Garuccio v Costanzo - [2012] SADC 103

DISTRICT COURT OF SOUTH AUSTRALIA
(Civil)
GARUCCIO v COSTANZO & ANOR
[2012] SADC 103
Reasons of His Honour Judge Slattery
9 August 2012
PROCEDURE
Interlocutory application by defendant under r 228 for default judgment. Failure by the plaintiff to amend and file pleadings, file particulars and make discovery. Failure by the plaintiff to follow orders made by the court.
HELD: Application refused.
Real Property Act 1886 (SA) s 191(g); Partnership Act 1891 (SA) s 44, referred to.
District Court Civil Rules 2006 r 228, r 229, r 230, r 232, considered.

GARUCCIO v COSTANZO & ANOR
[2012] SADC 103
Factual basis

By a Summons filed on 26 April 2012 (FDN1) Christopher Daniel Garuccio (the plaintiff) sought orders pursuant to s 191(g) of the Real Property Act 1886 (SA) and r 34 and r 246 of the District Court Civil Rules 2006 (DCR) for an extension of time for removal of a caveat that he had lodged over a residential property owned by Sebastiano Gary and Maria Carmela Costanzo (the defendants). The Summons was supported by an affidavit sworn by Mr Garuccio dated 26 April 2012. In his affidavit, Mr Garuccio identified a partnership that he had previously carried on (personally) with Mr Costanzo. The partnership business was a greengrocery called ‘Daily Fresh Produce’.
In his affidavit (para 6) Mr Garuccio alleged that the partnership commenced in 2009 and at about the time the partners entered into an agreement with SA Produce Credit Pty Ltd (SAPC) for the provision of credit to assist the partnership business purchase stock in trade. Guarantees were given by Mr Garuccio, his wife, Mr Costanzo, Mrs Costanzo and other family members. A copy of the Guarantee was exhibited to the affidavit.
Under the terms of the Guarantee, the guarantors charged in favour of SAPC:
All our estate and interest in any land and in other assets, whether tangible or intangible, in which we now have any legal or beneficial interest, or in which we later acquire any such interest, with payment of all monies owed by [us] or any of us and consent to the lodging by [SAPC] of a caveat or caveats which note [SAPC’s] interest in that real property.
Mr Garuccio deposed that the partnership had terminated in April 2011, that there were debts owing at the termination of partnership (the dissolution), and that some of those debts had been discharged by Mr Garuccio. One of those debts included an amount of some $145,000.00 (or thereabouts) to SAPC. Mr Garuccio claimed to have a right to be subrogated to the position of SAPC as a secured creditor, to take advantage of the charging clause under that subrogation and to therefore have the ability to claim an interest in the land owned by Mr and Mrs Costanzo.
There were also assertions in the affidavit about an acknowledgement of debt allegedly signed by Mr Costanzo, details of the caveat that had been lodged to protect the interest in land claimed by Mr Garuccio (the land owned by Mr and Mrs Costanzo), the sale of that property, the prejudice to be suffered, and the need for urgent orders to protect the interests of Mr Garuccio.
The matter came before Judge Beazley of this Court on 26 April. It appears that the matter was heard ex-parte.
His Honour was prepared to make orders on an interim basis only to protect the alleged interests of Mr Garuccio. The time for removal of the caveat was extended only until Friday 18 May 2012 and further consideration of the application was adjourned until Thursday 10 May 2012 before Judge Tilmouth.
Following the orders made by Judge Beazley, an affidavit was filed on behalf of Mr Costanzo (FDN5). That affidavit is dated 7 May 2012. It is unnecessary for current purposes to specify in detail the content of the affidavit. It is sufficient to say that Mr Costanzo:
1.denied the veracity of the alleged acknowledgement of debt. He alleged that if there is a signature upon that document, then that signature is forged;
2.[in that connection, he] alleged that he has had no contact with Mr Garuccio since about December 2011 and has had no personal contact with Mr Garuccio since April 2011, the date upon which the partnership dissolved. Mr Costanzo alleged that there has never been an occasion for he and Mr Garuccio to meet, to discuss any acknowledgement of debt, to prepare any document, or to sign any document;
3.deposed that having regard to the proximity of sale of his family home, the fact that the caveat was not a permissive, but was a prohibitive caveat and the need to sell their family home to pay their creditors, he had (very reluctantly) agreed for the proceeds of sale to be paid into court.
