Wombats Downunder Pty Ltd v G & W a Dicenso Pty Ltd - [2010] SASC 252

SUPREME COURT OF SOUTH AUSTRALIA
(Civil)
WOMBATS DOWNUNDER PTY LTD & ANOR v G & W A DICENSO PTY LTD & ANOR
[2010] SASC 252
Reasons of Judge Lunn a Master of the Supreme Court
13 August 2010
PROCEDURE
Pleadings on action arising out of dissolution of a partnership - held not proper to raise contractual claims between the parties before the completion of the final partnership accounts - held not proper for defendant to plead a particular outcome of the partnership accounts without a plea of a settled account - proper procedure to resolve disputes on dissolution of a partnership - no disclosure of documents required about the business activities of the partnership when order for accounts and inquiries is sought.
Public Trustee v Elder [1926] 1 Ch 266; Remen Nominees Pty Ltd v Scaffidi (1980) 23 SASR 258, considered.

WOMBATS DOWNUNDER PTY LTD & ANOR v G & W A DICENSO PTY LTD & ANOR
[2010] SASC 252
JUDGE LUNN:
Reasons concerning costs on the plaintiffs’ application for further disclosure of documents

The first plaintiff and the first defendant traded in partnership prior to 15 July 2009 in a paintball and skirmish business at Burrungule under the name of “Skirmish Down Under Mount Gambier”.[1]
[1] The second plaintiff and the second defendant are respectively directors of the first plaintiff and the first defendant. There was some suggestion that the partnership might have been between the second plaintiff and the second defendant, but that no longer appears to be a live issue. Unless otherwise stated, my references to the plaintiff and the defendant are to the first plaintiff and the first defendant.
On 19 October 2009 the plaintiffs instituted this action seeking numerous orders which include damages for breach of the partnership agreement; damages for breach of fiduciary duty; damages against the second defendant for procuring or assisting in breach of fiduciary duty by the first defendant; a declaration of the dissolution of the partnership on 15 July 2009; declarations about the assets of the partnership and the parties respective interests in it; an order that the partnership be wound up and for the appointment of a receiver and an account and inquiry of the partnership assets and other consequential relief. No interlocutory order has been sought for the appointment of a receiver, the taking of accounts or the striking out of improper pleadings.
On 17 March 2010 the plaintiffs took out an application seeking further and better disclosure of documents from the defendants which in broad terms were the documents relating to the partnership business and the business subsequently conducted by the defendants using the assets of the partnership. This application was heard by another Master on 21 April 2010. At the outset he was told there was substantial agreement between the parties about the further disclosure to be made by the defendants, but there was some dispute about its scope. He ruled on the terms of the order to be made for disclosure. The argument proceeded on the basis that the documents in question were directly relevant to issues raised on the pleadings. The defendants then made supplementary disclosure of documents.
The plaintiffs issued a further application on 28 June 2010 seeking orders that the defendants make still better disclosure of documents. The applicants sought various categories of documents relating to the conduct of the business both before and after the dissolution of the partnership. After service of this application the defendants agreed to make further disclosure of the documents sought on the basis that they did not concede that they were obliged to disclose them, but they volunteered their production to avoid further argument. They did not take the point that such documents were not properly disclosable.
When the application came on for hearing, I was informed by counsel that all I needed to decide was who was to pay the costs of the application. No orders were sought for further disclosure of documents. Having read the file in preparation for the argument, I then raised with counsel the matters that are dealt with below and invited their submissions on them.
The making of the partnership agreement is admitted in the pleadings, although there is a dispute about how much the defendant was to pay for its interest in the partnership assets and about how much was agreed to be paid to the respective partners for drawings and salaries. In paragraph 9 of the Statement of Claim the plaintiffs plead various breaches of the partnership agreement by the defendant in not making payments which they say it should have made and in not accounting to the plaintiffs, but it does not allege these breaches as a basis for dissolving the partnership. It seems to be common ground on the pleadings that the partnership was dissolved as from 15 July 2009 by a notice given by the defendant.
In paragraph 20 of the Statement of Claim the plaintiff pleads that it has suffered loss and damage by not having received the monies which should have been paid by the defendant pursuant to the partnership agreement. This seems to be raised, at least in part, as an alternative to the claim for partnership accounts. As a matter of law, actions between partners for claims arising out of the partnership are not usually allowed pending the finalisation of the partnership accounts.[2] The defendants have not pleaded any such point. The rationale of this rule of law is that usually all of the disputes between the partners about what is owing to, and by, them in respect of the partnership should be dealt with at the one time in the special procedure of the taking of partnership accounts. If the plaintiffs’ claim for damages was allowed to proceed ahead of the taking of the partnership accounts, it would mean that the trial Judge would have to hear much, if not all, of the evidence which would be put before the Court on the taking of the accounts about the conduct of the business of the partnership.
