Papua New Guinea Law Reports

In the present case the applicant’s claim is both in form and in substance a money claim. It is put forward by the applicant as arising under an agreement for dissolution of partnership but from the terms of that agreement as alleged by the applicant it would be a debt giving rise to an immediate right of action and would not be dependent on the final settlement of the partnership account. It is not a claim for the balance owing by one partner to another as a result of their partnership dealings, which would require a settlement of the accounts, but a claim for money agreed to be paid by one to the other under the agreement which brought those dealings to an end and which thereby created the relationship of debtor and creditor between them. The fact then that the agreement upon which the debt is alleged to arise was one made between partners on the dissolution of their partnership would in no way affect the matter and the proceeding commenced by the applicant is thus a “personal action” within the meaning of that term in s. 29(1). The position is not affected by any of the succeeding provisions of the Ordinance so that the District Court had jurisdiction to hear the applicant’s claim.

Turning now to the set-off, I may say that I find it somewhat difficult to understand, on the material before me, exactly what the defendant is seeking to achieve by his set-off as there is nothing in the material to indicate the nature of his defence apart from the set-off. This may well have been made clear to the learned Magistrate by counsel for the defendant in his opening address, but I do not know, for instance, whether the defendant denies that there was any agreement on dissolution such as that set up by the applicant, in which event the set-off would seem to be more in the nature of a counterclaim or cross-action than a set-off in the true sense, or whether, on the other hand, the defendant acknowledges the existence of some such agreement (although not necessarily admitting the terms alleged by the applicant or the amount claimed under it) but seeks to set-off against any sum that might be owing by him under such an agreement the amount which he asserts is owing to him by the applicant on the taking of the partnership account. It may be noted that the term “counter-claim” while used in s. 30 of the Ordinance is not used in Part VIII which deals with proceedings in connection with complaints and the term “set-off” as used in that Part would seem to be wide enough to include both a true set-off and a counter-claim. One matter at least is clear and that is that the subject matter of the set-off, although described as damages for breach of contract is in fact money claimed to be owing by one partner to the other on the taking of the partnership account following dissolution.

The authorities indicate that partners are not, as regards partnership dealings, considered as debtor and creditor inter se until the concern is wound up or until there is a binding settlement of the accounts, so that one partner has no right of action against the other for the balance owing to him until after final settlement of the accounts (see Halsbury’s Laws of England, 3rd ed., Vol. 28, p. 553, para. 1076, Richardson v. The Bank of England[lvii]8; Fromont v. Coupland[lviii]9; Green v. Hertzog[lix]10).

Unlike the applicant, whose claim does not depend on the settlement of the partnership accounts, it would appear that the defendant would be unable to establish that there is money owing to him by the applicant under the partnership agreement until the partnership account had been taken. If the position were that there had been mutual settlement of the accounts on dissolution of the partnership it would be possible to imply a promise to pay and an action for payment could then be supported (Halsbury, p. 553, para. 1077 and the cases there cited) so that the defendant could then properly claim by way of set-off any amount thus due to him. However, this is not alleged and, unless it were to be established, then until such time as the partnership account has been taken there is no debt due from one partner to the other. It follows that, so far as the material shows, there is nothing at this stage which the defendant is entitled to set-off. His claim would therefore necessarily be that an account be taken and for the payment of what is found to be due to him by the applicant on the taking of such an account. If such a claim were to be made in the present action, although as a matter of form having regard to Part VIII of the Ordinance it would be called a “set-off”, it would seem to me to partake more of the nature of a cross-action; it is a claim in respect of which the defendant could bring an independent action against the applicant rather than a set-off in the true sense, that is a cross-claim set up as a defence, as until it is established by the taking of the account that there is a sum owing by the applicant to the defendant, he has no cross-claim which he can set up as a defence.

Whilst s. 30 requires the District Court to give the same effect to every ground of defence or counterclaim, whether equitable or legal, as ought to be granted or given in a similar case by the Supreme Court and in as full and ample a manner, this is expressed to be subject to the Ordinance and as regards a cause of action for the time being within its jurisdiction. The requirement could not, in my view, be so read as to enable the court to give effect to a counterclaim (albeit described in terms of Part VIII as a “set-off”) which raised any of the matters of which it is deprived of jurisdiction by s. 29(4). Likewise, it does not enable the court to entertain a cross-action unless it is a “personal action at law or in equity” and of course within the jurisdiction of the court as to amount.

In my opinion, a claim for the taking of an account and for the payment of money found to be due on the taking of such an account would not be an action to enforce a money claim. It is rather an action for the purpose of determining matters which may give rise to a money claim and then, if such a claim is established, of enforcing that claim by way of an order for payment. The fact that in the final result money is ordered to be paid does not mean that it is correct to regard the action in substance as one to enforce a money claim, because at the time when it is brought there is no money claim nor can there be until after the granting of the relief initially sought, that is, the taking of the account; it is following the taking of the account that the money claim is brought into existence. As such an action is thus not a “personal action” it is not one within the jurisdiction of the District Court.

