Business Insurance Australia Pty Ltd v District Court of New South Wales & Anor

CATCHWORDS: DISTRICT COURT - Judicial Registrar - powers - appellate review - FEDERAL JURISDICTION - Court of State - exercise by officer of Court - exercise not subject to appellate review - FEDERAL JURISDICTION - concurrent State jurisdiction - no intention to cover field - CORPORATIONS ACT - Federal jurisdiction - no intention to cover field

Corporations Act 2001 Courts Legislation Amendment Act (No 23 of 2006) Courts Legislation Amendment Act (No 68 of 2004) LEGISLATION CITED: District Court Act 1973 District Court Rules 1973 The Constitution Uniform Civil Procedure Rules 2005

Bawn Pty Ltd v Metropolitan Meat Industry Board (1970) 72 SR (NSW) 466 CA Colonial Sugar Refining Company v Irving [1905] AC 369 Commonwealth v Hospital Contribution Fund of Australia (1982) 150 CLR 49 Fedfa v Broken Hill Pty Co Ltd (1913) 16 CLR 245 Harris v Caladine (1991) 172 CLR 84 CASES CITED: Lemm v Mitchell [1912] AC 400 Maxwell v Murphy (1957) 96 CLR 261 McGlew v The New South Wales Malting Co Ltd (1918) 25 CLR 416 The Commonwealth v Hospital Contributions Fund of Australia (1982) 150 CLR 49 Trust Company of Australia Ltd v Skiwing Pty Ltd [2006] NSWCA 185 Zainal Bin Hashim v Government of Malaysia [1980] AC 734

Business Insurance Australia Pty Ltd (Claimant) PARTIES: District Court of New South Wales (First Opponent) PJ's Pizza Pty Ltd (Second Opponent)

D A McLure (Claimant) COUNSEL: Submitting appearance (First Opponent) K Pierce (Second Opponent)

Kennedys (Claimant) SOLICITORS: I V Knight, Crown Solicitor (First Opponent) Stewart Cuddy & Mockler (Second Opponent)

LOWER COURT JUDICIAL OFFICER: Judicial Registrar McDonald

IN THE SUPREME COURT OF NEW SOUTH WALES COURT OF APPEAL CA 40150 of 2006

HANDLEY JA BEAZLEY JA IPP JA

20 DECEMBER 2006 BUSINESS INSURANCE AUSTRALIA PTY LTD v DISTRICT COURT OF NEW SOUTH WALES & ANOR CATCHWORDS

DISTRICT COURT - Judicial Registrar - powers - appellate review

FEDERAL JURISDICTION - Court of State - exercise by officer of Court - exercise not subject to appellate review

FEDERAL JURISDICTION - concurrent State jurisdiction - no intention to cover field

CORPORATIONS ACT - Federal jurisdiction - no intention to cover field FACTS

A company which carried on a garden centre business sued the claimant in the District Court under a business insurance policy to recover its losses caused by a hailstorm. The insurer applied under Corporations Act s 1335 and UCPR Pt 42 r 21 for security for costs. The Judicial Registrar of the Court dismissed the application in February 2006. The office of the Judicial Registrar had been created by amendments to the District Court Act in 2004. Interlocutory orders of the Judicial Registrar were not then subject to appellate review in any court. In March the insurer applied for judicial review of the order. In May the Act was amended to extend the right of appeal under s 127 to orders of the Judicial Registrar. The insurer amended its summons to seek, in the alternative, leave to appeal. HELD: (1) At the time of the order the Judicial Registrar could not exercise the invested Federal jurisdiction of the Court: Trust Company of Australia Ltd v Skiwing Pty Ltd [2006] NSWCA 185 paras [59]-[62] and cases there cited; (2) The Judicial Registrar could exercise the State jurisdiction under UCPR Pt 42 r 21, because there was no inconsistency with s 1335, s 5E(1); (3) The amendment to s 127 of the District Court Act applied to orders of the Judicial Registrar made before its commencement; (4) Time for applying for leave to appeal should be extended; (5) The decision of the Judicial Registrar was correct. ORDERS

(1) Declare that the Judicial Registrar of the District Court did not have jurisdiction under s 1335 of the Corporations Act to hear and determine the notice of motion for security for costs filed on 24 January 2006.

(2) Declare that the Judicial Registrar had jurisdiction under the Uniform Civil Procedure Rules Pt 42 r 21(d) to hear and determine that notice of motion.

(3) Summons for judicial review otherwise dismissed.

(5) Claimant to pay the costs of the first and second opponents, the costs of the first opponent on a submitting basis.