[2] Public Trustee v Elder [1926] 1 Ch 266; Remen Nominees Pty Ltd v Scaffidi (1980) 23 SASR 258.
In paragraphs 5 and 9 of the Amended Defence, the defendants plead what they say are the outcomes of the partnership accounts and allege various amounts of profits and losses. The Reply does not refer to these pleadings. Therefore, under 6R 101(3) the plaintiffs are taken to deny these allegations about the outcomes of the partnership accounts. There is no pleading in the Defence that there is an account stated or a settled account so that the plaintiffs are bound by these alleged accounts for the partnership. Paragraph 9.6 of the Amended Defence says “… there is no basis or necessity for an account and inquiry of partnership assets and accounts sought by the Plaintiffs”. This cannot be a good plea. Unless the plaintiffs have bound themselves in some way to this result of an account, they are entitled to have the Court determine the proper amount by the taking of the accounts. On what the defendants have pleaded, the plaintiffs seem to have an unanswerable case that they are entitled to an order for proper accounts and inquiries to be taken on the dissolution of the partnership.[3] This plea by the defendants about the partnership accounts means that all of the evidence relevant to the determination of the accounts would be admissible at the trial. The reason for the long-established practice that the respective entitlements of the partners on the winding-up of the partnership are determined by the special procedure of the taking of accounts and inquiries is because courts have found that these procedures are much more economical and expeditious ways to resolve such disputes than a formal trial. It is not in the interests of the administration of justice for a trial Judge to have to listen to copious evidence about all of the business transactions of the partnership adduced in accordance with the rules of evidence and then to rule upon them. The established procedures for the taking of accounts and inquiries in such matters are flexible procedure designed to resolve such matters without the formalities of a trial.
[3] The defendants can make an appropriate offer based on its version of the accounts and, if it is proved right, that may well entitle them to the costs of the taking of the accounts. There is also some dispute about the basis on which the accounts are to be taken.
If the plaintiffs are precluded from pursuing their claim for damages against the defendants before the completion of the partnership accounts, and if the defendants’ pleading of the outcomes of the accounts is to be struck out, the numerous financial transactions in the course of the partnership business are not directly relevant on the pleadings to the issues which need to be determined at trial. All the trial judge has to determine is what were the agreed terms of the partnership and what accounts and inquiries should be ordered.[4] Hence, there need not be the substantial and expensive exercise of disclosure of documents relating to the partnership business activities and account keeping. If an order is made for the taking of the usual accounts, special directions will be given about the taking of those accounts. Formal disclosure of documents is not part of the exercise except in some special categories. Usually it is ordered that the parties deliver all documents held by them to an accountant appointed by the Court to prepare draft accounts and that accountant then carries out any proper investigations about what other documents or information he or she may require to carry out this task.
[4] It would be usual to include in the order an account and inquiry about the use of partnership assets by a former partner after the dissolution.
This may be an appropriate case for an order to be made under 6R 251 for accounts and inquiries to be made on the winding up of the partnership before the action proceeds to trial.[5] The fact that some terms of the partnership agreement are in dispute may not make it impractical for such accounts to be taken forthwith but subject to qualifications depending upon the ultimate findings of the trial Judge about those terms.
[5] See Civil Procedure South Australia Volume 1, paragraph [6R 251.5].
It is open for the plaintiffs to apply for the appointment of a receiver for the partnership assets before the trial of the action. That is the usual remedy pursued in these cases where there are allegations that one former partner is misusing the partnership assets after its dissolution.
I invite the parties to consider their pleadings in the light of these reasons and whether they wish to make interlocutory applications for the taking of the partnership accounts and/or the appointment of a receiver. If any such applications are made, they will then be dealt with on their merits.
The application for further disclosure of documents of 28 June has been largely a pointless exercise. This has been brought about by each party being at fault in its pleadings. The appropriate order is that there be no order as to the costs of the application.
I have today made the following orders:
1That there be no order as to the costs of the plaintiffs’ application FDN20.
2Liberty to any party to make any application returnable for mention only to the adjourned hearing date.
3Directions hearing adjourned to Wednesday 8 September 2010 at 9.30am.