Mr Costanzo also deposed that there was a real urgency in the position of he and his wife. He alleged that they were indebted to friends and family concerning the money that they had put into the partnership and were now required to repay.
In the Interlocutory Application, which accompanied the affidavit (FDN7) dated 7 May 2012, Mr Costanzo (at that time he was the only defendant in the proceedings) sought the following orders:
1.   That this application be made specially returnable to 10 May 2012 at 9.15am.
2.   That the Court make an order for the urgent determination on the issue of whether the alleged Acknowledgement of Debt document (Exhibit CDG1 to the affidavit of Christopher Daniel Garuccio sworn 26 April 2011), which is relied upon by the Plaintiff in lodging a caveat on the Defendant’s property (and in any subsequent right or interest in the proceeds of sale of that property paid into the Suitor’s Fund) is a forgery.
3.   That the Court make orders necessary and appropriate to ensure the determination of the above issue as a matter of urgency, including:
3.1That the Plaintiff file affidavit material within 7 days identifying precise details of where, when and by whom the alleged Acknowledgement of Debt was executed.
3.2That the Defendant file any affidavit material relied upon within 14 days after service of the Plaintiff’s affidavit material.
3.3That the proceedings otherwise be adjourned for 28 days to consider the issue of service of expert reports as appropriate and listing a trial date for determination of this issue.
4.   Such further or other orders as the Honourable Court deems fit.
Subsequent to the filing of the Interlocutory Application (FDN7) by Mr Costanzo, no further affidavit material was lodged by, or on behalf of, Mr Garuccio concerning the topics raised in the affidavit of Mr Costanzo (FDN5).
The matter then came before Judge Tilmouth for further directions on 10 May 2012. His Honour indicated a willingness to list the matter for an early trial and asked for some proposed Minutes of Order.
At a Directions Hearing held on 17 May 2012 Judge Tilmouth made the following orders:
1.   The Proceeds shall remain in the Suitors Fund pending a determination by the court whether the plaintiff has any proprietary interest in the Proceeds, or may otherwise be released by order of the court.
2.   This action proceed on an urgent basis pursuant to 6R 119 of the District Court Civil Rules 2006.
3.   The plaintiff produce the original ‘Acknowledgement of Debt’ dated 10 March 2012 (a copy of which is exhibit ‘CDG1’ to the affidavit of Christopher Daniel Garuccio sworn 26 April 2012) to the Registry by 21 May 2012 (Original Acknowledgement of Debt). If the Original Acknowledgement of Debt cannot be produced by the plaintiff, the plaintiff is to file an affidavit by 4pm Wednesday 23 May 2012, deposing to the how and when the Original Acknowledgement of Debt left his possession and (if applicable) the efforts made by him to recover the document. In those circumstances the plaintiff must depose in the affidavit to when he made copies of the Original Acknowledgment of Debt and the whereabouts of those original copies.
4.   If the Original Acknowledgement of Debt is produced to the Registry, the Registry is to release the Original Acknowledgement of Debt into the custody of a solicitor for either party upon a letter of request executed by the parties’ solicitors being presented by that requesting solicitor to the Registry for the purpose of inspection by expert witnesses prior to the trial of this action. The letter of request is to identify the agreed period of time for which the document will be released to the requesting solicitor and upon that period expiring, the solicitor is to return the document to the Registry.
5.   Mrs Carmel Costanzo be joined as a second defendant to this action for the purpose of determining any interest she may have in the Proceeds.
