AM Marketing Pty Ltd v Howard Media Pty Ltd

Supreme Court of NSW|2010-07-23|Before: Barrett J, Mr J, McCallum J

Background Facts 6 Mr and Mrs Burke-Smith immigrated to Australia from the United Kingdom in 2000 and settled in Suffolk Park near Byron Bay in June 2001. Both of them been involved in marketing, advertising and publishing activities in the United Kingdom. AM Marketing was incorporated by them as a vehicle through which to operate such a business in Australia. 7 After establishing AM Marketing, the Burke-Smiths telephoned various publishers in the Northern Rivers area, extending from Grafton to the Queensland border and Casino to the west. They introduced themselves and their business and offered marketing consultancy or contract advertising services. By "contract advertising services", I mean the selling of advertising space in magazines or other publications. 8 Howard Media was one of the publishers thus contacted by AM Marketing. As a result of this initial approach, there was a meeting between Mr Howard and Mr Burke-Smith in September 2001. There was discussion about the services that could be provided by AM Marketing in relation to the marketing of a periodical publication entitled "Better Business", which had previously been published by Howard Media but had not been produced for over a year. 9 Better Business was an A4 sized colour magazine targeted at business owners and key decision makers in the Northern Rivers area. It contained articles, editorials, business information, news from local chambers of commerce and business advertising and promotional material. Although the magazine had an indicative retail price of $7.95 on the front cover, it was in fact not sold but rather distributed free throughout the region.

12 After the second meeting, Mrs Burke-Smith, on behalf of AM Marketing, sent a proposal letter to Howard Media, dated 14 September 2001, offering consulting services. The letter was primarily concerned with Better Business and Northern Rivers Hampers. AM Marketing offered various services including a magazine critique of Better Business, which entailed a business, content and marketing assessment of the magazine; contract sales of advertising and franchise development consulting services. 13 AM Marketing quoted a flat fee of $4,000 for the magazine critique, discounted to $3,000 if AM Marketing was engaged to implement its recommendations. It also stated that the cost of engaging it for contract sales was 40% of the total advertising revenue, to be paid upon invoice at the time of publication. A fee of $60,000 per annum, to be paid periodically and in advance, was quoted in relation to the cost of franchise development and support.

14 Although AM Marketing had focused upon Better Business in its proposal, it was the Northern Rivers Hampers project and the SDP which required immediate attention as they needed to be produced by December 2001 and January 2002 respectively. 15 It is not in dispute that this offer of services by AM Marketing was rejected in its entirety by Howard Media. AM Marketing says that in a meeting held after its letter had been received, Mr Howard told Mr Burke Smith that: "Howard Media is not in a position to pay a flat fee but I will give thought to some other possible arrangements that we could come to". 16 This accords with affidavit evidence given by Mr Howard that, in a discussion with Mr Burke-Smith around this time, he said words substantially to the effect that: "I require some assistance in promoting a product known as 'Northern Rivers Hampers' and publishing a publication known as the 'Student Discount Passbook' which are becoming urgent and need to be organised by December 2001 and January 2002 but as you know, I cannot agree to pay a flat fee for contract sales". 17 Subsequent discussions took place between Mr Howard and Mr Burke-Smith in relation to AM Marketing assisting Howard Media in respect of the Hampers Project and the SDP. It is not in dispute that the parties came to an in principle agreement that AM Marketing would undertake the marketing and contract sales aspect in return for a 50% share of the profits after costs of the publications.

18 It is clear that, at this time, the agreement between the parties was limited to the SDP and the Hampers Project. On 13 October 2001, Howard Media sent a facsimile letter dated 12 October 2001 to AM Marketing seeking to clarify or re-state the oral arrangement. The letter set out various structural aspects of the proposed "strategic alliance" and noted in the final paragraph that the elements of the agreement in relation to the SDP could be applied in a similar way to the Better Business magazine. The concluding paragraph also requested feedback from AM Marketing on the proposed structural elements. 19 The letter suggested that a bank account be established, the "Howard Media No 2 Account", solely for the purpose of holding moneys paid to Howard Media for publications marketed by AM Marketing. The letter then said: "The account would carry a cheque book with two authorised signatories needed. These would be one from both parties but not two of the same party ie: one Howard (either) and one Burke-Smith (either). Authorised access would be available for both parties to make inquiries on balances. Any transfer of funds would only be made by cheque, not electronic or any other means." 20 The proposal envisaged that all moneys received for advertising sold by AM Marketing would be deposited into this No 2 account. Similarly, all payments in relation to publication costs were to be paid out of the No 2 account. It was envisaged that, upon furnishing an invoice to Howard Media, AM Marketing would be entitled to withdraw, on a weekly basis, the initial deposit, being one third of the contract price. The second payment, due after approval of proof, again one third of the total contract price, was to be allocated to Howard Media for payment of production and printing costs. Upon actual publication of the Student Passbook, and upon a reconciliation prepared jointly by the parties, AM Marketing was to receive 50% of the remaining balance of the bank account after reimbursement of any further costs. 21 Mr Burke-Smith on behalf of AM Marketing, sent a letter, in response to the facsimile, on 15 October 2001. The letter commenced: "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 monies owed and the effects of 'slow payers'." 22 The letter went on to confirm acceptance of the proposal to establish a joint bank account on the understanding that it should be used solely for the banking and clearing of funds generated by AM Marketing and collected by Howard Media in respect of joint venture publications. 23 The payment structure, as outlined at paragraph [20] above was not agreed to by AM Marketing. An alternative proposal was put forward by Mr Burke-Smith: "AM Marketing Pty Ltd will furnish Howard Media Pty Ltd with a statement of all advertising sold during each month at the end of that month along with an invoice for 1/3 of the revenue. A cheque made in favour of AM Marketing Pty Ltd will be raised 30 days from the date of that invoice i.e. commissions for advertising sold in October will not be paid to AM Marketing Pty Ltd until the end of November. This will allow a minimum of 4, and often up to 7 weeks, for the collection of advertising deposits. Similarly, Howard Media Pty Ltd will furnish AM Marketing with a monthly statement for the second 1/3 deposit i.e. after approval of advert proof. The relevant cheque will be raised in favour of Howard Media Pty Ltd, also one month in arrears. Upon publication and after reconciling mutually agreed withdrawals for costs; telephone, print and production (and travel if relevant) 50% of the balance over and above the agreed float [of $100] will be paid to AM Marketing and the same to Howard Media Pty Ltd. From this point payments from outstanding invoices for advertising will continue to be deposited in this account and a monthly payment to each party of 50% will be provided (debt collection costs relating to those payments will be taken into consideration)." 24 The letter concluded by saying: "I am confident that this will provide the basis for a mutually lucrative and easy to manage long-term business relationship and look forward to working with you on this and other projects. This letter will act as a contract between our two companies when both pages are signed, dated and faxed by you to me along with the accompanying 'Marketing Services Booking Confirmation'." 25 The two page letter and the accompanying Marketing Services Booking Confirmation were signed by Mr Howard on 20 October 2001. It is necessary to describe the latter document. 26 The Marketing Services Booking Confirmation is a single page document created by AM Marketing, which is divided into three specific sections entitled, "Client Details", "Marketing Requirements" and "Authorisation". The client details recorded were those of Howard Media. In the Marketing Requirements section noted that the "job" was the "2002 Student Discount Passbook" and that AM Marketing was to provide services in relation to "Contract Sales of advertising for the 2002 TAFE Student Association and Southern Cross University Student Representative Union Student Discount Passbook". The "Authorisation" section was as follows: " Authorisation I have read the above details and confirm that I wish to employ AM Marketing Pty Ltd to undertake the work described. I am a duly appointed agent or employee of the above mentioned company and am hereby authorised to enter into this agreement.