This case is distinguishable from Marks and Sons Pty. Ltd. v. The Ridd Milking Machine Co. Ltd.[lx]11 where in an action i Victorictorian County Court on a contract relating to the sale of goods on commission the plaintiff claimed an account and payment of the amount found to be due on the taking of such account,the Full Court held that that the action was in substance a personal action for the recovery of money due on a contract. That was not however a claim arising on a partnership agreement and, as the Court pointed out, the plaintiff might just as easily have claimed a named sum as moneys due and asked for an account for the purpose of determining how much of that sum was actually due. The taking of the account was not a condition precedent to the right of action whereas in the present case it is and, as already pointed out, unless there has been mutual settlement of the accounts, the defendant has no claim until after the partnership account has been taken.

In the case of courts of limited jurisdiction in some Australian States specific provision has been made conferring jurisdiction in an action brought to recover a sum which is the whole or part of the unliquidated balance of a partnership account (see, for example, s. 42 of the District Courts Act 1912-1968 of New South Wales and s. 4(1) of The Magistrates Courts Acts 1912 to 1964 of Queensland) and such provision has been held to enable one partner to sue another in that court as soon as the partnership is at a close, although the balance has not been actually agreed or ascertained (Birkbeck v. Cowley[lxi]12; Franklyn v. Gibbs[lxii]13 . It may be noted in the Quhe Queensland statute such a provision is in addition to that conferring jurisdiction on the court in the case of a personal action in which the amount claimed is not more than the sum limited by the section, whether on a balance of account or after an admitted set-off or otherwise. There is no such provision in relation to the unliquidated balance of a partnership account to be found in the District Courts Ordinance and no assistance in the present instance is to be derived from a comparison of the provisions of that Ordinance with those of the other statutes referred to or from a consideration of the decisions relating to those statutes.

There is nothing in the Partnership Ordinance 1951 which assists in the resolution of the question which I have to consider. By that Ordinance “the court” is given certain powers and “court” is defined as including every court or judge having jurisdiction in the case. It follows that the matter of jurisdiction has to be determined by reference not to the Partnership Ordinance but to the Ordinance by which jurisdiction is conferred on any particular court, in this case the District Courts Ordinance.

The result is then that the learned magistrate had jurisdiction to deal with the applicant’s claim and wrongly refused to exercise that jurisdiction. I do not of course for one moment suggest that the learned magistrate acted otherwise than in accordance with the view of the law which he believed to be correct but which, as I see it, is incorrect. He should then be required to proceed with the hearing and determination of that claim and I propose to order that he do so. On the material before me, the claim by way of set-off in its present form could not be allowed in that at this stage the material does not indicate that there is any sum which the defendant is entitled to set-off, since it would appear that there is no agreed or ascertained balance owing to him. If the defendant should seek to amend for the purpose of having an account taken in the present proceedings with a view to establishing a balance in his favour, to the payment of which he would then be entitled, the magistrate would not have jurisdiction to entertain such an amended proceeding for the reasons which I have indicated. If this course were taken it would be open to the magistrate to consider the making of an order under s. 32(1), but that is obviously not a matter which enters into the present proceedings before me.

It will be appreciated that although I have dealt at some length with the considerations applicable to the defendant’s set-off this in no way affects the jurisdiction of the magistrate to deal with the applicant’s claim, as he obviously cannot be deprived of jurisdiction to deal with the claim by the fact that matters are raised by way of a “set-off” which are outside his jurisdiction.

The order nisi is therefore made absolute.

Order absolute.

Solicitors for the applicant: Francis & Francis.
Solicitor for the first respondent: P. J. Clay, Crown Solicitor.

[l]Section 29 confers jurisdiction upon the District Courts in “all personal actions at law or in equity” subject to a monetary limitation.
[li] [1951] 2 KB 623.
[lii][1939] NSWStRp 3; (1939) 39 S.R. (N.S.W.) 42, at p. 44.
[liii] [1947] Q.S.R. 81, at p. 89.
[liv] [1921] 2 K.B. 694.
[lv] [1928] 1 K.B. 482.
[lvi] [1921] 2 K.B. 694, at p. 708.
[lvii][1838] EngR 897; (1838) 4 My. & Cr. 165; 41 E.R. 65.
[lviii][1824] EngR 650; (1824) 2 Bing. 170; 130 E.R. 271.
[lix] [1954] 1 WLR. 1309.
[lx][1923] VLR. 435.
[lxi] (1925) 42 W.N. (N.S.W.) 86.
[lxii] [1952] QWN. 30.