Southern Classic Group Pty Ltd t/as Southern Classic Cars v Arch Underwriting at Lloyd’s Ltd on behalf of Syndicate 2012 (No 2)

I gave judgment in this matter on 16 August 2018: Southern Classic Group Pty Ltd t/as Southern Classic Cars v Arch Underwriting at Lloyd’s Ltd on behalf of Syndicate 2012 [2018] NSWSC 1272.

I shall use the same abbreviations here as in that judgment.

Southern Classic sought indemnity from the Insurer under a Management Liability policy for the amount it agreed to pay Gordan at a mediation concerning Gordan’s District Court claim against Southern Classic.

The amount that Southern Classic agreed to pay Gordan was $375,000 (to which the Insurer contributed $100,000 – see [24] of the principal judgment) plus Gordan’s costs as agreed or assessed. Those costs have now been assessed at $306,225.39.

I held that Southern Classic is entitled to indemnity under the policy for 46 per cent of its claim.

The result is that Southern Classic is entitled to indemnity in the sum of $213,363.67; being 46 per cent of the amount it paid to settle with Gordan (46 per cent of $375,000 = $172,000), less the $100,000 contributed by the Insurer to that settlement; plus 46 per cent of the costs it agreed to pay Gordan (46 per cent of $306,225.39 = $140,863,67).

The parties agree that Southern Classic is also entitled to interest on some of that amount pursuant to s 57 of the Insurance Contracts Act 1984 (Cth).

The remaining matter for consideration is the costs of the proceedings.

Southern Classic has recovered approximately 37 per cent of the amount it has paid or is liable to pay by reason of the settlement.

Southern Classic’s Amended Commercial List Statement implicitly acknowledged that it may not be entitled to indemnity under the policy for this full amount. Thus in par 6 of its Amended Commercial List Statement Southern Classic said:

Uniform Civil Procedure Rules 2005 (NSW) r 42.34 provides that:

My initial impression was that these proceedings could have commenced in the District Court (as on any view, the amount claimed was less than $750,000) and that therefore it would be necessary for Southern Classic to show that commencement of these proceedings in this Court was “warranted”.

However my attention was drawn by Mr Carolan, who appeared for Southern Classic, and Ms Horvath, who appeared for the Insurer, to the decisions of Parker J in The NTF Group Pty Ltd v PA Putney Finance Australia Pty Ltd [2017] NSWSC 1194 and of Rein J in Nova 96.9 Pty Ltd v Natvia Pty Ltd [2018] NSWSC 1288.

Parker J’s decision has been followed by Taylor SC DCJ in Sapphire Suite Pty Ltd v Bellini Lounge Pty Ltd [2018] NSWDC 160.

Those cases establish the surprising proposition that the District Court does not have jurisdiction to deal with proceedings which arise out of a commercial transaction or in which there is an issue that has importance in trade or commerce.

As Rein J observed in Nova at [35] this limit of the jurisdiction of the District Court is “a most inconvenient and unfortunate outcome for litigants in this State” and one which warrants urgent legislative reform.

The decisions of Parker J and Rein J establish that the reasons the District Court does not have jurisdiction to hear proceedings arising out of a commercial transaction or in which there is an issue that has importance in trade or commerce are (and this summary is based on Rein J’s observations at [15] and [34]):

In Nova, Rein J concluded that the two types of proceedings which Supreme Court Rules r 14.2(1) required be assigned to the Commercial Division were “discrete and separate” and included any commercial transaction (whether or not it raised an issue of importance in trade or commerce) as well as proceedings which were not commercial transactions but nevertheless did raise issues of importance in trade or commerce (see [21] and [32]).

The proceedings before me plainly arise out of a commercial transaction; the Management Liability policy.

Accordingly, the District Court did not have jurisdiction to entertain the proceedings and UCPR r 42.34 has no application.

I have dealt with this question in some detail not because there was any controversy between the parties about it, but once again to draw this matter to the attention of the legislature and the profession. The restriction these provisions place on the District Court is extraordinary and entirely unsatisfactory. Within its monetary jurisdiction, the District Court would otherwise be well equipped to deal with commercial transactions or matters in which an issue arises that has importance in trade or commerce.

Although UCPR r 42.34 does not apply to these proceedings, the relatively modest amount that Southern Classic has recovered is said by the Insurer to be relevant to what costs orders should be made in Southern Classic’s favour.

I have held that Southern Classic is entitled to indemnity for 46 per cent of the amount of the settlement with Gordan.

In those circumstances, Ms Horvath submitted that the appropriate costs order was that the Insurer pay 46 per cent of Southern Classic’s costs of the proceedings.

I do not accept that submission. The Insurer’s case was that Southern Classic’s claim was entirely excluded. Nonetheless, Southern Classic has achieved success in a reasonably substantial amount. It acknowledged at the outset that it may not be entitled to indemnity for the full amount of its settlement with Gordan; and its case before me was run on the basis that in fact it was not. I do not see the fact that it failed to prove that the policy responded to the entirety of its settlement with Gordan is a reason to deny it its costs in the usual way.

Costs should therefore follow the event.

Southern Classic seeks an order that it have those costs on an indemnity basis from 23 May 2018. It made an offer on that date to settle the proceedings for $200,000 plus costs.

Although it appears that Southern Classic’s solicitor intended on that day to serve an offer of compromise pursuant to UCPR r 20.26, the evidence establishes that the Insurer received no such document. Accordingly the presumptions contained in UCPR r 42.14 do not apply.

The offer letter was headed “without prejudice save as to costs” but did not state that it was a letter sent in accordance with the principles in Calderbank v Calderbank [1975] 3 All ER 333; [1975] 3 WLR 586 (although a covering letter did refer to that decision).

In those circumstances I doubt that the letter can be treated as a Calderbank offer.

In Old v McInnes and Hodgkinson [2011] NSWCA 410 Meagher JA at [106]:

The offer made in these proceedings has the same problem as that to which Meagher JA referred.

In any event, the offer made was only very slightly less than the result achieved by Southern Classic and thus did not represent a significant compromise on the merits of Southern Classic’s claim as I have found them to be.

In those circumstances I do not propose to make an order for indemnity costs.

I make the following orders (the first two of which are made by consent):