6.   The plaintiff to file a Statement of Claim by 31 May 2012.
7.   The defendants to file a Defence and any Cross Action (Counterclaim) by 13 June 2012.
8.   The plaintiff to file any Reply and Defence to Cross Action (Counterclaim) by 20 June 2012.
9.   The parties to make mutual disclosure by 29 June 2012.
10.   The defendant file and serve any expert reports by 5 pm 13 July 2012 and the plaintiff by 5pm 27^th July 2012.
11.   The plaintiff to file any affidavits to be relied upon at trial by 13 July 2012.
12.   The defendants to file any affidavits to be relied upon at trial by 27 July 2012.
13.   The trial for this action be listed for three days to commence at 10am Wednesday 15 August 2012.
14.   The matter be adjourned for further directions on Monday 30 July @ 9.15am before Judge Tilmouth.
15.   Liberty to apply by any party on short notice.
Subsequent to that Directions Hearing Mr Garuccio filed an affidavit (FDN8) sworn 23 May 2012. In that affidavit he informed the Court that he did not have the original copy of the acknowledgement of debt, he indicated when he last had it and indicated that he did not know the location of the original copy.
In his Statement of Claim at para 6 Mr Garuccio alleged that there were agreed terms between he and Mr Costanzo concerning the dissolution as follows:
1.   Mr Garuccio would acquire the name Daily Fresh Produce and continue to operate a fruit and vegetable retail business from the business premises;
2.   The lease of the business premises from which the business of the partnership is operated would be assigned from the partnership to the plaintiff;
3.   Ownership of all stock on hand and all plant and equipment of the partnership would be transferred from the partnership to the plaintiff;
4.   Mr Garuccio and Mr Costanzo remain jointly and severally liable for the debts of the partnership to the date of termination of the partnership.
Mrs Costanzo was named as a second defendant.
After pleading the SAPC arrangements (paras 7-13), Mr Garuccio pleaded other debts of the partnership in the amount of about $190,000.00, the acknowledgement of the debt, the sale of Mr and Mrs Costanzo’s property, and their liability. Mr Garuccio claimed that Mr Costanzo was indebted to him in the amount of $194,919.00 and that he was entitled to the whole of Mr Costanzo’s share in the fund. Alternatively, there was a plea that Mr Costanzo was indebted to Mr Garuccio in the sum of $169,833.69 (although it is not entirely clear to me how that sum is calculated).
On 15 June 2012 Mr and Mrs Costanzo filed their Defence, a set off and a cross action (FDN11). They admitted the Guarantee to SAPC, pleaded that other persons also executed a Guarantee in favour of SAPC, denied that there was any right of subrogation, denied any allegation of a separate arrangement concerning the liabilities of the partners post dissolution of the partnership, denied any proprietary interest of Mr Garuccio in the property owned by them and claimed an entitlement for payment of the amount paid into court.
In their set off, Mr and Mrs Costanzo alleged that certain amounts were paid by the Costanzos in respect of the partnership liabilities. There is also a pleading on behalf of Mrs Costanzo that she had an entitlement to be paid her half share of the net proceeds of sale, she being a joint proprietor of that home prior to its sale.
In the cross action, Mr and Mrs Costanzo claim for amounts which were contributed to the partnership business (some $220,000.00) and an agreement made with Mr Garuccio (apparently contemporaneous with the dissolution of the partnership) that in consideration for Mr Garuccio taking the future benefit of all of the assets of the partnership business he would pay to Mr Costanzo the sum of $210,000.00:
… being representative of the amount the first defendant remained liable for under the business loan facility… (para 35 of the pleading).
Paragraph 36 of the pleading then pleads as follows:
36 despite request, the plaintiff has failed, refused, or neglected to pay to the first defendant the sum of $210,000.00.
The counterclaim then seeks a remedy of payment by Mr Garuccio to Mr Costanzo the sum of $210,000.00.
Rule 232 Application
Subsequently, Mr and Mrs Costanzo brought a further Application (FDN14) dated 20 June 2012. They sought summary judgment under r 232 on the grounds that there was no reasonable basis for the claim by Mr Garuccio in respect of Mrs Constanzo’s share in the proceeds of the sale of the property and for orders for payment out of that money. The application was supported by an affidavit of Mrs Costanzo, sworn 20 June 2012 (FDN12). Written submissions were also filed in support of that application.
