Howard Media v A M Marketing
[2009] NSWSC 165
•20 March 2009
CITATION: Howard Media v A M Marketing [2009] NSWSC 165 HEARING DATE(S): 12/02/2009
JUDGMENT DATE :
20 March 2009JURISDICTION: Equity JUDGMENT OF: McCallum J DECISION: (1) Pursuant to s140(1) of the Civil Procedure Act, proceedings No. 65 of 2007 commenced in the Local Court at Lismore, including the cross-claim filed by Howard Media Pty Ltd in those proceedings, are transferred to the Supreme Court on condition that the amount of $16,576.92 is paid into Court by Howard Media Pty Ltd within fourteen days of today.
(2) The costs of the proceedings in the Local Court are to be costs in the cause in the proceedings transferred.
(3) The costs of the hearing on 12 February 2009 are to be costs in the cause in the proceedings transferred.CATCHWORDS: EQUITY - practice and procedure - application to have proceedings transferred from Local Court to Supreme Court - whether sufficient reasons for hearing proceedings in higher court - whether reasonable grounds for arguing that an oral partnership agreement existed LEGISLATION CITED: Civil Procedure Act 2005
District Court Act 1973
Partnership Act 1892CATEGORY: Procedural and other rulings CASES CITED: Canny Gabriel Castle Jackson Advertising Pty Ltd v Volume Sales (Finance) Pty Ltd (1974) 131 CLR 321
Elkin & Co Pty Ltd v Specialised Television Installations Pty Ltd [1961] SR (NSW) 165
Phoenix Freight Systems Pty Ltd v Seko Air Freight Inc (1995) 17 ASCR 754
Sanderson Motors Pty Ltd v Kirby [2000] NSWSC 924
Zisis v Knighton [2008] NSWCA 42PARTIES: Howard Media Pty Limited (Plaintiff)
A M Marketing Pty Limited (Defendant)FILE NUMBER(S): SC 3483/08 COUNSEL: Mr S Docker (Plaintiff)
Mr J Priestley (Defendant)SOLICITORS: Capital Lawyers (Plaintiff)
Stephen Bottrill Solicitors and Attorneys (Defendant)
IN THE SUPREME COURT
OF NEW SOUTH WALES
COMMON LAW DIVISION
McCALLUM J
20 MARCH 2009
JUDGMENT3483/08 HOWARD MEDIA PTY LIMITED v A M MARKETING PTY LIMITED
1 HER HONOUR: Before the Court is an application to have proceedings in the Local Court at Lismore transferred to this Court. Howard Media Pty Ltd, the defendant in the Local Court proceedings, is a publisher of magazines. A M Marketing Pty Ltd is a marketing consultancy engaged in the business of selling advertising in magazines. Between 2001 and 2007 the two companies did some business together, joining in a number of publications.
2 The relationship deteriorated in 2007 when A M Marketing pressed for payment of amounts it claimed were overdue debts owed to it by Howard Media. When Howard Media did not pay the amounts claimed, A M Marketing commenced proceedings in the Local Court. Howard Media has defended the claim, contending that the parties were in partnership in respect of the production of particular magazines and that no debt was then due in accordance with the arrangements of the partnership. A cross claim filed by Howard Media in the Local Court sought, in effect, the taking of an account of the partnership.
3 Howard Media then formed the view, apparently after new solicitors came into the matter, that the proceedings should be heard in this Court. It seeks an order that the Local Court proceedings, including the cross-claim, be transferred pursuant to s 140(1) of the Civil Procedure Act 2005.
4 Section 140(1) provides:
- “The Supreme Court may, of its own motion or on application by a party to proceedings before the District Court or a Local Court, order that the proceedings, including any cross-claim in the proceedings, be transferred to the Supreme Court.”
5 Pursuant to s 140(4), an order under s 140(1) is not to be made unless the higher court is satisfied that there is “sufficient reason” for hearing the proceedings in the higher court.
6 Both parties referred me to the decision of Bryson J in Sanderson Motors Pty Ltd v Kirby [2000] NSWSC 924 at [4] where his Honour said, in respect of the similar discretion conferred by s 145(1) of the District Court Act 1973, that the task for the Court is to
- “appraise the facts and circumstances of the case … and consider whether the applicant has shown something which, within the framework of the purposes for which the power exists, is a sound ground or a good reason why an order ought now to be made”.
