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[2009] NSWSC 165
procedural. Proceedings No. 65 of 2007 in the Local Court at Lismore, including Howard Media's cross-claim, are transferred to the Supreme Court pursuant to s 140(1) Civil Procedure Act 2005, on condition...
Howard Media and A M Marketing collaborated on magazine publications between 2001 and 2007. After a falling out, A M Marketing sued in the Local Court for unpaid invoices. Howard Media defended, admitting part of the debt but alleging an oral partnership and cross-claiming for an account. Howard Media sought transfer of the Local Court proceedings to the Supreme Court. McCallum J found the partnership claim was reasonably arguable, that the Local Court lacked jurisdiction to finally determine partnership accounts likely to exceed its monetary limits, and that it was in the interests of justice to hear all issues together in the Supreme Court. The Court ordered transfer subject to Howard Media paying the admitted $16,576.92 into Court within 14 days, and made costs orders.
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Howard Media Pty Ltd and A M Marketing Pty Ltd worked together from about 2001 to 2007 on a series of magazine publications. The collaboration involved booking confirmations from A M Marketing to Howard Media, and a covering letter proposing a joint banking and payment arrangement including a formula for sharing revenue and reimbursing costs ([8], [18]–[22]). Relations broke down in 2007 and A M Marketing commenced Local Court proceedings at Lismore for unpaid invoices totalling $35,830 ([11]).
Howard Media filed a defence in the Local Court admitting $16,576.92 of the claim but pleaded an oral partnership in relation to publication of certain magazines and filed a cross-claim which, as pleaded, sought an accounting of profits and, after the transfer application, would be amended to seek declarations as to the existence and dissolution of the partnership and an account ([12], [13]). Howard Media applied to the Supreme Court under s 140(1) Civil Procedure Act 2005 for transfer of the Local Court proceedings (including the cross-claim) to the Supreme Court, on the basis the Local Court lacked jurisdiction to finally determine partnership accounts likely to exceed its monetary limits and because all issues should be resolved together ([3], [7], [35]).
At the hearing McCallum J analysed the documentary material, the conduct of the parties, the Local Court admissions, and authorities on partnership accounts and the transfer discretion. The Court concluded that Howard Media's defence and cross-claim were not obviously without merit and that there were reasonable grounds for the partnership claims. The Supreme Court ordered transfer under s 140(1), conditioned upon Howard Media paying the admitted $16,576.92 into Court within fourteen days; the Court also ordered that the costs of the Local Court proceedings and the costs of the hearing be costs in the cause ([33]–[38]).
The decision turned on the discretionary transfer power in s 140(1) read with the constraint in s 140(4) that an order not be made unless the higher court is satisfied there is a "sufficient reason" for hearing the proceedings in the higher court ([4]–[5]). McCallum J adopted the analytical approach applied by Bryson J in Sanderson Motors: the higher court must appraise the facts and circumstances and consider whether the applicant has shown something which, within the purposes for which the power exists, is a sound ground or a good reason to order transfer ([6]).
Two principal practical considerations drove the result.
First, the Local Court lacks jurisdiction to finally determine partnership account claims likely to exceed the Local/District Court monetary thresholds. If the partnership defence were right, the true rights between the parties would require an accounting that the Local Court could not finally award; accordingly, transfer to a court with appropriate jurisdiction may be necessary to resolve the dispute completely ([7], [14]–[15], [33]).
Second, the judge recognised that although Howard Media had made admissions of indebtedness in respect of part of the claim (which on their face are inconsistent with a partnership relationship), those admissions did not make the partnership defence obviously untenable. The documentary material (booking confirmations and a covering letter proposing joint banking and accounting procedures), the operation of a jointly-operated account as described, the sharing of profits mechanism and the parties' conduct in combining efforts to publish magazines were all features that could support a claim of partnership or at least make the claim arguable on its face ([17]–[22], [29]–[33]). The judge expressly held there were "reasonable grounds" and a "respectable argument" that warranted judicial consideration, which met the s 140(4) threshold ([33], [36]).
