Re Hegarty, John Lawrence Ex Parte Deputy Commissioner of Taxation

[1995] FCA 1171

IN THE FEDERAL COURT OF AUSTRALIA     )
GENERAL DIVISION  )

BANKRUPTCY DISTRICT OF THE           )  No. NX98 of 1995
STATE OF NEW SOUTH WALES                  )

RE:JOHN LAWRENCE HEGARTY

Debtor

EX PARTE:DEPUTY COMMISSIONER OF TAXATION

Applicant

WILLIAM EDWARD ANDREW

Respondent

CORAM:    HILL J
PLACE:    SYDNEY
DATED:    10 NOVEMBER 1995

REASONS FOR JUDGMENT

Before the Court is an application brought by the Deputy Commissioner of Taxation pursuant to s239 of the Bankruptcy Act 1966 (Cth) to set aside a composition under Part X of that Act between the debtor, Mr Hegarty, and his creditors, as a result of the special resolution passed at a meeting of creditors held on 11 July 1995. The creditors, who have lodged proofs of debt, total $32,141,602.00. Of that amount the most significant creditor is a Mr Knox who is proved in the amount of $30,861,565.00. The next largest creditor is the Deputy Commissioner, claiming a debt of $1,224,412.00.

Pursuant to directors made prior to the hearing before me, the parties were required to file and serve upon each other outlines of submissions.  The outline of
submissions filed on behalf of the Deputy Commissioner alluded to the minimal sum available as a dividend as a result of the composition, that composition proceeding on the basis that there would be a distribution to creditors of the assets held by the trustee estimated as being $446,498.00, together with a sum of $100,000 which was to be advanced under the composition by the debtor's sister, Mrs Sheil.  The submissions in para5 referred to the need for further investigation and explanation.  They did not stipulate into what investigation would be conducted or to what end an explanation was indicated.

The document is open to the construction that the matters which the Commissioner suggested should be investigated were the matters set out in paras1 to 4.  It could equally refer to the matters set out in para6.  In that paragraph there is a reference to two matters.  The first is that Mrs Sheil, who is advancing the sum of $100,000 under the composition, is a creditor in the sum of $18,000 and will receive in consequence a dividend under the composition of $288.

Most of the moneys available under the composition clearly will go to Mr Knox.  Indeed, if the funds stay as presently contemplated, Mr Knox will receive a distribution of $493,785.  Reference is also made in para6 to the fact that there had been an assignment which brought about the result that Mr Knox was the most substantial creditor.  That fact on its own is of no particular significance.  There are, however, two additional matters at least which at the present moment appear somewhat unexplained.

First, Mr Knox acquired the indebtedness by payment of a sum of approximately $50,000, being the present value of amounts which the debtor had agreed to pay over time in composition of the Tricontinental debt.  A consequence of the payment of $100,000 under the composition is that for an outlay of $50,000 Mr Knox will receive $493,785.  Second, under the arrangement with Tricontinental, the ability of Mr Hegarty to pay by instalments depended upon his compliance with a timetable.  For Mr Knox to prove in the estate in the amount he does, it must follow that that timetable arose the day before or two days before the assignment the negotiations were being conducted.

With Tricontinental, it is possible there is no evidence on the matter that the default has occurred subsequently.  Mr Knox is a professional man, he is an accountant and apparently a friend of long standing of Mr Hegarty.  Mr Knox was subpoenaed, inter alia, to produce bank records of the payment he made of $50,000.  He produced no document in answer to the subpoena.  There may well be a question, indeed it is suggested by counsel for Mr Hegarty that there is, as to whether the subpoena is wide enough to cover the manner in which the payment was in fact made.  For example, it was said the payment may have been made out of a savings account and it is possible that the subpoena would not be wide enough to encompass production of the savings bank book.

In the course of the hearing I raised in discussion with counsel for the Deputy Commissioner, and later in argument with both counsel, what I saw to be the difficulty in the way of Mr Hegarty's case and the strongest point on the part of the Commissioner's case.  Namely, that the transaction between Tricontinental and Mr Knox is one that in the circumstances appears to call for further investigation in a public examination because, as the evidence stands at the moment, there is a possibility that Mr Knox was not the person who actually acquired the debt by way of assignment.  This possibility, as the evidence presently stands, was reinforced by two things.  First, by Mr Knox's failure to produce documents on subpoena and second, by correspondence produced from the file of Tricontinental which indicated that the assignment had been directed by Mr Hegarty and that Mr Hegarty had at various times nominated as assignee his sister, Mrs Sheil, "a nominee company" and Mr Knox.

In the course of submissions, counsel for Mr Hegarty sought an adjournment to enable him to call evidence from Mr Hegarty, who had not given evidence previously, and from Mr Knox.  The application for adjournment obviously is also an application for leave to re-open the case on the part of Mr Hegarty.  Ordinarily, I take the view that once evidence is completed the case is closed and it is generally inappropriate for leave to be given to re-open a case.  There must be finality of litigation.  There are, however, occasions where justice may well require that leave be given to re-open a case.

Once such case is where the party has been taken by surprise and was unaware that a particular issue was to be raised until very late in the case.  Counsel for Mr Hegarty says that the present is such a case.  He points out, and it is an important matter to take into account, that Mr Hegarty is a solicitor and the impact of a sequestration order which would follow if the case were to go adversely to him could work considerable harm to him.  I must say I think that I would have expected counsel of the experience of Mr Hegarty's counsel to have grasped the significance of the issue at a stage earlier than it was raised, but I accept his statement that he was taken by surprise by the issue.  That being the case it seems to me that an injustice could be done to Mr Hegarty if he were not given the opportunity to meet the case which has been put against him.  I am conscious of the fact that an order for costs is not a particularly useful order in the present circumstances, but I will make an order that the adjournment be on terms as to costs thrown away.
         I note the undertaking given by Mr Hegarty through his counsel to pay to the solicitors for the Deputy Commissioner the sum of $2,500 within seven days of today on account of the costs of today, and I will stand over the proceedings to a date to be determined with counsel.

I direct the Trustee to notify those creditors who have proved of the adjourned date and advising the creditors that they may if they so desire inspect the affidavit evidence filed by the parties and participate in the adjourned hearing.

I certify that this and the
preceding five (5) pages
are a true copy of the Reasons
for Judgment herein of his Honour
Justice Hill.

Associate:

Date: 

Counsel and Solicitors      M R Aldridge instructed by the

for Debtor:Australian Government Solicitor

Counsel and Solicitors      B Skinner instructed by

for Applicant:              Sally Nash & Co

Counsel and Solicitors      W E Andrew

for Respondent:             (Trustee in person)

Date of Hearing:            10 November 1995

Date Judgment Delivered:         10 November 1995