PORTELLOS v CHAPLEY AND CHAPLEY No. SCGRG-00-15 [2000] SASC 56

Supreme Court of SA|2000-03-08|Before: Debelle J, Lander J, Bleby J

The application to strike out the third party claim proceeded on the footing that the Bank settlement deed would be formally executed by the Bank and the appellant. The Magistrate reserved his decision, and for written reasons subsequently published, directed that the appellant's third party claim be struck out and that he pay the third party costs to be agreed or taxed. The appellant appeals against that order.

Something else needs to be said about the nature of the application before the Magistrate. As I have said, it was an oral application. It did not take the form of an application for summary judgment under r 8, Magistrates Court Rules, and the Magistrate did not purport to enter judgment for the respondents on the third party claim. I mention this because the respondents' written outline of argument suggests that the Rule under which the Magistrate was acting was indeed r 8, and that the appellant did not have a good action against the respondents "on the merits on any possible view of the facts or law" (r 8(1)(C)). Had the matter proceeded under that Rule and had judgment been entered accordingly, the proceedings would not have been interlocutory: Nassar v Australian Telecommunications Corporation (Unreported, Debelle J, 4 March 1993 Judgment No S3842). In those circumstances, the respondents would not have been at liberty to argue, as they did, that the Magistrate's order was an interlocutory order for which leave to appeal was required. It would appear that in fact the Magistrate was acting under r 12(3) and (4) of the , and was invited to strike out the third party claim as disclosing no reasonable cause of action.

The appellant's notice of appeal was filed within the time prescribed by the Rules but at the hearing before me counsel for the respondent argued, and counsel for the appellant conceded, that the appeal was against an interlocutory order, and required either a certificate from the Magistrate under Rule 96B.02(1) of the Supreme Court Rules or leave to be granted by a judge in chambers under Rule 96B.02(2). Neither such course had been followed.

Counsel for the appellant claimed that this was an oversight on the part of the appellant's legal advisers. In view of the fact that both parties were represented and were prepared to argue the substance of the appeal, and in view of the fact that the respondents did not seek to allege that they were otherwise prejudiced by the failure to obtain the certificate or to seek leave, I decided to follow the course adopted by Lander J in Nash and Nash v Lapins (Unreported, 27 August 1997 Judgment No S6345), and to treat the Notice of Appeal as an application for leave to appeal. Counsel then addressed me both on the application for leave to appeal under merits of the appeal.

When considering whether or not to grant leave to appeal in Nash, Lander J said, at 2:

"The purpose of Rule 96B.02 is to discourage appeals being brought from decisions on interlocutory matters because such appeals necessarily increase the cost to the parties of the litigation and, at the same time, interfere with the orderly disposal of the action. Actions in the Magistrates Court are meant to be disposed of as expeditiously and with as little cost to the parties as possible. Appeals to this court from interlocutory decisions will necessarily add to the cost of the action and prolong the litigation itself. The rule contemplates that leave would usually only be given in relation to appeals from interlocutory decisions where this court is satisfied that there is a point of law of difficulty or of importance or the particular decision is of sufficient importance to warrant an interlocutory appeal being dealt with before final judgment in the action."

I was referred to a number of authorities on granting leave to appeal against interlocutory orders in other jurisdictions. In Hi-Fert Pty Ltd v Kiukiang Maritime Carriers Inc (No 2) (1998) 155 ALR 328, Beaumont J (at 329) seems to have adopted from an earlier Full Federal Court decision a test based on fairness and justice. Emmett J (with whom Branson J agreed), at 343, drew a distinction between interlocutory decisions on matters of pure procedure, and those which determined a substantive right.