Name John Howard Position Managing Director Company Howard Media Pty Ltd Date 20 - 10 -01

" 27 The publication of the SDP proceeded on the basis of the agreement thus formed. AM Marketing rendered monthly invoices to Howard Media for advertising revenue obtained by AM Marketing and, upon publication in January 2002, AM Marketing liaised with an employee of Howard Media, Ms Deanne Cruickshank, to confirm final reconciliation figures and a residual invoice. 28 The final reconciliation was set out in a letter of 14 March 2002, created by AM Marketing, the relevant part of which was as follows: "STUDENT DISCOUNT PASSBOOK 2002 COSTS Libby Miller : $760 Post : $49.98 Print : $6836 Phone : $619 Account Fees : $52.70 Total Costs : $8317.68 (inc GST)

To date AM Marketing has invoiced $11054.34 inc GST. I have therefore enclosed a final invoice of $1559.82 inc GST. To date AM Marketing has drawn $9192.34 (Invoice 01003 is still outstanding - value $1862 inc GST) hence the balance owing to AM Marketing for this project is $3421.82 inc GST. To date Howard Media has drawn $10000 inc GST (and $100 in goods from Mr T Meats) hence the balance owing to Howard Media for this project is $2514.16 inc GST." 29 In 2003 and 2004, the SDP was again jointly published by AM Marketing and Howard Media on the basis of the agreement. 30 In early 2002, there were further discussions about reviving the publication of the Better Business magazine, previously entitled "North Coast Better Business". 31 Mr Burke-Smith gave evidence that he recalled Mr Howard saying, in one of the numerous discussions between the two men about Better Business, that "HM cannot pay for the marketing services required to re-launch the publication". As a result, it was proposed that the two businesses enter into a profit sharing arrangement similar to that agreed for the SDP. 32 Mr Howard's position is that the agreement to develop the business together was founded upon the earlier conduct of the parties in relation to the SDP and on the basis of a conversation between the two men, deposed to in an affidavit sworn 1 April 2010. The conversation, according to Mr Howard, occurred as follows: "ABS: I would be prepared to work with you on Better Business and to undertake the marketing and sales side of the magazine. JH: OK then, I really want to resume publishing the magazine again and I'd rather have 50% of something than 100% of nothing which is what I've got now while the magazine is not being published. ABS: So, how is it going to work? JH: The Better Business magazine would be published every two months. Like the other publication, you would be required to solicit advertising and take advertisement bookings to fund the production of the publications and I would provide administration, assistance with sales and marketing advice, distribution and publishing. Further, I think we should share the profits or bear the losses of the publication in equal shares after expenses, and we should each be entitled to repayment for expenses we incur in working on the publication. In addition, I would transfer 50% of the title in the masthead Better Business to you. ABS: I will send you confirmation for you to sign." 33 Mr Howard also gave evidence that part of the agreement between the parties was that Mrs Burke-Smith would be managing editor of the publication and provide editorial services for each publication for a sum of $4,000 per published issue. 34 In cross-examination, Mr Burke-Smith accepted that Mr Howard's evidence about the agreement between the parties was accurate except in one respect. That one exception relates to the alleged agreement to bear losses equally. Cross-examination of Mr Burke-Smith on that issue was as follows: "Q. And he said to you, I suggest, "I think we should share the profits, or bear the losses of the publication, in equal shares after expenses? A. Absolutely not." 35 I shall return to this matter. 36 After the conversation just mentioned, AM Marketing sent to Howard Media for appropriate authorisation two Marketing Services Booking Confirmation forms, in the format previously outlined (see paragraph [26] above). These related to the Better Business Magazine. 37 The first booking confirmation form, addressed to Howard Media care of Mr Howard, described the services to be provided by AM Marketing as "Contract Sales of advertising for Better Business Magazine North Coast" and it was noted that: "The cost is 50% of the profit (after deductions for telephone, print, design, editorial, delivery and mutually agreed sundry costs). In addition, AM Marketing is to develop the product with Howard Media, increasing its value and viability, in return for 50% ownership of the product, masthead and overall value of the magazine". 38 The authorisation section, as set out in paragraph [26] above, is dated 18 March 2002 and was signed by Mr Howard. 39 The second booking confirmation form, again addressed to Howard Media care of Mr Howard, was as follows: "Marketing Requirements Job Title Better Business Magazine (North Coast) Editorial Description To act as Managing Editor for Better Business North Coast. Handling all day to day editorial requirements and producing 6 issues per year. Cost $3636.36 GST $363.64 Total $4000 Payment Due Upon Invoice Order Notes The cost is $4000 per issue inc based on 6 issues per year and a pagination of up to 52 pages. Should the frequency of publication or pagination exceed that described then further costs/negotiation would then be required.

" 40 The authorisation section is again dated 18 March 2002 and was signed by Mr Howard. 41 At that point, therefore, the position was that there was a contract between the parties concerning the publication of the Better Business magazine for an unspecified period. Under that contract, AM Marketing solicited and arranged advertising from customers and was also responsible for the magazine's editorial requirements. Upon securing a marketing agreement with a customer, AM Marketing produced an "Advertising Booking Confirmation" form which had to be signed and returned before advertising was booked. Howard Media then invoiced the customer in accordance with the terms of the confirmation form. 42 Revenue was collected by Howard Media and all moneys were deposited into the No 2 account. In addition to invoicing the clients and obtaining payment, Howard Media was responsible for the printing, publishing and distribution of the magazine. 43 Although particular duties and roles were given to each party, it was agreed that there was to be a certain degree of collaboration and co-operation between them in relation to the publication of the magazine. 44 Before any allocation of profit, each party was required to prepare a schedule of costs and expenses incurred, such as printing and distribution costs, which were to be reimbursed to it out of funds in the No 2 account. The editorial fee for AM Marketing, namely $4,000 per issue, was also taken from the No 2 account before any final reconciliation was struck. 45 Upon publication of a particular issue and payment of associated costs and expenses, Howard Media was to provide to AM Marketing sufficient information to enable AM Marketing to produce a final financial reconciliation and consequentially to render a tax invoice for its 50% share of the profit. AM Marketing was then to receive payment from the No 2 account by way of either cheque or electronic funds transfer. 46 The first joint publication of Better Business occurred in April/May 2002. Thereafter there were a further 30 issues of the magazine undertaken on the basis of the agreement. The last publication was in February/March 2007. The debt claimed by AM Marketing in these proceedings relates to the fact that Howard Media did not make payment in December 2006 or thereafter in respect of invoices rendered. 47 In or around August 2002, Mr Howard approached Mr Burke-Smith about another product called the "Lismore-Byron Hinterland Guide", which was to be produced for the Lismore Council. The two men met with Council officers for discussions about the possibility of joint publication of the booklet. Mr Burke-Smith was at first reluctant to proceed with this arrangement because he thought the profit margin was inadequate for AM Marketing. 48 After further discussions, it was agreed that the proposal to produce the guide would proceed on the basis that AM Marketing would receive 90% of the profits, $14,710.92, leaving 10%, $1,634.55, for Howard Media. The publication went ahead on this basis with a letter of 2 December 2002 from AM Marketing to Howard Media providing the final reconciliations and confirming that Howard Media was to receive a 10% "commission" with remaining profit going to AM Marketing. 49 Also at the end of 2002, Howard Media approached AM Marketing to consider marketing a magazine called "The Catholic Life" ("TCL") which was produced on behalf of the Catholic Archdiocese of Lismore. Mr Howard had been approached by Father Peter Karam about taking over the publication because he was dissatisfied with its existing format, publication quality and the service he was getting from his sales contractor. 50 Mr Burke-Smith was reluctant to be involved with this publication and made this clear to Mr Howard. He felt that AM Marketing was busy enough with the Better Business publication and should focus on this magazine and other projects. 51 AM Marketing had been responsible for the design and format improvements of Better Business. To win the TCL contract from the existing contractor, it was of critical importance for Mr Howard to be able to demonstrate to Father Karam that Howard Media could make significant improvements to the presentation of TCL. Mr Howard therefore wanted Mr Burke-Smith - who had been largely responsible for the improvements to Better Business - to attend the meeting with Father Karam to assist in securing the contract. 52 Mr Burke-Smith gave evidence that Mr Howard said to him: "I need you there to make sure I win the business as it is the improvements you've made to Better Business that will most impress Father Karam". 53 Mr Howard gave a differing version of what he said at this time: "We have the opportunity to be involved in another publication called Catholic Life for the Catholic Archdiocese of Lismore. APM currently do the publishing, sales and marketing work for the publication and the editor, Peter Karam who I know very well, is unhappy with the present quality and wants me to do it for him. I would like you to meet him and show him what you and I have done with 'Better Business'". 54 Mr Burke-Smith attended the initial client pitch with Mr Howard and Father Karam, a meeting which lasted approximately 30 minutes according to Mr Howard and only a few minutes on Mr Burke-Smith's evidence. Howard Media was subsequently awarded a contract to publish four issues of TCL per year, commencing in March 2003.

