Issue of the Local Court's jurisdiction to consider equitable defences - discussion and findings
42It is useful to firstly consider in a general sense the jurisdiction of the Local Court. The current proceedings are commenced in the General Division of the Local Court, pursuant to the Local Court Act 2007 which provides:
30 Conferral of jurisdiction
(1) Subject to this Part, the Court sitting in its General Division has jurisdiction to hear and determine:
(a) proceedings on any money claim, so long as the amount claimed, whether on a balance of account or after an admitted set-off or otherwise, does not exceed the jurisdictional limit of the Court when sitting in that Division, and
(b) proceedings to recover detained goods, or to recover the assessed value of detained goods, so long as the value of the goods, together with the amount of any consequential damages claimed for their detention, does not exceed the jurisdictional limit of the Court when sitting in that Division, and
(b1) proceedings involving company title home unit disputes under section 34A, and
(c) proceedings that, pursuant to any other Act, are required to be dealt with by the Court sitting in that Division.
(2) Subject to this Part, the Court sitting in its Small Claims Division has jurisdiction to hear and determine:
(a) proceedings on any money claim, so long as the amount claimed, whether on a balance of account or after an admitted set-off or otherwise, does not exceed the jurisdictional limit of the Court when sitting in that Division, and
(b) proceedings to recover detained goods, or to recover the assessed value of detained goods, so long as the value of the goods, together with the amount of any consequential damages claimed for their detention, does not exceed the jurisdictional limit of the Court when sitting in that Division, and
(c) proceedings involving company title home unit disputes under section 34A.
(3) Nothing in subsection (2) prevents proceedings under that subsection from being heard and determined by the Court sitting in its General Division.
(4) In determining an amount for the purposes of subsection (1) or (2), any interest up to judgment under section 100 of the Civil Procedure Act 2005 is to be disregarded.
(5) If:
(a) the jurisdictional limit of a Division is increased, and
(b) proceedings in which an amount of money is claimed are pending in the Court when that increase takes effect,
the Court may, on the application of a plaintiff, make an order altering the amount specified in the claim to an amount not exceeding the new jurisdictional limit.
(6) In this section,
"admitted set-off", in relation to proceedings, means set-off admitted by the plaintiff in the originating process in the proceedings.
Section 33 of the Local Court Act specifically excludes jurisdiction:
33 Certain jurisdiction excluded
(1) The Court does not have jurisdiction under this Part to hear or determine any of the following kinds of proceedings:
(a) proceedings in which the validity or effect of any devise, bequest or limitation under any will or settlement, or under any document in the nature of a settlement, is disputed,
(b) proceedings for passing-off, wrongful arrest, false imprisonment, malicious prosecution or defamation,
(c) proceedings for infringement of letters patent or copyright,
(d) proceedings for detention of goods:
(i) where the goods are the subject of a hire-purchase agreement, or
(ii) where the goods are detained by their owner or by some other person acting on the owner's behalf,
(e) proceedings in which the title to land is in question (other than proceedings on a claim in respect of which the question of the title to land is merely incidental).
(2) The judgment of the Court in proceedings on a claim in respect of which the question of the title to land is merely incidental, as referred to in subsection (1) (e), is not admissible as evidence of the title to the land in any other legal proceedings.
43In contrast there is explicit grant of equitable jurisdiction to the Supreme Court in the Supreme Court Act 1970, which provides:
58 Equities of plaintiff
Where a plaintiff claims to be entitled to any equitable estate or right or to relief upon any equitable ground against any deed, instrument or contract, or against any right, title or claim whatsoever asserted by any defendant in the proceedings, or to any relief founded upon a legal right which formerly could only have been given by a court of equity, the Court shall give to the plaintiff the same relief as ought formerly to have been given by a court of equity in proceedings for the like purpose.
59 Equitable defences
Where a defendant claims to be entitled to any equitable estate or right, or to relief upon any equitable ground against any deed, instrument or contract or against any right, title or claim asserted by any plaintiff in the proceedings, or alleges any ground of equitable defence to any claim of the plaintiff, the Court shall give to every equitable estate, right or ground of relief so claimed, and every equitable defence so alleged, the same effect by way of defence against the claim of the plaintiff as a court of equity ought formerly to have given if the like matters had been relied on by way of defence in any proceedings instituted for the like purpose.
