Zisis v Knighton - [2008] NSWCA 42

NEW SOUTH WALES COURT OF APPEAL

CITATION:
Zisis v Knighton [2008] NSWCA 42
This decision has been amended. Please see the end of the judgment for a list of the amendments.

FILE NUMBER(S):
40160 of 2007

HEARING DATE(S):
26 February 2008

JUDGMENT DATE:
1 April 2008

PARTIES:
Paul Zisis - First Appellant
Zisis Dental Ceramics Pty Ltd - Second Appellant
Paul Knighton - First Respondent
Felician Investments Pty Ltd - Second Respondent

JUDGMENT OF:
Hodgson JA Tobias JA McColl JA

LOWER COURT JURISDICTION:
Supreme Court

LOWER COURT FILE NUMBER(S):
SC 14052 of 2006

LOWER COURT JUDICIAL OFFICER:
Malpass AsJ

LOWER COURT DATE OF DECISION:
1 March 2007

LOWER COURT MEDIUM NEUTRAL CITATION:
[2007] NSWSC 139

COUNSEL:
C Mantziaris - Appellants
G J Bateman - Respondents

SOLICITORS:
Tonkin Drysdale Partners - Appellants
Helliars City Solicitors - Respondents

CATCHWORDS:
PARTNERSHIP – sale of interest in partnership pursuant to agreement of sale – agreement of sale providing for purchaser to account to vendor for half of debts owing to business at time of completion – claim for money due under agreement – whether agreement on stated and settled account – held yes – LOCAL COURT – jurisdiction – whether proceedings in nature of action for accounts – held no.

LEGISLATION CITED:
Local Courts Act 1982
Local Court Act 2007
Civil Procedure Act 2005
Partnership Act 1892 (NSW)
Partnership Act 1891 (Tas)
Suitors’ Fund Act 1951
Uniform Civil Procedure Rules (2005)

CATEGORY:
Principal judgment

CASES CITED:
Azzopardi v Tasman UEB Industries Limited (1985) 4 NSWLR 139
Dillon v Dillon (Supreme Court of Tasmania, Full Court, 17 February 1986, unreported, BC8600040)
Glover v Australian Ultra Concrete Floors Pty Ltd [2003] NSWCA 80
Knighton & Felician Investments Pty Limited v Zisis & Zisis Dental Ceramics Pty Limited [2007] NSWSC 139
Knighton & Felician Investments Pty Limited v Zisis & Zisis Dental Ceramics Pty Limited (Local Court of New South Wales, Bradd LCM, 20 June 2006)
McDonald v Dennys Lascelles Ltd [1933] HCA 25; (1933) 48 CLR 457
Moravia v Levy (1786) 2 Term Rep 483; 100 ER 260
Nowlan v Marson Transport Pty Ltd [2001] NSWCA 346; (2001) 53 NSWLR 116
Phoenix Freight Systems Pty Ltd v Seko Air Freight Inc (1995) 17 ACSR 754
Spain v Union Steamship Co of New Zealand Ltd [1923] HCA 21; (1923) 32 CLR 138

TEXTS CITED:
Halsbury's Laws of England, 4th ed, vol 35

DECISION:
1. Leave to appeal granted. 2. Appellants to file the Notice of Appeal within seven days. 3. Appeal dismissed. 4. Appellants to pay the respondents’ costs of the appeal.

JUDGMENT:

IN THE SUPREME COURT
OF NEW SOUTH WALES
COURT OF APPEAL

CA 40160/07
SC 14052/06
HODGSON JA
TOBIAS JA
McCOLL JA

Tuesday 1 April 2008

Paul Zisis and Anor v Paul Knighton and Anor

Judgment

HODGSON JA: I agree with the orders proposed by McColl JA and with her reasons. I would add the following.
In the Statement of Liquidated Claim, the respondents made claims for money due under clauses 31, 33, 39 and 11 of the Agreement of 24 February 1999. The appellants by their Statement of Cross-claim made claims concerning payments to creditors of the partnership after completion of the Agreement, a claim referable to clause 15(a) of the Agreement.
In my opinion, it is clear that claims under clauses 15(a), 31, 33 and 39 have the character of claims for certain and ascertainable amounts, separate from any requirement for the taking of partnership accounts.
As regards claims under clause 11, the matter is less clear. The Agreement contemplated that, subject to some certain and ascertainable amounts specified in the Agreement, the interests of the parties that might otherwise have to be dealt with in partnership accounts should be determined and settled by a payment made on completion, namely the balance of the price adjusted in accordance with terms of the Agreement, including clause 11. In relation to any claim now made under clause 11, it would be necessary to show that, notwithstanding the reference to takings and profits, it was for a certain and ascertainable amount which was not paid on completion.
In any event, it is clear that there are at least some claims in respect of which the Local Court has jurisdiction.
TOBIAS JA: In this matter I have had the benefit of reading in draft the judgments of McColl JA and Hodgson JA. I agree with the orders proposed by the former and with her reasons. I also agree with the additional remarks of Hodgson JA. I content myself therefore with adding only the following.
The appellants’ primary submission that cl 31 of the Agreement could only be given effect to after completion either by the taking of accounts under cl 32 or upon a grant of the equitable remedy of account is fundamentally flawed. The submission fails to appreciate that whatever steps are required to be taken in order to ascertain the amount owing under cl 31 are, firstly, not dependant upon the drawing up of a final set of partnership accounts under cl 32 and, second, do not require the grant of the equitable remedy of account being a remedy applicable only where a claim is made by one partner against another partner under the relevant partnership agreement.
In the present case, the respondents’ claims are not made in their capacity as partners under the partnership agreement but as vendors of their share of the partnership business under the terms of the Agreement. It therefore follows that it is unnecessary for the respondents to rely upon the rule that whenever money allegedly belonging or owing to a firm in respect of a partnership transaction is sought to be recovered from a partner, there must be the taking of an account. That rule has no application where a party’s rights and obligations are no longer governed by the partnership agreement but by a separate and independent agreement being, in the present case, an agreement for the sale of a share in a business.
Accordingly, the learned Magistrate was in error in applying the principle enunciated by Young J in Phoenix Freight Systems Pty Ltd v Seko Airfreight Inc and the Associate Judge was correct in observing (at [14]) that his Honour had given no consideration to the fact that the Agreement brought about an end to the partnership and constituted a contract between the parties under which the respondents as vendors of their share in the partnership business agreed to accept the amounts payable by the appellants as purchasers thereunder in lieu of any entitlements arising from the taking of partnership accounts.
I would add one further observation with respect to the statement of the Associate Judge (in [15]) that a final settlement of accounts, if the respondents were to seek the same, would afford them no benefits as they neither claimed nor had any entitlement to a payment in respect of the capital or profits of the partnership. That observation was entirely correct as the respondents’ entitlements upon the sale of their share in the business to the appellants were wholly governed by the Agreement. Any payment with respect to the capital of the business to which the respondents might otherwise have been entitled upon the dissolution of the partnership was subsumed in the consideration of $65,000 payable by the appellants to the respondents under the Agreement.
McCOLL JA: Paul Zisis and Zisis Dental Ceramics Pty Limited, the applicants, seek leave to appeal from a decision of Associate Justice Malpass in which his Honour overturned a decision of Bradd LCM dismissing proceedings brought by Paul Knighton and Felician Investments Pty Limited, the opponents: Knighton & Felician Investments Pty Limited v Zisis & Zisis Dental Ceramics Pty Limited [2007] NSWSC 139. The opponents had sought to recover monies they said were due from the applicants under an Agreement for Sale of Business (the “Agreement”) pursuant to which they sold their interest in a dental technician partnership to the applicants. The Magistrate held the Local Court of New South Wales had no jurisdiction to determine the claim as it was in the nature of an action for accounts between former partners where the final balance owing on the partnership account was not known.
As I am of the view the application raises an issue of principle, I would grant leave to appeal. I shall therefore refer to the parties as the appellants and the respondents.
Statement of the case
The appellants and the respondents conducted a dental technician business known as “Ceramics Only” pursuant to a Deed of Partnership dated 1 October 1993. The partnership deed was not in evidence. On 24 February 1999 they entered into the Agreement pursuant to which the respondents as Vendors disposed of their half interest in the partnership to the appellants as Purchasers for a purchase price of $65,000 together with certain additional monies determined in accordance with the following provisions:
“11. The Vendors and the Purchasers shall be entitled to the takings and profits and shall pay or bear all charges and amounts due for rent, gas, electricity, telephone service and all other outgoings in respect of the business up to the date of completion, on and from which date the Purchasers shall be entitled to or shall pay or bear the same respectively and any necessary apportionment shall be made on completion.
…
15. (b) The Vendors and the Purchasers shall be entitled to payment of all debts owing to the business at the time of completion and the Purchasers will promptly account to the Vendors for half of all payments received by them relating to such debts.
…
31. The Purchasers must after completion use their best endeavours to collect all accounts rendered prior to completion which accounts remain unpaid as at the date of completion and shall forthwith upon receipt account to the Vendors for half of the moneys paid in relation to each such account. The Purchasers shall after completion upon reasonable prior notice permit the Vendors and the accountant nominated by the Vendors access to the Purchasers’ books and other records relating to the Business prior to settlement in order to establish details of payment of outstanding accounts.