IN THE SUPREME COURT OF NEW SOUTH WALES COURT OF APPEAL CA 40150 of 2006

HANDLEY JA BEAZLEY JA IPP JA

20 DECEMBER 2006 BUSINESS INSURANCE AUSTRALIA PTY LTD v DISTRICT COURT OF NEW SOUTH WALES & ANOR Judgment 1 HANDLEY JA: In action 1072/05 in the District Court PJ's Pizza Pty Ltd, which operates a garden centre business in Riverstone, sued Business Insurance Australia Pty Ltd under a business insurance policy to recover losses caused by a hailstorm. The statement of claim was amended on 16 December 2005. By notice of motion filed on 24 January 2006 the defendant applied under s 1335 of the Corporations Act, or alternatively under UCPR Pt 42 r 21 for an order that the plaintiff provide security for costs of $25,000. On 24 February the motion was dismissed by Judicial Registrar McDonald. 2 The defendant applied to this Court by summons returnable on 3 April seeking orders quashing the decision of the Judicial Registrar and directing the District Court to hear and determine the notice of motion according to law. In the alternative declaratory relief was sought. The summons was later amended to seek an extension of time for an application for leave to appeal and leave to appeal from the decision. 3 This simple notice of motion in the District Court and the summons in this Court encountered a minefield created by Federal and State laws. 4 Amendments to the District Court Act effected by the Courts Legislation Amendment Act (No 68 of 2004) Sch 7, which took effect on 6 July 2004, created the position of Judicial Registrar as an officer of that Court (s 18FA(5)). The Judicial Registrar could exercise the powers of the Court conferred by or under that or any other Act and constituted the Court for that purpose (s 18FB(1)). A judgment order or direction given by the Judicial Registrar had effect as a judgment order or direction of the Court (s 18FB(3)). Section 18FB(2) provided: "A judgment given, or an order (other than an interlocutory order) made, by the Judicial Registrar may be set aside or varied by the Court." 5 DCR Pt 43A r 1, which came into force on 10 September 2004, conferred on the Judicial Registrar all the powers of the Court except those for contempt of court and in its criminal jurisdiction. All these provisions remained in force on 24 February 2006 when the Judicial Registrar dismissed the claimant's notice of motion. Since that order was interlocutory s 18FB(2) appeared to preclude its review by a Judge of the Court and DCR Pt 43A, headed Judicial Registrar, confirmed this because rr 5 and 6 excluded interlocutory orders. Pt 43A impliedly excluded the general provisions of DCR Pt 43 r 15 which provided for the review by a Judge of the orders and directions of a registrar. 6 The corresponding provisions dealing with the review of decisions of a registrar in UCPR Pt 45 rr 14-19, which came into force on 15 August 2005, and are now contained in UCPR Pt 49 rr 14-19, do not apply to decisions of the Judicial Registrar (r 14). Provision was made for the review of final decisions of the Judicial Registrar originally by Pt 45 rr 20-24 and later by Pt 49 rr 20-24. 7 Section 127(1) of the Act, which provides for appeals to this Court, did not apply at that time because it was only available to a party "dissatisfied with a Judge's judgment or order" and the Judicial Registrar was not a judge. 8 Consequently interlocutory orders of the Judicial Registrar were not subject to review by a Judge of the District Court or to appeal to this Court. Such orders could, of course, be revisited by the Judicial Registrar herself, on proper grounds and in accordance with normal principles, but this power is not presently relevant. 9 Mr Pierce, who appeared for the second opponent, argued that the only effect of the exclusion "(other than an interlocutory order)" in s 18FB(2) was to remove such orders from the power under that sub-section to set aside or vary an order of the Judicial Registrar, leaving them susceptible to review by a judge under ordinary principles. 10 There are two difficulties with this submission. The first is that it gives no effect to the words of exclusion in the brackets. If the submission was correct orders of the Judicial Registrar could be reviewed by a judge in every case, those that were final in accordance with sub-s (2), and those that were interlocutory under ordinary principles. The second difficulty is that there was no provision in the District Court Rules at that time for the review of interlocutory orders of the Judicial Registrar. This submission should be rejected. 11 Thus in February 2006 judicial review was the only remedy for a party aggrieved by an interlocutory order of the Judicial Registrar. 12 Section 1335 of the Corporations Act and UCPR Pt 42 r 21 are indistinguishable in terms and effect, although one operates as Federal law and the other as State law. 13 Section 1335 appears to apply to all Australian courts having civil jurisdiction over principal proceedings brought by a corporation, whether arising under the Corporations Act or not. In accordance with s 39(2) of the Judiciary Act it vests ancillary Federal jurisdiction in that court to order security for costs. It was common ground that the section applied in this case, and on that assumption it was a valid law of the Commonwealth: McGlew v The New South Wales Malting Co Ltd (1918) 25 CLR 416. 14 Section 1335 is not within Pt 9.6A of the Corporations Act or s 1337B, which confers jurisdiction in respect of civil actions arising under the corporations legislation. The principal proceeding in the present case is not such an action. 15 Section 1335 would normally exclude any concurrent State jurisdiction, but s 5E(1) of the Act provides that the corporations legislation is not intended to exclude or limit the concurrent operation of State law, except in cases of direct inconsistency within sub-s (4). There is no direct inconsistency between s 1335 and UCPR Pt 42 r 21, and both powers would normally be available to a court of this State. Mr McLure did not argue that the rule was invalidated by s 109 of the Constitution. 16 Section 77(iii) of the Constitution enables the Commonwealth Parliament to make laws investing any court of the State with Federal jurisdiction. A court for constitutional purposes consists of judges: Trust Company of Australia Ltd v Skiwing Pty Ltd [2006] NSWCA 185 paras [59]-[62] per Spigelman CJ and the authorities there cited. The judicial powers of a court invested with Federal jurisdiction may also be exercised by its non-judicial officers: ibid paras [63]-[65], whether it is a court of a State: Commonwealth v Hospital Contribution Fund of Australia (1982) 150 CLR 49, or a Federal Court: Harris v Caladine (1991) 172 CLR 84. 17 However an officer of such a court can only exercise its Federal jurisdiction within the restrictions referred to by the High Court in those cases. The principal restriction is that the performance of judicial functions by officers of the court must be subject to the effective control of its judges: ibid para [63]. 18 The Judicial Registrar was not subject to the effective control of the Judges of the District Court in respect of interlocutory orders made by her in the exercise of Federal jurisdiction. Consequently she could not validly exercise such jurisdiction under the regime established by the 2004 Act and DCR Pt 43A and UCPR Pt 45 rr 20-24. However, for the reasons already given, the Judicial Registrar had jurisdiction under State law, in accordance with UCPR Pt 42 r 21. 19 The claimant's summons for judicial review, in which the District Court was joined as the first opponent, may have brought the problems created by s 18FB(2) to the attention of that Court and to the Attorney-General's Department. 20 The Courts Legislation Amendment Act (No 23 of 2006) was assented to on 17 May. Schedule 4, which amended the District Court Act, commenced on assent (s 2(1)). It repealed s 18FB(2) with a consequential amendment. It also amended s 127(1) to confer a right of appeal to this Court from a judgment or order of a Judicial Registrar. As a result of these changes a judgment or order of a Judicial Registrar is not reviewable by a Judge of the District Court, but is reviewable by this Court, subject to the restrictions as to amount and otherwise in s 127(2). 21 Since there is no right of review in the District Court, and the appellate rights in this Court are limited a Judicial Registrar may still be unable to exercise the Federal jurisdiction of the District Court: The Commonwealth v Hospital Contributions Fund of Australia (1982) 150 CLR 49; Harris v Caladine (1991) 172 CLR 84. However that is not relevant in this case. 22 The 2006 Act also amended Sch 3 of the District Court which contains the savings and transitional provisions consequent on amendments to the principal Act. Clause 11, which it inserted in that schedule, provided: "11 Application of amendments to existing interlocutory orders

