On 16 March 2017, I made final orders in this matter. Before doing so, I heard an application by the defendants. The application was treated as having been made by a notice of motion filed in court by the defendants on 6 February 2017. However, that notice of motion merely sought an adjournment of the proceedings for a minimum period of four weeks. What the defendants really sought was to reopen the case and to have issues that they had only raised recently referred to an expert accountant, presumably acting as a referee for enquiry and report. I dismissed that application and indicated that I would give my reasons for doing so later. These are those reasons.
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Background
These proceedings concern the winding up of a partnership between the plaintiff and first defendant, who carried on a business together between August 2009 and December 2012, providing building and construction services, including civil works, demolition and excavation works. That business was carried on through the second defendant, a company controlled by the first defendant.
The proceedings have had a long and unnecessarily complicated history. That history was described in judgments I delivered on 13 July 2015 (Gazzana v Santamaria [2015] NSWSC 916) and 4 November 2016 (Gazzana v Santamaria (No 2) [2016] NSWSC 1555). It is not necessary to repeat that history here.
Relevantly, following the judgment I delivered on 13 July 2015, the court gave directions aimed at narrowing the remaining disputes between the parties concerning the partnership accounts. As part of the process contemplated by those directions, the parties prepared a sales ledger, an expenses ledger and a plant and equipment schedule. The court made and extended directions that put in place a mechanism designed to narrow the areas of dispute between the parties in relation to those ledgers and the schedule with the intention of avoiding the necessity of referring the matter to an independent accountant to finalise the accounts of the partnership.
There was considerable delay in progressing the matter. However, on 12 August 2016, the court made the following orders by consent:
1. The parties are to serve (on the other parties) any further documents in support of claims for expenses to be included as expenses of the partnership by 4pm 19 August 2016.
2. The documents served in accordance with Order 1 are to identify by reference the item number in the Expenses Ledger agreed on and used at the Settlement Meeting on 4 August 2016 to which they relate.
3. If order 1 and 2 are not complied with then the disputed expense will not be allowed and will not be treated or included as a partnership expense.
4. The parties are directed to exchange values for the machinery identified in Schedule A and C (as referred to in the Decision of Ball J of 15 August 2015) by 19 August 2015.
5. …
6. …
7. Prior to 1 September 2016 the parties are to provide to Justice Ball's Associate:
a. the Schedule of Expenses of the partnership that identifies any disputed expenses or entries; and
b. the Schedule of Sales of the partnership that identifies any disputed expenses or entries;
c. a statement of outstanding issues.
8. Prior to 5 September 2016 the parties are to serve on the other and provide to Justice Ball's Associate a short outline in respect of the statement of outstanding issues that identifies the basis (or grounds) on which any dispute entries are pressed or objected to.
9. ...
The Court Notes that:
A. The parties met as directed on 4 August 2016 and have resolved a significant number of the disputed matters in respect of the expenses of the partnership.
B. Orders 1, 2 and 3 are directed at providing a mechanism for the resolution of the disputed expenses that were resolved on the basis that:
i. documents would be produced evidencing the claim; and
ii. if no documents are produced then the claim is not pressed.
C. When the matter is next listed for hearing the parties intend to seek a date for the hearing of any outstanding issues so that the accounts of the partnership can be finalised.
On 16 September 2016, counsel for the plaintiff, Mr Bolger, sent to my Associate an email, which was copied to the solicitor to the defendants, enclosing a number of documents including a document headed "Plaintiff's List of Issues that Remain in Dispute re the Expenses and Sales Ledger", together with copies of the Partnership Expenses Ledger, the Partnership Sales Ledger and the Plant and Equipment Schedule. The ledgers were updated versions of the documents that had been discussed by the parties at their settlement meeting on 4 August 2016. The two ledgers were in the form of colour-coded spreadsheets. The Expenses Ledger included a column assigning a number to each item and a column indicating whether the item was agreed or not agreed. The Sales Ledger did not have a column showing whether, in respect of each amount identified in the ledger, it was agreed or not that that amount represented income of the partnership. However, in the notes column, only one amount was said to be disputed by the plaintiff.
The matter next came before the court on 19 September 2016. Both parties were represented at the time. At that time, Mr Bolger said:
BOLGER: The defendants, and I'll speak for them, have informed me this morning that they need an extra week to file their submissions.
There is now agreement in relation to the expenses ledger which is in the bundle that was provided to your chambers on Friday, as well as the sales ledger.