The parties to the partnership
The matter came on for further hearing before Judge Tilmouth on 26 June 2012. At that hearing the solicitor acting on behalf of Mr Garuccio informed the court that there was a factual error in the pleaded Statement of Claim. It was suggested that the pleadings were deficient because of a failure to recognise that the parties had entered into the partnership arrangements as trustees of trusts. The application for summary judgment under r 232 could not proceed until the pleadings were brought into order to reflect the correct factual position.
As a consequence any guarantee given separately to, for example, SAPC was a guarantee by an individual of a trustee’s liability as trustee of the trust. This raised a number of issues that were required to be reconsidered.
The issue of the status of the parties as partners is significant. If one of the partners indemnifies the partnership of trusts from his personal estate, then an issue of subrogation may arise in the event that in so indemnifying, the debt of a secured creditor is discharged. These are all matters for the trial judge.
As a result of the matters raised with Judge Tilmouth by the parties on 26 June 2012, further minutes were brought to the court in accordance with his Honour’s orders. The orders made were as follows:
1.   Leave for the plaintiff to file and serve an Amended Statement of Claim by 2 July 2012, which is to include the particulars requested in the defendants’ letter dated 7 June 2012.
2.   The plaintiff to make discovery by 2 July 2012.
3.   Leave to the defendants to file and serve an Amended Defence by 6 July 2012.
4.   The defendants to make discovery by 6 July 2012.
5.   The plaintiff to file and serve its Reply and Defence to cross action by 9 July 2012.
6.   The defendants to file their Reply to Defence to Cross Action by 11 July 2012.
7.   Argument on the defendants’ application [FDN14 (for summary judgment) pursuant to 6R232] be adjourned to 2.15pm on 24 July 2012.
8.   The plaintiff to file submissions on FDN14 by 4.00pm on 20 July 2012.
9.   Liberty to apply by any party on short notice.
10.   Costs reserved.
At the time that this order was made the order for production of the original acknowledgement of debt had not be complied with.
Rule 228 Application
Mr Garuccio did not comply with the orders made by Judge Tilmouth on 26 June 2012. By Interlocutory Application dated 23 July 2012 (FDN16), Mr and Mrs Costanzo made an application pursuant to r 228 that Mr Garuccio’s claim be dismissed, that Mr Garuccio pay Mr and Mrs Costanzos’ costs on an indemnity basis and that Mr Costanzo as plaintiff by counterclaim recover from Mr Garuccio as defendant by counterclaim the sum of $210,000.00 plus interest and costs. Mr and Mrs Costanzo also sought an order for payment out from the Suitor’s Fund of the court pursuant to r 190(2)(a).
The application (FDN16) was supported by a short affidavit from the solicitor, Sam Alexander Carragher (FDN17) sworn 23 July 2012 deposing that none of the orders of the court had been complied with by Mr Garuccio.
The matter was further heard before Judge Tilmouth on a Directions Hearing on 26 July 2012. At that hearing, Mr M Anderson of counsel appeared on behalf of Mr Garuccio. Mr Carragher appeared for Mr and Mrs Costanzo.
After discussion which disclosed that Mr Garuccio still had not complied with the orders of the court for the filing of a further Statement of Claim, his Honour made an order that Mr Garuccio file an Amended Statement of Claim verified under oath by 3.00pm Friday 27 July 2012 and then adjourned the matter for further consideration on Monday 30 July. The question of the issue of summary judgment under Mr Garuccio’s application, and the issue of default judgment under Mr Garuccio’s application under rr 232 and 228 respectively were to be decided on the next occasion.
By the time of the hearing on 26 July 2012, none of the orders of the court had been complied with by Mr Garuccio. He had failed to file any affidavit or any Amended Statement of Claim verified on oath by 27 July 2012.
