Mulvaney (As Liquidator of the Hellenic Athletic & Soccer Club of SA Inc) v The Commr of Taxation for the Cwth of Aust
[2004] SASC 166
•8 June 2004
SUPREME COURT OF SOUTH AUSTRALIA
(Civil: Application)
MULVANEY (AS LIQUIDATOR OF THE HELLENIC ATHLETIC & SOCCER CLUB OF SA INC) v THE COMMR OF TAXATION FOR THE CWTH OF AUST
Judgment of The Honourable Justice Besanko
8 June 2004
PROCEDURE - SUPREME COURT PROCEDURE - SOUTH AUSTRALIA - PRACTICE UNDER RULES OF COURT - PARTIES
OTHER MATTERS
Plaintiff instituted a claim against the defendant for payment of a sum claimed by the plaintiff as a voidable transaction under the Corporations Law – defendant applied for leave to issue third party proceedings out of time relying on a statutory right of indemnity in s588FGA of the Corporations Law – discussion of the factors relevant to whether leave should be granted – whether there was explanation for the delay in issuing third party proceedings – whether the orderly conduct of the proceedings between the plaintiff and defendant would be affected by the granting of leave – whether there was a risk of inconsistent findings if the two sets of proceedings were tried separately and whether overall efficiency favours the granting of leave – leave granted.
Supreme Court Rules 1987 r37.01, 6A, 37.05; Associations Incorporation Act 1985 (SA); Corporations Law ss588FE, 588FA, 588FC, 95A, 588FF, 262, 266, 588FGA, 58AA, 588FGB; Income Tax Assessment Act 1936 (Cth) s218, referred to.
Imagecolor (SA) Pty Ltd (in liq) v Curtis [2000] SASC 316, applied.
Barclays Bank v Tom [1923] 1 KB 221; Port Pirie City and Districts Council v Leenders & Partners Pty Ltd [2001] SASC 208; Crosbie v Commissioner of Taxation [2003] FCA 922; (2003) 21 ACLC 1659, discussed.
Re Emanuel (No 14) Pty Ltd (in liq); Macks and Another v Blacklaw & Shadforth Pty Ltd (1997) 147 ALR 281; Dean-Willcocks (as liquidator of SJP Formwork (NSW) Pty Ltd (in liq)) v Commissioner of Taxation (No 2) [2004] NSWSC 286, considered.
MULVANEY (AS LIQUIDATOR OF THE HELLENIC ATHLETIC & SOCCER CLUB OF SA INC) v THE COMMR OF TAXATION FOR THE CWTH OF AUST
[2004] SASC 166Civil
BESANKO J: This is an application by the defendant to this action for leave to issue third party notices. The relevant rules of Court are as follows:
“37.01 (1) A defendant within the earlier of 14 days of filing the defence or 14 days of the last day according to the Rules for the filing of a defence may without leave issue a third party notice in Form 13 against any person who is not then a party to the action claiming:
(a) An entitlement to contribution or indemnity;
(b)Relief related to or connected with the original subject matter of the action and substantially the same as some relief or remedy claimed by the plaintiff; or
(c)The determination of any question or issue relating to or connected with the original subject matter which is substantially the same as some question or issue arising between the plaintiff and the defendant and which should also be properly determined as between the defendant and the third party.
(2) By leave of the Court a defendant who has filed a notice of address for service may issue a third party notice under Subrule (1) above at a time other than that laid down in Subrule (1), but subject to such terms and conditions as the Court may impose either at the time of granting such leave or subsequently.”
Leave is required because the third party notices were not issued within the time limit in r37.01(1). The Defence was filed on 10th December 2002 and the application for leave to file and serve the third party notice was issued on 18th July 2003. The delay therefore is in the order of seven months. The plaintiff opposed the granting of leave. The proposed third parties were not heard on the application.
The Nature of the Action and the Proposed Third Party Proceedings
The plaintiff is Mr Bruce Mulvaney and he brings the action in his capacity as the liquidator of The Hellenic Athletic and Soccer Club of South Australia Incorporated (“the Club”). The defendant is the Commissioner of Taxation for the Commonwealth of Australia (“the Commissioner”). The Club was incorporated under the Associations Incorporation Act 1985. By virtue of the provisions of that Act certain sections of the Corporations Law (“the Law”) apply in relation to an association incorporated under that Act. The Club is in liquidation and by virtue of the provisions of the Law the winding up is taken to have commenced on 24th March 1999.
The plaintiff alleges that the relation back day for the purposes of s 588FE(2)(b) of the Law is 24th March 1999, and that two payments were made by the Club within the six month period referred to in that section. The two payments identified by the plaintiff are as follows:
10 November 1998 $88,653.11 9 December 1998 $8,480.35
The plaintiff alleges that each of the payments constituted an unfair preference within the meaning of that term in s 588FA of the Law. The plaintiff also alleges that the payments were insolvent transactions within the meaning of that term in s 588FC of the Law, and voidable transactions within the meaning of that term in s 588FE of the Law. The plaintiff seeks a declaration that each payment is voidable and an order for the payment of $97,133.46 and interest by the Commissioner to him.
The Commissioner alleges that the first payment of $88,653.11 was not a payment made by the Club. The Commissioner alleges that the payment of $88,653.11 was made to the Commissioner pursuant to a statutory charge under s 218 of the Income Tax Assessment Act 1936 (Cth) (“ITAA”), and pleads a notice under s 218 of the ITAA which was served on the Club’s bank on 9th November 1998. The Commissioner admits that the payment of $8,480.35 was received from the Club. The Commissioner admits that each payment was made at a time when the Club was not able to pay all of its debts as and when they became due and payable, and was therefore insolvent within the meaning of s 95A of the Law. I particularly mention this admission because the plaintiff placed great emphasis on the fact that the insolvency of the Club was not an issue as between the plaintiff and the Commissioner. For his part, the Commissioner suggested in the course of submissions that he may seek leave to withdraw this admission.
