Page v McKensey & Ors

Page v McKensey & Ors - [2009] NSWCA 127 - NSWCA 2009 case summary — Zoe

[17]

Factual Circumstances 7 Prior to 30 June 1992, the six parties to this appeal carried on an accounting business in Newcastle in partnership. These persons comprised the appellant, Mr Page, and the five respondents, Messrs McKensey, Lewis, Hicks, Nelson and Hewitt. It is convenient hereafter to refer to these persons by their surnames. 8 This six person partnership was dissolved on 30 June 1992. For the purpose of resolving disputes arising out of the dissolution, Page commenced proceedings later in 1992 against his five former partners, and certain other parties who it is unnecessary to identify. It is in these 1992 proceedings that the decisions which are the subject of the present appeal were given. 9 On 27 May 1993, Windeyer J delivered a judgment in the proceedings dealing with certain issues which are not presently relevant. On 17 December 1993 he delivered a judgment dealing with further issues. The resolution of one of these led him to make a declaration that Page was indebted to his five former partners in the sum of $21,348. No order for costs was made at that stage. 10 An appeal by Page was dismissed by the Court of Appeal on 28 February 1995. Page was ordered to pay the costs of the appeal. 11 On 29 January 1996, Priestley JA dismissed a Notice of Motion filed by Page seeking to set aside the Court of Appeal's earlier decision. Page was ordered to pay the costs of the Notice of Motion. 12 On 15 March 1996, Windeyer J ordered that Page pay the costs of his five former partners in relation to the issues determined by the judgments of 27 May and 17 December 1993. The formal order which was entered did not accurately reflect his Honour's reasoning. It has subsequently been corrected and no complaint is made about that having occurred. 13 On 26 April 1996, Bryson J, in the same proceedings, gave judgment in the sum of $21,348 against Page in favour of his five former partners. An order was made that Page pay their costs of the Notice of Motion which led to the entry of judgment. The judgment was entered to reflect the declaration made by Windeyer J on 17 December 1993. 14 By this time, there was thus against Page in favour of his five former partners a judgment for $21,348 and four costs orders (two made by the Court of Appeal, one by Windeyer J and one by Bryson J). 15 After dissolution of the six person partnership on 30 June 1992, McKensey, Lewis, Hicks, Nelson and Hewitt had commenced to carry on an accounting business at Newcastle. This five person partnership has been referred to in the proceedings as "Forsythes Old". 16 After the decisions of Windeyer J in 1993, but before the appeal referred to in [10] above was heard, McKensey, Lewis, Hicks, Nelson and Hewitt signed a Separation Agreement ending the five person Forsythes Old partnership, the dissolution to take effect as at 28 August 1994. The agreement was signed on 10 September 1994. It was held by Windeyer J in one of the decisions which is the subject of the present appeal that this Separation Agreement evidenced the retirement of Nelson and Hewitt from the Forsythes Old partnership, with the remaining three partners to retain and continue the partnership business (that three person partnership being referred to in the proceedings as "Forsythes New"), subject to Nelson and Hewitt receiving such entitlements as the Separation Agreement provided for them to receive. 17 His Honour also held that the Separation Agreement effected an equitable assignment by Nelson and Hewitt to their three former partners (McKensey, Lewis and Hicks) of such rights as Nelson and Hewitt had in respect of the $21,348 declared to be owing by Page to the five persons and in respect of such costs as might subsequently be ordered to be paid by Page to the five persons. 18 As is evident from the above chronology, the entry of judgment for $21,348 and the making of the four costs orders in question did not occur until after 10 September 1994, which was the date of the Separation Agreement. Nevertheless, the effect of his Honour's finding was that at least once the relevant rights were crystallised by the entry of judgment and the making of costs orders, the shares of Nelson and Hewitt passed in equity to the other three. It was common ground that the rights of the five members of Forsythes Old in respect of the judgment and costs orders were joint rights. 19 On 1 November 1996 Page, on the one hand, and Nelson and Hewitt, on the other, entered into a Deed of Indemnity and Release. Windeyer J held that if Nelson and Hewitt had not already assigned away their interests in the judgment and costs orders by means of the Separation Agreement, the Deed would have been effective to release those interests in favour of Page. 20 McKensey, Lewis and Hicks encountered difficulty in enforcing the judgment and the four costs orders because Nelson and Hewitt declined to join in any enforcement action. As a result, they filed in the 1992 proceedings a Notice of Motion seeking relevant relief. The amended version of that Notice of Motion, filed on 9 September 2007, led to the orders which are challenged on this appeal being made. In substance, McKensey, Lewis and Hicks sought leave to enforce the judgment and the four cost orders, notwithstanding that they comprised only three of the five persons in whose favour the judgment and costs orders had jointly been entered or made. Particular reference was made in the Amended Notice of Motion to Rule 39.1 of the Uniform Civil Procedure Rules which requires the Court's leave for the issue of a writ of execution if there has been any change in the persons entitled to execute a judgment. Section 3 of the Civil Procedure Act 2005 defines "judgment" to include costs orders. 21 The other substantive order sought in the Amended Notice of Motion was that Page pay interest on each of the four costs orders from 27 April 1996. 22 Also giving rise to findings in issue on this appeal is a Notice of Motion filed by Page in the 1992 proceedings on 3 April 2007. It was accepted by the parties at first instance that the primary relief sought by the Notice of Motion was effectively a declaration that Page had been released from the judgment debt and costs orders by the Deed of Indemnity and Release of 1 November 1996 executed by two (Nelson and Hewitt) of the five persons entitled to the benefit of the judgment and costs orders. 23 The Notice of Motion also sought orders for a permanent stay of an application for assessment of costs payable under the relevant costs orders and an order for payment of the costs of that assessment.