Section 127(1), as amended by the Courts Legislation Amendment Act 2006, extends to an interlocutory order made in proceedings that were instituted before the commencement of that amendment but not finally determined before that commencement." 23 Mr McLure, who appeared for the claimant, submitted that cl 11 applied to interlocutory orders of the Judicial Registrar such as that made on 24 February 2006, while Mr Pierce submitted that the language did not reveal the clear intention needed to overcome the presumption that Parliament does not intend legislation dealing with substantive rights to have retrospective effect: Maxwell v Murphy (1957) 96 CLR 261. 24 There is no such presumption in respect of legislation dealing with procedure, but a right of appeal is a substantive right: Colonial Sugar Refining Company v Irving [1905] AC 369. 25 There are in fact three presumptions against retrospective effect - that the Act is not intended to alter existing substantive rights: Maxwell v Murphy (above), that it is not intended to apply to existing proceedings: Bawn Pty Ltd v Metropolitan Meat Industry Board (1970) 72 SR (NSW) 466 CA; Zainal Bin Hashim v Government of Malaysia [1980] AC 734, and that it is not intended to apply to existing judgments: Lemm v Mitchell [1912] AC 400, 405-6; Fedfa v Broken Hill Pty Co Ltd (1913) 16 CLR 245. 26 Mr Pierce submitted that cl 11 only applied to interlocutory orders made after its commencement in substantive proceedings then pending. It seems to me however that the amended s 127 would apply of its own force to such orders. On this construction cl 11 was only enacted for more abundant precaution and had no operative effect. 27 Mr McLure's construction gives operative effect to cl 11, and it is supported by its heading "Application of amendments to existing interlocutory orders". Headings to sections are not part of the Act (Interpretation Act 1987 s 35(2)(a)) but are part of the extrinsic material (s 34(2)(a)) which may be considered for the purpose of confirming the meaning of the text, or resolving an ambiguity (s 34(1)(a), (b)). The heading to cl 11 confirms the meaning I would otherwise have adopted. 28 A right of appeal to this Court from interlocutory orders made more than 28 days before the commencement of the 2006 Act does not give rise to any absurdity or injustice. The enlarged right of appeal is only exercisable by leave and this Court could take into account all relevant considerations when determining whether to extend time and grant leave. 29 The Court indicated during oral argument that it would extend the time for applying for leave to appeal. The claimant challenged the Judicial Registrar's order by filing its summons for judicial review within 28 days and the opponent would suffer no procedural prejudice if the grounds for challenge were enlarged. 30 It is now possible, at long last, to consider the merits of the claimant's challenge to the decision of the Judicial Registrar. UCPR Pt 42 r 21(1)(d) provides: "If, in any proceedings, it appears to the court on the application of a defendant: …