55 Mr Burke-Smith gave evidence that, shortly after Howard Media had secured the publication assignment for TCL, he repeated to Mr Howard that AM Marketing did not want to manage the sales of TCL as it was occupied with Better Business. AM Marketing did, however, undertake some preliminary work, at the request of Howard Media, in relation to style and format changes to TCL and the provision of a production schedule to Howard Media and the designers on the project. 56 There was no discussion between the parties at this time about remuneration to be paid to AM Marketing for the services it had rendered in relation to TCL. Mr Burke-Smith gave evidence, which was not disputed, that Mr Howard understood that AM Marketing did not wish to be involved and as a result it was Howard Media that organised contract advertising sales for TCL. 57 Mr Howard says that a conversation between himself and Mr Burke-Smith in the following terms occurred at around this time: "ABS: To be honest, I do not really want to get involved in another publication because I am so busy with 'Better Business' and do not want an more deadlines. I would like to work on a year book or something similar to what I have done in the UK. JH: OK, I do not mind and am prepared to do Catholic Life without any input from you so long as you work on introducing another product as you described. Can we reach an understanding like that? ABS: OK, I am happy with that." 58 Mr Burke-Smith denies that any conversation to this effect occurred. 59 On about 10 July 2003, AM Marketing received a statement from Howard Media showing the final reconciliation and profit margin of the March issue of TCL. AM Marketing was shown as entitled to a half share of the final profit of that issue. The statement asked that AM Marketing invoice Howard Media for the amount of that half share. AM Marketing did in fact render an invoice and was subsequently paid by Howard Media out of an account entitled "Howard Media No 3 Account". 60 Mr Burke-Smith gave evidence that, upon receiving this statement, he contacted Mr Howard and reminded him that AM Marketing did not want to be involved with TCL, or become the sales agent for it. Furthermore, he gave evidence that apart from his presence at the initial client meeting and the preliminary work done by AM Marketing in relation to design and format changes, no services were provided by AM Marketing in relation to the TCL. 61 Despite the fact that no services were provided thereafter, AM Marketing continued to receive reconciliations of revenue for subsequent issues of TCL showing an entitlement to 50% of the profits. AM Marketing then invoiced Howard Media for those amounts. The invoices were paid out of the No 3 account. Invoices were rendered by AM Marketing for TCL up to and including the June 2006 issue. 62 In the third issue of TCL produced by Howard Media, in September 2003, the contact details of AM Marketing were added to the contact details listed under the heading "Advertising Enquiries". Similarly, the AM Marketing contact details and logos had begun to appear on customer invoices for advertising in TCL. AM Marketing says that this occurred without its permission and as a result of unilateral action taken by Mr Howard. Mr Burke-Smith says that he instructed Mr Howard repeatedly to remove AM Marketing's contact details and logo. 63 In October 2005, AM Marketing attempted to sell, as a going concern, its 50% share of the Better Business masthead and publication, which it had obtained as a result of the agreement outlined at paragraph [37] above. The Burke-Smiths wanted the flexibility to be able to return to the United Kingdom on short notice as they had elderly relatives whose health was failing. Advertisements were placed in the community classifieds and a valuation was undertaken, but they failed to generate any significant interest in a third party acquiring their interest. 64 It is said that after AM Marketing failed in its attempt to sell the share in Better Business, the relationship between the two companies began to deteriorate; and that this was a result of the failure of Howard Media to provide reconciliations in a timely fashion, so that AM Marketing could not act promptly to provide an invoice for its 50% share of profit and make payments on invoices rendered. It is alleged that despite repeated requests for payment of amounts invoiced, which allegedly occurred over a one year period, Howard Media failed to make appropriate payments and that this put significant strain on AM Marketing's financial position. 65 On 19 December 2006, AM Marketing sent a letter to Howard Media requesting immediate payment of overdue invoices totalling $40,528.66, alleging impropriety in relation to Howard Media's use of funds in the No 2 account and detailing other criticisms and complaints. Thereafter, a chain of written correspondence passed between the parties in respect of the alleged debt until proceedings were commenced in the Local Court at Lismore on 26 April 2007. 66 In early 2007, it became evident, as a result of the deterioration in the relationship, that the joint publication of Better Business could not continue into the future. In or around May 2007, AM Marketing commenced publishing the "Northern Rivers Business Magazine" to the exclusion of the defendant. There are a number of similarities between the former joint publication and the plaintiffs' sole publication.