60 Incidental equities
The Court shall recognise and take notice of all equitable estates, titles and rights, and all equitable duties and liabilities appearing incidentally in the course of any proceedings, in the manner in which a court of equity would have recognised and taken notice of those matters in any proceedings instituted therein.
44The Supreme Court Act clearly refers to a court of equity and provides for the Supreme Court, in relation to every equitable defence so alleged, the same effect by way of defence against the claim of the plaintiff as a court of equity ought formerly have given if the matters had been relied upon by way of defence in any proceedings.
45The Local Court is not a court of equity. The Local Court is a court of statute. Does the Supreme Court Act thereby indicate that, there being no similar provision in the Local Court Act in relation to equitable defences and a court of equity, that the Local Court has no jurisdiction to consider equitable defences?
46For assistance in determining this question I have looked at the jurisdiction of the District Court, which is also a court of statute. Generally speaking the District Court has no powers beyond those conferred by statute (the District Court Act 1973). The District Court also has such jurisdiction as is conferred on it by other statutes, for example the District Court has jurisdiction to grant relief under the Contracts Review Act 1980 which is informed by equitable principles. The District Court also has power to grant some statutory applications involving property claims arising from relationships or deceased estates, again pursuant to statute - the Property (Relationships) Act 1984 and the Family Provision Act 1982.
47It is said also that the District Court has such power as is necessarily implied from any specific grant of power: Grassby v The Queen (1989) 168 CLR 1. This is not from any inherent jurisdiction of the Court but only to the statutory grant of power (and things that may be necessary to give proper effect to the grant). Implied powers are confined to those reasonably required or legally ancillary to the exercise of a specific power: Attorney-General v Walker (1849) 154 ER 833 at 838-839 applied in Pelechowski v Registrar, Court of Appeal [1999] HCA 19; (1999) 198 CLR 435. Section 134(i)(h) was included in the District Court Act which was noted to be for wide reforming purpose: Commonwealth Bank of Australia v Hadfield (2001) 53 NSWLR 614 at [68].
48There is jurisdiction clearly given to the District Court by section 134 of the District Court Act.
134 Jurisdiction in equity proceedings
(1)The Court shall have the same jurisdiction as the Supreme Court, and may exercise all the powers and authority of the Supreme Court, in proceedings for:
(a) the foreclosure or redemption of a mortgage or the enforcing of any charge or lien where the amount owing in respect of the mortgage, charge or lien does not exceed $20,000, as determined by the Court,
(b) the specific performance, rectification, delivery up or cancellation of any agreement for:
(i) the sale or purchase of any property at a price not exceeding $20,000, or
(ii) the lease of any property the value of which does not exceed $20,000, as determined by the Court,
(c) an order under section 3 of the Testator's Family Maintenance and Guardianship of Infants Act 1916 (as in force immediately before that Act was amended by the Succession Amendment (Intestacy) Act 2009) or a family provision order under Chapter 3 of the Succession Act 2006,
(d) relief against fraud or mistake where the damage sustained or the estate or fund in respect of which relief is sought does not exceed $20,000 in amount or value, as determined by the Court,
(e) the execution of a trust or a declaration that a trust subsists, where the estate or fund subject or alleged to be subject to the trust does not exceed $20,000 in amount or value, as determined by the Court, or
(f) the administration of the estate of a deceased person, where the estate does not exceed $20,000 in amount or value, as determined by the Court, or
(g) any application under the Property (Relationships) Act 1984, or
(h) any equitable claim or demand for recovery of money or damages, whether liquidated or unliquidated (not being a claim or demand of a kind to which any other paragraph of this subsection applies), in an amount not exceeding the Court's jurisdictional limit.
(2) In any proceedings pursuant to subsection (1) (c), the Court shall not have power to make an order for provision under the Testator's Family Maintenance and Guardianship of Infants Act 1916 (as in force immediately before that Act was amended by the Succession Amendment (Intestacy) Act 2009) or Chapter 3 of the Succession Act 2006 that will or may result in the amount of provision so made exceeding $250,000.
(3) In any proceedings pursuant to subsection (1) (g), the Court has no power to make an order for financial adjustment under Part 3 of the Property (Relationships) Act 1984 that will or may result in the amount of the adjustment so made exceeding $250,000.
49The District Court Act does not specifically provide for jurisdiction for equitable defences in s 134, however the jurisdiction to entertain equitable defences is given by sections 6 and 7, Law Reform (Law and Equity) Act 1972:
5 Rules of equity to prevail
In all matters in which there was immediately before the commencement of this Act or is any conflict or variance between the rules of equity and the rules of common law relating to the same matter, the rules of equity shall prevail.
