Portellos v Chapley & Chapley No. Scgrg-00-15

PORTELLOS v CHAPLEY & CHAPLEY
[2000] SASC 321

Magistrates Appeal (Civil)

1................ DOYLE CJ...... This is an appeal against a decision by a Magistrate dismissing a Third Party Notice issued by a defendant in civil proceedings in the Magistrates Court.

The Magistrate’s reasons refer to Rule 8 of the Magistrates Court Rules. Although the order made by the Magistrate is not completely clear, I gather from his reasons, that he intended to enter summary judgment on the third party claim. Accordingly, the order is a final order and leave to appeal is not required. In any event, the Magistrate has certified that there is a point of law of difficulty or sufficient importance to warrant an interlocutory appeal.
The Magistrate took the view that the Third Party Notice did not plead a cause of action that could succeed on any possible view of the facts or of the law.
The amount involved in these proceedings is not great. There has already been one appeal to this Court over the third party pleadings. It is unfortunate that the pleadings have given rise to such disputes.
The defendant guaranteed to the plaintiff bank payment of moneys owed by Mr and Mrs Papafilopoulos under an Asset Purchase Agreement with the bank. Those moneys were advanced by the bank in connection with the purchase of plant and equipment by Mr and Mrs Papafilopoulos.
Mr and Mrs Papafilopoulos defaulted under the agreement. The defendant, the first third party, Ms Chapley, and a company, were in partnership at the time. The partnership bought the plant and equipment from the bank for an amount sufficient to discharge the amount owed to the bank by Mr and Mrs Papafilopoulos. The partnership did not pay the bank. There may be a dispute of fact as to whether the goods purchased are the goods, the subject of the asset purchase agreement.
I add here that in what I have just said, I am referring to the pleadings and I am not making findings of fact.
The partnership was then dissolved. Ms Chapley entered into a deed by which she assumed sole liability for partnership debts and agreed to pay them.
The second third party, Mr Chapley, guaranteed to the defendant the performance by Ms Chapley of her obligations. I understand that Mr Chapley is Ms Chapley’s father. Then, the bank sued the defendant for the money owed to it under his guarantee of payment, under the original agreement with Mr and Mrs Papafilopoulos.
The bank did not sue under the agreement by which the partnership agreed to purchase the plant and equipment.
When the matter came on for trial, the defendant settled with the bank. The bank accepted less than the amount claimed by it. The bank assigned to the defendant any claims that it might have against anyone that were in the nature of or gave rise to alternative or other remedies to recover the same moneys as the bank was recovering from the defendant.
That appears to be an attempt to assign to the defendant any causes of action that the bank might have, other than the cause of action sued on, to recover money in settlement of its claim against Mr and Mrs Papafilopoulos and the defendant as guarantor. However, the actual meaning of the relevant clause, clause 2.3.6, is certainly open to argument.
The defendant also agreed with the bank that if he recovered more than the amount that he paid to the bank, he would account to the bank. The details of that accounting are not relevant.
The effect of the claim made in the third notice is that the bank had a right to sue Ms Chapley under the agreement by which the partnership agreed to purchase the plant and equipment from the bank. The defendant was then claiming the Third Party Notice, by subrogation or by assignment, to exercise the rights that the bank had under the agreement between the bank and the partnership.
The claim, by way of subrogation, is not now pursued. The claim relying on the assignment by clause 2.3.6 is pursued.
In my opinion, that is an arguable cause of action. There are difficulties in the path of its success. I anticipate that some difficult questions will arise, bearing in mind that the bank sued the defendant under the guarantee and, in substance, the defendant is saying that the bank’s claim against the defendant and Ms Chapley is an alternative remedy to recover money which, if paid, would have discharged the defendant’s obligation under the guarantee, even though the relevant debts and claims are quite distinct.
I see some force in the submissions advanced for the third parties. Nevertheless, it seems to me that these are arguments, arguments identified by Mr Ross-Smith, which should be disposed of with the full appreciation of the facts and the terms of the relevant documents. I do not consider that these were appropriate matters to be disposed of in a summary manner by the magistrate.
As well, it appears to me, with respect, that in some aspects, the Magistrate’s reasoning is erroneous.
He refers to the fact that the bank says that no money is payable by the partnership and says that is probably correct.
However, for the purposes of the pleadings between the defendant and the third party, there is an allegation that an agreement was made but that the purchase price has not been paid by the partnership. The question of whether the money is owing under that agreement is a matter that needs to be determined, it seems to me, and not to be decided on the basis of what is probably correct.
The Magistrate says that the bank had not brought proceedings against the partners under the agreement with the partners. That is true but it is not decisive. If the partners are liable to the bank under that agreement, that may be a basis upon which the defendant can advance his present claim against Ms Chapley relying on the assignment.