The Proceedings 67 Following initiation of the Local Court proceedings, AM Marketing received a $5,000 payment in respect of the alleged debt from Howard Media. This happened the day after proceedings commenced. The balance of the claim is therefore $30,830, plus interest and costs. 68 In support of the claim for work done by it for Howard Media, AM Marketing produced the invoices rendered from 1 September 2006 to 1 March 2007, which it alleged remained unsatisfied. The combined total of the unpaid invoices is the sum of $30,830 claimed by the plaintiff in these proceedings. 69 AM Marketing's claim for debt for services rendered was defended by Howard Media on the basis that a partnership was in existence as between the companies. At the conclusion of AM Marketing's evidence in chief, a question arose as to whether Howard Media had put forward any defence other than partnership. I held that, on the pleadings, it had not. 70 The position therefore is that, absent a finding that a partnership existed between the two companies, there should be judgment for the plaintiff for the debt claimed. If, however, a partnership is found to have existed, that relief will be inappropriate. The alleged partnership 71 The alleged partnership is pleaded by Howard Media in the amended defence and in the amended cross-claim. It is alleged that, in or about October 2001, it was agreed between Howard Media and AM Marketing that they would commence business together publishing magazines, periodicals and guide books and that the business would be conducted as a partnership. The defendant submits that a partnership arose by way of conduct and oral agreement. 72 The terms of the partnership relied upon by Howard Media are set out in the amended defence and the amended cross-claim and are as follows: "It was a term of the Partnership Agreement, inter alia, that: a) The Plaintiff/Cross Defendant and the Defendant/Cross Claimant share the profits and bear the losses in equal shares and the Business would belong to them in equal shares; b) Each of the Plaintiff/Cross Defendant and the Defendant/Cross Claimant would be entitled to repayment for expenses they incurred in the Business; c) Each of the Plaintiff/Cross Defendant and the Defendant/Cross Claimant would be entitled to repayment for expenses they incurred in working in the Business; d) The Plaintiff/Cross Defendant was required to solicit advertising and take bookings to fund the production of the magazines, periodicals and guide books; e) That the Defendant/Cross Claimant was required to provide administration, distribution and publishing of the magazines, periodicals and guide books; f) Any new magazine, periodical or guide book that either of the parties started to publish or acquired rights to publish was, unless otherwise agreed between them to be part of the Business." 73 It is said that the publications Better Business and TCL were added to the partnership business in 2002 and 2003 respectively, with additional specific terms relating to each publication. The existence of a partnership? 74 The test of the existence of partnership is by reference to the definition of partnership as set out in s 1 of the Partnership Act 1892, as supplemented by the rules set out in s 2. According to s 1(1): "Partnership is the relation which subsists between persons carrying on a business in common with a view of profit". 75 Section 2, states that, in determining whether a partnership does or does not exist, regard shall be had to the following rules: "(1) Joint tenancy, tenancy in common, joint property, or part ownership does not of itself create a partnership as to anything so held or owned, whether the tenants or owners do or do not share any profits made by the use thereof. (2) The sharing of gross returns does not of itself create a partnership, whether the persons sharing such returns have or have not a joint or common right or interest in any property from which or from the use of which the returns are derived. (3) The receipt by a person of a share of the profits of a business is prima facie evidence that the person is a partner in the business, but the receipt of such a share, or of a payment contingent on, or varying with the profits of a business does not of itself make the person a partner in the business; and in particular: (a) The receipt by a person of a debt or other liquidated demand by instalments or otherwise out of the accruing profits of a business does not of itself make the person a partner in the business or liable as such: (b) A contract for the remuneration of a servant or agent of a person engaged in a business by a share of the profits of the business does not of itself make the servant or agent a partner in the business or liable as such: (c) A person being the widow, widower or child of a deceased partner, and receiving by way of annuity a portion of the profits made in the business in which the deceased person was a partner, is not by reason only of such receipt a partner in the business or liable as such: (d) The advance of money by way of loan to a person engaged or about to engage in any business on a contract with that person, that the lender shall receive a rate of interest varying with the profits, or shall receive a share of the profits arising from carrying on the business, does not of itself make the lender a partner with the person or persons carrying on the business or liable as such: Provided that the contract is in writing and signed by or on behalf of all the parties thereto: (e) A person receiving by way of annuity or otherwise a portion of the profits of a business in consideration of the sale by the person of the goodwill of the business is not by reason only of such receipt a partner in the business or liable as such." 76 It is implicit within the s 1 definition that, for a partnership to exist, three conditions must be satisfied: first, a business must be carried on; second, it must be carried on by persons in common; and, third, it must be conducted with a view to profit. 77 The Act in s 1B defines "business" as every "trade, occupation or profession". This definition, as noted by Mason J in Hope v Bathurst City Council [1980] HCA 16; (1980) 144 CLR 1 at 8, gives the word its popular meaning of a "commercial enterprise as a going concern". A business was undoubtedly carried on by way of production of each particular publication or the publications as a whole. The business (or each business) was obviously carried on "with a view of profit". 78 The remaining criterion and the central question to be addressed by reference to the evidence is whether the business (or each business) was carried on "in common" by AM Marketing and Howard Media. Presumption of partnership? 79 It was submitted by counsel for Howard Media that the effect of s 2(3) of the Partnership Act (as set out in paragraph [75] above) was that the sharing of profits derived from the publications by Howard Media and AM Marketing is prima facie evidence of a partnership, so that there is an evidentiary presumption that needs to be negatived or displaced. Reliance was placed on what was said at [30] of Momentum Productions Pty Ltd v Lewarne [2009] FCAFC 30; (2009) FCR 268 174: "… Against the context of them, there is no reason not to give the evidentiary presumption in r (3) its full operation. The onus was clearly on the appellants to show why the respondent should not be regarded as a partner in the hotel business". 80 Importantly, however, in that case the court also noted at [30]: "The present case does not fall within any of the examples of non-partnership (or not-necessarily-partnerships) set out in r (3). The facts lack any obvious context which would, of itself, tend to negative a conclusion that there was a partnership." 81 It is clear that the "presumption of partnership" referred to in Momentum Productions (above) arose not merely from the sharing of profits but also from the finding that there was nothing in the particular factual circumstances of the case to negative this conclusion. 82 The existence of a partnership must be determined by an examination of the terms of the parties' contract and the course of dealing between them. From these sources, their intentions must be gathered. Lindley LJ put the matter thus in Badeley v Consolidated Bank (1888) 38 Ch D 238 at 258: "I take it that it is quite plain now, ever since Cox v. Hickman, that what we have to get at is the real agreement between the parties. It is no longer right to infer either partnership or agency from the mere fact that one person shares the profits of another. It may be, and probably it is true, that if all that is known is that one person carries on a business and shares the profits of that business with another, primâ facie those two are partners, or primâ facie the person carrying on the business is carrying it on as the agent of the person with whom he shares his profits. That may be true, and I think is true even now; but when you have a great deal more to consider it appears to me to be a fallacy to say that you are to proceed upon the idea that sharing profits prima facie creates a partnership or an agency, and that primâ facie presumption has to be rebutted by something else. I cannot help thinking that Sir Montague Smith was quite correct when he dealt with that mode of reasoning in the case of Mollwo, March, & Co. v. The Court of Wards. He says this: "It was contended at the Bar, that whatever may have been the intention, a participation in the net profits of the business was, in contemplation of law, such cogent evidence of partnership that a presumption arose sufficient to establish, as regards third parties, that relation, unless rebutted by other circumstances. It appears to their Lordships that the rule of construction involved in this contention is too artificial; for it takes one term only of the contract and at once raises a presumption upon it. Whereas the whole scope of the agreement, and all its terms, ought to be looked at before any presumption of intention can properly be made at all." 83 In Elkin & Co Pty Ltd v Specialised Television Installations Pty Ltd [1961] SR (NSW) 165 the Full Court of this Court held that, although Badeley v Consolidated Bank (above) was decided before the enactment of the Partnership Acts, the law as stated by Lindley LJ represents the correct interpretation of the statutory rules. Walsh J said at 168-169: "Since the agreement provides for a division of profits, regard must be had to r. III contained in s. 2 of the Partnership Act : "The receipt by a person of a share of profits of a business is prima facie evidence that he is a partner in the business". The rule must be applied in the manner in which its operation was explained in Badeley v Consolidated Bank although that case was decided before the enactment of the Partnership Act ." 84 In this case, remuneration by reference to a share of the profits was agreed because of Howard Media's inability to commit to a flat service fee, as outlined at paragraphs [15] to [16] and [31] above. That aspect did not come from any decision to go into business together. A share of profits was the contractual consideration for the performance of services by AM Marketing. The situation is analogous with that as described by McGregor J in the New Zealand Court of Appeal in Haggitt v Watson [1927] NZLR 209 at 230 where the agreement to share profit was described as "in effect simply an agreed machinery for arriving at a sum of money". 