COMMERCIAL TRANSACTIONS IN THE NSW DISTRICT COURT: JURISDICTIONAL UNCERTAINTY

Legal Directions

The NTF Group Pty Ltd v PA Putney Finance Australia Pty Ltd [2017] NSWSC 1194

The NTF Group proceedings concerned an application to transfer Local Court of NSW proceedings to the Supreme Court of NSW.

The NTF Group leased equipment from PA Putney Finance Australia Pty Ltd.
PA Putney commenced Local Court debt proceedings against the NTF Group claiming $99,859.90 for allegedly unpaid equipment hire fees.  The NTF Group cross-claimed, alleging that in seeking to enforce the equipment hire agreements, PA Putney had engaged in unconscionable conduct in breach of the Australian Consumer Law. The NTF Group also filed an application to have the proceedings transferred to the Supreme Court on the basis that the Local Court lacked jurisdiction to deal with the cross-claim.

Parker J concluded that the proceedings should be removed from the Local Court as that court lacked jurisdiction to grant the relief sought by the NTF Group under the cross-claim.

In turn, Parker J considered whether the proceedings could be transferred to the District Court of NSW, including examining the provisions establishing the civil jurisdiction of the District Court.

Relevantly, section 44(1)(a)(i) of the District Court Act 1973 (NSW) (‘Act’) confers jurisdiction on the District Court to hear and dispose of proceedings which, if commenced in the Supreme Court, would have been assigned to the Common Law Division.

Applying the High Court’s approach to the construction of section 44(1)(a)(i) of the Act determined in Forsyth v Deputy Commissioner of Taxation (2007) 231 CLR 531, Parker J held that the relevant date for considering whether proceedings would have been assigned to the Common Law Division of the Supreme Court was 2 February 1998, being the date on which section 44 was introduced in its current form into the Act.

As at 2 February 1998, section 53(3E) of the Supreme Court Act 1970 (NSW), coupled with rule 14.2(1) of Supreme Court Rules 1970 (NSW), operated to assign proceedings arising out of ‘commercial transactions’ or proceedings in which there was ‘an issue that has importance in trade or commerce’, to the Commercial Division of the Supreme Court, and not the Common Law Division.

In light of these provisions, Parker J took the approach of considering whether the proceedings (a claim between two corporate entities relating to goods leased for business purposes) fell within the description of proceedings arising out of ‘commercial transactions’ prescribed in rule 14.2(1)(a) of the Supreme Court Rules.

His Honour held that the proceedings did arise out of a ‘commercial transaction’ and ‘would have been assigned to the Commercial Division’, therefore leading to the ‘surprising and unwelcome result’ that ‘the District Court would not have had jurisdiction’.

Parker J also considered whether section 44(1)(e) of the Act would remedy the jurisdictional problem. Although section 44(1)(e) would confer jurisdiction on the District Court once the proceedings were transferred to it, Parker J held that it must be ‘first established that the proceedings could be properly transferred’ to the District Court. This had not been achieved.

With both the Local and District Courts lacking jurisdiction, the proceedings were transferred to the Supreme Court.

Application of Parker J’s reasoning

Parker J’s reasoning in NTF Group has since been applied in several New South Wales Supreme Court and District Court proceedings.

Sapphire Suite

Sapphire Suite Pty Ltd v Bellini Lounge Pty Ltd [2018] NSWDC 160 concerned proceedings in relation to the breach of a commercial lease. Following the NTF Group decision, the plaintiff sought to transfer the proceedings to the Supreme Court.

Applying Parker J’s approach in NTF Group, Taylor DCJ stated that plainly ‘a claim for damages under a commercial lease arises out of a commercial transaction’ and therefore the District Court lacked jurisdiction to hear and dispose of the matter.

Taylor DCJ distinguished the proceedings from the NSW Court of Appeal’s findings in Mega-top Cargo Pty Ltd v Moneytech Services Pty Ltd [2015] NSWCA 402 and New South Wales Land and Housing Corporation v Quinn [2016] NSWCA 338 that an action to recover a monetary sum would be assigned to the Common Law Division irrespective of the underlying source of the debt.

