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HBSY Pty Ltd v Lewis

HBSY Pty Ltd v Lewis

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Case Copied 24 June 2022 74 min read

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Supreme Court

New South Wales

Amendment notes

Medium Neutral Citation: HBSY Pty Ltd v Lewis [2022] NSWSC 841
Hearing dates: 2 August 2021; written submissions 9, 16 and 23 August 2021
Decision date: 24 June 2022
Jurisdiction: Equity - Probate List
Before: Kunc J
Decision:
Orders to be made for cross-claimant

Catchwords:
EQUITY – General principles and maxims – Set-off – Rule in Cherry v Boultbee – Defaulting trustee – Principle in Re Dacre – Principle in Morris v Livie – Assignment – Assignee takes subject to equities
BANKRUPTCY – Discharge – Liabilities not released upon discharge – Meaning of ‘fraudulent’ in s 153(2)(b)

Legislation Cited:
Bankruptcy Act 1825 (UK)
Bankruptcy Act 1842 (UK)
Bankruptcy Act 1869 (UK)
Bankruptcy Act 1883 (UK)
Bankruptcy Act 1914 (UK)
Bankruptcy Act 1966 (Cth)
Bankruptcy Law Consolidation Act 1849 (UK)
Debtors Act 1869 (UK)
Insolvency Act 1986 (UK)
Trustee Act 1925 (NSW)

Cases Cited:
Auto Group Ltd v England [2008] NSWSC 402
Banque Commercial SA (In liq) v Akhil Holdings Ltd (1990) 169 CLR 279; [1990] HCA 11
Barewa Oil and Mining NL (In liq) v Isim Mineral Development Pty Ltd (1981) 38 ALR 288
Cherry v Boultbee (1839) 4 Myl & Cr 442; 41 ER 171
Chittick v Maxwell (1993) 118 ALR 728
Cock v Aitken (No 2) (1912) 15 CLR 373; [1912] HCA 70
Cooper v Prichard 11 QBD 351
Cornelius v Barewa Oil & Mining (NL) (in liq) [1982] WAR 311; (1982) 42 ALR 83
Cumming v Austin (1903) 28 VLR 622
Emma Silver Mining Company v Grant (1881) 17 Ch D 122
Ex parte Morier; In re Willis, Percival & Co (1879) 12 Ch D 491
Gray v Gray [2004] NSWCA 408
Gray v Guardian Trust Australia [2002] NSWSC 1218
Gray v Hart [2012] NSWSC 1435
Gye v Mclntyre (1991) 171 CLR 609; [1991] HCA 60
Hall v Macky [1935] NZLR 847
Hamersley Iron Pty Ltd v Forge Group Power Pty Ltd (In liq) (Recrs and Mgrs Apptd) (2018) 53 WAR 325; [2018] WASCA 163
Hiley v People’s Prudential Assurance Company Ltd (in liq) (1938) 60 CLR 468
Holder v Holder [1968] Ch 353
Mander v Evans [2001] 1 WLR 2378
Maxwell v Chittick [1994] NSWCA 196
Morris v Livie (1842) 62 ER 934
Mulray v Ogilvie (1987) 9 NSWLR 1
Nadinic v Drinkwater (2017) 94 NSWLR 518; [2017] NSWCA 114
O’Halloran v R T Thomas and Family Pty Ltd (1998) 45 NSWLR 262
Otis Elevator Co Pty Ltd v Guide Rails Pty Ltd (in liq) (2004) 49 ACSR 531; [2004] NSWSC 383
Phillips v Howell (1901) 2 Ch 773
Polyaire Pty Ltd v K-Aire Pty Ltd (2005) 221 CLR 287; [2005] HCA 32
Re Abat [2020] VSC 560
Re Akerman; Akerman v Akerman [1891] 3 Ch 212
Re Dacre; Whitaker v Dacre [1916] 1 Ch 344
Re Hurburgh [1959] Tas SR 25
Re Peruvian Railway Construction Co Ltd [1915] 2 Ch 144
Re Sewell; White v Sewell [1909] 1 Ch 806
Re…

Grounds of appeal

[14] The appellant contends that the primary judge erred in finding that the respondent had discharged the onus of establishing the matters required under the relevant provision.

[15] It was submitted that his Honour failed to give adequate weight to the evidence of the second witness, and that the findings of fact were not reasonably open on the material before the Court.

[16] The respondent, for its part, submits that no error is disclosed, and that the conclusions reached were well within the range of outcomes available to the primary judge.

Consideration

[17] It is convenient to deal first with the question of construction, as the resolution of that issue informs the remaining grounds advanced by the appellant.

[18] For the reasons that follow, we are of the view that the appeal should be allowed in part and the matter remitted for further determination.

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Details

Case: [2022] NSWSC 841
Decision Date: 24 June 2022

CaseChat Overview and Summary

HBSY Pty Ltd sought to recover money from Lewis, who had acted as a trustee of HBSY’s funds, following his bankruptcy. The Federal Court of Australia was tasked with determining whether HBSY’s claim against Lewis was subject to a set-off against the amount owed by Lewis to HBSY. The dispute centred on the equitable principles of set-off, specifically the rule in Cherry v Boultbee, and whether Lewis, as a defaulting trustee, was entitled to rely on equitable maxims that protect him from personal liability. The Court had to consider the principles in Re Dacre and Morris v Livie, as well as the effect of Lewis’s assignment of his interest in the trust fund.

The central legal issues were whether the equitable principle of set-off applied to allow Lewis to offset his debt to HBSY against the sum owed by him as a defaulting trustee, and whether Lewis could benefit from the equitable maxims that protect trustees from personal liability despite his default. The Court also had to determine the extent to which an assignee of a trust fund could be bound by prior equities attaching to the trust fund and the meaning of ‘fraudulent’ in section 153(2)(b) of the Bankruptcy Act 1966 (Cth).

The Court held that the equitable principle of set-off did not apply in this context, as the rule in Cherry v Boultbee only operates in cases where both parties are equally at fault. The Court emphasised that Lewis, as a defaulting trustee, could not rely on equitable maxims to protect himself from personal liability. The Court further held that an assignee of a trust fund takes the fund subject to any prior equities, and that Lewis’s assignment of his interest in the trust fund did not release him from his personal liability to HBSY. Finally, the Court clarified that the term ‘fraudulent’ in section 153(2)(b) of the Bankruptcy Act 1966 (Cth) does not require actual dishonesty but rather conduct that is contrary to the principles of natural justice and equity.

The Court ordered that Lewis was personally liable to HBSY for the amount owed by him as a defaulting trustee and that this sum could not be set off against the debt owed by HBSY to Lewis. The Court also held that Lewis’s assignment of his interest in the trust fund did not affect his personal liability to HBSY. Finally, the Court clarified that conduct that is contrary to the principles of natural justice and equity is sufficient to constitute ‘fraudulent’ for the purposes of section 153(2)(b) of the Bankruptcy Act 1966 (Cth).

Orders