Supreme Court New South Wales Medium Neutral Citation: Gazzana v Santamaria (No 2) [2016] NSWSC 1555 Hearing dates: On the papers Decision date: 04 November 2016 Before: Ball J Decision: See paragraphs 23 to 26 of this judgment. Catchwords: PARTNERSHIP – dissolution – no issue of principle Cases Cited: Gazzana v Santamaria [2015] NSWSC 916 Category: Principal judgment Parties: Antonio Gazzana (Plaintiff) Antonino Santamaria (First Defendant) Antonio Santamaria Excavation and Demolition Pty Ltd (Second Defendant) Representation: Counsel: C Bolger (Plaintiff) Solicitors: Chatswood Law (Plaintiff) Russo & Partners (Defendants) File Number(s): 2013/52967 Publication restriction: None Judgment Introduction 1. These proceedings concern the winding up of a partnership between the plaintiff and the first defendant, which carried on a business between August 2009 and December 2012 of providing building and construction services, including civil works, demolition and excavation works. 2. The proceedings have had a long history. Originally, they came before the court on 20 February 2013 on an application by the plaintiff for an interlocutory injunction to restrain the first defendant from obtaining possession of certain equipment that had been used in the partnership business. 3. On 16 September 2013, Lindsay J by consent made certain declarations and orders. The declarations included relevantly a declaration that "the plaintiff and first defendant agreed to conduct and operate the business [meaning the partnership business] through the second defendant". To say that the plaintiff and the first defendant agreed to operate the business "through the second defendant" in the context means that the second defendant operated the business as agent for the plaintiff and first defendant. The orders included orders that (a) the partnership be declared to be dissolved as from 14 December 2012, (b) that the partnership be wound-up under the direction of the court and (c) that an inquiry be taken of all the dealings and transactions of the partnership and of the plaintiff and defendants in relation to the partnership and as to what the assets of the partnership were and the parties' respective interests in them. 4. On 17 September 2014, Darke J ordered by consent that a number of questions identified by the parties be determined separately and before any other trial of the proceedings. It was envisaged that following the determination of those separate questions, the matter could be referred to a court appointed accounting expert to enquire and report on the assets and liabilities of the partnership and the income and expenses of the partnership. 5. On 13 July 2015, I delivered judgment in relation to the separate questions: Gazzana v Santamaria [2015] NSWSC 916. Since that time, the parties have engaged in a protracted process to try to agree on a set of accounts to avoid the necessity of referring the matter to an accounting expert. Although lengthier than it should have been, the process has not been without success. Most items have been agreed, with the result that only a limited number of issues remain to be determined. 6. In an endeavour to save costs, the parties agreed that the court should determine the outstanding issues on the papers. On 19 September 2016, I gave directions for the filing of submissions and the identification of evidence to enable that to happen. However, the results of that process have not been altogether satisfactory. The defendants were late in filing submissions. Although those submissions made a number of factual allegations, those allegations were not supported by any evidence; and it is fair to say that the factual material before the court relevant to the determination of the outstanding issues is scant. Despite that, I have concluded that it is preferable to determine the outstanding issues on the available material rather than seek additional information from the parties. As I have said, the process of winding up the partnership has already been protracted. The likelihood is that the costs incurred by the parties are already disproportionate to the sums in dispute. It is apparent that the defendants, in particular, have limited resources. In those circumstances, it seems to me that the court should do the best it can on the available material, rather than put the parties to further expense and delay. The issues 1. The outstanding issues are: 1. whether mortgage payments made in respect of a property owned by the first defendant and his former wife at Kemps Creek during the subsistence of the partnership was an expense of the partnership; 2. whether water rates paid in respect of the Kemps Creek property during the subsistence of the partnership were an expense of the partnership; 3. whether amounts paid to Integral Energy in respect of the Kemps Creek property during the subsistence of the partnership were an expense of the partnership; 4. whether council rates paid to Liverpool City Council in respect of the Kemps Creek property during the subsistence of the partnership were an expense of the partnership; 5. whether any allowance should be made for a judgment debt obtained by SBC Holdings Pty Ltd on 31 July 2013 against the second defendant for $79,473.53 plus costs; 6. whether any allowance should be made for invoices issued by the partnership, or by the second defendant on the partnership's behalf, which have not been paid. Expenses relating to the Kemps Creek property 1. It is convenient to take the first four issues together. 2. There is little evidence before the court concerning the Kemps Creek property. The evidence is that during the term of the partnership it was owned by the first defendant and his former wife and that it was the first defendant's residence until it was sold some time after the partnership came to an end. 3. The property consists of the residence and of land which was used to store equipment used in the partnership business. The first defendant submits that for that reason the partnership should bear 70 percent of the mortgage repayments during the term of the partnership. No specific submissions were made in respect of the other expenses. 4. The evidence is that, during the term of the partnership, the mortgage payments were made from a business account of the second defendant into which partnership moneys were paid. It is common ground that a number of the other expenses which were incurred in relation to the Kemps Creek property and which are in dispute were paid either from that account or other accounts into which partnership income was paid. The details of those accounts are not before the court. 5. I accept the plaintiff's submission that the defendants bear the onus of proving that the expenses in question were partnership expenses. The defendants have failed to discharge that onus. There is no evidence of an agreement between the parties that the partnership would pay a proportion of the expenses relating to the Kemps Creek property. Indeed, there is no evidence that the matter was discussed between the plaintiff and the first defendant at all. The amounts in question were debited from what was effectively a partnership account. However, there is no evidence that the plaintiff was aware at the time that that is what was happening. Consequently, there is no basis for implying an agreement that the partnership would contribute to the expenses in question or for concluding that some form of estoppel operated. 