85 It is significant that, as noted at paragraph [13] above, AM Marketing from the outset sought payment for its services by reference to the financial success of each publication, indeed each particular issue. The initial idea was that reward should be linked to revenue but, as events transpired, the entitlement was eventually geared to profit rather than revenue. The sharing of profit instead of advertising revenue indicates an intention to protect the position of Howard Media. The major costs of the production of Better Business were the publication and printing costs, borne by Howard Media. AM Marketing's costs of securing the advertising revenue were relatively modest in comparison. The agreement to share a percentage of profits after costs had been deducted took account of this and ensured that Howard Media's financial benefit was protected. 86 Particularly in light of the way in which the profit-sharing aspect developed, the mere fact that the consideration for the services performed by AM Marketing was measured by reference to a share of profits is not enough, of itself, to warrant a conclusive finding of partnership. An inference of partnership would, however, be very much stronger if there was also an agreement to share losses. 87 In his affidavit of 1 April 2010, Mr Howard refers to a conversation between himself and Mr Burke-Smith as set out at paragraph [32] above which includes a supposed agreement to share losses. As previously noted, Mr Burke-Smith denies that the relevant words, or any similar words, were spoken to him. 88 AM Marketing says that the evidence in Mr Howard's affidavit should not be accepted because it is a self-serving reconstruction by him, rather than a genuine recollection of conversations actually occurring and because Mr Howard's role in the creation of the affidavit is controversial. 89 In order to explain these submissions, I need to set out the relevant cross-examination of Mr Howard: "Q: Did you have any documents available to you at the time that you prepared the affidavit of 1 April 2010? A: No. Q: Do you say you didn't use any other documentary material to assist you in preparing that affidavit? A: This was only a week ago, with this coming up, I was reading a lot of material all the time. So my mind was very fresh, and this was e-mailed to me to have a look at, to check it was okay, and I made a couple of changes to the draft ask Mr Steiner came to pick it up from my office. Q: The first form of this affidavit was presented to you by an e-mail transmission? A: Yes, the draft was. … Q: My question to you is: You just told us that you received a document by e-mail in draft and you made some changes and then you effectively sent it back? A: Minimal changes. Q: My question is, when it first came into your office … A: When Mr Steiner came into my office we did the original." 90 The cross-examination continued as follows: "Q. Do you remember yesterday I asked about how you prepared your affidavit of 1 April 2010? A. I do. Q. I suggest to you that in fact you had other documents available to you at the time you prepared that affidavit, did you not? A. I did but I never used them. … Q. And one of those Court documents, I suggest to you, was the affidavit of Mr Burke-Smith of 4 August 2008? A. It would have been with the documents I had, yes. Q. I suggest to you that you actually relied in some regards on Mr Burke-Smith's affidavit in composing your own? A. No. … Q. The first time you had a conversation with Mr Steiner about this affidavit was on 1 April? A. On 30 March at my office and 1 April and that was two conversations. Q. On what date did you receive an email with the affidavit? A. To the best of my knowledge 30 March. Q. At the time you spoke with Mr Steiner on 30 March was that before or after he sent the email? A. Before, he said he was sending it. Q. In his conversation to you did he simply say anything other than I am about to send you an email with your affidavit. A. "Would you have a look at it and if its okay I will be in the office tomorrow" and to pick it up from him. Q. And did you make any changes to the affidavit? A. Minor. … Q. I am putting to you that based on what you have said the affidavit of 1 April 2010 on which you place your allegations of an oral contract is entirely composed, subject to minor alterations, by somebody other than yourself? A. No. Q. You have just said you received a draft from Mr Steiner? A. Yes. Q. You said you had not spoken to him before he sent you that draft other than him telling you that he was sending it? A. Yes. Q. And you only made one alteration? A. Yes, on my knees beside the desk while he typed it. HIS HONOUR Q. Was there a conversation with Mr Steiner in which you gave him your recollection so that he could write them down into the affidavit? A. No." 91 There are a number of problems with the affidavit of 1 April 2010. First, the affidavit seeks to provide evidence, in admissible form, of conversations of significance to the central issue of partnership, being evidence that Mr Howard failed to include in his affidavit of 24 June 2008, almost two years earlier. There are obvious difficulties in accepting evidence provided on the eve of the hearing about conversations which occurred in 2001 and 2002, when the conversations were not even mentioned in the primary affidavit. 92 Second, it is clear upon a consideration of the cross-examination of Mr Howard, set out above, that his contribution to the creation of the affidavit was "minimal". It is not surprising therefore that AM Marketing submits that there are significant similarities between Mr Howard's affidavit of 1 April 2010 and an affidavit of Mr Burke-Smith, such that it can be inferred that the defendant's affidavit is a reconstruction. 93 In the face of a categorical denial by Mr Burke-Smith of the existence of any oral agreement to share losses, I could not be satisfied, based on the 1 April 2010 affidavit, that such a conversation took place. There is, however, a more fundamental reason why the contention in respect of sharing of losses cannot stand. Mr Howard changed his evidence in cross-examination: "Q: Do you agree that you did not say to Mr Burke-Smith words to the effect "I think we should share the profits and bear the losses of the publication in equal shares after expenses. A: Something similar but, no, I didn't say those words. Q: Nor did you say words to that effect in substantially that form? A: I believe substantially in that form. HIS HONOUR Q: What were the actual words you spoke to the best of your recollection? A: The words were spoken after we came out of the meeting with the solicitor, Madeline Love. Q: What were the words? A: The words were 'Actually you know what you want out of this' and Ashley said 'I do' and I said 'I know what I want out of it so we will shake hands on it'. There have been numerous words and conversations prior to that statement and I can't recollect them all but everyone of those words were covered except 'bear the losses'. This has always bothered me because we never contemplated losses and there were never any losses but I rely, I believe, that they gave me advice to prepare the documents. Q: To clarify that do you agree that at no time in the conversation with Mr Burke-Smith did you ever say words to the effect or substantially in the form of 'I think we should bear the losses equally?' A: It is a moot point. Q: Can you answer the question, why don't you agree. HIS HONOUR Q: You are being asked about what you said? A: I never said anything with regard to losses that referred to any conversation with Mr Burke-Smith. PRIESTLEY Q: Or what you have said in the third last paragraph on p3, at least so far as it concerns losses, it is a total fabrication on your part? A: I believe … Q: Would you answer the question please? A: No, I'm not going to say yes to fabrication. Q: Didn't you just say you never used the word losses in your conversations with Ashley. A: I have to say yes. Q: Therefore isn't your use of the word losses at the very least false? A: I suppose a mistake is false." 94 I am satisfied that it is established on the balance of probabilities that there was never any agreement for the sharing of losses. 95 It is said by AM Marketing that the failure to show the existence of the oral agreement to share profits and losses is fatal to the defendant's case. Counsel for Howard Media, in written submissions, contends that a term for the sharing of losses should be implied into the informal agreement between the parties, despite the fact there was no oral agreement. Reliance for this proposition is placed on Canny Gabriel Castle Jackson Advertising Pty Ltd v Volume Sales (Finance) Pty Ltd [1974] HCA 22; (1974) 131 CLR 321, in particular the findings of the court at 327 of the judgment: "In short, it seems to us that the contract exhibited all the indicia of a partnership except that it did not describe the parties as partners and did not provide expressly for the sharing of losses, although we venture to think it did so impliedly". 96 The High Court inferred an agreement in regards the sharing of losses on the basis that the circumstances of the case strongly indicated that a partnership was in existence. Indeed this is a natural result of s 24(1)(1) of the Partnership Act, which mandates that partners are equally liable for the losses sustained by the firm. 97 In the judgment of the Full Federal Court in Amadio Pty Ltd v Henderson (1998) 81 FCR 149 at 172 it was noted that "the existence of a partnership is determined by reference to the true contract and intention of the parties as appearing from all of the facts and circumstances relevant to the relationship of the parties". It follows that an implied agreement in regards losses does not arise in situations where there is not, in any event, strong evidence of partnership. That leads to the concept of carrying on business "in common". "In common" - The Test 98 A business will be properly regarded as carried on "in common" if it is operated either by or on behalf of all the persons who are alleged to be partners. A conclusion on this requires careful examination of all the circumstances surrounding the dealings between those persons in each particular case. 99 The meaning and significance of the words "carrying on a business in common" are explained in paras [952] to [956] of the joint judgment of Doyle CJ, Duggan J and Bleby J in The Duke Group Ltd v Pilmer [1999] SASC 97; (1999) 31 ACSR 213: "In order to meet this criterion, it is not necessary that each of the alleged partners should take an active part in the direction and management of the firm. The business may well be carried on by or on behalf of the partners by someone else. The person carrying on the business must be doing so as agent for all the other persons who are said to be partners. Lord Wensleydale stressed the need for an agency relationship in Cox v Hickman (1860) 8 HL Cas 268 at 312-3 ; 11 ER 431 at 449: A man who allows another to carry on trade, whether in his own name or not, to buy and sell, and to pay over all the profits to him, is undoubtedly the principal, and the person so employed is the agent, and the principal is liable for the agent's contracts in the course of his employment. So if two or more agree that they should carry on a trade, and share the profits of it, each is a principal, and each is an agent for the other, and each is bound by the other's contract in carrying on the trade, as much as a single principal would be by the act of an agent, who was to give the whole of the profits to his employer. Hence it becomes a test of the liability of one for the contract of another, that he is to receive the whole or a part of the profits arising from that contract by virtue of the agreement made at the time of the employment. I believe this is the true principle of partnership liability.