There is one outstanding issue in relation to the or ‑ sorry, there's a group of issues, four issues actually, in relation to the expenses ledger, but they all relate to the same category and that's a claim in relation to expenses being payment of a loan, or the home loan, electricity, water and council rates.
…
BOLGER: That's the only issue which remains outstanding. It's agreed no further evidence will be supplied by the defence in relation to that. They want an extra week to put their submissions on in relation to why they say that should be a partnership expense. Then the parties were ‑ I sought some short time for a reply to that submission which I've taken the lead on, despite being the defendants' claim. The parties were content if that issue was still pressed by the defendants for your Honour to make a determination in chambers.
In the light of that, the court directed that the defendant serve any submissions in relation to the outstanding issues by 26 September 2016 and that the plaintiff serve any submissions in response by 4 October 2016. As is apparent from what Mr Bolger said, the parties informed the court that they had agreed that the court should determine the outstanding issues on the papers.
It is apparent from the consent orders made on 12 August 2016, the documents provided to my Associate on 16 September 2016 and what Mr Bolger said in court on 19 September 2016, that the parties would place submissions before the court on all outstanding issues and that those issues would be resolved by the court. Those issues were the subject of my judgment dated 4 November 2016.
At the time of handing down that judgment, I stood the matter over until 9 December 2016 to hear submissions on the final form of the orders that should be made.
On 9 December 2016, the defendants made an application for an adjournment on the basis that their solicitor, Mr Russo, was in hospital following emergency surgery the previous Monday. I granted that adjournment until 6 February 2017.
On 6 February 2017, the court gave leave to the defendants to file in court the notice of motion seeking a further adjournment because of complications with Mr Russo's health. Mr Russo appeared at the time. During the course of submissions, Mr Russo submitted that the court could not make final orders because no financial accounts of the partnership had been drawn up and the final version of the ledgers did not include all expenses of the partnership. In particular, Mr Russo referred to the fact that GST had not been included on the value of goods and services supplied, that certain debts had not been included and that the payout figure on certain equipment leases had not been taken into account. In the light of those submissions, I stood the matter over until 16 March 2017 and gave directions for the filing of additional evidence by the parties.
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Consideration
The plaintiff conceded that no allowance was made in the accounts for GST and for the payout figures on equipment leases. The final orders sought by the plaintiff made adjustments to take account of those matters. Otherwise, the plaintiff disputed that any further adjustment should be made to the ledgers.
I concluded that, apart from the adjustments that the plaintiff agreed should be made, no further adjustments should be made to the ledgers and that orders generally in the form sought by the plaintiff should be made.
The defendants had filed no evidence which explained why, despite all that had happened, they should be entitled to raise matters that were not raised before I delivered judgment on 4 November 2016. Their evidence was largely confined to dealing with the substantive issues that they say remained in dispute.
It is plain that prior to the judgment I delivered on 4 November 2016, there was a process in place that was designed to narrow the scope of the issues between the parties and that any outstanding issues were to be dealt with by the court.
At one stage, it was contemplated that it would be necessary to refer the matter to an expert accountant to resolve outstanding issues concerning the accounts. However, an order for referral that was made by Pembroke J on 16 April 2014 was vacated by Darke J on 10 September 2014. No further order for referral was made or applied for and, indeed, as I have explained, the parties engaged in a process that was designed to avoid the necessity of referring the matter to an independent expert in order to save costs.
As part of that process, the defendants had ample opportunity to raise the matters that they sought to raise. With one exception, they did not do so. The exception related to liability for a judgment debt obtained by SBC Holdings Pty Ltd. That matter was dealt with in my judgment dated 4 November 2016. In that judgment, I observed that the debt was a partnership debt, but in circumstances where no judgment had been obtained against the first defendant and there was no evidence that the debt had been paid, it would not be appropriate to adjust the accounts of the partnership to take account of that debt. However, I left open the possibility that the first defendant would be entitled to claim contribution in respect of the debt if and when it was paid. No evidence was produced by the defendants at the hearing on 16 March 2017 that took the matter further.
In my opinion, it was too late for the defendants to raise the further issues that they sought to raise or to seek an order referring the matter to an independent accountant. The proceedings had been on foot for an extended period of time. The likelihood is that the costs of the parties were already disproportionate to the amount involved. There was a real question whether the first defendant has the financial ability to pay any judgment debt in the plaintiff's favour. As I have said, the defendants had had ample opportunities to raise the issues they sought to raise. The interests of justice required the proceedings to be brought to finality sooner rather than later.
It was for those reasons that I dismissed the defendants' application.
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Decision last updated: 17 March 2017