[19]

The Effect of the Separation Agreement 26 The heading to the Separation Agreement was as follows: "PROPOSED BASIS ON WHICH CHRISTOPHER MICHAEL HEWITT AND PHILLIP ANTHONY NELSON WILL RETIRE FROM THE PARTNERSHIP OF FORSYTHES" 27 Hewitt and Nelson were defined in the Agreement as the "Retiring Partners" and McKensey, Lewis and Hicks as the "Continuing Partners". 28 The Agreement provided for the Retiring Partners to retire with effect from 28 August 1994, to take over certain clients that were listed in Schedule A to the Agreement and to purchase from Forsythes New (being the partnership business to be continued by McKensey, Lewis and Hicks) certain amounts due from clients and certain work-in-progress. The Agreement also provided for various other purchases by, and entitlements of, the retiring partners upon the assumption, which to my mind is clear from the structure and terms of the Agreement, that the Continuing Partners were to retain all the assets of the business less only those which the agreement provided would be acquired by the Retiring Partners. 29 Clauses 8 and 9 were in the following terms: "8. The Retiring Partners will be entitled to be paid the balances standing to the credit of their capital and current accounts as at 28 August 1994 and will be obliged to pay the balances standing to the debit of those accounts at that date, adjusted by any amounts relevant to Forsythes (Old) which may become known prior to the last instalment of the Settlement Payment. Settlement for these amounts will be in accordance with the Settlement Payment. 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." 30 Clause 26 provided for the appointment of an Arbitrator in the event that any matter dealt with by the Agreement could not be resolved by agreement between the parties. As it transpired, the balance sheet and profit and loss account, which clause 9 contemplated would be prepared, were not the subject of agreement and needed to be the subject of arbitration. The arbitration proceedings did not culminate in an award until 2003. 31 The Agreement did not contain any express reference to the inchoate rights of the five persons who were members of the Forsythes Old partnership to judgment against Page and to apply for costs orders against him. 32 There was a definition in the following terms: "'The Dispute' means the appeal by Geoffrey Francis Page against the decision of Windeyer J on December 1993 in the matter of Page v McKensey & Others in the Equity Division of the Supreme Court of NSW, and any subsequent related litigation".

[20]

