McKensey v Hewitt

[1999] NSWSC 685

CITATION:	McKensey & Ors v Hewitt & Ors [1999] NSWSC 685
CURRENT JURISDICTION:	Equity Division
FILE NUMBER(S):	ED 1585/95
HEARING DATE(S):	15 June 1999 17 June 1999
JUDGMENT DATE:	17 June 1999
PARTIES :	Hugh Stanley McKenzey, Victor John Lewis & Peter Charles Hicks v Christopher Michael Hewitt, Philip Anthony Nelson, Connie Spinks, Cessnock Accounting & Taxation Services Pty Limited
JUDGMENT OF:	Davies AJ at 1

COUNSEL :	Plaintiff - G.E. Underwood Defendant - M. Ashurst
SOLICITORS:	Plaintiff - Harris Wheeler, Newcastle Defendant - Hansens, Solicitors, The Junction
CATCHWORDS:	Motion for contempt
DECISION:	Matter of accounts to go to Arbitrator; Orders as in Short Minutes; Motion for contempt dismissed; Each party to pay their own costs

THE SUPREME COURT

OF NEW SOUTH WALES

EQUITY DIVISION

1585/95

DAVIES AJ

Thursday, 17 June 1999

McKENSEY & ORS v HEWITT & ORS


JUDGMENT

1    HIS HONOUR: This matter is brought to the Court by way of a motion for contempt. It seems to me there is an underlying issue as to how certain questions relating to the accounts of the former firm of accountants should be resolved. Therefore, from the time this matter started and really until it came to the question of costs, the debate turned upon how those issues which there are between the plaintiffs and defendants should be determined. 2    The problem arose out of certain terms of settlement which in pars 9 and 10 provided:

“9. A balance sheet and profit and loss account will be prepared for Forsythes (Old) as at 28 August 1994 on an accruals basis and once accepted by all parties will be binding thereon other than as adjusted in 8.
10. On or before 31 December 1994, the parties shall jointly engage, and pay in the proportions of their interests in Forsythes (Old) at 28 August 1994, the services of Rob Knights & Co, Chartered Accountants of Sydney, or in the event of him being unable or unwilling to so act, a valuer appointed by the NSW State Chairman of the Institute of Chartered Accountants in Australia, to value the goodwill of the accountancy practice and associated entities of Forsythes (Old), excluding the HMC Unit Trust, Forsythes Computer Systems Pty Ltd and Back to Basics Business Services Pty Ltd.
The basis upon which the valuation is to be conducted is that of a willing but not anxious buyer and a willing but not anxious seller, with the seller being prepared to enter into reasonable covenants not to compete. The above valuation will be based solely upon the trading results of Forsythes (Old) for the year ended 30 June 1994. Settlement for the amount owing to the Retiring Partners, representing their share of the goodwill, will be in accordance with the Settlement Payment. ”

Clause 26 of the agreement provided for the arbitration of any matter which could not be resolved by the parties.

3    Some other issues came before the Court and, on 18 September 1997, Einstein J ordered, inter alia:

“ By consent, the court now orders the written agreement between the plaintiffs and the first and second defendants made on 10 September 1994 be specifically performed and carried into execution. The Court further orders that the first and second defendants do all things, including the review and acceptance of the financial accounts of Forsythes (Old) for the year ended 30 June 1994 and the period ending 28 August 1994 and execute all documents necessary to give effect to the order for specific performance earlier made. ”

In my view, that order was not unclear or ambiguous and, in my view, it related to cll 9 and 10 of the settlement agreement and it required that accounts for Forsythes (Old), that is the old partnership before termination of which the plaintiffs and defendants were members, be drawn up and accepted. The acceptance was necessary because terms of the settlement depended thereon.