The Court also weighed public and private interest considerations favouring consolidation: the Local Court deciding the debt claim separately and unfavourably on the issue of partnership could create issue estoppel that would unfairly preclude Howard Media from pursuing its cross-claim in the Supreme Court. For these reasons the judge considered it better that the matters be resolved in one forum ([35]).
Finally, rather than deny transfer or grant unconditional transfer, the Court used the conditional transfer power: transfer was ordered subject to Howard Media paying the admitted sum into Court within a fixed time. The Court declined to grant immediate judgment for the admitted sum, because isolating part of the dispute risked prejudging contested issues; the chosen condition protected the plaintiff's admitted entitlement while preserving the coherence of all issues for determination in the Supreme Court ([37]–[38]).
Before this judgment, the established analytical framework for transfer of lower court proceedings to a higher court under relevant statutory provisions was encapsulated in decisions such as Sanderson Motors (s 145(1) District Court Act analogue) and the jurisprudence considering jurisdictional boundaries for partnership accounts (see Phoenix Freight Systems and related authorities, and Zisis v Knighton for statements about partners' relationship with each other versus creditor/debtor relationships) ([6], [14]–[15], [26]).
This judgment applies and confirms that:
The s 140 transfer power should be exercised by appraising the facts and asking whether there is a sound ground or good reason for transfer consistent with the statutory purpose, following the Sanderson Motors approach ([6], [33]).
The mere presence of some admitted debt in the lower court does not automatically prevent transfer where a cross-claim raises an arguable partnership accounting that the lower court cannot finally determine; the higher court may order transfer subject to appropriate conditions to protect admitted entitlements ([26], [35]–[38]).
In practical effect, Howard Media v A M Marketing exemplifies the approach courts will take where overlapping claims in different forums risk piecemeal litigation or estoppel, and where the subject-matter (partnership accounts) is beyond the monetary jurisdiction of the lower court. The decision will be used as an authority for granting conditional transfers to secure both procedural economy and protection of admitted debts.
“[I am satisfied that there are reasonable grounds for those claims.]” [33] Plain English: The court thinks Howard Media's partnership defence and cross-claim are not fanciful; they are plausible enough to deserve a proper hearing in a court that can fully decide them.
“[There is a respectable argument as to the existence of such an agreement which warrants judicial consideration.]” [36] Plain English: The judge recognises a genuine legal argument exists on the facts before deciding whether that argument ultimately succeeds.
“[Plainly, the interests not only of the parties but of the public would be best served by having all of the issues in dispute determined at the one time.]” [35] Plain English: It makes practical and public-policy sense to resolve all related disputes in a single trial rather than split proceedings between courts and risk inconsistent outcomes.
Order: “[… transferred … on condition that the amount of $16,576.92 is paid into Court by Howard Media Pty Ltd within fourteen days …]” [38] Plain English: The transfer is allowed, but Howard Media must put the admitted amount into Court promptly so the plaintiff's conceded claim is protected while the broader dispute proceeds in the higher court.
This judgment is directly relevant where:
A defendant in a lower court admits part of a monetary claim, but raises a cross-claim that involves partnership accounts or other relief beyond the monetary jurisdiction of the lower court ([11]–[13], [7]).
The pleadings disclose a non-frivolous argument (an arguable case) that a different legal characterization (e.g. partnership rather than simple debtor-creditor) governs the parties' relationship, making the ultimate resolution beyond the lower court's competence or likely to generate issue estoppel if split ([12], [14], [26], [35]).
The parties have documents (booking confirmations, letters) that could be read in more than one way, either as standalone commercial contracts or as evidence of a broader partnership arrangement, presenting matters of mixed fact and law that warrant full judicial consideration ([17]–[22], [28]–[33]).
There is a public interest or practical interest in resolving all disputes between the parties in one forum to avoid piecemeal litigation, inconsistent outcomes, or estoppel ([35]).
In such fact patterns practitioners can seek transfer under s 140(1) and should expect courts to weigh whether the cross-claim is reasonably arguable, whether jurisdictional limitations require transfer, and whether the transfer should be conditional (for example by requiring payment into Court of admitted sums).