This definition did not however play any presently relevant role in the operation of the Agreement. 33 The primary judge found that the balance sheet of the partnership, as determined by the arbitrator, took into account, as partnership assets, the judgment debt and the four costs orders (the entry of judgment and the making of the four costs orders having occurred long before the date of the arbitrator's award, although, of course, after the date of the Separation Agreement). This finding was not challenged on appeal. 34 The consequence of the finding is in my view that the five parties to the Separation Agreement are to be taken as having treated their inchoate rights to a judgment for $21,348 and to costs orders, and the actual rights to the judgment debt and costs into which those inchoate rights matured, as assets of the Forsythe Old partnership of which they comprised the members. I thus reject the submission of Page made on the appeal that such rights as these five people had in this respect were personal assets and not intended to be dealt with by the Separation Agreement relating to their partnership. Even if the rights were personal assets at the outset, the five people treated the rights as partnership assets because they bound themselves by the Separation Agreement to a procedure for determination of the balance sheet of the partnership which came to identify the assets as partnership property. They having agreed to the rights being partnership property, the rights are to be so regarded. 35 I also reject the submission made on behalf of Page that the Separation Agreement did not effect an equitable assignment because there was nothing then in existence to assign (judgment not having been entered and cost orders not having been made). Whilst there were no crystallised rights to judgment or to cost orders at the date of the Separation Agreement, there were bases for expecting that those rights would come into existence. If, as I conclude below, the five partners are to be regarded as having agreed by the Separation Agreement to assign those expectancies, or at least any rights to which they gave rise, that was sufficient to effect an assignment in equity when the rights came into existence, the Agreement being one for consideration (see generally Meagher Gummow & Lehane's Equity: Doctrines and Remedies, 4th ed (2002) Butterworths [6 - 190 to 330]). 36 The contention is then made on behalf of Page that the primary judge erred in concluding that on its true construction the Separation Agreement displayed an intention that there be assigned to McKensey, Lewis and Hicks, the shares of Nelson and Hewitt of such rights, whether inchoate or crystallised, as existed to judgment for $21,348 and orders for costs. Page complained that the primary judge did not make his reasoning clear. I do not agree. The effect of what the primary judge did was to indicate what his overall impression was (and that was to the effect that the continuing partners were to be entitled to all the assets of the partnership other than those specifically earmarked for the retiring partners) and that he would then consider whether there was any particular matter which would dispel that impression. He did not expressly state what the result of that consideration was but it is implicit in his judgment that he concluded that there was no such matter. In my view, the primary judge's view as to the overall structure of the Separation Agreement was correct. There being no provision for the subject rights to be taken by the retiring partners, it is clear to my mind that the intent was that the whole of the rights remain with the continuing partners. Thus, the agreement manifested an intent to effect an assignment of the shares of Nelson and Hewitt of those rights, as found by the primary judge. 37 Clause 12 of the Agreement was in the following terms: "The Retiring Partners will pay to Forsythes (New) upon written request, twenty (20) per centum of any payment or payments made by Forsythes (New) after 28 August 1994, to other parties, in connection with the action in the Supreme Court of New South Wales by Geoffrey Francis Page against Forsythes (Old), within thirty days of Forsythes (New) making such payment or payments." 38 Page submitted that clause 12 indicated that the Agreement was not intended to effect an assignment of the shares of Nelson and Hewitt in the relevant rights. I do not accept this submission. By clause 8 (see [29] above) Nelson and Hewitt were to be paid out their share of the capital and current accounts. As the balance sheet (as ultimately determined by the arbitrator) credited the full amount of the judgment and costs orders as partnership assets, the consequence of clause 12 was that Nelson and Hewitt would be paid for the whole of their shares of those assets. The inclusion of a provision such as clause 12 made sense. Its effect was that if additional costs were incurred in pursuing Page, then Nelson and Hewitt would have to pay their share of those costs. This was not obviously unfair in circumstances where they were to receive full payment for the assets in the balance sheet in advance of the receipt of cash and were, by clause 8, to indirectly receive their share of any amounts received from Page additional to those included as assets in the balance sheet as at 28 August 1994. This was to occur by reason of the provision for adjustment incorporated in clause 8. The occasion for adjustment might arise, for example, if amounts received on taxation of costs exceeded estimates included in the balance sheet. 39 Clause 12 does not therefore in my view suggest that the Forsythes New partnership was not to own the whole of the rights to the judgment and costs orders when obtained. Clauses 8 and 12 indicate the contrary. Nelson and Hewitt were not to receive directly any part of additional amounts paid by Page. Their entitlement was to be a purely indirect one by way of an adjustment to their retirement payments. 40 Page relied in this context upon the decision in Re Frank Hill [1921] 2 KB 831 for the proposition that "retirement and accretion does not of itself effect an alteration of parties or of ownership of rights for the purposes of enforcement against third parties". In that case there was a judgment in favour of a firm which at the time of judgment comprised four partners. One partner retired before an attempt was made to enforce the judgment. It was held that the firm was entitled to enforce the judgment without leave of the Court notwithstanding that the members of the firm had reduced from four to three. It was said that there had been no "change … in the parties entitled … to execution" within the meaning of that expression in the counterpart to Rule 39.1 of the Uniform Civil Procedure Rules (see [20] above). The decision appears to have turned upon the fact that the judgment was (unlike the present case) framed as one in favour of the firm rather than the persons who comprised the firm, but in any event the Court did not consider the terms upon which the retiring partner left the partnership and whether ownership of his portion of the joint judgment debt passed to the continuing partners. I do not regard that decision as of any assistance to Page.

