Knighton & Felician Investments Pty Limited v Zisis & Zisis Dental Ceramics... [2007] NSWSC 139 | Case summary

JUDGMENT 1 HIS HONOUR: The plaintiffs and the defendants conducted a business known as Ceramics Only in partnership (pursuant to a deed of partnership). On 24 February 1999 the parties entered into a written agreement. It took the form of an agreement for the sale of a business (the agreement). The substance of the transaction was a disposition by the plaintiffs of their half interest in the business in consideration for the benefits they were to receive under the agreement (including a sale price of $65,000). It appears that the agreement was completed in March 1999 (inter alia, the plaintiffs ceased to play any role in the business and were paid in respect of the sale price). 2 The agreement contained a number of special conditions. These conditions included, inter alia, the following:- "11. The Vendors and the Purchasers shall be entitled to the takings and profits and shall pay or bear all charges and amounts due for rent, gas, electricity, telephone service and all other outgoings in respect of the business up to the date of completion, on and from which date the Purchasers shall be entitled to or shall pay or bear the same respectively and any necessary apportionment shall be made on completion. 15.(b) The Vendors and the Purchasers shall be entitled to payment of all debts owing to the business at the time of completion and the Purchasers will promptly account to the Vendors for half of all payments received by them relating to such debts. 31. The Purchasers must after completion use their best endeavours to collect all accounts rendered prior to completion which accounts remain unpaid as at the date of completion and shall forthwith upon receipt account to the Vendors for half of the moneys paid in relation to each such account. The Purchasers shall after completion upon reasonable prior notice permit the Vendors and the accountant nominated by the Vendors access to the Purchasers' books and other records relating to the Business prior to settlement in order to establish details of payment of outstanding accounts. 32. The parties shall cause to be drawn up a final set of partnership accounts as at the date of completion by an accountant nominated by the parties by agreement and in default of agreement by an accountant nominated by the President of the Institute of Chartered Accountants upon the request of either party. This provision does not merge on completion. 33. The Purchasers must on the date of completion pay to the Vendors by cash or by bank cheque half of all bonds, guarantees and other securities held by public utilities on behalf of or in relation to the supply or services to the partnership business." 3 The details of the completion process remain unclear. Presumably adjustments were made and taken into account in determination of the amount payable by the defendants under the agreement. Leaving these matters aside, there were things that remained undone at that time (including performance under condition 31). 4 It seems that the agreement did not expressly deal with dissolution of the partnership. Whether or not there was other documentation concerning it is also a matter that remains unclear. 5 Thereafter, disputes arose between the parties as to monies payable to the plaintiffs. A controlled money account came into being on 28 June 2001 and the sum of $ 10,200.15 was deposited therein. It still remains in the account. 6 The disputes remained unresolved. The plaintiffs brought proceedings in the Local Court (by way of Statement of Liquidated Claim). This process pleaded the partnership and the agreement to purchase. It purported to also plead two alternative claims. Both present as being claims for liquidated sums pursuant to alleged agreement. The first of the two claims pleads an agreement made on or about 24 February 1999. It seems as though this agreement may not have ever been particularised. The alternative claim pleaded the agreement and relied on specific provisions thereof (including condition 31). 7 What was claimed did not equate with what may be recovered on a final settlement of accounts (see s44 of the Partnership Act 1892 (NSW)). 8 The proceedings were defended. In effect, there was dispute as to liability to pay any of the monies. The issues concerned matters of contract. A claim for a set-off was also made. The defence did not raise any question of jurisdiction or that the plaintiffs were barred from recovering the monies claimed by reason of there not having been a taking of accounts. 9 A hearing took place (before Mr Bradd LCM). It appears that the case was conducted in accordance with what had been pleaded. No question of jurisdiction was agitated. The defendants did not contend that the plaintiffs were barred from recovering the monies claimed by reason of there not having been a taking of accounts. 