On 5 September 2018, Harrison J considered the transfer of the Sapphire Suite proceedings to the Supreme Court in Sapphire Suite Pty Ltd v Bellini Lounge Pty Ltd [2018] NSWSC 1366. His Honour fully adopted Taylor DCJ’s reasoning and conclusions in the first Sapphire Suite proceedings, concluding that ‘the District Court does not have jurisdiction to hear the claim’.

Parramatta Operations

On 24 July 2018, in Parramatta Operations TC Pty Ltd trading as APX Parramatta v Consulting Professional Engineering Pty Ltd trading as Consulting Professional Engineers Pty Ltd [2018] NSWDC 202, Taylor DCJ again considered the NTF Group decision. After accepting the parties’ agreement that the District Court had no jurisdiction to hear the dispute, his Honour transferred the proceedings to the Local Court, commenting at [1] that:

This is another matter where the limited and uncertain commercial jurisdiction of this Court has impacted adversely on the quick, cheap, and just resolution of a dispute between parties in this Court.

Natvia

Nova 96.9 Pty Ltd v Natvia Pty Ltd [2018] NSWSC 1288 (decided on 10 August 2018) concerned a dispute over fees due pursuant to contracts for radio commercials. Relying on NTF Group, the defendant claimed that the District Court had no jurisdiction to hear the matter.

The plaintiffs contended that in NTF Group, Parker J was incorrect in his consideration of rule 14.2(1) of the Supreme Court Rules. That rule provided:

…there shall be assigned to the Commercial Division proceedings in the Court: (a) arising out of commercial transactions; or (b) in which there is an issue that has importance in trade or commerce.

Rein J rejected this argument. His Honour concluded that Parker J was correct in considering whether the proceedings in NTF Group arose out of a commercial transaction without also considering whether the proceedings involved an issue of importance in trade or commerce. In other words, the reading of one limb of rule 14.2(1) should not limit the reading of the other limb.

Applying this approach, Rein J held that the proceedings in Natvia fell within rule 14.2(1) of the Supreme Court Rules and therefore would have been assigned to the Commercial Division of the Supreme Court, and not the Common Law Division. Accordingly, the District Court had no jurisdiction to determine the proceedings.

Rein J, like Parker J and Taylor DCJ, found the outcome ‘as to the limits of the District Court’s jurisdiction… a most inconvenient and unfortunate outcome for litigants’. His Honour encouraged legislative reform ‘in the very near future to remove the lacuna identified’.

Commonwealth Bank of Australia v QBE Insurance (Australia) Ltd [2018] NSWSC 1440)

In this matter, decided on 19 September 2018, the Supreme Court ordered the transfer of proceedings concerning the construction of an exclusion clause in an insurance policy from the District Court.

Justice Adams noted that the term ‘commercial transactions’, was ‘of broad definition and would encompass any transaction made in commerce or which could be described as ‘mercantile’ in nature.’

Tzovaras v Williams [2018] NSWDC 275

This most recent decision found that proceedings for damages for a breach of a deed arose from a commercial transaction, even though the proceedings and the deed obliged the defendant to pay a specific sum of money by a specific date. The court held that it was not a claim in debt, rather the obligation to pay the specified amount arose out of a complicated commercial transaction.

Conclusion

The NTF Group decision and its subsequent application identify the District Court of NSW as not having jurisdiction to hear and determine matters arising out of commercial transactions. It also raises real uncertainty as to the effects of past judgments of the court. Legislative reform, as proposed by Rein J, will likely be required to resolve this jurisdictional problem. The case is relevant to insurers in determining the jurisdiction in which to commence and continue proceedings involving ‘commercial transactions’, or policy construction issues.

Further information / assistance regarding the issues raised in this article is available from the authors, Susan Reid, Special Counsel, and Justin Ghee, Graduate at Law, or your usual contact at Moray & Agnew.


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