. In those circumstances, it is not appropriate, and was not appropriate at the time of hearing, to grant an adjournment of the application to set aside the Bankruptcy Notice.
Consideration – Bankruptcy Notice
Legislation
19.	Section 40(1)(g) of the Bankruptcy Act provides as follows:
	(1) A debtor commits an act of bankruptcy in each of the following cases:
	…
	(g) if a creditor who 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 
	(ii) where the notice was served elsewhere--within the time fixed for the purpose by the order giving leave to effect the service; 
	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; 
20.	Rule 3.02 of the FCC (Bankruptcy) Rules provides as follows:
	(1) An application to set aside a bankruptcy notice must be accompanied by: 
	(a) a copy of the bankruptcy notice; and 
	(b) an affidavit stating: 
	(i) the grounds in support of the application; and 
	(ii) the date when the bankruptcy notice was served on the applicant; and 
	(c) a copy of any application to set aside the judgment or order in relation to which the bankruptcy notice was issued and any material in support of that application. 
	(2) If the application is based on the ground that the debtor has a counter-claim, set-off or cross demand mentioned in paragraph 40(1)(g) of the Bankruptcy Act, the affidavit must also state: 
	(a) the full details of the counter-claim, set-off or cross demand; and 
	(b) the amount of the counter-claim, set-off or cross demand and the amount by which it exceeds the amount claimed in the bankruptcy notice; and 
	(c) why the counter-claim, set-off or cross demand was not raised in the proceeding that resulted in the judgment or order in relation to which the bankruptcy notice was issued. 
	(3) The application and supporting documents must be served on the respondent creditor within 3 days after the application is filed. 
21.	Before the Court can set aside the Bankruptcy Notice there are three elements required to be established, as follows:
a)	the Court must be satisfied that there is a set-off available to Mr Lahdo;
b)	the Court must be satisfied that the amount of the set-off is equal to, or in excess of, the sum of the judgment debt; and
c)	the Court must be satisfied that the set-off could not have been set up in the District Court Action.
22.	The nature of the exercise in which the Court is involved is set out in Guss v Johnstone where the High Court said:
	39     In Vogwell v Vogwell, Latham CJ said, in relation to a corresponding provision:
	[T]he authorities show that the matter to which the court looks is this, – whether it is just that the claim should be determined before the bankruptcy proceedings are allowed to continue; in other words, whether it is a claim which it is proper and reasonable to litigate.
	40     The state of satisfaction referred to in s 40(1)(g), and s 41(7), involves weighing up considerations as to the legal and factual merit of the claim relied upon by the debtor, and the justice of allowing the bankruptcy proceedings to go ahead or requiring them to await the determination of the claim.
23.	In Ebert v The Union Trustee Company of Australia Limited the High Court said:
	Section 52 (j) makes it necessary that a debtor served with a bankruptcy notice, if he does not comply with its requirements, should satisfy the Court of Bankruptcy that he has a counter-claim, set-off or cross demand which equals or exceeds the amount of the judgment debt. The debtor clearly must satisfy the Court that there exists in him a counter-claim, set-off or cross demand. " Cross demand" is the word relied upon here. The appellant cannot satisfy the Court that a cross demand exists by showing no more than that she propounds one and states how she suggests that she can make it out … Perhaps the standard may be expressed by saying that the debtor must show that he has a prima facie case, even if then and there he does not adduce the admissible evidence which would make out a prima facie case before a court trying the issues that are involved in his counter-claim, set-off or cross demand.
24.	The counterclaim, set-off or cross-demand against the creditor must also be mutual with the debt claimed in a bankruptcy notice. In Stec v Orfanos the Full Court of the Federal Court said as follows:
	24 The primary judge then said that there was a more general answer to all the alleged cross demands. This was that in answer to a bankruptcy notice issued by several joint creditors, the debtor may not raise a debt owed by one or some of them individually. Mr Stec's claims were not against all those described in the notice as " the creditor". His Honour relied on James at 643 and on an earlier decision of his own, Emanuele v Grey (unreported 17 December 1997), which also relied on the passage in James. Where a debtor seeks to set aside a bankruptcy notice on the ground that the debtor has a cross demand which equals or exceeds the amount of the judgment or order on which the bankruptcy notice is founded, the judgment on the one hand and the cross demand on the other must be mutual and due in the same right: Re Anderson; Ex parte Alexander (1927) 27 SR (NSW) 296; James v Abrahams (1981) 51 FLR 16 at 27. The requirement that the two claims be " in the same right" is directed to the capacities in which the claimants claim. Thus a claim by a judgment creditor personally cannot be answered by a claim against the creditor as a member of a partnership or as an executor or trustee. See Re Wedd; Ex parte Wedd (1961) 19 ABC 36; Re Molesworth (1907) 51 Sol J 653; Vogwell v Vogwell (1939) 11 ABC 83 at 89. But the requirement relevant to the present case is that the claims be mutual; that is that they be of the same kind or nature. Thus joint debts cannot be set off against several debts: Middleton v Pollock (1875) LR 20 Eq 515 at 518. Here three of Mr Stec's claims were against ERI alone. There is thus no mutuality in relation to these claims. His other claim was against Messrs Conroy, Rybak and Georgopolos. Again there is no mutuality because one of the joint creditors, ERI, is not the subject of the cross claim.