7 Howard Media contends that there is good reason for making an order transferring the proceedings because the Local Court has no jurisdiction in respect of the taking of partnership accounts. While s 44 of the District Court Act enables that court to hear and dispose of claims for unliquidated balances of partnership accounts not exceeding $20,000, it is contended (and not disputed by A M Marketing) that the likely balance of the partnership account, if Howard Media is successful in establishing the existence of a partnership, will exceed that jurisdiction. Accordingly, Howard Media submits that this Court should hear the proceedings.
- Background
8 The partnership agreement is alleged to be an oral agreement with implied terms. The principal of Howard Media, Mr John Howard, gave evidence that, in about October 2001, he asked Mr Burke-Smith, the principal of A M Marketing, whether he would be interested in going into a 50% arrangement with Howard Media to publish and distribute “Better Business” magazine. Mr Howard said that Mr Burke-Smith agreed to enter such an arrangement on the basis of 50% share of costs, and that after those costs were paid, A M Marketing and Howard Media would share the remainder as profit. Similar arrangements were extended to several other magazines.
9 In respect of each magazine, A M Marketing sent Howard Media a “marketing services booking confirmation”. A M Marketing denies the existence of any oral agreement and says that those confirmations contain the contractual terms that bind the parties.
10 A M Marketing regularly sent invoices to Howard Media providing a detailed break-down of costs and revenue and seeking payment of a specified amount. Howard Media, it appears, did not dispute the entitlement of A M Marketing to be paid the amounts claimed until the parties suffered a falling out in 2007.
11 After unsuccessful attempts by both parties to resolve the dispute out of Court, A M Marketing commenced the proceedings now sought to be transferred. The amount claimed by A M Marketing is $35,830 which is the sum of seven unpaid invoices issued to Howard Media by A M Marketing.
12 By its defence filed in the Local Court, Howard Media admits that, of the amount claimed, the sum of $16,576.92 is “due”. However, by paragraph 3 of the defence, Howard Media says that the parties are in partnership “in relation to publication of certain magazines” and that “the arrangements in place between the partners as to receipts from the publication of the magazine “result in [Howard Media] making payments to [A M Marketing] as and when moneys are received by [Howard Media] and according to the operational needs of [Howard Media]”.
13 Howard Media’s cross-claim in the Local Court seeks “damages in the form of an accounting of profits” in respect of a discrete aspect of the partnership. If the present application is successful, Howard Media will seek leave to file an amended cross-claim seeking more appropriately framed relief, including a declaration that there existed a partnership between the parties, a declaration that the partnership was dissolved on or about 24 September 2007 and related relief including the taking of an account.
Is there sufficient reason for hearing the proceedings in this Court?
14 The proposition that the Local Court has no jurisdiction to determine the present cross-claim is not disputed by A M Marketing. In support of that proposition, Mr Docker, who appeared for Howard Media, relied on the decision of Young J (as his Honour then was) in Phoenix Freight Systems Pty Ltd v Seko Air Freight Inc (1995) 17 ASCR 754 where his Honour said:
- “If there was a partnership agreement and the balance of the partnership agreement has not been ascertained or agreed upon, then any outstanding balance would not be a debt at all, both parties would have a case for having the partnership accounts taken before the Court and that would be their only right” (citing Moravia v Levy (1786) 2 Term Rep 483; 100 VR 260).
15 The principle enunciated by Young J was referred to with apparent approval in Zisis v Knighton [2008] NSWCA 42 at [9] per Tobias JA; see also at [37] per McColl JA and Hodgson JA agreeing at [1].
16 Mr Priestley, who appeared for A M Marketing, submitted, however, that the absence of jurisdiction is not determinative of the present application. He submitted that the Court should not exercise its discretion in favour of Howard Media in circumstances where part of the debt claimed in the Local Court has been admitted on a number of occasions (most significantly in the verified defence filed in the Local Court).