Likewise, Griffith CJ said in Lang v James Morrison & Co Ltd (1911) 13 CLR 1 at 11: Now in order to establish that there was a partnership it is necessary to prove that JW McFarland carried on the business of Thomas McFarland & Co on behalf of himself, Lang and Keates, in this sense, that he was their agent in what he did under the contract with the plaintiffs - not that they would get the benefit, but that he was their agent.

However, more than mere agency is required. There must be mutuality of rights and obligations. James LJ said in Smith v Anderson (1880) 15 Ch D 247 at 275: Persons who have no mutual rights and obligations do not, according to my view, constitute an association because they happen to have a common interest or several interests in something which is to be divided between them.

Those requirements of agency and mutuality are reflected in ss 5 and 6 of the Partnership Act as being the consequences of entering into a partnership. They read: 5. Every partner is an agent of the firm and of the other partners for the purpose of the business of the partnership; and the acts of every partner who does any act for carrying on in the usual way business of the kind carried on by the firm of which the partner is a member bind the firm and the other partners, unless the partner so acting has in fact no authority to act for the firm in the particular matter, and the person with whom the partner is dealing either knows that the partner has no authority, or does not know or believe the partner to be a partner. 6.(1) An act or instrument relating to the business of the firm and done or executed in the firm-name, or in any other manner showing an intention to bind the firm, by any person authorised, whether a partner or not, is binding on the firm and all the partners. (2) ... Unless there is that mutuality, however, there can be no partnership." 100 In Momentum Productions Pty Ltd v Lewarne (above), the Full Court of the Federal Court (Spender J, Jessup J and Middleton J) had before it a submission that the existence of mutual agency is an essential element of partnership. Their Honours said (at [36]): "Uninstructed by authority, we would take the view that agency should be regarded as one of the incidents of a partnership, rather than as an essential defining element thereof. We would, with respect, associate ourselves with the sentiments expressed in the 18th edition of Lindley (I'Anson Banks, RC, Lindley & Banks on Partnership, 18th Ed., 2002). The author warns of the "danger that what are, in truth, normal incidents or characteristics of partnership are wrongly perceived as prerequisites to the existence of that relationship … " After a brief reference to the judgment of Lord Coulsfied in Dollar Land (Cumbernauld) Ltd v CIN Properties Ltd [1996] SLT 186 at 195, he continues (at 14): Thus, whilst mutual agency may properly be regarded as a central feature of the law of partnership, it is clearly something which flows from the partnership relation, not the other way around." 101 They added (at [44]): "In our view, the emphasis which one sees in the authorities, including Lang v James Morrison and Duke Group, upon agency as an indicator of partnership is referrable to the element of carrying on business in common. What that requires is that the persons concerned be principals in the business. It is not sufficient that one be the employee of the other, or that the business be carried on by one for the benefit of (eg as trustee for) the other (see Cox v Hickman). If two or more persons are principals in this sense, each will be bound by transactions into which one of them enters in the name of the business. It will thus often be convenient to analyse the facts of a particular case with reference to the question whether the agreement is such as would make the acts of one of the persons binding on the others. If so, it would tend to show that each such person participates in the business in question as a principal, rather than in some other capacity, and that they are all, therefore, carrying on the business in common. However, we do not read the authorities relied on by the appellants as going further than this. We do not read them as requiring proof of agency over and above the matters to which s 1(1) of the Partnership Act refers." 102 No one feature is absolutely necessary to the existence of a partnership once the essential statutory criteria, as set out in the definition of partnership in s 1(1) of the Act, have been established, although if those criteria are missing there cannot be a partnership. The concepts of agency and mutuality of rights and obligations are not additional definitional requirements but rather are part and parcel of the statutory concept of "carrying on a business in common". "In common" - the facts and issues 103 I consider first the evidence about the establishment and operation of the joint bank account, the "Howard Media No 2 Account". Howard Media relies on the fact that the parties operated this joint bank account. 104 It is immediately apparent that the account is in the name of Howard Media alone, although this cannot be conclusive. It was originally envisaged that the account would be operated by two signatories, one from each party. It was agreed that Mr Burke-Smith was a signatory on the account at inception. Indeed three cheques signed by Mr Burke-Smith were put into evidence by Howard Media. 105 It is also not in dispute that Mr Burke-Smith later ceased to be a signatory but there is no agreement about the time at which this happened. Mr Howard said in cross-examination that he had no knowledge of how Mr Burke-Smith was removed as a signatory. The remaining signatories are Mr and Mrs Howard and Deanne Cruickshank, also of Howard Media. It is clear from material produced by the bank that only one signatory is now required. 106 As can be seen from the letter of 12 October 2001, from Howard Media to AM Marketing (see paragraph [19] above), it was originally intended that any transfer of funds from the account would only be made by cheque. About eight months after the cheque account was opened, however, payments began to be made electronically. It was accepted by Mr Howard in cross-examination, and confirmed by Deanne Cruickshank, that neither Mr Burke-Smith nor Mrs Burke-Smith were ever given the internet banking access codes to operate the account. 107 AM Marketing submits that joint ownership and control of the No 2 account was illusory and that control remained with Howard Media at all material times and that this was so even though Mr Burke-Smith was a signatory for a time. It is said that the failure of Howard Media to give AM Marketing the internet access codes and Mr Burke-Smith's removal as a signatory, at an unknown point in time, negate any inference of mutuality which is sought to be drawn from the establishment of the joint account. 108 Howard Media argues that the purpose and use of the bank account (to hold advertising revenues of the joint publications and to be the source of disbursements of administrative and publication costs) is more important than the actual operation of the account. 109 It is clear that Mr Burke-Smith did not regard AM Marketing as having authorisation to access the funds in the No 2 account to make payments without the prior approval of Howard Media. AM Marketing's entitlement to a share of the profits of each publication was claimed through an invoice conveying to Howard Media a request for payment. Similarly, in respect of expenses incurred by AM Marketing in relation to the publications, it initially used its own funds and later sought reimbursement from Howard Media. 110 Mr Howard said in cross-examination: "Q: Can you identify any occasion on which AM Marketing drew a cheque on the Howard Media number two to pay an invoice rendered by AM Marketing? A: No.

Q: No, please. You can point to no occasion on which, for example, Mr Burke-Smith by internet transaction paid AM Marketing invoices? A: No.