32. The parties shall cause to be drawn up a final set of partnership accounts as at the date of completion by an accountant nominated by the parties by agreement and in default of agreement by an accountant nominated by the President of the Institute of Chartered Accountants upon the request of either party. This provision does not merge on completion.
33. The Purchasers must on the date of completion pay to the Vendors by cash or by bank cheque half of all bonds, guarantees and other securities held by public utilities on behalf of or in relation to the supply or services to the partnership business.”
It appears to have been common ground that the Agreement was completed on 16 March 1999. Thereafter disputes arose between the parties as to the additional monies payable to the respondents. The respondents brought proceedings in the Local Court of New South Wales which Malpass AsJ described as follows:
“6 The disputes remained unresolved. The plaintiffs brought proceedings in the Local Court (by way of Statement of Liquidated Claim). This process pleaded the partnership and the agreement to purchase. It purported to also plead two alternative claims. Both present as being claims for liquidated sums pursuant to the alleged agreement. The first of the two claims pleads an agreement made on or about 24 February 1999. It seems as though this agreement may not have ever been particularised. The alternative claim pleaded the agreement and relied on specific provisions thereof (including condition 31).
…
8 The proceedings were defended. In effect, there was dispute as to liability to pay any of the monies. The issues concerned matters of contract. A claim for a set-off was also made. The defence did not raise any question of jurisdiction or that the plaintiffs were barred from recovering the monies claimed by reason of there not having been a taking of accounts.
9 A hearing took place (before Mr Bradd LCM). It appears that the case was conducted in accordance with what had been pleaded. No question of jurisdiction was agitated. The defendants did not contend that the plaintiffs were barred from recovering the monies claimed by reason of there not having been a taking of accounts.
10 The Magistrate reserved his judgment. The reserved judgment was delivered on 19 May 2006. The judgment contained the following:-
‘4 In Phoenix Freight Systems Pty Ltd v Seko Air Freight Inc (1995) 17 ACSR 754 Young J. stated:
If there was a partnership agreement and the balance of the partnership agreement had 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 a court and that would be their only right; see Moravia v Levy (1786) 2 Term Rep 483; 100 ER 260.
5 An action always lay at common law for the final balance owing on a partnership account provided that the balance is known at the time of commencement of the action (Moravia v Levy (1786) 2 Term Rep 483), except as provided by section 44(1)(c) of the District Court Act.
14 From the pleadings it is apparent that the final balance has not been ascertained. Accordingly, there is no claim at common law, and the Local Court is without jurisdiction to determine the claim and cross-claim.’ ”
The respondents filed a Summons in the Supreme Court appealing against the decision of the Magistrate on the basis of error in point of law. Malpass AsJ concluded the appeal should be allowed holding, inter alia, (at [13]) that the Magistrate misdirected himself in determining the respondents’ claim on a matter that was not in issue between the parties and, in so doing, deprived the parties of the opportunity of leading further evidence and making submissions. In his Honour’s view, if the parties had been given that opportunity, the Magistrate may not have been led into error.
Malpass AsJ was also of the view (at [14]) that the Magistrate could have determined the case on the basis that:
“14 A consequence of what was done, was that no consideration was given to a vital consideration (the effect of the completion of the agreement). Whilst it has not been fully argued before me, it would seem that this would bring about a situation which would see an end to the partnership with the plaintiffs accepting their benefits under the agreement in lieu of entitlements on a taking of account. Although it is another matter that was not fully argued, it would seem that the only means available to the plaintiff to recover the claimed monies may be on a cause of action framed in contract (pursuant to the provisions of the agreement).”
He added:
“15 For completeness, a further observation may be made. A final settlement of accounts (if the plaintiff was entitled to seek the same) would afford the plaintiffs no benefits. They neither claim nor have any entitlement to a payment in respect of capital or a payment in respect of profits.”
In the course of his judgment Malpass AsJ observed (at [4]) “that the agreement did not expressly deal with dissolution of the partnership” and (at [7]) that “[w]hat was claimed did not equate with what may be recovered on a final settlement of accounts (see s44 of the Partnership Act 1892 (NSW)).”
Malpass AsJ set aside the decisions of, and any orders made by, the Magistrate and remitted the matter to the Local Court for determination according to law. He ordered the appellants to pay the costs of the proceedings and, if so entitled, granted them a certificate under the Suitors’ Fund Act 1951.
Although it is not specifically referred to in Malpass AsJ’s reasons, it should be noted that the Magistrate refused to award the appellants their costs of the Local Court proceedings on the basis that the issue of want of jurisdiction was only raised in closing address and that the failure to take the point earlier had “encouraged the plaintiff to pursue its case and prove its claim”. His Honour observed that the appellants “should have filed a notice of motion to have the statement of claim struck out for want of jurisdiction” in which case it would have been entitled to costs: Knighton & Felician Investments Pty Limited v Zisis & Zisis Dental Ceramics Pty Limited (Local Court of New South Wales, Bradd LCM, 20 June 2006).
The appellants appear to have sought leave to file a Cross-Summons seeking relief from their failure to recover costs. It is not apparent from the papers whether that leave was actually sought before Malpass AsJ. The appellants seek to re-agitate that issue on the appeal. The respondents have not objected to that course and I shall assume, therefore, that this was a live issue before Malpass AsJ.
Submissions
The appellants argue that having found that no balance of accounts had been taken and the amounts owing were still in dispute, Malpass AsJ erred in law in finding that the Local Court had jurisdiction to hear the claim and determine it as an ordinary contract claim. They also contend that his Honour erred in ordering them to pay the respondents’ costs on appeal and at trial. The costs argument depended on the proposition that the respondents commenced proceedings in the wrong forum and maintained its correctness on appeal.