17 Mr Priestley pointed to a number of features of the arrangements between the parties which are inconsistent with the existence of a partnership. First, he noted that the written booking confirmations govern the entitlements of A M Marketing in respect of particular publications and submitted that those agreements represent the entirety of the arrangements between the parties. Mr Priestley also submitted that Mr Howard had conceded that to be the case. Having regard to Mr Howard’s evidence as a whole, I do not accept that submission. Although he agreed with Mr Priestley at T20.32 that the first booking confirmation “entirely governed” the relationship between Howard Media and A M Marketing at that time, it was clear from an earlier answer that he regarded that as a “sales agreement” which was separate from the alleged partnership agreement (at T20.13).
18 Further, I do not think that the written booking confirmations necessarily exclude the existence of an oral partnership agreement. The first booking confirmation dated 20 October 2001 related to a student discount passbook published for the Southern Cross University Student Representative Union. It provided “the cost is to be 50% of the profit (after deductions for telephone and print costs). Payment details are explained in the accompanying covering letter which also represents part of this contract”. The booking confirmations sent in respect of other magazines on which the two companies worked together were in similar terms.
19 The covering letter referred to in the booking confirmation was a letter from A M Marketing to Howard Media in which Mr Ashley Burke-Smith stated:
- “I feel that it was both necessary and beneficial for us to both put in writing our thoughts regarding the financial aspect of our joint venture. I believe the following “hybrid” will allow the flexibility we both require during the start up phase and a simple minimum admin arrangement for the long term. In particular, it is beneficial to both parties to work on a “payment in arrears” basis to reduce business risk as well as calculation/recalculation of moneys owed and the effects of “slow payers”.
20 The balance of the letter set out a proposal for banking arrangements which, in summary, provided that revenue from advertising sales would be deposited in a jointly-operated account out of which the costs of publication would be paid. A M Marketing was to invoice Howard Media for one-third of the revenue and was to be paid within 30 days. Howard Media was to provide A M Marketing with a monthly statement seeking “the second one-third deposit” and a cheque was to be raised in favour of Howard Media, also within one month.
21 Thereafter, upon publication and after a reconciliation had been mutually agreed, 50% of “the balance over and above the agreed float” was to be paid to each of the two companies. The context suggests that was a reference to the balance in the account.
22 Mr Priestley submitted that, against the background of those written agreements, the division of profits was simply the agreed basis for the calculation of the remuneration for A M Marketing and did not indicate the existence of any partnership.
23 Mr Priestley further relied on the following features of the arrangements between the parties:
(a) that the agreements between the parties did not contemplate the sharing of losses;
(b) that the parties never in fact shared losses;
(d) that Howard Media has at no time prepared any partnership tax returns or financial statements and that the practice of the parties has been for the “debt due” to A M Marketing to be invoiced.(c) that Howard Media has made a number of admissions of owing money the subject of A M Marketing’s claim;
24 Mr Priestley also relied on the fact that the parties own no joint property (apart from the “Better Business” magazine in respect of which a 50% share of the magazine was A M Marketing’s agreed remuneration) and the fact that each of the companies was undertaking other work during the supposed duration of the partnership. He submitted that, in truth, there was no business being carried out in common by the parties: cf s 1 Partnership Act 1892.
25 Mr Priestley also submitted that the Court should decline to exercise its discretion in favour of Howard Marketing having regard to the conduct of that company, both before the commencement of the proceedings in the Local Court and during the course of those proceedings. He pointed in particular to a number of admissions of the debt due, together with the fact that Howard Media has not conducted the litigation in a timely fashion. He invited the Court to infer that Howard Media’s present application is more concerned with deferring the payment of a due debt than with any question of jurisdiction.
26 I accept that, taken at face value, the various admissions by Howard Media of some debt due to A M Marketing are inconsistent with the existence of a partnership agreement. As noted by McColl JA in Zisis at [34]:
- “the relationship between partners is not that of debtor and creditor unless and until the partnership accounts have been finally taken after dissolution and a balance has been ascertained to be owing from one to another”.
27 However, I do not think it necessarily follows that Howard Media’s defence and cross-claim are obviously lacking in merit or, to adopt the language of Bryson J in Sanderson Motors at [7], that they should not receive judicial consideration.
28 In my view, the letter from the principal of A M Marketing referred to above is not necessarily inconsistent with the partnership agreement alleged by Howard Media. If there was an oral partnership agreement, as alleged, the terms of that letter may readily be construed as a separate agreement requiring the parties to account at certain times, which is not necessarily inconsistent with the existence of a partnership.