Q: And you can point to no cheque by which Mr Burke-Smith co-signed a cheque to pay his own invoices? A: No." 111 I do not accept that the existence of the No 2 account is in any way supportive of the contention that a partnership was in existence. The circumstances of the operation and control of the account do not evidence any relevant "mutuality". Similarly, Howard Media's reliance on the original purpose of the account, which was superseded by later events, is misplaced. 112 The second matter relied on by Howard Media as an indicium of partnership relates to one of the cheques signed by Mr Burke-Smith (refer paragraph [105] above). The first cheque co-signed by Mr Burke-Smith, dated 10 February 2003, was drawn in favour of Stone and Partners, a firm of solicitors in Lismore. It is clear that the payment related to a meeting held in February 2002 attended by Mr Howard, Mr Burke-Smith and Madeleine Love, a lawyer from Stone and Partners. 113 Howard Media contends that the purpose of this meeting was to discuss a partnership agreement between Howard Media and AM Marketing. Mr Burke-Smith agrees that a meeting did take place but he said in cross-examination that he was not initially aware that a solicitor was going to be present and denied that Madeleine Love spoke about the legal aspects of being in partnership. 114 Howard Media put into evidence an engagement letter addressed to "Mr John Howard, Howard Media Pty Ltd" from Stone and Partners dated 26 February 2002. The letter begins: "Dear John Agreement with AM Marketing Pty Ltd Our Engagement by You … 1. Scope of Work You have asked us to do the following: (i) Draft Agreement between Howard Media Pty Ltd and AM Marketing Pty Ltd incorporating your instructions." 115 Also put into evidence was a Stone and Partners tax invoice furnished to "John Howard, Howard Media Pty Ltd" for the sum of $110.00, the precise amount as noted on the cheque mentioned in paragraph [113] above. The memorandum of costs discloses the fees relate to the "Agreement with AM Marketing Pty Ltd" and in particular: "To costs of attending and advising and taking instructions, correspondence and attendance with yourself". 116 It is the contention of Howard Media that the engagement of Stone and Partners, ostensibly for drafting of an agreement, is an indication that the parties were in partnership at this time. 117 I do not accept that the evidence supports this submission. The engagement letter makes clear that the firm was instructed by John Howard of Howard Media, not jointly by the parties, and there is no evidence that AM Marketing ever received such a letter. Neither the engagement letter nor the memorandum of costs discloses the specific nature of the scope of work to be undertaken by them except for the ambiguous phrase "agreement with AM Marketing Pty Ltd". 118 In answer to a wide-ranging subpoena seeking documents in relation to Howard Media or John Howard for the years 2001 to 2006, Stone and Partners replied that it did not have any such documents. 119 There is no objective evidence about the purpose of the meeting. Mr Howard's evidence, taken at its highest (that the meeting in February 2002, was about drafting a partnership agreement) does not assist Howard Media's case. At the time of the meeting, there was clearly no formal partnership agreement in place. No action was taken later. Indeed, shortly thereafter, in March 2002, Mr Howard on behalf of Howard Media signed the Marketing Services Booking Confirmation documents, which in part stated: "I have read the above details and confirm that I wish to employ AM Marketing Pty Ltd to undertake the work described. I am a duly appointed agent or employee of the above mentioned company and am hereby authorised to enter into this agreement." 120 The fact that this document was signed suggests that there was no partnership at that time, either informal or formal. At its best the evidence about the Stone and Partners meeting suggests that the parties may have contemplated or discussed entering into a partnership agreement. There is no evidence that a concluded agreement was reached. Indeed, the subsequent Market Services Booking Confirmation shows an intention to retreat from the establishment of a partnership. The explicit words of the written agreement, namely "I wish to employ AM Marketing" are inconsistent with Howard Media's assertion of partnership. 121 It is said by Howard Media that the probative value of this evidence is to be discounted because the document was a generic form and the particular section was in smaller print. I do not accept this submission. 122 The second cheque, co-signed by Mr Burke Smith is dated 30 June 2003. It is drawn in favour of the NSW Department of Fair Trading for the amount of $126.00. It is alleged by Howard Media that this payment related to a joint application for the renewal of the "Better Business" name under the Business Names Act. In early 2005 the two companies also applied together for a trade mark "Better Business" from IP Australia. It is submitted by Howard Media that the fact that the parties made these applications jointly indicates an intention on their part for common ownership of the business. 123 The trade mark application of early 2005 was not pursued. A letter from IP Australia, dated 17 February 2005 says: "Our record shows that we have received no response to the examiner's first report on this Trademark application". 124 In any event, according to the agreement as set out at paragraph [37] above, AM Marketing was to receive 50% ownership of the product, masthead and overall value of the magazine and a reward for services provided. In closing submissions counsel for Howard Media submitted that the phrase "ownership of the product, masthead and overall value of the magazine" indicated common ownership in regards the goodwill of the business. 125 I do not accept that Howard Media can draw support from the joint application for a trade mark or the renewal of the business name "Better Business". It is entirely sensible and accords with commercial logic for AM Marketing to seek to enhance the value of its share of the "goodwill" by securing a registered trademark. In relation to the renewal of the Better Business name it was a necessary expense to be able to continue to produce the publication and recover profits. 126 Another circumstance said by Howard Media to indicate that a partnership existed between the parties is that on the first page of each issue of Better Business appeared the logos of both AM Marketing and Howard Media, contact details for each company and the following notation: "Better Business is a joint publishing venture between Howard Media Pty Ltd and AM Marketing Pty Ltd" 127 I do not consider that this statement amounted to a representation that the parties were in partnership capable of binding them. Rather, the listing of their contact details and company information is consistent with the conclusion that the two companies were working cooperatively. The fact that the details of Johanna Evans, the person responsible for "Art Direction and Graphic Design", were also included in the relevant section of the publication is significant. No submission has been made that she was part of the alleged partnership.

128 Howard Medial also seeks to rely on the fact that in various parts of the documentary evidence, AM Marketing used the language of partnership. 129 An email drafted by Mr Burke-Smith and sent to Brad Tom an accountant in Byron Bay who undertook a valuation of the business, read in part: "The other issue is that, whilst the buyer will obviously get his own accountant to value the product, the client already has a great deal of respect for the product and of me and my business partner". 130 Similarly in a letter written on behalf of AM Marketing addressed to Howard Media, Mr Burke-Smith said: "I recognise that as a partnership we share ideas about approaching clients etc and I regularly help you out with credit control but I make no claim of 'doing your job for you'. I trust that you see any contribution you make to my sales effort in the same light." 131 Mr Burke-Smith was cross-examined about his use of the word "partnership" in this letter as follows: "Q. I draw your attention to page 90 and this is the second page of your 15 February 2007 letter? A. Yes. Q. And in paragraph number 3 you use the term 'partnership' yourself? A. Yes. Q. Paragraph numbered 3, page 90. I suggest to you that your use of the term 'partnership' was a deliberate response to Mr Howard's assertion in his 13 February 2007 letter to the relationship being one of partnership? A. No. … Q. When you wrote this letter you were intending to convey that the plaintiff - convey your agreement to the proposition that the plaintiff and the defendant were in partnership? A. No. Q. At least in relation to Better Business? A. No." 132 Of themselves, the expressions used intermittently by Mr Burke-Smith, a lay person, do not provide a basis for concluding that a partnership was in existence. The mere fact that the parties describe themselves as partners is not conclusive: Newstead v Frost [1980] 1 WLR 135; H. E. the Minister for Public Works of the Government of Kuwait v Sir Frederick Snow & Partners [1981] Com. L. R. 103 and Canny Gabriel Castle Jackson Advertising Pty Ltd v Volume Sales (Finance) Pty Ltd (above). Similarly in was held in Duke Group Ltd (above) at [984] that partnership cannot be created by mere representation that one exists. 133 There is also the point that, in various parts of the correspondence, Mr Howard described the relationship between the companies in a non-partnership manner, for example "strategic alliance", or "an association" or "a joint publishing venture". For the reasons outlined, I do not consider that these statements are conclusive of the true state of affairs as between the parties. But they do tend to undermine the proposition that the parties were in partnership. Indicators contrary to the existence of partnership 134 There are a number of circumstances that support a conclusion that the relationship between the parties was similar to that described in Duke Group Ltd v Pilmer (above) that "there are many ways in which people will combine in some human endeavour in the hope and expectation of making or enhancing a profit by so combining … Simply because they do so and because they may enter that arrangement for that purpose, does not mean that they are in partnership." 135 No partnership accounts or tax returns were ever prepared or lodged. Also, it is not disputed that throughout the venture, the two companies maintained separate and distinct accounts. AM Marketing rendered itemised tax invoices seeking payment from Howard Media. 136 Howard Media says that the itemised tax invoice system was instituted merely to ensure compliance with the GST legislation and that no inference on the question of whether the businesses were conducted "in common" should be drawn from this circumstance. I do not accept this submission. In addition to the tax invoices, the parties prepared separate accounts in respect of each parties costs incurred on each particular publication and issue. The use of the invoice system and the preparation of accounts by each party demonstrate the separateness of the entities in relation to the activities.