The appellants submitted that if Malpass AsJ’s orders are allowed to stand the matter will be remitted to the Local Court “forcing” it to determine the case on a basis for which it has no jurisdiction. They contended that whenever money allegedly belonging or owing to a firm in respect of a partnership transaction is sought to be recovered from a partner, the equitable remedy of account is engaged, a general rule which, they argued, was reflected in ss 28 and 44 of the Partnership Act 1892.
Secondly, the appellants submitted that the common law action of account in respect of partnerships had fallen into desuetude. Alternatively they argued that the elements for a common law claim for account were not satisfied, because the respondents could not be taken to have pleaded such an action. They contended that the Agreement could not be taken to constitute an account because cll 31 – 32 required an account to be taken.
Thirdly, the appellants submitted that the respondents’ claim was most appropriately categorised as a claim for equitable relief in aid of a legal right on the basis that the parties were in a fiduciary relationship. As such the claim should be refused because of the Local Court’s lack of statutory power to grant the relief sought. In support of the latter argument they contended that the Local Courts Act 1982 did not confer on a Magistrate power to exercise jurisdiction to hear a claim for equitable relief. Accordingly they argued the Local Court had no power to hear the respondents’ claim for the equitable remedy of account or entertain a partnership-related common law claim in its common law jurisdiction.
Insofar as the respondents relied on legal rights conferred by the Agreement the appellants submitted this could not form a discreet common law claim as the subject matter of the contract was the business of the partnership and its dissolution.
Finally, on the main issue, the appellants submitted the respondents’ common law claim would still fail because the debt was never proven.

As to costs, the appellants submitted that the Magistrate’s departure from the general rule that costs follow the event was flawed in that, inter alia, there was no obligation on the appellants to move to strike out the respondents’ pleadings on an interlocutory basis, nor any improper behaviour in them encouraging the respondents to pursue their case without adverting to the jurisdiction point. They contended that the Magistrate confused their argument that the debt claim was not proven with their “subsidiary submission…that the Court had no jurisdiction to award the remedy of account in support of a claim for a debt”. They also argued that they should not have to pay costs in defending misconceived proceedings commenced in the wrong forum.