This decision applies established tests rather than creating novel principles; it cites Sanderson Motors for the correct exercise of transfer discretion and Phoenix and Zisis for the principle that where partnership accounts remain undetermined, the parties may have a right to have accounts taken rather than simple debt enforcement ([6], [14]–[15]). It reinforces the practice of using conditional transfers to balance competing interests: protecting admitted entitlements while enabling resolution of broader claims in the appropriate forum ([37]–[38]).
Later courts considering transfer applications where a lower court claim is partly admitted but a higher court remedy is sought for matters beyond the lower court's jurisdiction can rely on McCallum J’s approach: examine whether the higher court is satisfied there are sufficient grounds, whether alleged partnership (or other jurisdictional-limiting) claims are arguable, and whether consolidation promotes justice. Specific treatments by later courts are a matter of subsequent authority beyond the text of this judgment, but practitioners should cite Howard Media v A M Marketing when arguing that admissions of debt do not automatically defeat transfer where an arguable cross-claim for partnership accounts exists.
Strength of the "arguable case" threshold: McCallum J concluded the partnership claim was "reasonable" and "respectable" on the material before the Court. The judgment does not set a bright-line standard for how strong a cross-claim must be to justify transfer. Subsequent cases may refine whether a minimal arguability test or a more substantial prima facie case is required in borderline situations ([33], [36]).
Scope of appropriate conditions: The Court imposed payment into Court of the admitted sum. It declined to grant immediate judgment or isolate the admitted part of the dispute. Future cases will need to clarify when courts should require payment into Court, payment as judgment, security, or other conditions as a precondition for transfer, and how factors such as proportionality and prejudice should be weighed ([37]–[38]).
Interaction with estoppel and separate proceedings: The Court was influenced by the risk of issue estoppel if the Local Court decided the matter first ([35]). But it did not elaborate the precise circumstances in which estoppel concerns will outweigh other factors (such as efficiency or prejudice). This leaves room for later courts to develop finer criteria for when estoppel justifies transfer versus when separate proceedings should be permitted.
Evidence threshold for implying sharing of losses: The judge relied upon the possibility of implied loss-sharing under Canny Gabriel (1974) where the written arrangements lacked express loss-sharing terms ([30]). How readily courts will imply loss-sharing in similar hybrid commercial arrangements remains dependent upon the facts of particular cases and may be explored further in later authorities.
Practical takeaways for practitioners: when a client facing a lower-court claim has a cross-claim invoking remedies beyond the lower court's jurisdiction, seek early consideration of transfer under s 140(1). Compile a focused documentary and factual record showing the arguable basis for the higher court relief, be prepared to address admissions or invoices in evidence, and expect the court to consider conditional measures (such as payment into Court) designed to protect admitted entitlements while enabling full adjudication of contested, jurisdictionally significant issues.
Background 8 The partnership agreement is alleged to be an oral agreement with implied terms. The principal of Howard Media, Mr John Howard, gave evidence that, in about October 2001, he asked Mr Burke-Smith, the principal of A M Marketing, whether he would be interested in going into a 50% arrangement with Howard Media to publish and distribute "Better Business" magazine. Mr Howard said that Mr Burke-Smith agreed to enter such an arrangement on the basis of 50% share of costs, and that after those costs were paid, A M Marketing and Howard Media would share the remainder as profit. Similar arrangements were extended to several other magazines. 9 In respect of each magazine, A M Marketing sent Howard Media a "marketing services booking confirmation". A M Marketing denies the existence of any oral agreement and says that those confirmations contain the contractual terms that bind the parties. 10 A M Marketing regularly sent invoices to Howard Media providing a detailed break-down of costs and revenue and seeking payment of a specified amount. Howard Media, it appears, did not dispute the entitlement of A M Marketing to be paid the amounts claimed until the parties suffered a falling out in 2007. 11 After unsuccessful attempts by both parties to resolve the dispute out of Court, A M Marketing commenced the proceedings now sought to be transferred. The amount claimed by A M Marketing is $35,830 which is the sum of seven unpaid invoices issued to Howard Media by A M Marketing. 12 By its defence filed in the Local Court, Howard Media admits that, of the amount claimed, the sum of $16,576.92 is "due". However, by paragraph 3 of the defence, Howard Media says that the parties are in partnership "in relation to publication of certain magazines" and that "the arrangements in place between the partners as to receipts from the publication of the magazine "result in [Howard Media] making payments to [A M Marketing] as and when moneys are received by [Howard Media] and according to the operational needs of [Howard Media]".