[21]

Effect of the Deed of Indemnity and Release 41 The primary judge said that if the effect of the Separation Agreement was as he held it to be, it was unnecessary to consider the effect of the Deed of Indemnity and Release. He said this upon the basis that at the date of the Deed of Indemnity and Release there would not, on this assumption, have been any rights held by Nelson and Hewitt to release, the rights having already been assigned by them by means of the Separation Agreement. 42 The primary judge nevertheless expressed the view that if Nelson and Hewitt had had any rights to release, the Deed of Indemnity and Release would have been effective to release those rights. He also said that "in the absence of fraud a release of a judgment debt by one of several joint judgment creditors operates to release the joint judgment debt". On this basis, if Nelson and Hewitt had still held their rights at the date of the Deed of Indemnity and Release, the rights of all five joint creditors in respect of the judgment debt and costs orders would have been released. There was no challenge to these contingent findings but, as I consider that the primary judge was correct in his conclusions as to the Separation Agreement, they do not assist Page on this appeal. 43 It was contended on behalf of Page on the appeal that the Deed of Indemnity and Release was relevant even if there had been an earlier equitable assignment, because legal interests in the judgment debt and costs orders would have remained with Nelson and Hewitt and have been available to be released by them. The consequence would arguably have been that the rights of all five creditors would have been released by the Deed of Indemnity and Release. 44 McKensey, Lewis and Hicks objected to this point being raised for the first time on appeal because they said it would have affected the course of proceedings if raised at first instance. In particular, it was put that it might have been relevant to the efficacy of the release, in circumstances where Nelson and Hewitt held legal interests and McKensey, Lewis and Hicks held equitable interests, to explore whether Nelson and Hewitt would have been in breach of duties as trustees of the legal interests in releasing them and to explore the extent to which Page may have had knowledge of the Deed of Separation and of facts indicating a breach of such duties. 45 The references given on appeal by Page to submissions made at first instance do not in my view indicate that the point was raised before Windeyer J. Further, I agree with McKensey, Lewis and Hicks that there were factual matters which may have arisen if the point had been taken. It was put on behalf of Page that he was in fact cross-examined about his knowledge of the Separation Agreement but I do not see this topic as covering the full ambit of the factual issues that may have arisen and, in any event, McKensey, Lewis and Hicks were entitled to conduct the cross-examination with knowledge of the new point to which it might have been relevant. 46 In these circumstances, the point is not one which Page should be allowed to raise on appeal (CGU Insurance v AMP Financial Planning [2007] HCA 36; (2007) 235 CLR 1 at [241]; Coulton v Holcombe [1986] HCA 33; (1986) 162 CLR 1 at 7-8; Suttor v Gundowda [1950] HCA 35; (1950) 81 CLR 418 at 438).

[22]

Disentitling Conduct 47 Page further contended that the discretionary grant of leave to enforce the judgment and costs orders should be refused upon the basis that McKensey, Lewis and Hicks did not have clean hands and were guilty of disentitling conduct. The conduct relied upon fell into two categories. 48 The first category of conduct relied upon was alleged conduct on the part of McKensey, Lewis and Hicks (presumably also Nelson and Hewitt, if that had been relevant) in obtaining the subject judgment against Page for $21,348 by fraud, it being alleged that knowingly false evidence had been relied upon. 49 The primary judge rejected this contention and said that the: " … claim was nothing other than an attempt to raise a claim that the original judgment valuing goodwill was obtained by fraud an action based upon that claim having been discontinued. I refuse to allow evidence on that issue as to allow it would be to allow an allegation to impugn the judgment on the ground of fraud without a freshly pleaded action" (at [32]). 50 In my view it was open to the primary judge to take the view that a properly constituted action to set aside the original judgment for fraud was the appropriate mechanism for Page to pursue the fraud allegation. His Honour was dealing with an interlocutory motion to enforce a judgment (and costs orders). The hearing of that motion was an inappropriate occasion for the hearing of what would have been substantial litigation involving contested issues of fact as to the circumstances in which the judgment was obtained many years earlier. Especially is this so when it would have been possible in an action to set aside the judgment for fraud for Page to have sought a stay of enforcement of the judgment if he could have satisfied the Court that he had a substantial case to be tried and that the balance of convenience favoured a stay. Thus Page did not suffer any prejudice by not being permitted to raise the issue at the hearing of the motion before Windeyer J. 51 The second category of disentitling conduct relied upon was the alleged claiming by Forsythes Old (the five member partnership) of tax deductions for legal expenses in connection with the proceedings brought by Page against the five persons. It was contended that these were not proper tax deductions because they were not costs of the Forsythes Old partnership business (but were personal expenses) and in any event were capital expenses in excess of the amount allowed to be deducted by the Income Tax Assessment Act 1936 (Cth). It was said that, being accountants, McKensey, Lewis and Hicks should each have known that deductions were not permissible. 52 The primary judge dealt with this issue in his judgment of 22 February 2008. An application was made by Page after the conclusion of the hearing of the Notices of Motion referred to in [20-2] above to reopen his case to lead evidence relevant to this alleged disentitling conduct. His Honour relied upon a variety of factors in concluding that his discretion should be exercised against allowing the reopening. In my view the appellant did not identify any matter which would warrant interference by this Court with his Honour's exercise of discretion (see House v The King [1936] HCA 40; (1936) 55 CLR 499).