The respondents submitted first, that their claim was not made in the capacity of a partner under a partnership agreement, but in the capacity of the vendor of a business and that a taking of partnership accounts was irrelevant. They say they accepted their benefits under the Agreement so that a final settlement of partnership accounts would afford them no benefit, their rights having merged in the Agreement.
Secondly, the respondents argued that cl 32 of the Agreement was expressed not to merge on completion and was not a condition precedent to the fulfilment of the parties’ obligations to each other under the Agreement.
Thirdly, the respondents contended that their claim was not properly characterised as a claim for equitable relief in aid of a legal right on the basis that the parties were in a fiduciary relationship, but as a claim for moneys due under a contract of sale, the amount of which was ascertained or ascertainable prior to the issuing of the Statement of Liquidated Claim. They argued that the fact the appellants did not agree with the amount claimed did not alter the nature of the transaction or the proceedings.
As to costs, the respondents submitted that Malpass AsJ did not find that the respondents had commenced their proceedings in the wrong forum and there is no reason to depart from the normal order that costs should follow the event. They did not address the issue of the Magistrate’s determination of costs.
Consideration
Malpass AsJ concluded (at [9]) that the appellants had not agitated the question of jurisdiction before the Magistrate. It is common ground, and it is apparent from the Magistrate’s costs reasons, that the appellants had in fact done so, but not until closing address. It follows that Malpass AsJ’s primary reason for allowing the respondents’ Summons was based on a misapprehension of the appellants’ case in the Local Court.
However, in my view Malpass AsJ’s secondary reasons for allowing the Summons had more weight.

The relation 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. However “[w]here a partner retires, either ad hoc or in accordance with the partnership agreement, and leaves his share in the firm, he no longer has any continuing interest or share in the assets, but is merely a creditor of the firm so that the retiring partner may sue the continuing partners for the value of his share in the assets of the firm or for any sum that the continuing partners agreed to pay the former upon his retirement without the necessity, first of all, of taking a general account”: Halsbury's Laws of England, 4th ed, vol 35 (at pars [3], [122]).