13 Howard Media's cross-claim in the Local Court seeks "damages in the form of an accounting of profits" in respect of a discrete aspect of the partnership. If the present application is successful, Howard Media will seek leave to file an amended cross-claim seeking more appropriately framed relief, including a declaration that there existed a partnership between the parties, a declaration that the partnership was dissolved on or about 24 September 2007 and related relief including the taking of an account.
Is there sufficient reason for hearing the proceedings in this Court? 14 The proposition that the Local Court has no jurisdiction to determine the present cross-claim is not disputed by A M Marketing. In support of that proposition, Mr Docker, who appeared for Howard Media, relied on the decision of Young J (as his Honour then was) in Phoenix Freight Systems Pty Ltd v Seko Air Freight Inc (1995) 17 ASCR 754 where his Honour said: "If there was a partnership agreement and the balance of the partnership agreement has not been ascertained or agreed upon, then any outstanding balance would not be a debt at all, both parties would have a case for having the partnership accounts taken before the Court and that would be their only right" (citing Moravia v Levy (1786) 2 Term Rep 483; 100 VR 260). 15 The principle enunciated by Young J was referred to with apparent approval in Zisis v Knighton [2008] NSWCA 42 at [9] per Tobias JA; see also at [37] per McColl JA and Hodgson JA agreeing at [1]. 16 Mr Priestley, who appeared for A M Marketing, submitted, however, that the absence of jurisdiction is not determinative of the present application. He submitted that the Court should not exercise its discretion in favour of Howard Media in circumstances where part of the debt claimed in the Local Court has been admitted on a number of occasions (most significantly in the verified defence filed in the Local Court). 17 Mr Priestley pointed to a number of features of the arrangements between the parties which are inconsistent with the existence of a partnership. First, he noted that the written booking confirmations govern the entitlements of A M Marketing in respect of particular publications and submitted that those agreements represent the entirety of the arrangements between the parties. Mr Priestley also submitted that Mr Howard had conceded that to be the case. Having regard to Mr Howard's evidence as a whole, I do not accept that submission. Although he agreed with Mr Priestley at T20.32 that the first booking confirmation "entirely governed" the relationship between Howard Media and A M Marketing at that time, it was clear from an earlier answer that he regarded that as a "sales agreement" which was separate from the alleged partnership agreement (at T20.13). 18 Further, I do not think that the written booking confirmations necessarily exclude the existence of an oral partnership agreement. The first booking confirmation dated 20 October 2001 related to a student discount passbook published for the Southern Cross University Student Representative Union. It provided "the cost is to be 50% of the profit (after deductions for telephone and print costs). Payment details are explained in the accompanying covering letter which also represents part of this contract". The booking confirmations sent in respect of other magazines on which the two companies worked together were in similar terms. 19 The covering letter referred to in the booking confirmation was a letter from A M Marketing to Howard Media in which Mr Ashley Burke-Smith stated: "I feel that it was both necessary and beneficial for us to both put in writing our thoughts regarding the financial aspect of our joint venture. I believe the following "hybrid" will allow the flexibility we both require during the start up phase and a simple minimum admin arrangement for the long term. In particular, it is beneficial to both parties to work on a "payment in arrears" basis to reduce business risk as well as calculation/recalculation of moneys owed and the effects of "slow payers". 20 The balance of the letter set out a proposal for banking arrangements which, in summary, provided that revenue from advertising sales would be deposited in a jointly-operated account out of which the costs of publication would be paid. A M Marketing was to invoice Howard Media for one-third of the revenue and was to be paid within 30 days. Howard Media was to provide A M Marketing with a monthly statement seeking "the second one-third deposit" and a cheque was to be raised in favour of Howard Media, also within one month. 21 Thereafter, upon publication and after a reconciliation had been mutually agreed, 50% of "the balance over and above the agreed float" was to be paid to each of the two companies. The context suggests that was a reference to the balance in the account. 22 Mr Priestley submitted that, against the background of those written agreements, the division of profits was simply the agreed basis for the calculation of the remuneration for A M Marketing and did not indicate the existence of any partnership. 23 Mr Priestley further relied on the following features of the arrangements between the parties:
