Hewitt v McKensey

[2005] FMCA 469

FEDERAL MAGISTRATES COURT OF AUSTRALIA

HEWITT v McKENSEY & ORS [2005] FMCA 469

BANKRUPTCY – Application to set aside Bankruptcy Notice – where the parties entered into a settlement agreement – where there is a significant disagreement between the parties as to what sum of settlement monies is likely to be owing if any – where the matter has been referred to arbitration - whether or not the appellant had a counter claim, set off or cross demand equal to or exceeding the amount in the Bankruptcy Notice – whether or not the cross claim was one which could have been brought in the original proceedings – whether the applicant simply overlooked the issue of a cross claim.

Bankruptcy Act 1996, ss.40(1)(g), 41(7)
Evidence Act 1995, s.131

Glew v Harrowell, in the matter of Glew [2003] FCA 373
Re Ling; Ex parte Ling v Commonwealth of Australia (1995) 58 FCR 129
Re James: Ex Parte Carter Holt Harvey Roofing (Australia) Pty Ltd (1993) 46 FCR 183
Re: Roy Edward Brink Ex Parte: The Commercial Banking Company of Sydney Limited (1980) 44 FLR 135

Applicant: CHRISTOPHER MICHAEL HEWITT

Respondent: HUGH STANLEY McKENSEY & ORS

File Number: SYG 3683 of 2004

Judgment of: Raphael FM

Hearing date: 1 April 2005

Date of Last Submission: 1 April 2005

Delivered at: Sydney

Delivered on: 21 April 2005

REPRESENTATION

Counsel for the Applicant: J B Conomy

Solicitors for the Applicant: Hewitts Commercial Lawyers

Counsel for the Respondent: T Alexis

Solicitors for the Respondent: Harris Wheeler Lawyers

ORDERS

1. Application dismissed.

2. Applicant to pay the respondents costs to be taxed, if not agreed, pursuant to the Federal Court Act and Rules.

3. Time for compliance with the Bankruptcy Notice is extended until

   
   

   26 April 2005.

FEDERAL MAGISTRATES
COURT OF AUSTRALIA AT
SYDNEY

SYG 3683 of 2004

CHRISTOPHER MICHAEL HEWITT

Applicant

And

HIGH STANLEY McKENSEY & ORS

Respondent

REASONS FOR JUDGMENT

1. On 20 December 2004 the applicant filed with this court an application under s.41(7) of the Bankruptcy Act to set aside Bankruptcy Notice NN3012/04 on the basis that he had a counter claim, set off or cross demand equal to or exceeding the amount in the Bankruptcy Notice which could not have been put forward in the original proceedings. The Bankruptcy Notice itself claims an amount of the $33,437 being the amount of a judgment made in the Equity Division of the Supreme Court of New South Wales entered on 29 October 2004. The amount of the judgment was the amount ordered to be paid by the applicant to the respondent pursuant to an arbitration award made by Michael Wayland and dated 28 August 2003. The award was required to be enforced by order of the Supreme Court of New South Wales and this was done by Young CJ in Eq on 19 July 2004.

2. The parties to these proceedings were all former partners of a partnership known as Forsythes Accountants of Newcastle. The dissolution of that partnership has been the subject of a considerable amount of litigation in the New South Wales Supreme Court. These proceedings were commenced by the plaintiffs in matter number 1585 of 1995 and it is important to note that all the relevant proceedings between the parties since that time had been carried out in the Supreme Court under that matter number.

3. The parties had entered into a settlement agreement, a copy of which is exhibited at page 13 to the affidavit of Christopher Michael Hewitt of 17 December 2004. That agreement dealt with the claims outstanding between the partners, but the method of determining the amount of those claims remained in issue. In or about July 1999 the parties to the Supreme Court proceedings consented to certain disputes in regard to two clauses of the settlement agreement being referred to an arbitrator, Mr Wayland. This arbitration agreement followed an order made in 1997 for specific performance of the settlement agreement. The actual reference to Mr Wayland did not take place until 2003. Mr Wayland issued his award promptly on 28 August 2003. There had previously been a decision of Einstein J, McKensey & Ors v Hewitt & Ors BC9705241. This decision was subject to an appeal McKensey v Hewitt [1999 NSWCA 426]. Mr Wayland’s award was itself challenged under matter number 1585 of 1995 which challenge was heard by McDougall J; Hewitt v McKensey [2003] NSWSC 1186. His Honour found that the challenge relied upon to support the application under s42 of the Commercial Arbitration Act failed. This judgment paved the way for the application that was heard by Young J on 23 June 2004 and determined by him on 19 July 2004 as McKensey v Hewitt [2004] NSWSC 636.

