District Court New South Wales Medium Neutral Citation: Tzovaras v Williams [2018] NSWDC 275 Hearing dates: 21 September 2018 Date of orders: 27 September 2018 Decision date: 27 September 2018 Jurisdiction: Civil Before: Russell SC DCJ Decision: (1) I find that the District Court of NSW does not have jurisdiction in these proceedings. Catchwords: JURISDICTION - s 44 District Court Act 1973 - s 53 Supreme Court Act 1970 - Supreme Court Rules 1970 - whether or not the proceedings arose out of a "commercial transaction" within the meaning of r 14.2(1)(a) of the Supreme Court Rules as at 2 February 1998 - consideration of the phrase "commercial transactions" – whether proceedings for monies owing under a Deed arise out of a "commercial transaction" – analysis of Statement of Claim to determine whether proceedings arise out of a "commercial transaction". Legislation Cited: Civil Procedure Act 2005 District Court Act 1973 Supreme Court Act 1970 Supreme Court Rules 1970 Cases Cited: Commonwealth Bank of Australia v QBE Insurance (Australia) Limited [2018] NSWSC 1440 Forsyth v Deputy Commissioner of Taxation (2007) 231 CLR 531 May v Brahmbhatt [2013] NSWCA 209 Mega-Top Cargo Pty Limited v Moneytech Services Pty Limited [2015] NSWCA 402 New South Wales Land & Housing Corporation v Quinn [2016] NSWCA 338 Nova 96.9 Pty Limited v Natvia Pty Limited [2018] NSWSC 1288 NRMA Insurance Limited v Flanagan [1982] 1 NSWLR 585 Sapphire Suite Pty Limited v Bellini Lounge Pty Limited [2018] NSWDC 160 The NTF Group Pty Limited v P A Putney Finances Australia Pty Limited [2017] NSWSC 1194 Visy Industries USA Pty Limited v Federal Commissioner of Taxation (2011) 284 ALR 455 Category: Procedural and other rulings Parties: Ted Dorotheos Tzovaras (Plaintiff) Gary Alexander Williams (Defendant) Representation: Counsel: T Tzovaras Self-represented (solicitor) (Plaintiff) M Wells (Defendant) Solicitors: T D Tzovaras (Plaintiff) Byrnes Legal File Number(s): 2017/345804 Judgment Introduction 1. The parties appeared before me on 21 September 2018 to argue two Notices of Motion. However, the defendant argued a preliminary point, being that the District Court had no jurisdiction to hear these proceedings or any motion in them. 2. It was agreed by the parties that I should determine that preliminary point and so I heard submissions only on the question of jurisdiction and deferred dealing with both motions. The Jurisdiction Issue 1. Section 44 of the District Court Act 1973 gives the District Court jurisdiction over certain civil matters. Section 44(1) provides: "Subject to this Act, 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, other than an action referred to in paragraph (d) and (e) …" 1. The relevant date for determining whether or not a matter would have been assigned to the Common Law Division is 2 February 1998 – Forsyth v Deputy Commissioner of Taxation (2007) 231 CLR 531. 2. Section 53 of the Supreme Court Act 1970, in the relevant form in 1998, dealt with "Assignment of Business". The provisions of s 53 relevant to these proceedings are: "3E Subject to the rules, there shall be assigned to the Commercial Division all proceedings of a commercial nature which are required by or under any Act, or by or in accordance with the rules, from time to time in force to be commenced, heard or determined in that Division. … 4 Subject to the rules, there shall be assigned to the Common Law Division all proceedings not assigned to another Division by the forgoing provisions of this section." 1. In 1998 the relevant provisions in the Supreme Court Rules 1970 (NSW) were to be found in Pt 14 dealing with the "Commercial Division". Relevantly, r 2(1) provided as follows: "Subject to sub-rule (2), 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." 1. Thus if s 53(3E), coupled with r 14.2(1) of the Supreme Court Rules, in their 1998 form, had the effect that a matter would have been assigned to the Commercial Division, then the matter was not one which would have been assigned to the Common Law Division. 2. In Nova 96.9 Pty Limited v Natvia Pty Limited [2018] NSWSC 1288, Justice Rein considered the meaning of the phrase "commercial transactions" which is not defined in the Supreme Court Act or the Supreme Court Rules. In Visy Industries USA Pty Limited v Federal Commissioner of Taxation (2011) 284 ALR 455, Justice Gordon said that "the concept of a 'commercial transaction' stands in contradistinction to a private, recreational or other non-business activity". 3. In NRMA Insurance Limited v Flanagan [1982] 1 NSWLR 585, Justice Hunt said of a commercial transaction that "such a transaction must be one which can be recognised as something which forms part of, or is an essential ingredient of, the commercial activities of the community". 4. A number of other authorities were considered by Justice Rein at [18]-[27]. 5. While the High Court decision in Forsyth v Deputy Commissioner of Taxation is 11 years old, the ramifications of that decision are only now working their way through the court system. There have been some recent cases which have considered the jurisdiction of the District Court when arguably the cause of action arises out of a commercial transaction. 6. In The NTF Group Pty Limited v P A Putney Finances Australia Pty Limited [2017] NSWSC 1194, Justice Parker considered the jurisdiction of the District Court in a case where the plaintiff sued under agreements for the rental of various items of equipment, together with interest. His Honour said: "[45] Although the claim was a simple contractual claim in debt, it appears to me that the proceedings would not have been assigned to the Common Law Division. The principal claim in the proceedings is between two corporate entities and, on the face of it, the goods in question were leased for business purposes. Accordingly, the proceedings fall within the description of proceedings 'arising out of commercial transactions' in SCR Pt 14 r 2(1)(a) and would have been assigned to the Commercial Division. [46] Accordingly, the District Court would not have had jurisdiction. This is (as it seems to me) a surprising and unwelcome result. But I see no alternative to it given the decision in Forsyth and the wording of the rules at the relevant time." 1. In Sapphire Suite Pty Limited v Bellini Lounge Pty Limited [2018] NSWDC 160, Judge Taylor SC of this court considered a case in which the proceedings sought damages for breach of a commercial lease. 2. In dealing with a preliminary question as to whether the District Court had jurisdiction, his Honour found that the jurisdiction to deal with the matter "must be doubted". His Honour found that "the jurisdictional issue has substance" and the matter was then adjourned pending an application being made in the Supreme Court to transfer it to that court because the District Court lacked jurisdiction. 3. Judge Taylor SC referred to the earlier decision of Justice Parker and adopted the same analysis of the 1998 version of the Supreme Court Act and Rules. 4. The Sapphire Suite proceedings were dealt with by Justice Harrison of the Supreme Court in Sapphire Suite Pty Limited v Bellini Lounge Pty Limited [2018] NSWSC 1366. His Honour referred to Forsyth and to the NTF Group decision. Justice Harrison approved the reasoning of Judge Taylor SC and found that the District Court did not have jurisdiction to hear the claim. 5. In Nova 96.9 Justice Rein dealt with an application to transfer proceedings from the District Court to the Supreme Court, on the basis that the District Court lacked jurisdiction. The proceedings related to fees said to be due pursuant to contracts entered into by the defendant for commercials to be aired on radio. The defendant acknowledged that it had not paid all of the money due pursuant to the advertising contracts, but contended that the contracts were entered into as a result of misrepresentations made by the plaintiff concerning the effectiveness of the radio advertising. 6. After analysing the relevant form of the Supreme Court Act and Supreme Court Rules, and referring to the earlier decisions of Justice Parker, and Judge Taylor SC, his Honour found that the proceedings brought by Nova arose out of a commercial transaction, and were thus not proceedings in which the District Court had jurisdiction. 7. I note in passing that the Nova 96.9 proceedings action came before me in March 2018 in the District Court when I heard and determined an application for security for costs – [2018] NSWDC 74. Not a word was spoken about lack of jurisdiction. However, that is not said as a criticism of the parties or their representatives, as there has only been a realisation of the full effect of the High Court decision in Forsyth in very recent times. 8. The most recent decision in the Supreme Court is that of Justice N. Adams in Commonwealth Bank of Australia v QBE Insurance (Australia) Limited [2018] NSWSC 1440. The proceedings commenced in the District Court concerned the construction of an exclusion clause in an insurance contract and a dispute as to whether the defendant should have paid out under an insurance policy in favour of a person with whom the plaintiff had entered a loan agreement. 9. Her Honour referred to and followed the approach of Justice Parker and Justice Harrison in the cases cited above. In dealing with Part 14 Rule 2 of the Supreme Court Rules 1970 (NSW) her Honour said at [8]: "The term 'commercial transactions' was not defined in the Rules but it seems to me that it is of broad definition and would encompass any transaction made in commerce or which would be described as 'mercantile' in nature. It was not suggested that the present proceedings were otherwise than arising out of a commercial transaction." 1. In the course of submissions I was referred to three decisions of the NSW Court of Appeal in which obiter remarks were made concerning the extent of jurisdiction of the District Court. Those cases are May v Brahmbhatt [2013] NSWCA 209, Mega-Top Cargo Pty Limited v Moneytech Services Pty Limited [2015] NSWCA 402 and New South Wales Land & Housing Corporation v Quinn [2016] NSWCA 338. 2. In none of those cases was the issue before the Court of Appeal whether or not the District Court had jurisdiction because the proceedings would have been assigned, in 1998, to the Commercial Division of the Supreme Court if brought in that court. Justice Harrison in Sapphire Suite Pty Limited v Bellini Lounge Pty Limited thought that the cases were distinguishable, and I respectfully agree. No contrary submission was put in the present action. Nature of the plaintiff's proceedings 1. There was no evidence before me concerning the plaintiff's claim, and the nature of the cause of action falls to be discerned from a reading of the Statement of Claim filed on 15 November 2017. The relief sought is damages in the amount of $400,000 and interest in the amount of $370,429.81. The damages sought are for breach of a Deed which is alleged to have obliged the defendant to pay $400,000 to the plaintiff in December 2005. 2. Paragraph 1 of the Statement of Claim pleads that the Deed was between five parties being Lamag Holdings Pty Ltd (Lamag), Glowmelt Pty Ltd (Glowmelt), Garren Nominees Pty Ltd (Garren), the plaintiff and the defendant. By the Deed, Lamag agreed to sell to the defendant two ordinary shares in the capital of Glowmelt. 3. Paragraph 2 of the Statement of Claim pleads that pursuant to the Deed that share sale was subject to and conditional upon completion of Sale Conditions which were pleaded in paragraph 3 of the Statement of Claim to be: 1. Glowmelt entering into a contract for sale of a property at Muswellbrook to yet another company (MPA Properties Pty Ltd); 2. A finance facility being paid in full from the proceeds of sale of the Muswellbrook property, or Glowmelt re-financing the finance facility without there being any guarantees undertaken by, inter alia, the plaintiff; 3. The plaintiff and others being released from all guarantees pursuant to the finance facility; 4. The payment by the defendant of a debt associated with another person (Cassimatis); 5. Garren executing and delivering to Lamag and another person (Thomas) a declaration of trust as defined in the Deed. 1. Paragraph 2 of the Statement of Claim also pleads that the share sale was subject to and conditional upon the defendant paying to the plaintiff the sum of $400,000 on a "Due Date". 2. Paragraph 4 of the Statement of Claim pleaded the definition of the Due Date under the Deed, which was related to completion of the purchase of the Muswellbrook property. 3. Paragraph 6 of the Statement of Claim pleads that by 23 December 2005 each of the sale conditions were fulfilled or otherwise waived by Lamag and the share sale from Lamag to the defendant was completed, with the transfer of the shares being registered in the name of the defendant's nominee. 4. Paragraph 7 of the Statement of Claim pleads that despite the sale of the Lamag shares to the defendant being completed on 23 December 2005, and in breach of clause 3 of the Deed, the defendant failed to pay the plaintiff the agreed sum of $400,000. 5. Paragraph 8 of the Statement of Claim thus pleads damages in the amount of $400,000 and interest pursuant to s 100 of the Civil Procedure Act 2005, together with costs. 6. The plaintiff, who appeared for himself, since he is a solicitor, submitted that the cause of action was simply one for debt, and thus not one which would have been assigned the Commercial Division of the Supreme Court. For the defendant, it was submitted that the obligation to pay $400,000 was an obligation arising out of commercial transactions. 7. While the pleading in the Statement of Claim is brief, the arrangement between the plaintiff and the defendant had the following features: 1. it arose out of a deed to which there were five parties, three of which were corporations; 2. it involved the sale of shares in a company to the defendant; 3. it was intertwined with the sale of a property at Muswellbrook to a fourth company; 4. it was intertwined with the discharge of an existing finance facility, in relation to which the plaintiff was one of the guarantors; 5. it was intertwined with the repayment by the defendant of a debt associated with another party; 6. it was intertwined with one of the companies to the Deed executing a declaration of trust. 1. All of those matters point to the obligation to pay the $400,000 arising out of a commercial transaction, and indeed quite a complicated commercial transaction. The transaction involved not only the five parties to the Deed, but also another company which was purchasing the Muswellbrook property (MPA Properties Pty Limited) and two other natural persons who were obtaining a release of a guarantee (Cassimatis & Thomas). 2. The features of the transaction giving rise to the debt summarised above lead me to the view that this was not an activity of a private, recreational or other non-business nature. To adopt the words of Justice Gordon in Visy Industries, it was a transaction "stamped with the character of a commercial transaction". Conclusion 1. I find that the cause of action pleaded in the Statement of Claim was one which arose out of a commercial transaction. I therefore find that the District Court lacks jurisdiction to hear and determine these proceedings, including the two motions originally listed before me. 2. Apart from that finding, there is no order or direction which I can make. It will be up to one or both of the parties to take some action to transfer these proceedings to the Supreme Court, which clearly has jurisdiction. In the alternative, the proceedings could remain dormant in this Court, as parliament may soon consider a retrospective amendment to confer appropriate jurisdiction on the District Court. The parties should make their own enquiries about this matter. 3. The only order I make is: 1. I find that the District Court of NSW does not have jurisdiction in these proceedings. 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. Decision last updated: 27 September 2018