6 Defence in inferior courts
Every inferior court shall in every proceeding before it give such and the like effect to every ground of defence, equitable or legal, in as full and ample a manner as might and ought to be done in the like case by the Supreme Court under the Supreme Court Act 1970.
7 Jurisdiction as to relief not enlarged
This Act does not enlarge the jurisdiction of any court as regards the nature or extent of the relief available in that court, but any court may, for the purpose of giving effect to sections 5 and 6, postpone the grant of any relief, or grant relief subject to such terms and conditions as the nature of the case requires.
50In Pelechowski v Registrar, Court of Appeal per Gaudron, Gummow and Callinan JJ the High Court observed (footnotes omitted):
25....[The appellant's] latter submission raised questions as to the extent of the power of the District Court to grant relief of an equitable nature, whether in aid of legal or equitable rights. To these aspects of the appeal we now turn.
The District Court
26. Section 8(2) of the District Court Act establishes that Court as a court of record. Section 9 states:
"(1) The Court shall have a civil jurisdiction, consisting of:
(a) its jurisdiction conferred by Part 3, and
(b) the jurisdiction conferred by or under any other Act or law on the Court, not being its jurisdiction referred to in subsection (2).......
.......Part 3 comprises ss 25-161 and is headed "The civil jurisdiction of the Court". Part 4 (ss 165-175) is headed "The criminal jurisdiction of the Court".
27. In United Telecasters Sydney Ltd v Hardy, Samuels AP (with whom Clarke and Meagher JJA agreed), in giving the judgment of the Court of Appeal, applied to the District Court the principle which, in Attorney-General for New South Wales v Mayas Pty Ltd, McHugh JA had explained as follows:
"If an inferior tribunal exercising judicial power has no authority to make an order of the kind in question, the failure to obey it cannot be a contempt. Such an order is a nullity. Any person may disregard it. Different considerations arise, however, if the order is of a kind within the tribunal's power but which was improperly made. In that class of case, the order is good until it is set aside by a superior tribunal. While it exists it must be obeyed."
28. In United Telecasters, the Court of Appeal held that the District Court did not have power to order the prior restraint of a threatened contempt by a television station in broadcasting material which might identify the accused in a trial before that Court. The Court of Appeal also held that the District Court did not have power to accept undertakings in the same terms. In the latter connection, the Court referred to the decision of this Court in Thomson Australian Holdings Pty Ltd v Trade Practices Commission. It followed, as Samuels AP put it, that the order in question "was a complete nullity and bound no-one" and could not found a proceeding for contempt. Further, his Honour held that:
"[s]ince [the District Court] had no power to issue an injunction in those terms, it can have no power to accept an undertaking in the same terms. Since the undertaking was clearly unenforceable I would dismiss the claim for a declaration that [United Telecasters] was guilty of a contempt for breaching an undertaking to the court."
29. It is upon those propositions that Mr Pelechowski founds his present appeal to this Court. The question then becomes whether the District Court did have the power to make the order the subject of the successful contempt proceedings. The appeal thus turns upon the statutory or other authority which supports the making of such an asset preservation order.
30. The Registrar referred, in particular, to the conferral upon the District Court of the power to grant equitable remedies, particularly injunctions.
31. The interpretation of the particular provisions upon which this appeal turns are best approached with an understanding of the pre-1973 legislation which the District Court Act replaced. This was the District Courts Act (NSW) ("the 1912 Act").
32. Section 74 of the 1912 Act stated:
"(1) The defendant or the plaintiff in replevin in any action in which, if judgment were obtained, he would be entitled to relief against such judgment on equitable grounds, may rely upon the facts which entitled him to such relief by way of defence.
(2) Notice of such facts, with the words 'for defence on equitable grounds,' shall be given as hereinafter provided, and the plaintiff or defendant (as the case may be) may reply to any such plea facts which avoid the same on equitable grounds."
Provision to like effect was made with respect to actions at common law in the Supreme Court of New South Wales by s 95 of the Common Law Procedure Act 1899 (NSW). Before it was supplemented in 1957 with a new provision, s 95 was interpreted as accepting the position whereby, on the trial of an action at common law, a verdict was found for or against the plaintiff and there was no provision for acceptance of a defence subject to the imposition of conditions upon the defendant. The result was that the section did not apply unless the equitable defence which the defendant sought to raise would, if successful, entitle the defendant to a perpetual and unconditional injunction.