137 Furthermore, the two companies operated from different premises with separate ownership of plant and equipment. Each was involved in various other projects, exclusive of the other party, of which the other party may or may not have had knowledge. 138 AM Marketing relies on the letter of March 2002, mentioned at paragraph [28] above, in which AM Marketing said: "I trust that this all meets with your approval and I am sincerely grateful for having the opportunity to work on this project. I feel that it was very much a mutually beneficial exercise and am keen to improve on the project for the 2003 edition". 139 This letter was written at a time when, on Howard Media's case, an oral partnership agreement in relation to the publishing of magazines, periodicals and guide books for an indefinite period had been concluded. The language used by the letter, in this paragraph, is inconsistent with the existence of such an agreement. 140 AM Marketing also relies on admissions made by Howard Media in relation to indebtedness. Such admissions are inconsistent with the existence of partnership: see Zisis v Knighton [2008] NSWCA 42 at [34] where McColl JA said: "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." 141 The first such admission is contained in the defence filed in the Local Court: "Of the sum claimed by the Plaintiff, the Defendant admits that the sum of $16,576.92 is due." 142 Somewhat confusingly, Howard Media also filed in the Local Court a cross-claim alleging that the parties were in partnership. The amended defence filed in this court did not repeat the admission in the Local Court defence. 143 At several points in the correspondence, Howard Media either expressly or implicitly accepted that moneys were owed by it. One example is a letter dated 14 February 2007, which includes the following statement: "I can assure you if that is the case, any moneys genuinely outstanding will be forwarded to you as they have been to date and until and after your departure if this is the case". 144 Similarly in an email to Mr Burke-Smith of 15 March 2007 Mr Howard said: "What I said at our meeting on Tuesday was that all Better Business proceeds due to you prior to Dec/Jan BB would be reconciled and the payment for this would be satisfied by the end of the month". 145 These admissions by Howard Media both in the Local Court pleadings and in correspondence are inconsistent with the existence of a partnership. 146 The final circumstance that contributes to the conclusion that there was no partnership concerns the editorial fee paid to AM Marketing in relation to the Better Business magazine. AM Marketing was paid $4,000 per issue for acting as managing editor. The payment for editorial services was deducted before the distribution of profits for each issue. This is inconsistent with partnership. Conclusion 147 I do not accept that there existed at any point a partnership between AM Marketing and Howard Media in respect of the production and publication of magazines, periodicals and guide books. The circumstances of the case do not support such a finding. The intention to operate the business "in common" was lacking. The venture was one under which Howard Media contracted AM Marketing to provide services and became liable to pay for those services on an issue-by-issue basis by way of both reimbursement of costs incurred and sharing of profit. 148 Counsel for Howard Media submitted that, if the court finds that there was no overall partnership, then it should find a partnership was in existence in respect of the Better Business magazine solely. I do not accept this submission. There is a lack of objective evidence to support such a contention. Fiduciary Duty? 149 It is alleged by Howard Media that AM Marketing, by publishing the Northern Rivers Business Magazine, was in breach of a fiduciary duty to the defendant. It is said, relying on United Dominions Corporation Ltd v Brian Pty Ltd [1985] HCA 49; (1985) 157 CLR 1, that this fiduciary duty existed independently of the existence of partnership and came from a relationship of mutual trust and confidence between the parties in respect of their publishing venture. I reject this submission. A finding of the existence of a fiduciary duty is not to be lightly made outside the recognised categories. The defendant has failed to identify circumstances of vulnerability, ascendancy and reliance which might give rise to a fiduciary duty. 150 In John Alexander's Clubs Pty Ltd and Anor v White City Tennis Club Ltd [2010] HCA 19; (2010) 266 ALR 462 at [83] the High Court noted: "The only vulnerability of the Club was that which any contracting party has to breach by another. The only reliance was that which any contracting party has on performance by another. If JACS committed any breach of contract, it was quite open about it. If the Club could have established that JACS was in breach of contract, it had an ample array of contractual remedies to protect itself. It chose not to do so." 151 In this case also, there was no particular vulnerability or reliance in the relationship between the parties, which warrants a finding of fiduciary relationship. Accordingly, there is no basis for somehow converting a clear contractual relationship into a fiduciary relationship. Breaches of Contract? 152 Counsel for Howard Media submits that AM Marketing has breached its contract even if there was no partnership. The alleged breaches were the publication of magazines in competition with the partnership, the failing to solicit advertising for Better Business and the failing to begin publishing a magazine of similar significance to TCL. 153 These matters may be dealt with briefly. They rely entirely on the existence of partnership and are an extension (or concomitant) of Howard Media's partnership case. The conclusion that there was no partnership means that they need not be considered further. Disposition 154 Upon the statement of claim of 26 April 2007, there will be judgment for the plaintiff in the sum of $30,830 together with interest. The appropriate course will be to allow interest from the date of filing to the date of judgment in accordance with s 100 of the Civil Procedure Act 2005 and Practice Note SC Gen 16. 155 The amended cross-claim of 9 June 2009 will be dismissed. There will also be an order that the defendant/cross-claimant pay the costs of the plaintiff/cross-defendant of the proceedings. 156 Because of the need to make interest calculations, I direct that, within fourteen days, the parties file, by delivery to my Associate, agreed short minutes of all the orders needed to give effect to this decision. **********

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CITATION : AM Marketing Pty Ltd v Howard Media Pty Ltd [2010] NSWSC 803

Amadio Pty Ltd v Henderson (1998) 81 FCR 149 Badeley v Consolidated Bank (1888) 38 Ch D 238 Canny Gabriel Castle Jackson Advertising Pty Ltd v Volume Sales (Finance) Pty Ltd [1974] HCA 22; (1974) 131 CLR 321 Elkin & Co Pty Ltd v Specialised Television Installations Pty Ltd [1961] SR (NSW) 165 Haggitt v Watson [1927] NZLR 209 H. E. the Minister for Public Works of the Government of Kuwait v Sir Frederick Snow & Partners [1981] Com. L. R. 103 CASES CITED : Hope v Bathurst City Council [1980] HCA 16; (1980) 144 CLR 1 Howard Media v AM Marketing [2009] NSWSC 165 Momentum Productions Pty Ltd v Lewarne [2009] FCAFC 30; (2009) FCR 268 174 John Alexander's Clubs Pty Ltd and Anor v White City Tennis Club Ltd [2010] HCA 19; (2010) 266 ALR 462 Newstead v Frost [1980] 1 WLR 135 The Duke Group Ltd v Pilmer [1999] SASC 97; (1999) 31 ACSR 213 United Dominions Corporation Ltd v Brian Pty Ltd [1985] HCA 49; (1985) 157 CLR 1 Zisis v Knighton [2008] NSWCA 42

4 AM Marketing commenced proceedings against Howard Media in the Local Court at Lismore for a liquidated claim in the amount of $35,830 for services rendered. Howard Media defended the claim and filed a cross-claim. It says that no debt is owing because the parties were in partnership. It seeks an account. The proceedings were transferred to this court by order made by McCallum J on 20 March 2009: Howard Media v AM Marketing [2009] NSWSC 165.

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