4    That order was made in November 1997 and practically nothing has occurred since then to implement the order of his Honour. 5    The plaintiffs prepared their own accounts and submitted them to the defendants and, in the first instance, they treated the matter as if the defendants were entitled to put forward their objections. In a letter of 2 August 1998, they noted that they understood that there were a few minor aspects of the accounts to be addressed. That letter was responded to on 25 August 1998 when the defendants' solicitors wrote to say that their clients were preparing their own accounts in a format which they submitted was proper and that this was likely to take some time and they hoped to be in a position to consent to a timetable by which their clients anticipated they would be able to submit a proper version of the accounts. 6    It was after that that the matter came to what appears to have been a halt. The defendants’ solicitors seem to have taken the view that the accounts could not be finalised during the existence of what was called the Page litigation. There had been litigation between Mr Page and members of an earlier form of the Forsythes firm.
7    On 4 September 1998, the solicitors for the defendants wrote to say that because of the litigation there was now a contingent liability against Forsythes (Old) and they suggested that settlement of the accounts be postponed until the Page proceedings had been finalised. That view was not agreed to by the plaintiffs. On 25 November 1998, the defendants' solicitors wrote again to say:

“... our clients dispute that it is possible to review and accept the accounts due to the potential impact of the Page proceedings. Notwithstanding what your client may think, our clients point to AAS 8 in support of that proposition. ”

8    The plaintiffs' solicitors, who were wishing to pursue the matter and to have the accounts finalised, commenced speaking of contempt proceedings and ultimately these present proceedings were brought. 9    The proceedings, in the form in which they were brought, were in my opinion misguided, for they sought an order that the first defendant and second defendant be ordered to accept forthwith the financial accounts of Forsythes (Old) for the years ended 30 June 1994 in the form of the accounts which had been prepared by the plaintiffs, and a similar order in relation to the accounts for the period ending 28 August 1994. 10    In my opinion, the defendants were not under any obligation to accept the accounts prepared by the plaintiffs. The effect of the settlement agreement was that accounts had to be drawn up by the old partnership, that means by all partners in the old partnership, and therefore that the accounts had to be agreed to by them. It followed in my opinion that, if there was a dispute about the accounts, it was a dispute that had to go to arbitration so that an arbitrator could settle the accounts as at 30 June 1994 and 28 August 1994. 11    So I am of the view that the form in which the motion was expressed was misguided and based upon a misapprehension. However, I am also of the view that, having regard to the time that had passed and to the attitude taken by the defendants, it was a proper course for the plaintiffs to bring the matter before the Court so that the problems which they were facing could be resolved and so that the orders made by Einstein J could be progressed.
12    The matter has been debated and the parties here today are now agreed that the issue of the accounts will go to arbitration and there is a form of order as to this before me which I now initial and date. I make that order.
13    That leaves the question of the motion for contempt. It is not in doubt and I do not think Mr Underwood, counsel for the plaintiffs, alleges to the contrary, that that motion should be dismissed and I shall make that order.
14    Then there is the question of costs. When the matter first commenced on Monday I was of the view that a possible order as to costs might be that the costs be reserved to see how the arbitration turns out and to see whether the delay that occurred can be put really to the fault of one side or the other or whether the plaintiffs' accounts are going to be accepted as substantially correct or whether the views put by the defendants are going to be accepted. However, that approach has been opposed by Mr Ashhurst who appears today for the defendants and I have now heard an argument on the question of costs. Having done so I think I should not reserve costs.
15    I have to take into account principally two things. One, that the motion for contempt was misconceived. The second is that this was a proper matter to bring before the Court so as to progress it. There was an issue between the parties, the parties could not resolve it, and an order of a judge was required.
16    Having regard to the totality of those circumstances I think the proceedings have achieved real progress in the sense that they have achieved an agreement between the parties as to how this matter will go forward. I am of the view that that result was worth the bringing of the proceedings and, notwithstanding that they were wrong in form, I must take that into account. I think the fairest thing is in the result that each party should pay his or her own costs of the motion.

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