(d) that there is reason to believe that a plaintiff, being a corporation, will be unable to pay the costs of the defendant if ordered to do so,

the court may order the plaintiff to give such security as the court thinks fit, in such manner as the court directs, for the defendant's costs of the proceedings and that the proceedings be stayed until the security is given." 31 The claimant relied on evidence that the opponent had a paid up capital of only $2, that there were no registered company charges, and that it owned no real estate in New South Wales. In response to the claimant's notice to produce the second opponent filed an affidavit by a director which annexed a copy of its accounts for the year ended 30 June 2004 which included the corresponding figures for the previous year. The accounts for the year ended 30 June 2005 were not yet ready, but it was said that they would be available within a few days. 32 The accounts disclosed a profit of $125,686 for the year ended 30 June 2003, and a loss of $264,344 for the next year. As at 30 June 2004 the opponent's liabilities exceeded its assets by an amount of $160,616. Its current liabilities exceeded its current assets by $411,093, and they exceeded its total assets by $30,616. 33 The Judicial Registrar was not persuaded that the threshold condition in the rule was satisfied. She relied on the fact that the opponent's "significant liability" involved shareholders loans. As at 30 June 2003 these totalled $400,624, and as at 30 June 2004 $458,388. If these liabilities are excluded the opponent's assets exceeded its liabilities on every basis. 34 Mr McLure submitted that the evidence necessarily satisfied the threshold condition and the contrary finding was wrong. Indeed it was said to be unreasonable in the Wednesbury sense. 35 I am unable to accept these submissions. The accounts reveal a company that was actively trading as at 30 June 2004 and there was no evidence that it had since ceased to trade. They disclosed that on 12 December 2005 the directors signed a declaration of solvency stating that there were reasonable grounds to believe that the company will be able to pay its debts as and when they become due and payable. The shareholders' loans being at call were not due and payable as at 30 June 2004, and there was no evidence that they had been called up since. 36 The accounts disclosed a loss for the year ended 30 June 2004 but during that year the hailstorm occurred which gave rise to the insurance claim. This was not included in the assets shown on the balance sheet as at 30 June 2004. 37 If the opponent's action failed and it became liable to pay the claimant's costs there is no reason for thinking that the shareholders would call in their loans and force the company into liquidation. Mr Maait, the director of the opponent who swore the affidavit, was not required for cross-examination. 38 There was no evidence to contradict the directors' declaration of solvency or to rebut the natural inference that they would continue to support the company with their loans at call. In my judgment the Judicial Registrar's decision on the threshold question was correct. 39 The following orders should be made:

(1) Declare that the Judicial Registrar of the District Court did not have jurisdiction under s 1335 of the Corporations Act to hear and determine the notice of motion for security for costs filed on 24 January 2006.

(2) Declare that the Judicial Registrar had jurisdiction under the Uniform Civil Procedure Rules Pt 42 r 21(d) to hear and determine that notice of motion.

(3) Summons for judicial review otherwise dismissed.

(5) Claimant to pay the costs of the first and second opponents, the costs of the first opponent on a submitting basis. 40 BEAZLEY JA: I agree with Handley JA. 41 IPP JA: I agree with Handley JA. **********

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