New South Wales Supreme Court CITATION : Slater v Watts [2004] NSWSC 484 HEARING DATE(S) : 31 May 2004 JUDGMENT DATE : 7 June 2004 JURISDICTION: Common Law JUDGMENT OF : Master Harrison DECISION : (1) The decision of Magistrate McIntosh made on 24 October 2003 is affirmed; (2) The appeal is dismissed; (3) The summons is dismissed; (4) The plaintiff is to pay the defendant's costs as agreed or assessed. CATCHWORDS : Appeal decision of Local Court Magistrate - existence of partnership - contribution LEGISLATION CITED : Local Court (Civil Claims) Act 1970 (NSW) - s 69 Partnership Act 1892 (NSW) - s 2 Allen v Kerr & Anor (1995) Aust Torts Reports 81-354 CASES CITED : Azzopardi v Tasman UEB Industries Ltd (1985) 4 NSWLR 139 Devries v Australian National Railways Commision (1993) 177 CLR 472 State Rail Authority of New South Wales v Earthline Constructions Pty Ltd (in Liq) (1999) 160 CLR 588 Robert Slater (Plaintiff) PARTIES : James Watts (Defendant) FILE NUMBER(S) : SC 13101/2003 COUNSEL : Mr G J Bateman (Plaintiff) Mr M Fitzgerald, Helliars City Solicitors SOLICITORS : (Plaintiff) Mr Paul Nass (Defendant) LOWER COURT Local Court JURISDICTION : LOWER COURT 1138/2002 FILE NUMBER(S) : LOWER COURT Magistrate McIntosh JUDICIAL OFFICER : IN THE SUPREME COURT OF NEW SOUTH WALES COMMON LAW DIVISION MASTER HARRISON MONDAY, 7 JUNE 2004 13101/2003 - ROBERT SLATER v JAMES WATTS JUDGMENT (Appeal decision of Local Court Magistrate - existence of partnership; contribution) 1 MASTER: By summons filed 21 November 2003 the plaintiff seeks firstly, an order that the decision of Magistrate McIntosh made on 24 October 2003 in the Local Court at Hornsby in proceedings 1138/2002 and 1139/2002 be set aside and in lieu thereof an order that a verdict be entered for the plaintiff in these proceedings; and secondly, an order that the defendant in these proceedings pay the costs of and incidental to these proceedings and the proceedings in the Local Court. The plaintiff relied on the affidavit of Michael John Fitzgerald sworn 15 January 2004. 2 At the outset, it may be helpful to make some brief comments concerning the remedy pursued by the plaintiff. Section 69(2) of the Local Courts (Civil Claims) Act 1970 (NSW) (the Act) permits a party who is dissatisfied with a judgment as being erroneous in point of law to appeal to this Court. The onus lies on the plaintiff to demonstrate that there has been an error of law. What is a question of law (as opposed to a question of fact) was considered, inter alia, in Allen v Kerr & Anor (1995) Aust Torts Reports 81-354 and Azzopardi v Tasman UEB Industries Ltd (1985) 4 NSWLR 139 at 155-156. It cannot be said that the Magistrate acted on evidence inconsistent with facts incontrovertibly established by the evidence - see Devries v Australian National Railways Commission (1993) 177 CLR 472 per Brennan, Gaudron and McHugh JJ at 479 and State Rail Authority of New South Wales v Earthline Constructions Pty Ltd (in Liq) (1999) 160 ALR 588. Section 69(4) of the Act provides that the court may determine an appeal by either (a) setting the judgment or order aside or (b) by varying the terms of the judgment or order or (c) by setting the judgment or order aside and remitting the matter for determination in accordance with the court's directions or (d) by dismissing the appeal. Mr Watts was the plaintiff in the Local Court and the defendant in this Court. Likewise, Mr Slater was the defendant in the Local Court and the plaintiff in this Court. For convenience, I shall refer to the parties by name in this judgment. Grounds of appeal 3 Slater appeals the whole of the decision of Magistrate McIntosh on two bases, namely, that the Magistrate erred in law firstly, by finding that there was a partnership between Slater and Watts in the business known as Xsell Solutions; and secondly, in finding in favour of Watts in both matters and ordering that Slater indemnify or contribute 50% in relation to the judgments obtained against the defendant Watts, by the plaintiff in the proceedings Kodicom Australia Pty Limited. Local court proceedings 4 On 29 October 2002 Kodicom Australia Pty Limited (Kodicom) commenced proceedings against Robert Slater and James Watts t/as as Xsell Solutions in proceedings numbered 1138/2002 and 1139/2002 for monies payable by Slater and Watts to Kodicom for goods (video surveillance equipment) sold and delivered by Kodicom to Slater and Watts and not paid for as to $24,247.60 in 1138/2002 and $32,716.20 in 1139/2002, totalling $56,963.80 plus interests and costs. 