29 Further, it may not be completely correct to say that the agreement did not contemplate the sharing of losses. I note that the arrangement set out in the letter provided, after payment to each company of one-third of the advertising revenue in respect of a publication, that 50% of the balance be paid to each of them. The “balance” referred to appears to be the balance of funds in the jointly-operated account. That, in practice, meant that the parties were at least to share the burden of any bad debts, at least so long as there were funds in that account.
30 In any event, as submitted by Mr Docker, it is arguable that in the absence of an express provision for the sharing of losses, the arrangement nevertheless made such provision impliedly: see Canny Gabriel Castle Jackson Advertising Pty Ltd v Volume Sales (Finance) Pty Ltd (1974) 131 CLR 321 at 327.6.
31 There are other features of the arrangements between the parties that are consistent with the existence of a partnership agreement. These include the agreement to share profits, the fact that both companies combined their efforts in the business of producing identified magazines with a view to mutual profit and the fact that each was entitled to the repayment of expenses out of a jointly operated bank account controlled by both of them.
32 I accept, as submitted by Mr Priestley, that the agreement to share profits is not determinative (see s 2 Partnership Act and Elkin & Co Pty Ltd v Specialised Television Installations Pty Ltd [1961] SR (NSW) 165 at 169). Nevertheless, it is a factor that supports the claim.
33 As noted by Mr Docker, I do not need to determine whether or not there is a partnership, nor is it appropriate for me to embark on a consideration of the merits of Howard Media’s defence and cross-claim (or the proposed amended cross-claim) at this stage. It is enough to say that I am satisfied that there are reasonable grounds for those claims.
34 As to whether the conduct of Howard Media should disentitle it from the relief claimed, I am not satisfied that there has been undue delay in the proceedings in the Local Court. The contention that a partnership agreement existed between the parties was made in the defence first filed in those proceedings. To the extent that Howard Media has been slow to refine its cross-claim and to recognise that the Local Court had no jurisdiction to hear it, I am not satisfied that is due to any delay or deliberate obfuscation on its part.
35 Mr Priestley submitted that it is open to Howard Media to pursue its cross-claim as a separate proceeding in this Court. The difficulty with that course, however, is that the existence of the partnership agreement is pleaded in defence of the debt claimed in the Local Court. Plainly, the interests not only of the parties but of the public would be best served by having all of the issues in dispute determined at the one time. Further, I accept, as submitted by Mr Docker, that if the Local Court were to make a finding that no partnership agreement exists, that would create an issue estoppel which may prevent Howard Media from pursuing its cross-claim.
36 I accept that there is considerable force in the submissions put by Mr Priestley that Howard Media’s admissions of a debt due are inconsistent with the existence of a partnership agreement. However, for the reasons set out above, it appears to me that there is a respectable argument as to the existence of such an agreement which warrants judicial consideration. That, in my view, is sufficient reason for hearing the proceedings in this Court.
37 Mr Priestley submitted, in the alternative, that if the Court is inclined to grant the relief sought by Howard Media, only part of the dispute should be permitted to proceed and that there should be judgment for A M Marketing in respect of the admitted debt. He submitted that the order permitting Howard Media to prosecute its claim in this Court should be conditional upon that judgment debt being paid within fourteen days. I do not accept that submission. To isolate a particular part of the dispute would prejudge the very issues sought to be agitated in the proceedings. In my view, however, it is appropriate to order Howard Media to pay the admitted part of the claim into Court as a condition of the transfer. Mr Docker indicated that Howard Media would be prepared to consent to a condition in those terms.
Orders
38 The orders I make are:
(1) Pursuant to s140(1) of the Civil Procedure Act , that proceedings No. 65 of 2007 commenced in the Local Court at Lismore, including the cross-claim filed by Howard Media Pty Ltd in those proceedings, be transferred to the Supreme Court on condition that the amount of $16,576.92 is paid into Court by Howard Media Pty Ltd within fourteen days of today.
(3) That the costs of the hearing on 12 February 2009 be costs in the cause in the proceedings transferred.(2) That the costs of the proceedings in the Local Court be costs in the cause in the proceedings transferred.
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