(a) that the agreements between the parties did not contemplate the sharing of losses;
(c) that Howard Media has made a number of admissions of owing money the subject of A M Marketing's claim;
(d) that Howard Media has at no time prepared any partnership tax returns or financial statements and that the practice of the parties has been for the "debt due" to A M Marketing to be invoiced. 24 Mr Priestley also relied on the fact that the parties own no joint property (apart from the "Better Business" magazine in respect of which a 50% share of the magazine was A M Marketing's agreed remuneration) and the fact that each of the companies was undertaking other work during the supposed duration of the partnership. He submitted that, in truth, there was no business being carried out in common by the parties: cf s 1 Partnership Act 1892. 25 Mr Priestley also submitted that the Court should decline to exercise its discretion in favour of Howard Marketing having regard to the conduct of that company, both before the commencement of the proceedings in the Local Court and during the course of those proceedings. He pointed in particular to a number of admissions of the debt due, together with the fact that Howard Media has not conducted the litigation in a timely fashion. He invited the Court to infer that Howard Media's present application is more concerned with deferring the payment of a due debt than with any question of jurisdiction. 26 I accept that, taken at face value, the various admissions by Howard Media of some debt due to A M Marketing are inconsistent with the existence of a partnership agreement. As noted by McColl JA in Zisis at [34]: "the relationship between partners is not that of debtor and creditor unless and until the partnership accounts have been finally taken after dissolution and a balance has been ascertained to be owing from one to another". 27 However, I do not think it necessarily follows that Howard Media's defence and cross-claim are obviously lacking in merit or, to adopt the language of Bryson J in Sanderson Motors at [7], that they should not receive judicial consideration. 28 In my view, the letter from the principal of A M Marketing referred to above is not necessarily inconsistent with the partnership agreement alleged by Howard Media. If there was an oral partnership agreement, as alleged, the terms of that letter may readily be construed as a separate agreement requiring the parties to account at certain times, which is not necessarily inconsistent with the existence of a partnership. 29 Further, it may not be completely correct to say that the agreement did not contemplate the sharing of losses. I note that the arrangement set out in the letter provided, after payment to each company of one-third of the advertising revenue in respect of a publication, that 50% of the balance be paid to each of them. The "balance" referred to appears to be the balance of funds in the jointly-operated account. That, in practice, meant that the parties were at least to share the burden of any bad debts, at least so long as there were funds in that account. 30 In any event, as submitted by Mr Docker, it is arguable that in the absence of an express provision for the sharing of losses, the arrangement nevertheless made such provision impliedly: see Canny Gabriel Castle Jackson Advertising Pty Ltd v Volume Sales (Finance) Pty Ltd (1974) 131 CLR 321 at 327.6. 31 There are other features of the arrangements between the parties that are consistent with the existence of a partnership agreement. These include the agreement to share profits, the fact that both companies combined their efforts in the business of producing identified magazines with a view to mutual profit and the fact that each was entitled to the repayment of expenses out of a jointly operated bank account controlled by both of them. 32 I accept, as submitted by Mr Priestley, that the agreement to share profits is not determinative (see s 2 Partnership Act and Elkin & Co Pty Ltd v Specialised Television Installations Pty Ltd [1961] SR (NSW) 165 at 169). Nevertheless, it is a factor that supports the claim. 