These propositions were accepted in Dillon v Dillon (Supreme Court of Tasmania, Full Court, 17 February 1986, unreported, BC8600040) by Cosgrove J (with whom Underwood J agreed) who said (BC8600040 at 6 - 7):
“A. All that a partner is entitled to on dissolution is (a) to have the property of the partnership applied in payment of the debts and liabilities of the firm and (b) to have the surplus assets after such payment applied in payment of what may be due to the partners respectively after deducting what may be due from them as partners to the firm (s 4, [sic, s 49] of the Partnership Act 1891). There is an entitlement to a share in the profits or to interest under s 47, but that need not trouble us here.
B. Partners may agree at or after dissolution on a stated and settled account, but such agreement, to be effective, must be precise.
C. A partner cannot maintain an action for a separate balance on the partnership account or for any particular partnership asset until an account has been taken and settled by the parties or by the court. In the absence of a stated and settled account then, a partner seeking what is due to him must apply to the court for an account. There is no other legal path which he can follow.
D. Some transactions between partners may be of such a nature that they are insulated from the general law of partnership. This may arise from the agreement of the partners or their conduct. Such transactions do not fall into the partnership accounts and may be sued upon without an account being taken …” (emphasis added)
In the same case Brettingham-Moore J said (BC8600040 at 11):
“Where partners have made an agreement which does not involve any consideration of the partnership accounts they may sue upon such agreement as for a debt owing without an account being taken. See Partnership Act 1891, s 5, 35 Halsbury (4th edn.), para. 147, Simpson v Rackham (1831) 5 Moo P 612, 131 ER 238, Worrall v Grayson (1836) 1 M & W 166, 150 ER 391, Lindley on Partnership (14th edn.), 522. But it must be clear that there has been an agreement which is completely independent of the partnership arrangements. Normally the indebtedness of one partner to another as at the date of the dissolution can only be ascertained by the taking of accounts: see Lindley on Partnership (14th edn.), at p. 605, Green v Hertzog [1954] 1 WLR 1309.”
Section 5 of the Partnership Act 1891 (Tas) is found in s 46 of the Partnership Act 1892 (NSW). It provides that “[t]he rules of equity and of common law applicable to partnership shall continue in force except so far as they are inconsistent with the express provisions of this Act”.
Moravia v Levy (1786) 2 Term Rep 483; 100 ER 260, the case to which Young J (as his Honour then was) referred in Phoenix Freight Systems Pty Ltd v Seko Air Freight Inc (1995) 17 ACSR 754, concerned an action to recover the amount of a balance struck between partners. The articles of partnership contained a covenant to account at certain times. The plaintiff proved the defendant had expressly promised to pay the amount of a balance struck. Buller J rejected Mr Erskine’s objection that the action did not lie having regard to the covenant to account on the basis of the defendant’s express promise to pay the balance which had been struck.
Mr C Mantziaris, who appeared for the appellants and before Malpass AsJ, did not contest the proposition that it was open to the parties to make an agreement in the terms of that referred to in Dillon v Dillon. However he contended that the Agreement did not fall within that description but, rather, by its terms required a taking of accounts, an exercise which was not within the jurisdiction of the Local Court of New South Wales. He relied upon the requirement in cl 32 that the parties were to cause a final set of partnership accounts to be drawn up as at the date of completion. He contended that in circumstances where there had been no final settling of the accounts between the partners, there could be no action for the final balance.
I would reject that submission. By the Agreement, the respondents agreed to sell their half interest in the business known as Ceramics Only for the sum of $65,000 and, in addition, that on completion they would apportion the takings, profits and outgoings: cl 11. Next, they agreed that they would be entitled equally to all debts owing to the business at the time of completion, an obligation in respect of which the claimants were required to account promptly to the respondents for half of all such payments: cl 15(b). Clause 15(b) was complemented by cl 31 which required the claimants after completion to use their best endeavours to collect all accounts rendered prior to completion and which remained unpaid as at the date of completion and “forthwith upon receipt account to the Vendors for half of the monies paid in relation to each such account.” This was an express agreement of the sort contemplated by Moravia v Levy and Dillon v Dillon. Such an agreement is also envisaged by s 44 of the Partnership Act which provides for the settling of accounts between partners by agreement otherwise than in accordance with that section.
The amounts the respondents sought to recover under the Agreement in respect of the partnership debts were “certain and ascertainable” and, accordingly, gave the respondents the right to recover that sum as a debt (McDonald v Dennys Lascelles Ltd [1933] HCA 25; (1933) 48 CLR 457 per Dixon J (at 475 – 476)) or liquidated damages: Spain v Union Steamship Co of New Zealand Ltd [1923] HCA 21; (1923) 32 CLR 138 per Knox CJ and Starke J (at 142).
This is also evident from the pleadings. In paragraphs 9 – 14 of the Statement of Claim, the respondents pleaded that pursuant to cl 31 of the Agreement the claimants agreed to pay one half of monies received in respect of unpaid accounts as at 24 February 1999 and particularised the sum of $19,301.40 as representing outstanding balances at that date, of which the respondents’ share was $9650.70. In their Amended Defence (par 6) the appellants admitted the terms of the Agreement but said (by cross-reference to par 3 of their Amended Defence) that upon completion of the Agreement the sum of $16,913.92 had been collected on account of debts due to the former partnership and that the first appellant was liable pursuant to cl 15(b) and cl 31 of the Agreement to account to the first respondent for one half of that amount, $8,456.96. It is apparent, therefore, that it was common ground the appellants were indebted to the respondents in the sum of $8,456.96, the dispute being as to the balance of $1193.74. The appellants also admitted they were liable to the respondents for sums referred to in the Agreement on account of rental adjustment and refund of two insurance premiums “in ascertaining final accounts”: Amended Defence, par 4.
The Amended Defence contained a number of assertions about the first respondent’s conduct in relation to a bank account apparently in the name of the partnership (the “BMA Account”) with which it is unnecessary to deal. It also pleaded that the appellants were entitled to set-off against any amount they owed the respondents of one half of all liabilities, costs and expenses the appellants had paid to creditors of the former partnership. The claimants also filed a Cross-Claim, but Mr Mantziaris accepted that the matters it raised had not been pursued in the Local Court hearing.

