Cuming v Hennessy [2005] NSWSC 1219

New South Wales Supreme Court

CITATION : Cuming v Hennessy [2005] NSWSC 1219

HEARING DATE(S) : 28/11/05

JUDGMENT DATE : 28 November 2005

JURISDICTION : Equity Division

JUDGMENT OF : Young CJ in Eq

DECISION : Dismiss application to appoint receiver; Order that parties proceed to mediation.

CATCHWORDS : PARTNERSHIP [37]- Application for appointment of interim receiver to partnership- Question as to whether partnership existed- Partnership dissolved- Whether where partnership is dissolved there is presumption that receiver be appointed as matter of course- Prima facie case must be made out for appointment- Discussion of factors involved in appointment of receiver to dissolved partnership.

Davey v Donnelly (M McLelland J, 16 May 1991, unreported) Moloney v Piachniarski (2004) ACSR 564 CASES CITED : Rowlands v Macdonald [2002] NSWSC 282 Tate v Barry (1928) 28 SR (NSW) 380

James Stewart Cuming (P) PARTIES : Paul James Hennessy (D)

FILE NUMBER(S) : SC 5738/05

P Dowdy (P) COUNSEL : B J Burke (D)

Henry Davis York (P) SOLICITORS : Shaw McDonald Pty Ltd (D)

LOWER COURT JURISDICTION :

IN THE SUPREME COURT OF NEW SOUTH WALES EQUITY DIVISION

YOUNG CJ in EQ

Monday 28 November 2005

5738/05 – CUMING v HENNESSY JUDGMENT 1 HIS HONOUR: This is an application for the appointment of an interim receiver and manager following the breakdown of a relationship between two accountants. The evidence as to whether the accountants were in association or in a formal partnership is not such as one could, without testing, make a decision on the balance of probabilities. However, for the purpose of appointment of an interim receiver, or for an injunction, one merely looks to see whether the plaintiff has set up a prima facie case that there is a partnership. 2 Despite substantial material going the other way, in my view, there is sufficient to show that there is a prima facie case that there was a partnership. There is no doubt that the partnership, if it did exist, has come to an end, the date of dissolution being 4 November 2005. 3 The defendant is in occupation of the former sub-leased premises in which the plaintiff and the defendant practised their profession. The plaintiff is not happy with this. He is particularly not happy with the fact that his mother-in-law tells him that when inquiries were made of the plaintiff at the former firm's phone number a very unhelpful response was given by the receptionist to the effect that she did not know where he was, which one would think could not have had much veracity about it. 4 I will refer to the relationship as "partnership", but that is merely a tag for the purpose of this judgment and I do not mean to create any estoppel one way or the other. 5 The partnership was a very small one. The figures that I have seen, which may need auditing and verification, indicate that there were only two assets, namely, the sub-lease of a city building and work in progress. The work in progress and income of the partnership would not seem to be even as much as a quarter of a million dollars, but that, of course, will have to be verified in due course. 6 The significance of that remark is that one must be very careful when there is a partnership with only modest assets, and where the income is likely to be very small, to put in a receiver because the current scale of fees of receivers is $480 to $520 an hour for a principal, with pro rata for lesser mortals in the receiver's organisation. Taking time for familiarisation and looking at the figures, it does not take very long for one hundred hours work to be done and that can mean a bill of up to $50,000. It is unfair to ask a receiver to take such a task on-board unless he or she has some security for the fees. That is why in small partnership matters I usually require that where there is a dispute between partners as to whether a receiver is necessary, and one partner insists on it, that that partner post a bond so that in the first instance the first one hundred hours' work of the receiver is secured. 7 The traditional law is as M McLelland J said in Davey v Donnelly (16 May 1991, unreported): "Where there are proceedings for the winding up of a partnership, the existence and dissolution of which are not in contest, the plaintiffs are, generally speaking, entitled to have an interim receiver appointed almost as a matter of course. ... The rationale of this rule is that no partner has any greater right than the others to wind up the partnership affairs to the exclusion of those others. Nevertheless, the Court has an over-riding discretion in the matter, and for substantial cause shown will refuse, or limit the terms of, the appointment of a receiver." 8 That statement was based on the case of Tate v Barry (1928) 28 SR (NSW) 380 at 383, and on the then current edition of Lindley on Partnership. 9 However, as Mr Burke for the defendant has reminded me, the current edition of Lindley, the 19th, has modified that statement and in the 18th edition, at paragraph 23.160, the learned editor says: "Lord Lindley's use of the expression "almost as a matter of course" in relation to appointments following a general dissolution should not be taken too literally: there is nothing approaching a presumption that a receiver will be appointed in such a case and sufficient ground will always have to be shown, as the Court of Appeal made clear in Toker v Akgul (2 November 1995, unreported)." 10 That attitude was adopted by Barrett J in this Court in Rowlands v Macdonald [2002] NSWSC 282 and by Le Miere J in Western Australia in Moloney v Piachniarski (2004) 51 ACSR 564 at 573. 11 It seems to me that in the light of those more recent developments I should accept the submission that the previous way of approaching the matter, as exemplified by what M McLelland J said in Davey's case, has, fourteen years later, been modified. 12 What then are the factors that require the appointment of a receiver? 13 The first is that the partnership, if it be a partnership, has come to an end and that Mr Hennessy, the defendant, is in control of what is happening. He has the de facto administration of the winding up. He is also in a position where he can dissuade clients, as appears to be happening by the mother-in-law's hearsay evidence. Obviously the plaintiff is not happy with these arrangements. On the other hand, Mr Hennessy has proposed a scheme for winding up, which has been rejected by Mr Cuming, the plaintiff, mainly, it would seem, on the basis that it gives too much control to Mr Hennessy. 14 The case cries out for mediation, and I am glad to say that both parties have now agreed that there be a mediation. 15 As I have said, the assets of the partnership are relatively small; the costs of a receiver are fairly great. I would have thought that if the parties were using only the commercial part of their brains, and not the emotional part of their brains, there would not be too much difficulty in working out a system whereby work in progress and allied matters could be finalised in a far more inexpensive way than by putting in a receiver. There is no threat that the capital assets of the partnership are being diminished. Mr Cuming, the plaintiff, has offered to put up a bond of $50,000, but only in seven days' time. 16 It seems to me that the way forward is to put hope in a successful mediation and that no receiver should be appointed, unless such mediation breaks down. 17 Mr Dowdy for the plaintiff asked me to decide the matter of a receivership today. In my view, the factors do not warrant the putting in of a receiver at this stage. However, after there have been bona fide attempts by both sides at mediation, or if the facts come out differently than they are at the moment, it may be that the court would review the position. 18 Accordingly, I dismiss the application for putting in a receiver and I will order that the parties proceed to mediation. I stand the matter over to Wednesday 30 November 2005 at 9.50am for the purpose of short minutes being brought in.