The matter was heard further before the court on 30 July 2012. At that time, Judge Tilmouth revoked all orders giving liberty to Mr Garuccio to amend pleadings, reserved all questions of costs, and gave liberty to the parties to apply at short notice to me in respect of matters that were of a professional nature that were raised at the hearing before Judge Tilmouth on that day. The position reached was that Judge Tilmouth wanted to ensure that he would not be disqualified from hearing the action on 15 August 2012. There was some potential risk of that occurring if the professional issue was disclosed to him in an interlocutory hearing.
Although order No. 1 made on 26 June 2012 required the filing of a further Statement of Claim which was also to include the particulars that had apparently been requested by Mr and Mrs Costanzos’ solicitor, there is no indication that this request for particulars has been placed on the court file. This request is now exhibited to the affidavit of Sam Carragher sworn on 2 August 2012 in support of Mr and Mrs Costanzo’s application to strike out paras 12 and 14 of the Statement of Claim.
At the hearing before me on Wednesday 1 August 2012, Mr Anderson of counsel for Mr Garuccio informed me that he would likely not be able to continue to act for Mr Garuccio and that he may seek to withdraw as counsel from the case. I asked Mr Anderson if he had any application to make at that time. He informed me that he did not, but that he would press any application that he had to make at any adjourned hearing of the matter.
Mr and Mrs Costanzo pressed their r 232 application and their r 228 application. I informed the parties that the matter had been delivered to me on a limited basis, namely in respect of the r 228 application and that I would determine that matter if necessary.
I indicated that I would adjourn the r 228 application (FDN16) for hearing on Friday 3 August. I informed the parties that I would not embark upon the hearing or determination of any r 232 application.
The lack of disclosure
Mr and Mrs Costanzo also raised the fact that no disclosure had been made by Mr Garuccio and that they were suffering prejudice as a result. I agreed to allow them to bring any applications, if so advised, for the issue of any subpoenas.

There has been no affidavit material filed by Mr Garuccio explaining the failure to make disclosure. No disclosure by Mr Garuccio has been forthcoming to date. On 1 August 2012 Mr Anderson proffered no reason why his instructing solicitors had not performed this obligation or were unable to do so. Mr and Mrs Costanzo have not made disclosure.
I made the following formal orders:
1.   The defendants’ application under r 228 of the District Court Rules dated 23 July 2012 (FDN16) adjourned for hearing on Friday 3 August 2012 at 10.00am (half day set aside).
2.   Any application for the issue of any subpoena by any party to be filed no later than 1.00pm on Thursday 2 August 2012.
3.   Any extant application by any party for any order for costs arising out of any Interlocutory Application adjourned to Friday 3 August 2012 at 10.00am.
4.   Liberty granted to apply on short notice to the Chambers of his Honour Judge Slattery.
Mr and Mrs Costanzo pressed their application under r 228 and have filed written submissions in support as directed by me on 31 July 2012. Mr Garuccio failed to file any further documents or submissions. Mr and Mrs Costanzo applied for the following orders:
1.   This application be made specially returnable to 2:15pm on Thursday 26 July 2012.
2.   The Court grant default judgment against the plaintiff pursuant to 6R 228 of the District Court Civil Rules 2006 (SA) in terms that:
2.1The plaintiff’s claim be dismissed.
2.2The plaintiff pay the defendants’ costs of the action on an indemnity basis.
2.3The first defendant as plaintiff by counterclaim recover from the plaintiff as defendant by counterclaim the sum of $210,000, plus interest and the costs of the counterclaim to be taxed or agreed.
3.   The Court order that the whole of the money received into the Suitors Fund on 2 May 2012 (including any interest) be paid out of the Suitors Fund to the defendants pursuant to 6R 190(2)(a) of the District Court Civil Rules 2006 (SA).
4.   Such further or other orders as this Honourable Court deems fit.
On Thursday 1 August 2012 Mr and Mrs Costanzo filed a further application for the striking out of paras 12 and 14 of Mr Garuccio’s Statement of Claim. A request was made for that application to be marked specially returnable before me on 3 August 2012. I refused that application and on 3 August 2012 I ordered that the application be referred into the list before Judge Tilmouth, the trial Judge.