[23]

Interest on Costs Orders 53 One of the orders sought in McKensey, Lewis and Hicks' Amended Notice of Motion of 14 September 2007 (see [20-1] above) was that Page should be ordered to pay interest on each of the four costs orders, from 27 April 1996. The primary judge made this order in respect of his costs order of 15 March 1996 and apparently in relation to that made by Bryson J on 26 April 1996. The position in relation to the latter is not entirely clear (compare order 12 of the orders made below on 4 March 2008) but there is no complaint by McKensey, Lewis and Hicks in their cross-appeal as to any inadequacy of the orders in this respect. 54 The primary judge declined to make any enforcement orders (and, by implication, any order for payment of interest) in respect of the two costs orders of the Court of Appeal, on the basis that it was not within the power of a trial judge to do so. This point is dealt with below. 55 What the primary judge said in his judgment of 4 March 2008 about interest on the costs orders was as follows: "7 I have been addressed on the question of interest on costs. Mr Burton SC has said that there has been a long delay in the assessment of costs which has not been the fault of his client. To some extent that is certainly so, because the matter was in abeyance while five partners of Forsythes Old fought out a new action among themselves. The fact is, however, that Mr Page has, if you like, had the benefit of not having to pay the costs and the other parties have not had the benefit of obtaining the costs. In my view, as all the costs had been paid prior to 27 April 1996, and, in fact, had been paid two years before that date, it is, I think, proper that the costs should bear interest from that date and I will also so order." 56 The appellant emphasised the long period that had elapsed between the making of the costs order and the order for interest but, as is evident from the above extract from the primary judge's reasons, his Honour took this "long delay" into account in the exercise of his discretion. In my view, there is accordingly no basis for interfering with the primary judge's decision on this point and the appellant was not able to identify any other matter which would warrant appellate intervention consistent with the principles in House v The King. 57 Accordingly, the primary judge's decision on interest should stand.

[27]

Court of Appeal Costs Orders 68 The orders sought by McKensey, Lewis and Hicks for leave to enforce and for interest extended to the two costs orders made in the Court of Appeal (see [10-1] above). In his judgment of 28 February 2008, one of those from which the present appeal is brought, Windeyer J declined to make any orders referrable to those Court of Appeal costs orders upon the ground that it was not within his power as a Judge of the Equity Division to do so (Judgment [22]). This view was challenged on appeal but I agree that it expressed the position correctly. 69 As an alternative approach, McKensey, Lewis and Hicks filed a Notice of Motion in the original Court of Appeal proceedings in which the costs orders were made, seeking appropriate orders as to enforcement and interest. This Motion was for hearing together with the appeal from the decisions of Windeyer J referred to at [3] above. The substantive issues on the appeal having been resolved in favour of McKensey, Lewis and Hicks, it follows, subject to any procedural barriers that may lie in their path, that it is appropriate that orders be made in respect of the two Court of Appeal costs orders mirroring those made by Windeyer J in respect of the other costs orders, namely, orders as to enforcement and the payment of interest. 70 Page contended that McKensey, Lewis and Hicks required the leave of the Court under s 134 Civil Procedure Act 2005 as enforcement of a judgment (which under s 3 includes costs orders) was being sought more than 12 years after the judgment was given. The Notice of Motion referred to in the preceding paragraph was filed on 5 March 2009 and the costs orders were made by the Court of Appeal on 28 February 1995 and 29 January 1996. In my view, leave to enforce the costs orders should be given. Page has been on notice for some years of McKensey, Lewis and Hicks' application for leave to enforce the costs orders. The procedural hurdle encountered by Windeyer J's inability to make the requisite order should not in my view hinder the grant of leave to enforce, bearing in mind that the resolution of the issues on the appeal has demonstrated the substance of McKensey, Lewis and Hicks' entitlement to enforce.

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