The Magistrate also says that the bank has not purported to subrogate its rights under the agreement to the defendant. But, on the material before me, there is a widely expressed assignment of rights from the bank to the defendant and there is a pleading to that effect in the Third Party Notice.
I accept that the waters are muddied a bit but the fact that the defendant initially relied on subrogation as well. That is no longer pursued. It is fair to say that, in some respects, the Third Party Notice is not as clear as it could be.
Be that as it may, at the end of the day, I am satisfied that is an arguable cause of action here. I consider that the Magistrate erred in entering summary judgment on the Third Party Notice.
There are issues that need to be determined. In particular, the issue of whether the partnership bought plant and equipment from the bank, whether it was the same as the plant and equipment originally financed and the meaning of the settlement agreement and assignment.
For those reasons, the appeal against the entry of summary judgment must be allowed. However, there is a further difficulty which only emerged on the argument of the appeal.
Mr Ross-Smith argued on the bearing of the appeal that the claim made in the Third Party Notice is one which cannot properly be made by way of third party proceedings and must be pursued by way of independent proceedings.
He informed me, and I understood Mr Magarey to agree, that this argument was advanced before the Magistrate, although, it is not referred to by the Magistrate in his reasons.
Rule 35 of the Magistrates Court (Civil) Rules provides that: ‘A defendant claiming indemnity, contribution or relief, related to the claim against him or her must file a third party claim’. So, the question is whether the claim made in the Third Party Notice is a claim for indemnity, contribution or relief related to the claim against Mr Portellos.
I am satisfied that it is not, and cannot be described as, a claim for indemnity or contribution.
The question argued before me is whether the claim in the Third Party Notice can be described as a claim for relief related to the claim made by the bank against Mr Portellos.
I have not found this easy to decide but it is a matter which, I think, will not become any easier or clearer as a result of reflection. Accordingly, I have decided to give my decisions and reasons now.
I have come to the conclusion that the relief claim by the Third Party Notice is not relief related to the claim made by the bank against Mr Portellos. There are only two links between the claim in the Third Party Notice and the claim made by the bank.
The first is the fact that the claim in the Third Party Notice is a claim for money which, had it been paid, would have reduced or discharged the amount owed under the guarantee.
The second link is the fact that each claim is said to relate to the same goods, that is, it is said that each claim relates to the goods originally purchased by Mr and Mrs Papafilopoulos. That, however, is not clear on the pleadings. Drawing on what the parties have put to me in argument, it appears that there may well be an issue as to that and it might turn out, during the proceedings, that there is not complete identity in that respect.
Be that as it may, while Rule 35 is expressed quite briefly, I consider that the purpose of the rule is to refer to cases in which there is some legal relationship or factual relationship between claims, being a relationship that raises common or similar issues of fact or law that are appropriate for determination in the one set of proceedings.
I have taken the view that the mere fact that the two claims might arise out of dealings with the same goods is not a sufficient legal or factual relationship. It is a coincidental matter. It is a little bit more difficult to make a decision in relation to the fact that the claim in the Third Party Notice is for moneys which, had they been paid, would have reduced or discharged the amount owed to the bank under the guarantee. But, again, I have come to the conclusion that that does not give rise to any legal or factual relationship of the sort embraced by the terms used in Rule 35, that is, relief related to the claim.
I acknowledge that, in one sense, it can be said - indeed, it is the case, that there is a relationship but, again, I take the view that it is a coincidental relationship which is not the type of relationship envisaged by Rule 35.
I take the view, rightly or wrongly, that some guidance as to the type of relationship which the drafter of the Rule had in mind is to be found in Rule 37.01(1) of the Supreme Court Rules.
It seems to me that the two claims referring to that Rule, do not give rise to any question or issue which is substantially the same, nor do the two claims give rise to questions or issues which should be properly determined in the one set of proceedings.
For those reasons, I accept the submission by Mr Ross-Smith that the claim made by the defendant is one which must be made in separate proceedings.
Accordingly, the Third Party Notice should be struck out leaving the defendant at liberty to bring fresh proceedings. Summary judgment should not have been entered because the summary judgment had the effect of disposing of the defendant’s cause of action.
In the end result, on my approach, the defendant has had a limited success, leaving him free to proceed but still leaving him in a position that the Third Party Notice should be disposed of. Accordingly, I make the following orders.
That the appeal be allowed.
That the dismissal of the third party claim and the summary judgment entered in the Magistrates Court be set aside.
That there be substituted an order striking out the Third Party Notice as incompetent and ordering that the defendant pay to the third party the costs of the third party proceedings.
That there be no order as to the costs of the appeal to this Court.

[2000] SASC 321

14 September 2000