The question for consideration
The essential question for my consideration is whether, under r 228 Mr and Mrs Costanzo should have the benefit of a judgment by default under that rule.
I was not asked to, and do not consider the application under para 3 of the Interlocutory Application FDN16.
For reasons that follow, I have decided to refuse the application made by Mr and Mrs Costanzo and, in my view, because of the close proximity of the trial date, all of these matters, including the claim for payment out from the suitor’s fund pursuant to r 190(2)(a) should be ventilated before Judge Tilmouth at the trial.
District Court Civil Rules 6R 228
Rule 228 reads as follows:
228 Entry of default judgment by permission of Court
(1) If a party fails to file a pleading, or particulars of its case, as required under these rules, or commits some other procedural irregularity that seriously prejudices the proper and expeditious conduct of the action, another party may, with the Court's permission, enter a default judgment.
(2) If the defendant is in default, judgment may be entered for the relief claimed or some other relief the Court considers appropriate.
(3) If the claim is for the possession of land, the Court may require that notice of an application for permission to enter a default judgment be given to anyone in possession of the land.
Part 3 of DCR (rr 228-230) deals with a default judgment. Part 4, r 232 et seq deals with summary judgment. Rule 228 deals with procedural irregularities. In that context reference must also be made to rr 12 and 13 that deal with procedural irregularities under the rubric of the enforcement of procedural obligations. Under r 12 the court has power to dismiss an action or proceeding or to set aside a step in a proceeding if a party has committed a procedural irregularity. Both a plaintiff and a defendant may bring an action under that rule.
Rule 228 allows for entry of a default judgment in favour of an applicant, plaintiff or defendant by permission of the court. In contrast, r 229 provides for default judgment against a defendant where the court’s permission is not required. Rule 230 provides a discretion to this court to vary or set aside a default judgment. That term: ‘default judgment’ is used distributatively within Part 3 of the Rules without any qualification. The term is not defined in the dictionary (r 4). The learned author of ‘Lunn’s Civil Procedure: South Australia’ refers to this point at para r 230.1 and opines that: ‘… presumably it [the term ‘default’] includes judgments pursuant to rr 228 and 229…’. In my view this is a matter of some controversy but it is not a matter that I need to resolve in this application.
Under r 228, it is first necessary to determine that there has been a failure by ‘the plaintiff to file a pleading or particulars of his case, or that he commits some other procedural irregularity that seriously prejudices the proper expeditious conduct of the action’.
In argument, it was urged that the disjunctive ‘or’ divides the first two notions of a failure to file a pleading or to deliver particulars on the one hand and some other procedural irregularity that seriously prejudices the proper and expeditious conduct of the action on the other.
In the disposal of this application it is not necessary for me to determine the correctness or otherwise of that argument. The reason is that in the exercise of my discretion having regard to the facts of this matter, the result would have been the same. It follows that this matter is to be decided having regard to its facts and consequently my comments that follow concerning the argument put are obiter. However, in deference to the fact the argument was put, I should express some views and my reasoning.
On any view a failure to file a pleading or to file and deliver particulars (rr 98 and 99 or as ordered r 102) may constitute a procedural irregularity (r 4) that seriously prejudices the expeditious conduct of an action.
If Mr and Mrs Costanzo’s argument was to be accepted, then the question of the giving of permission by the court (and therefore the exercise of the court’s discretion) would not only depend upon the failure (in this instance) of Mr Garuccio to file pleadings as ordered, but also the insufficiency of the particularity contained in such a plea (the request, in this instance, not then being before the court). These also constitute failures covered under rules rr 12 and 13.
Rule 229 and all of its predecessor Rules cover the circumstances of a default judgment where there has been a failure by a defendant to file a Defence. It does not, by its terms, cover the situation of a defaulting plaintiff and that specificity is obviously deliberate. By analogy, it is consistent with the difference in approach to successful applications by a plaintiff and a defendant under r 232. The successful application by the plaintiff will produce a final order of the court. A successful application by a defendant will only produce an interlocutory order.