4. The applicant claims that he is entitled to set off against the sum of $33, 437 claimed in the Bankruptcy Notice monies owed to him from the respondents in accordance with the settlement agreement based upon the final form of accounts of the partnership as at the 30 June 1994 and the 28 August 1994. He argues that it was only the arbitrator’s award that determined the form of accounts for Forsythes as at 30 June 1994 and 28 August 1994 and no valuation has yet formally been undertaken so as to provide a final figure for the amount owing to him by the respondents. There is, however, a very significant disagreement between the parties as to what sum is likely to be owing, if at all. The applicant sought to support his estimate of the amount owing by the use of certain documents that I decided were the subject of privilege under section 131 of the Evidence Act 1995. I am therefore left in a situation where I cannot be certain that any cross claim that the applicant might have exceeds the amount claimed under the Bankruptcy Notice. But the more important decision is whether or not this is a claim which could not have been brought in the original proceedings.

5. In the affidavit of Valentino Misevska dated 21 February 2005 the deponent sets out between [8]-[27] the history of the parties’ attempt to determine all the issues in the dispute arising out of the settlement agreement. At exhibit VM-4 to her affidavit [17] she exhibits a letter from the applicant’s solicitors providing further draft short minutes of orders for the respondents’ consent. She states:

   “These orders require the matters which the applicant contended were outstanding be determined by way of an arbitration. The orders include in paragraph 1(c) the following: -  

   ‘any amount payable or owing to Christopher Michael Hewitt pursuant to clauses 10 and 16 of the settlement agreement’.”

   It is the amount to be found pursuant to these clauses that constitute the applicant’s alleged cross claim. Although he says the amount could not be calculated until the method of calculation had been determined (which was what the commercial arbitration before Mr Wayland was all about) it does not follow that these amounts constitute a cross claim which was unable to be raised in the original proceedings. This question is one which has to be answered by reference to legal considerations; Re Ling; Ex parte Ling v Commonwealth of Australia (1995) 58 FCR 129 at 132. Whether or not a cross claim could be set up does not depend on whether it could be set up successfuly but whether it could be set up as a matter of law; Re: Roy Edward Brink Ex Parte: The Commercial Banking Company of Sydney Limited (1980) 44 FLR 135 at 138 to 139, Re James: Ex Parte Carter Holt Harvey Roofing (Australia) Pty Ltd (1993) 46 FCR 183 at 189. In Glew v Harrowell, in the matter of Glew [2003] FCA 373 at 7 Lindgren J noted:

   “considerations personal to the debtor which prevent him, as a matter of practical reality, from pursuing a cross claim in proceedings in which the judgment is given on which a Bankruptcy Notice is founded, do not constitute circumstances which entitle the debtor to characterise such a cross claim as one which he could not have set up in the action or proceeding in which judgment was obtained.”

6. In this case there have been several occasions upon which the applicant could have raised the cross claim. He attempted to do so by way of the notice of motion which I previously described. That notice of motion was drafted in proceedings 1585 of 1995 and if it had been issued would have been issued in those proceedings. But perhaps the matter which tells most again the applicant is his failure to raise in the enforcement proceedings (also 1585 of 1995) the question of his cross claim. In his judgment Young J notes at [4]:

   “Mr Ashhurst of Counsel for the defendant says that, were it not for one point he would concede that the award was enforceable.”

7. The one point, which had nothing whatsoever to do with the cross claim, was argued at considerable length and the argument was lost. If Mr Hewitt really had the makings of a respectable cross claim he could have submitted before Justice Young that there should be a stay on the enforcement of the arbitrator’s award until the arbitrator had determined that very matter. There was no argument as to who the arbitrator might be and no reason why this work could not be done with reasonable speed.

8. In all these circumstances I am unable to find that the applicant has a cross claim which falls under the provision of s.40(1)(g) of the Bankruptcy Act so that he is entitled to relief under s.41(7) thereof.

   
   

   I dismiss the application. I order that the applicant pay the respondents costs, to be taxed, if not agreed, pursuant to the Federal Court Act and Rules.

I certify that the preceding eight (8) paragraphs are a true copy of the reasons for judgment of Raphael FM

Associate: 

Date: