In the recent decisions of Sapphire Suite Pty Ltd v Bellini Lounge Pty Ltd  NSWSC 1366, Nova 96.9 v Natvia  NSWSC 1288 and Commonwealth Bank of Australia v QBE Insurance (Australia) Ltd  NSWSC 1440, three Supreme Court judges have determined that the District Court does not have the power to determine “Commercial” matters
This situation may require legislative intervention, and probably retrospective legislation, to avoid potentially a large number of appeals being brought with respect to cases possibly decided ultra vires by the District Court
There have been a number of recent decisions where Supreme Court judges have found that the NSW District Court does not have jurisdiction to decide Commercial matters which are of a type which would not have been referred to the Supreme Court’s Common Law Division as at 2 February 1998.
The jurisdiction of the NSW District Court is largely governed by s 44 of the District Court Act 1973 which relevantly provides that the Court has jurisdiction to hear and dispose of the following actions:
- (a) any action of a kind:
- (i) which, if brought in the Supreme Court, would be assigned to the Common Law Division of that Court, and
- (ii) in which the amount (if any) claimed does not exceed the Court’s jurisdictional limit, whether on a balance of account or after an admitted set-off or otherwise.
In Forsyth v Deputy Commissioner of Taxation (2007) 231 CLR 531;  HCA 8, the High Court held that s 44 was to be construed according to the assignment provisions in the Supreme Court as at 2 February 1998, when s 44 in its current form relevantly came into effect. In February 1998, the Supreme Court was comprised of the Court of Appeal and seven Divisions being the Admiralty Division, the Family Law Division, the Administrative Law Division, the Criminal Division, the Commercial Division, the Equity Division and the Common Law Division.
Section 53 of the Supreme Court Act 1970 at the relevant time assigned various business to one or other of these several Divisions. Each assignment provision was made subject to the rules. Section 53(5) of the Act provided that, subject to the rules, all proceedings not assigned to another Division by the foregoing provisions of that section would be assigned to the Common Law Division. Those foregoing provisions included s 53(3E), which provided that, subject to the rules, all proceedings of a “commercial nature” would be assigned to the Commercial Division.
Rule 14.2 of the Supreme Court Rules relevantly provides as follows, in relation to assignment of proceedings to the Division:
“…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.”
In Nova 96.9 v Natvia Rein J found that the “or” in Rule 14.2 is disjunctive, with the consequence that there are two types of proceedings which were assigned to the Commercial Division as at February 1998, namely, proceedings arising out of commercial transactions and proceedings in which there is an issue that has importance in trade or commerce. He followed the decision of Parker J in The NTF Group Pty Ltd v PA Putney Finance Australia Pty Ltd  NSWSC 1194, holding that subparagraphs (a) and (b) of Rule 14.2 are dealing with quite discrete and separate matters and the interpretation of (a) is not ‘governed’ or controlled by (b). In other words, if a matter arises out of a “commercial transaction” it would have been referred to the Commercial Division even though it did not exhibit an issue that has importance in trade or commerce. However, as Rein J pointed out, there may be a matter which does not arise out of a commercial transaction (e.g. a claim by the purchaser that a corporate defendant on a sale of a residential property is empowered to execute the contract of sale without a resolution of the board) where an issue might arise that has importance in trade or commerce and the matter would thus be referred to the Commercial Division.
In Sapphire Suite Pty Ltd v Bellini Lounge Pty Ltd Harrison J had no difficulty in finding that the District Court had no jurisdiction to hear a matter involving a suit on a guarantee against the guarantor of the liabilities of a lessee to a lessor on the basis that it arose out a commercial transaction and as such was not of a type which would have been referred to the Supreme Court’s Common Law Division.
In Commonwealth Bank of Australia v QBE Insurance (Australia) Ltd N Adams J found that the District Court did not have the power to determine a dispute concerning the construction of an exclusion clause from an insurance contract and a dispute as to whether the insurer should have paid out under an insurance policy in favour of a person with whom the bank had entered a loan agreement. The matter was therefore transferred by consent to the Supreme Court.
As the Courts have pointed out, the situation arising out of this legislative anomaly is unfortunate, and should be quickly remedied. There will be matters coming up for hearing in the District Court in the near future which should not proceed for the time being, and many thousands of matters that have been determined by the District Court in the past where it may be that the parliament will have to legislate retrospectively to ratify them.
Immediate consideration should therefore be given to whether any matters involving commercial transactions should be adjourned and transferred from the District Court to the Supreme Court to avoid the possibility of appeals with associated wasted costs.