Under r 228 a court has the power, in the exercise of its discretion, to enter judgment against a party where the failure to file the pleading or provide the particulars, or the committing of the procedural irregularity seriously prejudices the proper expeditious conduct of the action. The inclusion of r 228 indicates that separate considerations apply when a court considers an application for the entry of a default judgment. Included within r 228 (when compared to rr 12 and 13) are the concepts of serious prejudice and the proper and expeditious conduct of the action.
A confinement of these matters merely to a procedural irregularity would not, in my view, properly recognise the difference between the operation of rule rr 12 and 13 and the operation of r 228. In my view, the concepts of serious prejudice and the proper and expeditious conduct of the action are, consistent with the philosophy of r 3, matters that will guide the exercise of the courts discretion in deciding whether or not to enter a default judgment as permitted under that rule.
I am mindful of insertion of the preposition ‘that’ between the words ‘irregularity’ and ‘prejudices’ in the Rule. On one view, it may be said that this indicates a drafting intention of confining questions of procedural irregularity to those arising outside of pleadings and particulars.
However, the definition of ‘procedural irregularity’ (r 4) gainsays that proposition. A ‘procedural irregularity’, will include a failure to file a pleading or to give particulars as ordered by the court. Having identified the failures in any of the three categories, and that there is a serious prejudice to the proper and expeditious conduct of the action, the court may, in the exercise of its discretion, permit the entry of judgment.
Issues relevant to the exercise of the discretion
As is usually the case, the exercise by the court of its discretion is unfettered and the court is therefore required to take into account the whole of the circumstances of the case.
In this matter, an ex-parte order was obtained under s 198 of the Real Property Act for the extension of time for the removal of Mr Garuccio’s caveat. For commercial reasons, the net value of the real property after sale was paid into court by Mr and Mrs Costanzo, who then sought orders for summary disposal (r 232) of the action. In that process, Mr Garuccio identified to the court the need to join Mrs Costanzo to the action and to amend the basis of its claim, including the capacity in which the parties conducted their partnership.
The right of subrogation involves the substitution of the rights of the creditor for the benefit of a surety who has discharged the debt of the creditor so that the substituted surety acquires all of the rights, remedies or securities of the creditor with regard to that claim. The substituted surety is able to effectively ‘stand in the shoes’ of the creditor.
In recognition of the urgency of the matter, the court made orders (r 119), and following the identification of the capacity (trust) issue, the court amended its orders to permit Mr Garuccio, if so advised, to amend his Statement of Claim to plead those issues.
Mr Garuccio has failed to comply with any of the Orders of the court, including, in the context of the controversial document ‘Acknowledgment of Debt’ the filing of an Amended Statement of Claim verified on oath. The court revoked all leave given to Mr Garuccio to file any amended pleading and gave liberty to apply.
Notwithstanding, there is a significant complicating feature in this matter. Mr Anderson of counsel appeared before me at the two hearings that I have conducted and he informed me that as a result of an unresolved issue that he had identified, there was some doubt whether he would remain as counsel. He was briefed to defend the r 228 application heard by me on 3 August 2012. On both of his appearances (1 and 3 August 2012) he informed me that he had seen a number of relevant discoverable documents supplied by Mr Garuccio that (on 3 August) he would be in a position to advise the filing of at least a preliminary List of Documents, but that a complicating feature of his retainer meant that those matters stood in abeyance.
As I understand the position, Mr Garuccio’s advisors were in a position where, at the least, they could have but had not made preliminary discovery. I was also told in respect of the largest claim made by Mr Garuccio, namely for contribution in relation to rent, that the parties had compared information provided to them from the landlord (an arms length Victorian corporation). Having received that information, Mr Garuccio made a claim for an order in the sum of $155,000.00, whereas Mr and Mrs Costanzo acknowledge (having spoken to the same landlord) that in the taking of an account, there is an amount of some $40,000.00 (approximately) in rent that would need to be considered.
I was therefore not able to discern whether there was only contumacy on the part of Mr Garuccio or whether the extraneous matter of the professional position of advisors had become so significant that his advisors had omitted to observe the orders of the court because of their concerns about their position. Of course this is not a criticism of the advisors. However it is a complicating feature in this matter.
