Canny Gabriel Castle Jackson Advertising Pty Ltd v Volume Sales

(a) to retain the box office receipts which it had collected; and

(b) to be paid by Canny Gabriel the box office receipts which that company had collected

arising from the sale of tickets for certain concerts given by two entertainers - Cilla Black and Elton John - such moneys to be held by Volume Sales and dealt with according to a contract between Volume Sales and Fourth Media dated 16th September 1971; and

2. that the interest of Volume Sales in such box office receipts ranks in priority to the interest of Canny Gabriel in such box office receipts pursuant to a contract dated 17th September 1971 between Canny Gabriel and Fourth Media and one Stanley Biedebecke.

The declarations were sought on the footing that the contract of 16th September 1971 between Volume Sales and Fourth Media constituted the parties thereto partners in the joint venture of exploiting contracts which Fourth Media then had for the appearances of Cilla Black and Elton John in Australia. His Honour found that, although there was a joint venture in exploiting such contracts, nevertheless the contract did not constitute a partnership. His Honour further decided that by virtue of the contract of 16th September 1971 Volume Sales did acquire an equitable interest in the proceedings of the joint venture as and when they accrued and it was on this footing that he made the declarations.

In our opinion the declarations were rightly made upon the footing which his Honour rejected and it is sufficient for us to explain why, in our opinion, the contract of 16th September 1971 did constitute the parties thereto partners in the joint venture to which it related and why, by virtue of the partnership, Volume Sales acquired an equitable interest, as distinct from a mere equity, in the box office receipts. It was not in issue that if there was a partnership and if it created an equitable interest in the receipts, the declarations were rightly made.

The contract recited that Fourth Media had made contracts for the appearances of Cilla Black and Elton John, that it had requested Volume Sales to finance those contracts and that Volume Sales had agreed to do so upon the terms set out. By cl. 1 of the contract, in consideration of the advance of $70,000 and further sums, Fourth Media agreed to assign to Volume Sales "a one half interest in the above recited contracts and to perform the said contracts as a joint venture".

3. It is hereby expressly acknowledged by Fourth Media Management Pty. Limited that the sum advanced by Volume Sales (Finance) Pty. Limited is a loan only to the joint venture and shall be treated as such in the books of accounts. Such sum shall be repaid to Volume Sales (Finance) Pty. Limited prior to distribution of profit.

5. Should the above recited contract fail for any reason whatsoever the amount advanced to the venture herein created shall be repaid to Volume Sales (Finance) Pty. Limited forthwith without deductions.

7. All matters of policy relating to the management and conducting of the joint venture shall be agreed upon by the parties hereto.

8. A bank account shall be opened with A.N.Z. Banking Group Ltd. Bank Rockdale Branch and such account will be in the name of Volume Sales Finance Pty. Ltd. and to be operated in such manner as Volume Sales Finance Pty. Ltd. shall see fit.

Each party covenanted that it had not received any notice of impending liquidation or official management and that there were no outstanding judgments or orders against either of them: cl. 6.

It was common ground that cl. 8 required payment of the box office proceeds into the account established thereby.

The accounting between the parties was governed by cl. 2 which provided:

On completion of the contracts an account shall be taken by an accountant approved by the parties hereto of all capital assets and liabilities appertaining to the performance of above recited contracts and matters incidental thereto and a balance sheet and profit and loss account shall be prepared by such accountant and a copy thereof furnished to each party to this Deed and after preparation of the said trading account profit and loss account and the balance sheet the net profit shown by such accounts shall be divided equally between the parties hereto.

Our conclusion that the joint venture was a partnership, from which the parties anticipated profits and provided that the advance by Volume Sales to the "joint venture" should be a first charge upon profits and that upon the repayment of such sum the profits should be divided equally, rests upon the following considerations:

The parties became joint venturers in a commercial enterprise with a view to profit.

Profits were to be shared: see Partnership Act, 1892, as amended N.S.W., s. 2(iii).

The policy of the joint venture was a matter for joint agreement and it was provided that differences relating to the affairs of the joint venture should be settled by arbitration: see cll. 7 and 9.

An assignment of a half interest in the contracts for the appearances of Cilla Black and Elton John was attempted, although, we would have thought, unsuccessfully.

The parties were concerned with the financial stability of one another in a way which is common with partners: cl. 6.

Against these considerations it was suggested that Volume Sales was merely financing the undertaking and for this purpose it had lent money to Fourth Media. We do not so read the agreement. The advance was made "to the joint venture", not to Fourth Media, and it seems to us that it was intended that it should be paid into the bank account to be opened in accordance with cl. 8, and that profits were, in the first instance, to be devoted to its repayment. Furthermore, in the event of the contract "failing", i.e. not being proceeded with, the advance was to be repaid to Volume Sales from the account but subject, of course, to the provisions of s. 44 of the Partnership Act, 1892, as amended N.S.W., in favour of creditors.

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 that it did so impliedly. These considerations on the one side are, in our opinion, out-weighed by the considerations upon the other side to which we have already referred.

The nature of a partner's interest in the partnership property has often been explained. The partner's share in the partnership is not a title to specific property but a right to his proportion of the surplus after the realization of assets and the payment of debts and liabilities. However, it has always been accepted that a partner has an interest in every asset of the partnership and this interest has been universally described as a "beneficial interest", notwithstanding its peculiar character. The assets of a partnership, individually and collectively, are described as partnership property (Partnership Act, 1892, as amended N.S.W., s. 20). This description acknowledges that they belong to the partnership, that is, to the members of the partnership.

In In re Fuller's Contract [1] , Luxmore J. (as he then was) said:

as between the partners, the partnership property must be dealt with in a particular way, but so far as all the rest of the world is concerned, there is no limitation on the interests of the partners; the partners have the beneficial interest in the partnership assets, which are held together as an undivided whole, but they respectively have undivided interests in them. It is significant that s. 20(ii) of the Partnership Act, 1892, as amended N.S.W., treats a partner as having a beneficial interest in real estate belonging to the partnership for in this respect no distinction can be drawn between the nature of a partner's interest in real estate and his interest in personal estate. 1. [1933] Ch. 652, at p. 656.

The appellant submitted that the nature of a partner's interest was analogous to that of a residuary legatee in an unadministered estate. There is some similarity between the two cases in that the residuary legatee and the partner each have the right to insist upon due administration, the former of the estate and the latter of the partnership assets and liabilities, and the precise entitlement of each must await the due course of administration. Nevertheless we think that the interest of the partner in an asset of the partnership is sui generis (cf. Livingston v. Commissioner of Stamp Duties (Q.) [2] ). It is, as we have said, recognized as a beneficial interest.

As such it constitutes an equitable interest and is not a mere equity to set aside or rectify a transaction by means of a court order (see Latec Investments Ltd. v. Hotel Terrigal Pty. Ltd. [3] ). Consequently it prevails over the subsequent equitable charge held by Canny Gabriel, despite that company's ignorance of the prior equitable interest at the time when the equitable charge was granted.

It is, we think, unnecessary to say more about the basis upon which the declarations were actually made than that we see considerable difficulties in the way of supporting them upon that basis. However, we consider that the order should be affirmed on the simple ground that Volume Sales and Fourth Media were partners in the joint undertaking established by the agreement between them of 16th September 1971.