5 In March/April 2003 Watts was served with the statement of claim. On 30 April 2003 Watts issued a third party notice against Slater for the equal sharing amongst themselves of the business profits and losses of Xsell Solutions and further claiming against Slater as the third party contribution towards and/or indemnify for any judgment recovered against Watts from Kodicom. Slater in his defences to the third party notices denied that he was responsible to pay Watts and denied that Slater and Watts were in partnership. 6 On 19 August 2003 at the hearing of Kodicom's claim against both Slater and Watts, Kodicom proceeded only against Watts. Watts consented to judgment being entered against him for the sum of $28,550.75 in proceedings 1138/2002 and $35,506.86 in proceedings 1139/2002 (totalling $64,057.61). The third party notices were set down for hearing on 24 October 2003. The third party notice – the subject of this appeal 7 On 24 October 2003 in relation to the third party notices the Magistrate found that there was a 50/50 partnership and entered "verdict for the defendant over the third party indemnity and/or contribute a 50% share in relation to the judgment obtained by the plaintiff as against the defendant." 8 The plaintiff submitted that the Magistrate erred in finding that the partnership existed between the plaintiff and second. There was no formal written partnership agreement in existence. 9 Section 2(1) of the Partnership Act 1892 (NSW) provides: "Rules for determining existence of partnership (1) 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. …" 10 Slater submitted that the Magistrate failed to give any weight to matters which are properly the indicia of the partnership as referred to in s 2(1) of the Partnership Act above and other relevant matters. The business was registered only in the name of the defendant (LC t 9). Although the business bank account was in the name of Xsell Solutions it was under the sole control of the defendant who was the only signatory (LC t 19). The defendant used this account for other purposes (LC t 35-39). The lease of the business premises in Pitt Street was signed by Watts only (LC t 31). In relation to ss 2(1) and (2) Slater submitted that there is no evidence of sharing of gross returns and the only moneys received by the plaintiff from the business were the weekly payments of $1,200.00 consistent with an employment relationship (LC t 24). According to the plaintiff, there is no evidence of sharing of profits nor the existence of such an agreement to share as it is (a) inconsistent with the defendant's manner of running the business bank account, (b) inconsistent with weekly wage style payments of $1,200.00 to the plaintiff, initially from another business owned by the defendant (LC t 20 – Zabari) and then from the business bank account. However there is conflicting evidence from Watts as to Slater's remuneration and sharing of profits. 11 Watts' version of events is that in November 2001, at a dinner at the plaintiff's house, they shook hands on being in business together (LC t 10.50-55, t 11.5-10) and that Watts would be a silent partner and fund the business (LC t 11.20). Slater would be the sales person and run the business on a day to day basis and money would be put into the business with Slater being paid $1,200.00 a week (LC t 11.20-30, t 39.35). Watts initially transferred $1,000.00 into the plaintiff's account and the balance was given to him in cash of $200.00 on a weekly basis (LC t 11.45) and that Slater has to look after his own tax as $1,200.00 was a gross amount (LC t 11.50-55, t 24.5-15). Watts also said that Slater was not an employee (LC t 23.20-25) but a contractor (LC t 24.27), that there were no wage books for the business (LC t 48.30) and that Slater did not supply a wage declaration employment form (LC t 48.35-40). After three months, they were going to formalise the agreement by incorporating the business (LC t 21, 22). 