Nader J in the Supreme Court of the Northern Territory in Nationwide News Pty Ltd v Bradshaw (1986) 84 FLR 49, after referring to Victorian and English authorities, seems to have adopted a more stringent test, namely that there must be real doubt about the correctness of the decision and that if it is wrong, substantial injustice may or will flow if leave to appeal is not granted (see 59 - 61). Finally, in Jingellic Minerals NL v Abigroup Ltd (1992) 7 WAR 566, Franklyn J (with whom Walsh J agreed), after reviewing the authorities, considered (at 571) that the test in Nationwide News was not exhaustive, but that leave would seldom be granted in the absence of "injustice of some substance".

In the circumstances prevailing in this jurisdiction I prefer the formulation of Lander J in Nash. One of the avenues by which an appeal against an interlocutory order made by a magistrate can be brought is under Rule 96B.02(1). That is where a magistrate certifies that the proposed appeal involves:

"(a) A point of law of difficulty or importance; or (emphasis added) (b) A point of sufficient importance in the proceedings to warrant an interlocutory appeal being dealt with before its final judgment in the action."

The alternative avenue is by obtaining leave from the Supreme Court. In my opinion it is appropriate and consistency requires that a single judge of the Supreme Court apply the same criteria which magistrates must apply under the rule. The dictum of Lander J in Nash reflects this. I propose to act accordingly.

There are difficult and, for the proper resolution of the case, important questions which have caused some confusion, as revealed by the arguments before me, as to what contractual and other rights of the Bank are subrogated to the appellant. Unless that confusion is clarified, there is a risk that the conduct of the proceedings will continue in their somewhat confused state, with a risk of injustice occurring. Furthermore, for reasons which will become apparent, the Magistrate made an error of law in ordering the claim to be struck out. His reasons for doing so were also defective and were such that, if they were to stand, there would be no justification for giving leave to the appellant to file an amended third party claim. In practical terms, the appellant might thereby be effectively denied a possible remedy open to him. That would constitute a serious miscarriage of justice, and is a point of sufficient importance to warrant an interlocutory appeal being dealt with before final judgment. In all those circumstances it is appropriate that the appellant should be granted leave to appeal.

There are two key observations in the Magistrate's reasons which require examination. The Magistrate regarded as "decisive" that by the Deed of Settlement with the Bank "it must be inferred that the defendant is relinquishing any argument he had concerning the contract for the equipment" and that the appellant "must now be abandoning any arguable defence or third party claim based on the formation of a contract".

By admitting liability to the Bank in full, the appellant formally abandoned his defence to the Bank's claim. It will be remembered that, in essence, that defence was that he had been relieved of his obligations as guarantor by virtue of the Bank having sold the plant and equipment to the partnership for $17,000. His admission of liability to the Bank could be on one of two possible bases: either he was no longer alleging a contract of sale between the Bank and the partnership (the inference apparently drawn by the Magistrate) or he still maintained the existence of a contract but the fact of that contract did not relieve him of his liability as guarantor to the Bank. Neither the pleadings nor the Bank settlement deed committed the appellant to any particular basis for his admission of liability. Indeed, it would appear that he continued to maintain that there was a contract between the Bank and the partnership, given that the Deed assigned to him any claims and causes the Bank may have against any other person, and given the inference arising from the clauses which I have quoted, namely that he intends to pursue the third party claim or any subrogated claim that he might have. It cannot be inferred, as the Magistrate seems to have suggested, that the appellant had relinquished any argument he had concerning the existence of the contract for the plant and equipment.

The next crucial observation made by the Magistrate is that pursuant to the Bank settlement deed, and because the appellant had agreed to the pay the Bank any excess he recovers over the $6,000 and costs, should he be successful against the respondents, "he has agreed to again pay the Bank a substantiated amount, notwithstanding that he says that he has already purchased the goods and paid the Bank through his renegotiated finance". There is nothing in any of the pleadings or in the Bank settlement deed to suggest that the appellant or anyone else has paid the Bank for the plant and equipment. Indeed, any such allegation is carefully avoided. On the pleadings as they stand, it was not open to the Magistrate to reach that conclusion of fact. Nevertheless, it was because of that finding that the Magistrate concluded that the appellant was "asking the Court to allow him to proceed against the third parties so that, should he succeed, he can then doubly enrich the Bank". Such a conclusion is not open on the pleadings. It cannot follow, as the Magistrate sought to conclude, that as a result of the compromise, the appellant must now be abandoning any arguable third party claim based on the formation of a contract.