10 The Magistrate reserved his judgment. The reserved judgment was delivered on 19 May 2006. The judgment contained the following:- "4 In Phoenix Freight Systems Pty Ltd v Seko Air Freight Inc (1995) 17 ACSR 754 Young J. stated: If there was a partnership agreement and the balance of the partnership agreement had not been ascertained or agreed upon, then any outstanding balance would not be a debt at all, both parties would have a case for having the partnership accounts taken before a court and that would be their only right; see Moravia v Levy (1786) 2 Term Rep 483; 100 ER 260. 5 An action always lay at common law for the final balance owing on a partnership account provided that the balance is known at the time of commencement of the action ( Moravia v Levy (1786) 2 Term Rep 483 ), except as provided by section 44(1)(c) of the District Court Act. 14 From the pleadings it is apparent that the final balance has not been ascertained. Accordingly, there is no claim at common law, and the Local Court is without jurisdiction to determine the claim and cross-claim." 11 The plaintiff filed a Summons in this Court. It purports to, inter alia, bring an appeal against the decision of the Magistrate (on the basis of error in point of law). Because the time for the lodging of an appeal had then expired, a prayer for an order granting an extension of time was also made. 12 The Summons came on for hearing on 27 February 2007. The defendants had previously relied on a Notice of Contention. On the day of the hearing, a Cross-Summons was filed by consent. The defendant also made an application for leave (should there be a need to rely on a mixed question of law and fact). The course was taken of hearing argument on all matters. 13 At an early stage in the hearing of the appeal, it seemed to me to be inevitable that the appeal should be allowed. Despite the conveying of this view, argument persisted for about two further hours. The starting point for this view was the misdirection of the Magistrate in determining the plaintiff's claim on a basis that was not in issue between the parties. In so doing, he also deprived the parties of the opportunity of leading further evidence and making submissions. If the parties had been given those opportunities, the Magistrate may not have been led into error. 14 A consequence of what was done, was that no consideration was given to a vital consideration (the effect of the completion of the agreement). Whilst it has not been fully argued before me, it would seem that this would bring about a situation which would see an end to the partnership with the plaintiffs accepting their benefits under the agreement in lieu of entitlements on a taking of account. Although it is another matter that was not fully argued, it would seem that the only means available to the plaintiff to recover the claimed monies may be on a cause of action framed in contract (pursuant to the provisions of the agreement). 15 For completeness, a further observation may be made. A final settlement of accounts (if the plaintiff was entitled to seek the same) would afford the plaintiffs no benefits. They neither claim nor have any entitlement to a payment in respect of capital or a payment in respect of profits. 16 It seems to me that there may be a grave miscarriage of justice unless what has been done by the Magistrate (in respect to the plaintiff's claim, the defendant's claim for a set-off and costs) is set aside. I am unaware of what orders (if any) were made by the Magistrate. 17 For completeness, I should mention that the Magistrate subsequently heard argument on costs and delivered a reserved decision. He came to the view that no order should be made as to costs. This decision has been challenged by the defendants by way of the Cross-Summons. 18 There remains the question of extension of time. It seems to be a matter which was not regarded as being of significance by the parties. It was not the subject of submissions. There is no suggestion of prejudice. The merits of the appeal are overwhelming. 19 The Court has a discretion to extend time. The discretion is exercised having regard to the particular circumstances of the case and so that the dictates of justice are best served. In my view, in the particular circumstances of this case, they are best served by granting the extension. 20 I am satisfied that the plaintiffs have demonstrated an entitlement to relief. In my view, material error in point of law has been shown and it justifies the disturbing of the decisions of the Local Court. 21 The time for the filing of the Summons is extended up to and including 17 August 2006. The decisions of and any orders made by Mr Bradd LCM are set aside. The matter is remitted to the Local Court for determination according to law. The Cross-Summons is dismissed. The defendants are to pay the costs of the proceedings. If so entitled, they are to have a Certificate under the Suitors' Fund Act 1951 (NSW). The exhibits may be returned. **********

Knighton & Felician Investments Pty Limited v Zisis & Zisis Dental Ceramics Pty Limited

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