33. Section 74 of the 1912 Act was repealed by s 3(1) of the Law Reform (Law and Equity) Act 1972 (NSW) ("the Law and Equity Act"). This statute commenced on 1 July 1972. Section 5 of the Law and Equity Act provides for the rules of equity to prevail in any conflict or variance with the rules of common law relating to the same matter and s 6 requires every inferior court to give effect to every ground of defence, equitable or legal, in as full and ample a manner as might and ought be done in the like case by the Supreme Court under the Supreme Court Act. The Supreme Court Act also came into force on 1 July 1972.
34. In its terms, s 74 of the 1912 Act did not confer upon the District Court jurisdiction to institute proceedings which otherwise might properly be commenced only in the equity jurisdiction of the Supreme Court. Nor does the Law and Equity Act. Section 7 thereof states that that statute does not "enlarge the jurisdiction of any court as regards the nature or extent of the relief available in that court". In United Telecasters, Samuels AP pointed out that the result was that, although all inferior courts could now entertain every ground of defence, equitable or legal, there had been no enlargement of the jurisdiction of any inferior court as regards the nature and extent of the relief available in that court
51I consider that Pelechowski v Registrar, Court of Appeal is authority for the proposition that the Law Reform (Law and Equity) Act provides for inferior courts, including the Local Court, to consider equitable defences which are raised in proceedings in which the relevant court has jurisdiction. The plaintiff's statement of claim initiated proceedings, being a claim for payment of money by the defendant, in respect of which the Local Court has jurisdiction (refer Local Court Act set out above). The Local Court, for reasons just stated, has jurisdiction to consider equitable defences. The Law Reform (Law and Equity) Act did not enlarge the jurisdiction of the Local Court to consider equitable causes of action, or to grant equitable relief, but does allow consideration of equitable defences.
52The case of Andrew Hennessey v Architectus Group Holdings Pty Ltd [2010] NSWDC 61, a judgment of the District Court, per Cogswell SC DCJ, indicates that I must be satisfied that what the defendant is relying on is an equitable defence and not equitable relief. In that case it was stated:
8. ... [Architectus] relies, so far as the claim for rectification in the defence is concerned, on s 6 of the Law Reform (Law and Equity) Act 1972.
Section 6 of the Law Reform (Law and Equity) Act provides as follows:
"6. Every inferior court shall in every proceeding before it give such and the like effect to every ground of defence, equitable or legal in as full and ample a manner as might and ought to be done in the like case by the Supreme Court under the Supreme Court Act 1970."
9. Mr Berwick on behalf of Mr Hennessey argues that Architectus is asking the court to rectify the contract between Mr Hennessey and Architectus and this does not amount to a "ground of defence" so that s 6 of that Act is not available to Architectus. Mr Berwick argues that para 25 of the defence is a claim for rectification and not a "ground of defence". Mr Berwick relies upon a passage in the fourth edition of Meagher, Gummow and Lehane's Equity Doctrines And Remedies (2002) as well as on the decision of the New South Wales Court of Appeal in United Telecasters Sydney Limited v Hardy (1991) 23 NSWLR 323.
10. In that case the late Samuels JA, then Acting President of the Court of Appeal and with whom Clarke and Meagher JJA agreed, referred to with apparent approval, over 332-333, a passage from the second edition of Equity Doctrines And Remedies by Meagher, Gummow and Lehane (1984). That passage did not vary in the relevant substance from the corresponding passage in the fourth edition of the same publication relied upon by Mr Berwick. The Court of Appeal emphasised in its judgment the distinction between equitable relief being sought and an equitable defence being relied upon.
11. The learned authors in the fourth edition confirm the view expressed by them in the earlier edition that the term "equitable ground of defence" is "referable to an equity such as unclean hands or laches, which was developed in equity as a disentitlement of the plaintiff from relief in that jurisdiction." The authors then refer to what they call an equitable "defence" of another kind, which "is essentially a claim asserted by the defendant to independent relief which must be made out before he can defend the action of the plaintiff in the current proceedings."
12. The authors rely upon other arguments for their view that the reference in s 6 of the Law Reform (Law and Equity) Act to an equitable defence should be construed narrowly rather than having a wider operation. They refer to the fact that the section extends beyond the District Court to other inferior courts which have otherwise no equitable jurisdiction. They also refer to s 7 of the same Act which provides that the Act does not "enlarge the jurisdiction of any court as regards the nature or extent of the relief available in that court." Effectively it is those passages and arguments which, to my mind, appear to attract the approval of the Court of Appeal in United Telecasters v Hardy .
13. Mr Foster, on behalf of Architectus, points to the examination of the argument advanced by Meagher, Gummow and Lehane by Master Allen, as his Honour then was, in Yahl v Bridgeport Customs Pty Ltd (NSWSC, unreported, 31.7.84), a case in which the Master compared those arguments with a broader interpretation given to the corresponding provision in the English legislation by the Court of Appeal in England. As Mr Foster pointed out, Master Allen pointed to room for doubt as to which of the constructions is to be preferred. However Master Allen's judgment was delivered in 1984 and preceded by nearly seven years the judgment of the Court of Appeal in United Telecasters Sydney.
14. In my opinion Mr Berwick's submissions are right. It seems to me that the relief sought by Architectus in para 25(a) and (b) are infected by the same jurisdictional problem. Both clauses seek a form of equitable relief, the first a declaration and the second rectification of the contract. Adopting what was said in the fourth edition of Meagher Gummow and Lehane regarding another kind of equitable defence, in my opinion the forms of relief sought by Architectus amount to "essentially a claim asserted by the defendant to independent relief which must be made out before he can defend the action of the plaintiff in the current proceedings."
15. Architectus also argues that essentially Architectus by pleading the defence of mistake, which is one of the defences it relies upon, is relying upon matters in the nature of unclean hands. It refers to an allegation made by it in its defence that Mr Hennessey knew or ought to have known that the employment deed was mistakenly entered into by Architectus. Alternatively Architectus relies upon what it says is an unconscionable reliance by Mr Hennessey on what he says is a common mistake.
16. Neither of those in my opinion amounts to an equitable defence. It may be in a sense that Architectus is relying upon "unclean hands" but this has nothing to do with a resistance to any equitable relief being sought by the plaintiff. The plaintiff is seeking a straightforward form of relief at common law under what it claims to be a contract. The defendant resists that by relying upon the doctrine of mistake but the relief which it seeks is clearly in my opinion equitable.
53I am satisfied that equitable set-off is an equitable defence as it goes to impeach the plaintiff's title. At paragraph [37-005] of the text by the learned authors Meagher, Gummow and Lehane, 'Equity: Doctrines and Remedies', it is stated that:
A set-off is said to exist when a defendant, in answer to a plaintiff's claim, is able to plead successfully that a countervailing claim which he has against the plaintiff absolves him, wholly or partially, from liability to the plaintiff. It is to be distinguished from a counter claim, in that a counter claim is never a defence to the plaintiff's claim but an entirely different action brought by a defendant against a plaintiff although in the same proceedings.
54Therefore, a claim of equitable set-off is an equitable defence. Of course it is for the defendant to establish on the evidence that the claim or defence is made out.
55For the above reasons I am satisfied that I have jurisdiction to consider an equitable set-off if such is raised by the defendant in the current proceedings.
56The parties also referred me to the case of Concrete Equipment Australia (Trading) Pty Ltd v Bonfiglioli Transmission (Aust) Pty Ltd [2010] NSWSC 393. That was a decision by the Supreme Court on appeal from a decision of the Local Court. The case may be authority for the proposition that the Local Court has jurisdiction in equitable set-off as a defence to a plaintiff's claim. The Supreme Court did not specifically consider whether the Local Court had such jurisdiction. However the Supreme Court found that the Local Court made an error of law in not considering equitable set-off on the facts of that case (the Local Court had only considered set-off pursuant to s 21 of the Civil Procedure Act 2005). The Supreme Court noted that it was unclear whether equitable set-off was pursued in the Local Court. It found at [26] that, however the case was pleaded, Concrete Equipment had raised a claim for set-off of the cost, or perhaps value, of some water coolers, and evidence supported the claim:
In my opinion Her Honour erred in law in regarding the claim as only available within the confines of s21.
57However, the Supreme Court did not deal with whether the Local Court had power to make orders pursuant to the equitable defence. The Supreme Court made orders varying the terms of the Local Court judgement by reducing the judgement debt by the amount of that claim (of equitable set-off).