It must be borne in mind that this dispute relates to the proper accounting as between former partners having regard to their dissolution agreement (their partnership having dissolved in April 2011).
The terms of that dissolution agreement are questions of fact for the court to determine.
Once decided, the accounting would generally follow the prescription set out in s 44 of the Partnership Act 1891 (SA). Although as usual there are some complicating matters, the issues and methodology are generally straight forward and are well understood.
In that context, during the argument on the r 228 application, I raised with both counsel the fact that the evidence relating to the dissolution agreement (the parties each plead different agreements) will generally be brief and that, once decided, the court will need to determine the position and the portion owed or due to each of them in any amount said to be due and owing as at the date of dissolution.
As an example, there is a claim by Mr Garuccio for the payment of outstanding rent said to be in the sum of $155,000.00 as at the date of dissolution. The parties agreed that rent was in the order of $25,000.00 per month. The amount of $150,000.00 is likely to be an amount of unpaid rent and outgoings for at least a five to six month period. Unless Mr Garuccio can prove that there was outstanding rent in that sum and at that time (April 2011), then his claim in that respect will fail.
In argument, both counsel indicated that each party had a statement from the landlord, including the amount of rent said to be due at dissolution.
It became clear to me that although there had been no formal discovery made, the parties advisors were informally disclosing the parties’ documents to each other in this context.
On the parties’ cases, there can be no claim by Mr Garuccio against Mr and Mrs Costanzo for rent after the date of dissolution because of the indemnity given by Mr Garuccio to Mr Costanzo and as pleaded by Mr Garuccio in his now extant Statement of Claim. Mr Garuccio carried on the business after dissolution. He gave to Mr Costanzo an indemnity in respect of all outgoings incurred after that date (eg. for rent) in consideration for him leaving his capital in the business. Mr Costanzo inferentially remained liable as a lessee to the landlord.
I have used rent as an example, and similar comments may be made in respect of the whole of Mr Garuccio’s Statement of Claim.
Findings
In these circumstances, Mr Garuccio’s claim is now substantially, if not wholly, against Mr Costanzo. There is no plea of substance against Mrs Costanzo and where she is the owner of the equity of at least half of the sum paid into court (and may press her claim for judgment at the commencement of the trial), it is appropriate that I refuse this application and allow the matter to proceed to a full hearing.
My reasons for exercising my discretion in this way are as follows:
1.     The trial date of 15 August 2012 is imminent. That date was set pursuant to order made under r 119.
2.     The trial judge will be in the best position to dispose of the whole (as opposed to a part only) of the action as quickly as possible.
3.     On the issue of prejudice, the parties, through their advisors, have been in some form of contact but there has been no evidence placed before the court in that regard. The parties will be required to address the partnership liabilities of both of them as at the date of dissolution of the partnership. This was a matter that always needed to be addressed by both of them.
4.     Although on one view it may be said that Mr Garuccio has behaved with contumacy in failing to comply with the orders of the court preparatory to the early hearing of the matter, there are some ameliorating circumstances. I refer in particular to what was described to me as the professional issue affecting whether counsel could continue to act for Mr Garuccio. This has caused a number of complications in Mr Garuccio’s case.
5.     There has been no amendment of Mr Garuccio’s claim. As a result, the matter may be dealt with far more expeditiously. In that regard I am mindful of the interests of Mrs Costanzo.
6.     As well, judgment in favour of Mr and Mrs Costanzo will foreclose the determination of what each party may owe on a partnership accounting. This will also provide a judgment in favour of Mr Costanzo in the sum of $210,000. However this may not resolve extant partnership issues such as rent and outgoings for which Mr Costanzo may remain liable to a third party lessor. That issue must be resolved once and for all.
7.     The paramount interest here is the final disposition of the matter on the merits rather than on an interlocutory basis.
For these reasons, I would dismiss Mr and Mrs Costanzos’ application (FDN16).
I reserve the question of costs to the trial judge.