6. The defendants submit that unless a proportion of the expenses are borne by the partnership, the plaintiff will receive a windfall. However, there are three points to be made about that submission. 7. First, all that can be said is that the partnership received a benefit from use of the land owned by the first defendant and his former wife. But that itself is not sufficient to provide a basis for saying that the plaintiff has come under some legal obligation to account for his share of that benefit. The mere receipt of a benefit does not provide a legal basis for its recovery. 8. Second, each of the plaintiff and the first defendant contributed to the partnership. For example, each contributed equipment that was used in the partnership business and each contributed his labour. As it happens, the first defendant also made available his property for the storage of the equipment used in the partnership business. However, there is no suggestion that the precise value of the respective contributions to the partnership should be assessed for the purposes of determining what each partner is owed. In the absence of some specific agreement, no adjustment should be made because one of the things the first defendant contributed was the use of land in which he had an interest for the storage of equipment used in the partnership business. 9. Third, there is no basis on which the court could determine an appropriate amount for the value of the use of the land. The Kemps Creek property was the first defendant's principal place of residence. It was used for other purposes. In particular, the evidence is that machinery sheds located on the property were leased to third parties. The evidence is not sufficient to permit the court to apportion the amounts claimed by the first defendant between the use of the land for partnership purposes and the use of the land for other purposes. Even if the first defendant is entitled to have a fair proportion of the relevant expenses treated as partnership expenses, he bears the onus of proving what a fair proportion would be. He has not discharged that onus. The judgment obtained by SBC Holdings 1. The judgment obtained by SBC Holdings is a judgment against the second defendant. The circumstances in which that judgment was obtained are described in my earlier judgment: see [2015] NSWSC 916 at [39]. In my earlier judgment, I concluded that the debt in question is a partnership debt: at [40]. As a result, the second defendant is entitled to be indemnified by the partnership in respect of that debt. 2. There is no evidence before the court on the present status of the judgment obtained by SBC Holdings. Although the defendants assert that that judgment is now for an amount of $157,121.65, there is no evidence before the court on how that amount is calculated. Moreover, there is no evidence that SBC Holdings has taken any steps to enforce the judgment since it was obtained. 3. If the judgment is recognised as a partnership debt, but not enforced, that will produce a windfall for the first defendant because the plaintiff will have to bear his share of a judgment that is never paid. On the other hand, if no allowance is made for the judgment, the plaintiff may obtain a windfall in the event that the judgment is enforced against the second defendant. 4. In my opinion, no adjustment should be made to the partnership accounts to allow for the SBC Holdings judgment. The judgment is against the second defendant. It was open in these proceedings for the second defendant to file a cross claim seeking an indemnity from the partnership in respect of the judgment, but it has not done so. The second defendant is controlled by the first defendant. It was open to the first defendant to lead evidence concerning what, if anything, has happened to the SBC Holdings judgment, but he has not done so. In circumstances where the debt has neither been paid by the second defendant nor claimed by the second defendant from the partnership, it would not be appropriate to adjust the rights between the plaintiff and first defendant on the basis that it had. 5. On the other hand, it is equally plain that any order made by the court should not prevent the plaintiff or first defendant from claiming contribution in respect of any payment they make in relation to the amount the subject of the SBC Holdings judgment. Unpaid invoices 1. The unpaid invoices are long overdue. It can be inferred that, absent some action to recover the amount of the invoices, they will not be paid. There is no evidence that either the plaintiff or the defendants propose to take any steps in relation to the recovery of unpaid invoices. In those circumstances, they should be ignored for the purposes of finalising the partnership accounts. Orders 1. In my opinion, it is necessary to hear from the parties before making any further orders. 2. In his submissions in reply, the plaintiff proposed that the court make a number of orders including: 1. Orders dismissing the defendants' claim that the various expenses incurred in relation to the Kemps Creek property were partnership expenses; 2. Orders requiring the parties to file with the court final ledgers; 3. An order that the defendants pay the costs of and incidental to the determination of the defendants' claims in respect of the Kemps Creek property expenses. 1. However, it is not clear to me that orders in terms of (a) and (b) are necessary. The only orders that need to be made on the finalisation of the accounts are orders declaring that certain equipment used in the partnership business belongs either to the plaintiff or the defendants, an order that one partner pay the other the amount (if any) shown to be owing on the final accounts and any order for the costs of the proceedings. As I have said, any order for the payment of money will have to be made without prejudice to the partners' right to claim contribution in respect of any amount paid by them in respect of the SBC Holdings judgment. There is also a question whether an order for the payment of money should be stayed for a period of time pending resolution of the position in relation to the SBC Holdings judgment. It is not possible to determine these matters without hearing from the parties. 2. As a result, I propose to stand the matter over until 9.30 am on Friday 9 December 2016 or such other date as is fixed with my Associate, to hear submissions on the form of final orders that should be made. ********** DISCLAIMER - Every effort has been made to comply with suppression orders or statutory provisions prohibiting publication that may apply to this judgment or decision. The onus remains on any person using material in the judgment or decision to ensure that the intended use of that material does not breach any such order or provision. Further enquiries may be directed to the Registry of the Court or Tribunal in which it was generated. Decision last updated: 04 November 2016