The first respondent was called at the hearing. His counsel, Mr G Bateman, showed him three documents which became exhibit 5, copies of which were not in the White Book, but which were said to disclose that the outstanding balance of debtors as at 24 February 1999 as the sum of $19,301.40 referred to in the Statement of Claim. (transcript, 30/03/2006, pp 6-7). Mr Graham Garside, who had been the partners’ bookkeeper, prepared those documents. He gave evidence in the respondents’ case explaining the process by which exhibit 5 had been compiled. He was cross-examined by Mr Bright, who appeared for the appellants, about one item in exhibit 5 the thrust of the cross-examination having apparently been to suggest the amount related to a post-completion debtor, a proposition Mr Garside resisted.
The first respondent was not challenged at all as to the balance of debts due to the partnership at the date of completion, most probably, I infer, because the cross-examiner thought it appropriate to level any such attack at Mr Garside as the author of the accounts.
In my view cl 32 does not militate against the conclusion that the Agreement was precise as to the sums the appellants were to pay the respondents pursuant to cl 15(b). Clause 32 did not require the parties to make any payment, the one to the other upon the accounts to which it referred being finalised. It might be inferred that it was a provision intended to facilitate, for example, the former partners completing their taxation returns. It does not detract from the force of the obligations in cll 15(b) and 31. Those obligations gave rise to a debt, alternatively a claim for liquidated damages, which may be sued upon without an account being taken.
It is not entirely clear to what issue the appellants’ complaint that the respondents’ common law claim would still fail because the debt was never proven, was intended to go. It was not referred to in the draft notice of appeal. Moreover appeals from the Local Court to the Supreme Court as of right lie only from decisions said to have been erroneous in point of law: s 73, Local Courts Act 1982. That provision applied to the Summons initiating the appeal which was filed on 17 August 2006. The same provision is repeated in the Local Court Act 2007, s 39. This complaint did not raise a no evidence complaint, which might have raised a point of law: Azzopardi v Tasman UEB Industries Limited (1985) 4 NSWLR 139 (at 155 – 156). Further, in my view, there was evidence from which the Magistrate could have concluded that the appellants were indebted to the respondents as alleged. It is unnecessary to consider this matter further.
In my view the Local Court had jurisdiction to deal with the respondents claim to recover the amounts due under cl 15(b). The appeal to this Court should therefore be dismissed.
In the light of this conclusion Mr Mantziaris’s submission that the Magistrate ought not to have departed from the general rule that costs follow the event is academic. However as that submission exposed a fundamental misapprehension about the contemporary approach to litigation, it should be considered briefly.
The premise underlying Mr Mantziaris’s submission was that the appellants were under no obligation to foreshadow the jurisdiction point to the respondents. This submission failed to take into account the rule that parties must plead specifically any matter which may take the opposite party by surprise: Uniform Civil Procedure Rules (2005) 14.14. Although the proceedings were commenced in 2004, the Amended Defence was filed on 17 November 2005 and, accordingly, having been filed after the commencement of the UCPR on 15 August 2005, was subject to that rule.
Secondly, it failed to recognise the obligation of legal practitioners to ensure that the real issues in proceedings are disposed of in accordance with the over-riding purpose expressed in s 56 of the Civil Procedure Act 2005. Finally, the submission failed to pay regard to the fact that “the ambush theory of litigation was given its quietus by Heydon JA” (with whom Mason P agreed) in Nowlan v Marson Transport Pty Ltd [2001] NSWCA 346; (2001) 53 NSWLR 116 (at [22] – [30]). Parties are required to “lay their cards on the table”: Glover v Australian Ultra Concrete Floors Pty Ltd [2003] NSWCA 80 (at [60]) per Ipp JA, (Sheller and Hodgson JJA agreeing).
In my view having regard to the appellants failure to plead the jurisdiction point or otherwise alert the respondents to it, the Magistrate was entitled to depart from the general rule that costs follow the event.
Orders
I propose the following orders:
(1)          Leave to appeal granted.
(2)          Appellants to file the Notice of Appeal within seven days.
(3)          Appeal dismissed.
(4)          Appellants to pay the respondents’ costs of the appeal.

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AMENDMENTS:

16/04/2008 - Front Cover Sheet - Paragraph(s) Category: Principal judgment

LAST UPDATED:
16 April 2008