25.	In James the majority of the Full Court of the Federal Court observed that a set-off “if ultimately established, will result in an order for the payment of a sum of money by the judgment creditor to the judgment debtor.” There can be no doubt that a set-off must be mutual, and a lack of mutuality is fatal to the establishment of a set-off.
26.	In this case Mr Lahdo cannot establish the necessary mutuality between the parties in the same right. The set-off that Mr Lahdo seeks to rely on is not a set-off that he has against Spearwood Holdings, but, if it be a set-off at all, is one that Asterleigh has against Spearwood Holdings. That lack of mutuality is fatal to Mr Lahdo establishing a set-off in these proceedings.
27.	A further difficulty which stands in Mr Lahdo’s way is clause 24.2 of the Lease Agreement which dealt with the payment of monies and provided as follows:
	All rent and other monies payable by the Tenant to the Landlord under this Lease shall be paid without set-off (whether arising at law or in equity) and free and clear of any deduction whatsoever to the Landlord or to such a person on behalf of the Landlord or to the credit of the Landlord as it may from time to time in writing direct and until otherwise directed to the Landlord at its office in the Centre.
28.	There is, in light of clause 24.2 of Lease Agreement no right of set-off available to Asterleigh, let alone Mr Lahdo. As a non-party to the Lease Agreement and there being no right of set-off in any event, Mr Lahdo has no right to a set-off against Spearwood Holdings.
29.	A further reason why the Court ought to conclude that it is not satisfied that there is an available set-off in these proceedings arises from the District Court Action, and the judgment in Volley Investments (No. 1). In Volley Investments (No. 1) a Deputy Registrar of the District Court found as follows:
	I might start by referring to the defence which has been filed which seeks to set off against the plaintiff’s [Volley Investments] claim an amount which is claimed by the first defendant [Asterleigh] in … [the SAT Proceedings]. Those proceedings involve a claim for relief under the provisions of the Commercial Tenancy (Retail Shops) Agreements Act … [1985]. The proceedings allege unconscionable conduct and are proceedings over which … [SAT] has exclusive jurisdiction. In my view, there is no basis upon which the proceedings in … [SAT] can possibly be invoked as a set off in the District Court … [Action] and the set off is fundamentally flawed and unsustainable.
30.	Although no reasons for judgment are in evidence or otherwise before the Court in relation to the summary judgment appeal on appeal by the District Court in the District Court Action, the terms of the orders do not indicate any disagreement with the views expressed by the Deputy Registrar of the District Court in Volley Investments (No. 1), and given that the issue of the set-off was raised on the appeal in the District Court it can be inferred by this Court that the District Court found no basis for the set-off claimed in the District Court Action by Asterleigh.
31.	Comity between federal and state courts is an important consideration. Generally, the courts:
a)	ought not be seen to be competing for litigation business; and
b)	should not be hearing the same matters, or matters which are substantially similar, at or about the same time.
32.	Comity is therefore a matter to which appropriate weight must be given in determining where the litigation is to be conducted, having regard to the overall practicalities of the interests of the administration of justice.
33.	In the circumstances, the application of principles with respect to comity between federal and state courts points to an outcome consistent with the conclusion otherwise reached by this Court, namely that neither Asterleigh nor Mr Lahdo have a right of set-off in relation to the terms of the Lease Agreement against Spearwood Holdings.
34.	In all of the above circumstances, the Court is not satisfied that Mr Lahdo has available to him the set-off that he claims.
35.	In order for the Court to be satisfied that there is a set-off equal to or exceeding the judgment debt there must be some evidentiary basis for arriving at that state of satisfaction, and that requires that the Court be able to quantify the amount of the alleged set-off. Further, r.3.02 of the FCC (Bankruptcy) Rules mandates that where a debtor alleges a set-off the mandatory affidavit in support of the application to set aside the bankruptcy notice “must also state … the amount of the … set-off … and the amount by which it exceeds the amount claimed in the bankruptcy notice”. Mr Lahdo’s Affidavit does not quantify either the amount of the alleged set-off or the amount by which the set-off is said to exceed the amount claimed in the Bankruptcy Notice. Mr Lahdo has therefore failed to make out a mandatory and essential requirement of the necessary second element for setting aside a bankruptcy notice, namely, satisfying the Court that he has a set-off equal to or exceeding the amount of the judgment debt. In those circumstances, this Court could not set aside the Bankruptcy Notice, even if satisfied that there is a set-off, which it is not.
36.	It is therefore unnecessary to consider whether Mr Lahdo could have set up the alleged set-off in the District Court Action, as there was no set-off to set up, and when Mr Lahdo did try to set up the set-off in the District Court Action, he failed to do so.
Conclusions and orders
37.	The Court has concluded that:
a)	Mr Lahdo’s application for an adjournment be refused; and
b)	Mr Lahdo has failed to make out the necessary elements required for this Court to order that the Bankruptcy Notice be set aside, and it therefore follows that his application to set aside the Bankruptcy Notice must be dismissed.
38.	There will be orders to reflect the Court’s conclusions above.
39.	The Court will hear the parties as to costs.
I certify that the preceding thirty-nine (39) paragraphs are a true copy of the reasons for judgment of Judge Antoni Lucev

Associate:  

Date: 10 October 2014