The reasons given by the Magistrate do not justify the striking out of the third party claim. I have already indicated that there existed good reason, independently of the appellant's settlement with the Bank, for striking out that part of the third party claim which seeks an indemnity based on the contract with the Bank and the property settlement deed between the partners. Without more, that would dispose of paragraphs 1.1 - 1.10 of the amended third party claim. So far as the claim based on subrogation is concerned, that is contained in paragraph 1.11 of the third party claim, but it relies on some of the allegations contained in paragraphs 1.1 to 1.10 inclusive. I have indicated that it is defective in a number of respects, but that it does not fail to disclose a cause of action against the first respondent. It does so fail against the second respondent.

Because the third party claim does not fail to disclose a cause of action, there was no justification, beyond the flawed reasons given by the Magistrate, for striking it out, although plainly it needs substantial amendment. In my opinion the Magistrate should have intimated that he would strike out the third party claim unless, within a time determined by the Court, the appellant sought leave to amend the third party claim so as to plead only the claim based on subrogation, properly particularised, and to specify the relief being sought.

In the circumstances I think it appropriate that the appeal should be allowed, the order of the Magistrate set aside and the matter remitted to the Magistrates Court to enable that Court to make and supervise the orders that are necessary.

Thus far I have only been concerned with the claim of the appellant based on his equitable rights of subrogation independently of the Bank settlement deed. The appellant may well now wish to plead, by way of alternative, his claim against the first respondent based on the assignment of the Bank's claims pursuant to clause 2.3.6 of the Bank settlement deed. It will be for the Magistrates Court to determine any application for leave to amend to include such a claim. However, as presently advised, I would see no difficulty in joining such a claim if, as I assume, it would be based on identical facts. Indeed r 35(5) of the Magistrates Court Rules might suggest that such course is appropriate.

It is also apparent from what I have said that the second respondent may have a case to apply for summary judgment under Rule 8 of the Magistrates Court Rules unless the pleading as amended takes an unexpected turn. That will be for the Magistrates Court to determine if such an application is made.

Magistrates Court Rules 1991(SA)r 8, r, r 12(3), r

Partnership Act 1891(SA)s 12, referred

Supreme Court Rules 1987(SA)r 96B.02, referred

Magistrates Court Rules 1991(SA)r 8, r, r 12(3), r

Partnership Act 1891(SA)s 12, referred

Supreme Court Rules 1987(SA)r 96B.02, referred

Judgment No. [2000] SASC 56

By his amended defence the appellant admitted the guarantee, did not admit the events giving rise to his alleged liability under the guarantee, but denied liability on the ground that a partnership, of which he was a member, had purchased the plant and equipment the subject of the Asset Purchase Agreement from the Bank for the sum of $17,000, being an amount which then equalled or exceeded the customers' liability to the Bank. He claimed that the appellant's liability to the Bank as guarantor was thereby extinguished. In the alternative, he alleged that the Bank, by not completing the sale agreement to the partnership, and by subsequently selling the plant and equipment at auction for a much lower sum, had breached his duty to the appellant in a number of respects and had failed to mitigate its loss. By that plea I take the appellant to have been alleging neglect or default on the part of the Bank and that he was entitled to be credited with the deficiency upon the basis stated by Dixon J in Williams v Frayne [1937] HCA 16; (1937) 58 CLR 710 at 738:

In Buckeridge v Mercantile Credits Ltd [1981] HCA 62; (1981) 147 CLR 654 Aickin J, with whom Gibbs CJ and Wilson J agreed, at 668 - 669 adopted the following passage from Rowlatt on Principal and Surety 3rd ed (1936) p205:

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