12 Slater's version of events is that around about November 2001 he had a conversation with Watts in which Watts indicated that he was thinking of starting up a company, which would take advantage of business opportunities that may present themselves. It was arranged that Watts would start the company, that he would be responsible for funding the company's operations and he would pay Slater $1,200.00 per week after any taxation for the first three months with the expectation that after that the company would be self funding and those funds would meet Slater's wages. They further discussed that if Slater met certain sales targets he would become a shareholder and his shareholding in the company would increase up to 49% as and when the targets were met. On 30 November 2001 Xsell Solutions was registered at the Department of Fair Trading in the sole name of Watts (LC t 9.10 and Ex A Annexure A Aff 7 August 2003) and the trading name was obtained in consultation with the plaintiff (LC t 21.20). Watts gave evidence that Slater was not registered as a co-proprietor of Xsell Solutions as the defendant was the only personal available in town at the time to sign the application (LC t 9.15-25; t 20.25-55, t 21.5). Both parties made joint application in partnership as Xsell Solutions to the Australian Taxation Office to obtain the ABN 42 281 842 205 (LC t 9.5-55; 10.10). Watts and Slater supplied the tax office with their respective names, addresses and tax file numbers to enable them to obtain the ABN for Xsell Solutions (LC 10.5-45; T 22.50-55, t 23.5-10 & 45). The Telstra phone account at Pitt Street was in the Slater's name as he was the one to arrange the transfer. 13 As there was also independent evidence that Slater presented himself as Xsell Solutions (see statement of Kerry Ainsworth). There were various emails where Slater described himself as being a joint director of Xsell Solutions and a managing director of Xsell Solutions (Ex 5) (Aff Watts, 11 September 2003 – Annexures A, B & C). There were also business cards where Slater styled himself as "Robbie Slater Director" of Xsell Solutions Slater submitted that this evidence led to the conclusion he was not a partner. But in my view this evidence is more likely to be viewed to the contrary. After the business relationship between Slater and Watts ceased in October 2002, Slater incorporated another business called Xsell Solutions Australia (LC t 16.55, t 17.10) and now trades under that name with Kodicom (LC t 17.15). 14 While the grounds of defence denying the debts of Kodicom are inconsistent with the subsequent claim of partnership, Watts says that Slater was looking after the Kodicom side of things (LC t 16.50 & 55) and that Slater was working at Kodicom and had informed Watts that those debts were being taken care of by him (Slater) (LC 28.15 & 20). While Slater worked at Kodicom he was paying off the debt. 15 Overall it is my view that there was evidence to support the finding that there was a partnership between the plaintiff and defendant. The Magistrate had the benefit of observing both parties while they were being cross-examined. This Court does not have this advantage on the indicia stipulated in s 2(1) of the Partnership Act. The Magistrate was entitled to take other indicia into account. It was open to the Magistrate to make such a finding. There is no error of law. 16 The second submission made by Slater is that even assuming the existence of a partnership, the Magistrate erred in finding that the amount claimed comprised a loss to the partnership requiring indemnity by Slater and that there was a step missing, in that Watts has to establish that there was an actual loss to the partnership. While there was evidence that the invoices comprising the debt to Kodicom related to jobs which had been completed (LC t 26) and moneys received from the completed jobs were paid into the business bank account (LC t 19), there was also evidence that firstly, Watts opened and operated a bank account in the name of Xsell Solutions (LC T 18.45) (as he funded the business) (LC t 11.20) and secondly, Kodicom's outstanding accounts to Xsell were admitted into evidence (Ex 3); and thirdly, Watts says that the Kodicom debt was incurred by Xsell (LC t 18.20) and in partnership with Slater (LC t 18.25) and that they are therefore joint debts of Watts and Slater for their partnership (LC 25.45; T 26.10, 15, 20, 25, 30). 17 It was open to the Magistrate to make this finding that Slater had to indemnify and contribute 50% of the amount of the judgment obtained by Kodicom. There is no error of law. The decision of Magistrate McIntosh made on 24 October 2003 is affirmed. The appeal is dismissed. The summons is dismissed. 18 Costs are discretionary. Costs usually follow the event. The plaintiff is to pay the defendant's costs as agreed or assessed. Orders (1) The decision of Magistrate McIntosh made on 24 October 2003 is affirmed. (2) The appeal is dismissed. (3) The summons is dismissed. (4) The plaintiff is to pay the defendant's costs as agreed or assessed. ********** Last Modified: 06/10/2004 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.