33 As noted by Mr Docker, I do not need to determine whether or not there is a partnership, nor is it appropriate for me to embark on a consideration of the merits of Howard Media's defence and cross-claim (or the proposed amended cross-claim) at this stage. It is enough to say that I am satisfied that there are reasonable grounds for those claims. 34 As to whether the conduct of Howard Media should disentitle it from the relief claimed, I am not satisfied that there has been undue delay in the proceedings in the Local Court. The contention that a partnership agreement existed between the parties was made in the defence first filed in those proceedings. To the extent that Howard Media has been slow to refine its cross-claim and to recognise that the Local Court had no jurisdiction to hear it, I am not satisfied that is due to any delay or deliberate obfuscation on its part. 35 Mr Priestley submitted that it is open to Howard Media to pursue its cross-claim as a separate proceeding in this Court. The difficulty with that course, however, is that the existence of the partnership agreement is pleaded in defence of the debt claimed in the Local Court. Plainly, the interests not only of the parties but of the public would be best served by having all of the issues in dispute determined at the one time. Further, I accept, as submitted by Mr Docker, that if the Local Court were to make a finding that no partnership agreement exists, that would create an issue estoppel which may prevent Howard Media from pursuing its cross-claim. 36 I accept that there is considerable force in the submissions put by Mr Priestley that Howard Media's admissions of a debt due are inconsistent with the existence of a partnership agreement. However, for the reasons set out above, it appears to me that there is a respectable argument as to the existence of such an agreement which warrants judicial consideration. That, in my view, is sufficient reason for hearing the proceedings in this Court. 37 Mr Priestley submitted, in the alternative, that if the Court is inclined to grant the relief sought by Howard Media, only part of the dispute should be permitted to proceed and that there should be judgment for A M Marketing in respect of the admitted debt. He submitted that the order permitting Howard Media to prosecute its claim in this Court should be conditional upon that judgment debt being paid within fourteen days. I do not accept that submission. To isolate a particular part of the dispute would prejudge the very issues sought to be agitated in the proceedings. In my view, however, it is appropriate to order Howard Media to pay the admitted part of the claim into Court as a condition of the transfer. Mr Docker indicated that Howard Media would be prepared to consent to a condition in those terms.
(1) Pursuant to s140(1) of the Civil Procedure Act , that proceedings No. 65 of 2007 commenced in the Local Court at Lismore, including the cross-claim filed by Howard Media Pty Ltd in those proceedings, be transferred to the Supreme Court on condition that the amount of $16,576.92 is paid into Court by Howard Media Pty Ltd within fourteen days of today.
(2) That the costs of the proceedings in the Local Court be costs in the cause in the proceedings transferred.
(3) That the costs of the hearing on 12 February 2009 be costs in the cause in the proceedings transferred. **********
DISCLAIMER - Every effort has been made to comply with suppression orders or statutory provisions prohibiting publication that may apply to this judgment or decision. The onus remains on any person using material in the judgment or decision to ensure that the intended use of that material does not breach any such order or provision. Further enquiries may be directed to the Registry of the Court or Tribunal in which it was generated.
Howard Media
A M Marketing
CITATION : Howard Media v A M Marketing [2009] NSWSC 165
Canny Gabriel Castle Jackson Advertising Pty Ltd v Volume Sales (Finance) Pty Ltd (1974) 131 CLR 321 Elkin & Co Pty Ltd v Specialised Television Installations Pty Ltd [1961] SR (NSW) 165 CASES CITED : Phoenix Freight Systems Pty Ltd v Seko Air Freight Inc (1995) 17 ASCR 754 Sanderson Motors Pty Ltd v Kirby [2000] NSWSC 924 Zisis v Knighton [2008] NSWCA 42
(1974) 131 CLR 321
Proceedings No. 65 of 2007 in the Local Court at Lismore, including Howard Media's cross-claim, are transferred to the Supreme Court pursuant to s 140(1) Civil Procedure Act 2005, on condition that Howard Media pay $16,576.92 into Court within fourteen days. Costs of the Local Court proceedings and of the hearing on 12 February 2009 are to be costs in the cause (see [38(1)]–[38(3)]).