In his Reply, the plaintiff denies that the notice referred to in the Defence created a statutory charge. In the alternative, if it did create a charge, the plaintiff alleges that the creation of the charge was a transaction for the purposes of ss 588FA, 588FC, 588FE and 588FF of the Law, and was a voidable transaction within the meaning of that term in s 588FE of the Law. The plaintiff also alleges that if the notice did create a charge, the charge was void as against the plaintiff because it was not registered, and in this respect the plaintiff relies on ss 262(1) and 266 of the Law.
The Commissioner wishes to issue third party proceedings against Constantinos Makris, The Adelaide Sharks Football Club Pty Ltd, Barry John Matthews, John Lincoln Knight, Dean Thomas Day, George Donikian and Francis Creagh O’Connor. I will refer to these parties as the third parties. The basis of his claim against the third parties is the statutory right given in s 588FGA of the Law. That section relevantly provides:
“(1) This section applies if the Court makes an order under section 588FF against the Commissioner of Taxation because of the payment of an amount in respect of a liability under any of the following provisions of the Income Tax Assessment Act 1936:
(a) section 221F (except subsection 221F(12)), section 221G (except subsection 221G(4A)) or section 221P;
(b) subsection 221YHDC(2);
(c) subsection 221YHZD(1) or (1A);
(d) subsection 221YN(1);
(e) section 222AHA.
(2) Each person who was a director of the company when the payment was made is liable to indemnify the Commissioner in respect of any loss or damage resulting from the order.
(3) An amount payable to the Commissioner under subsection (2):
(a) is a debt due to the Commonwealth and payable to the Commissioner; and
(b) may be recovered in a court of competent jurisdiction by the Commissioner, or a Deputy Commissioner of Taxation, suing in his or her official name.
(4) The Court may, in the proceedings in which it made the order against the Commissioner, order a person to pay to the Commissioner an amount payable by the person under subsection (2).
(5) A person who pays an amount under subsection (2) has the same rights:
(a) whether by way of indemnity, subrogation, contribution or otherwise; and
(b) against the company or anyone else;
as if the payment had been made under a guarantee:
(c) of the liability referred to in subsection (1); and
(d) under which the person and every other person who was a director of the company as mentioned in subsection (2) were jointly and severally liable as guarantors.”
“Court” for the purposes of s 588FGA(4) includes the Supreme Court but not the District Court of South Australia (s 58AA).
To quote from the proposed Third Party Statement of Claim, the Commissioner asserts that as at the date of the two payments the third parties:
“a.were the persons responsible for and/or in control of the business activities of the Club;
b.were the persons responsible for and/or in control of payment of the Club’s outstanding liabilities;
c.were the persons responsible for and/or in control of payment of the Club’s taxation liabilities pursuant to Division 2 of Part VI of the Income Tax Assessment Act 1936, including the first payment and the second payment; and/or
d.acted in the position of and/or in the capacity of directors of the Club, for all purposes associated with Part 5.7B of the Corporations Act 2001.”
The Commissioner asserts that should an order be made against him in favour of the plaintiff, the third parties should indemnify him against any loss or damage resulting from the order.
The Course of this Action
The plaintiff commenced this action in the District Court of South Australia. The Inter Partes Summons was issued on 22nd March 2002. That was only a matter of days before the time limit of three years applicable to the plaintiff’s action expired (s 588FF). The plaintiff did not comply with the provisions of r6A of the District Court Rules prior to commencing the action. That rule requires a plaintiff, 90 days before commencing his action, to give the defendant notice of his claim in sufficient detail to give the defendant a reasonable opportunity to make an offer to settle the claim before it is commenced. By order of the Court made on 14th June 2002 the Summons was renewed until 22nd September 2002. It was served on either 18th or 19th September 2002. The Defence was filed on 10th December 2002, and the Reply was filed on 23rd January 2003.
On the 18th July 2003, the Commissioner issued a Notice For Specific Directions seeking (relevantly) the following orders:
“2. That this matter be transferred to the Supreme Court of South Australia;
3.That the Commissioner of Taxation for the Commonwealth of Australia be granted leave to file and serve third party notices and statements of claim in the form exhibited as ‘KGB14’ to the 18 July 2003 affidavit of Kimley Grant Barry;”
The application for transfer was made because of the provisions of s 588FGA(4) and in particular the definition of “Court” in that subsection.
On 6th August 2003, an Acting Master of the District Court made an order transferring the action to the Supreme Court, but he made no order on the Commissioner’s application for leave to join the third parties.
Factors Relevant to the Decision Whether to Grant Leave
While there will be cases in which it will be clear that leave should or should not be granted, in many cases, of which this is one, there will be a number of factors, some pointing in favour of the granting of leave, and some supporting a refusal of leave. In the latter type of case, the Court must assess the relevant factors and determine where the balance lies having regard to the interests of justice.
The reasons for third party proceedings are well known. For present purposes it is sufficient to refer to Barclays Bank v Tom [1923] 1 KB 221 and the observations of Scrutton LJ at 223 – 224 as follows:
“I think it is important to keep clearly in mind what the third party procedure is. A plaintiff has a claim against a defendant. The defendant thinks if he is liable he has a claim over against a third party. With that matter between the defendant and the third party the plaintiff has obviously nothing to do. He is not concerned with the question whether the defendant has a remedy against somebody else. His remedy is against the defendant. But the defendant is much interested in getting the third party bound by the result of the trial between the plaintiff and himself, for otherwise he might be at a great disadvantage if, having fought the case against the plaintiff and lost, he had then to fight the case against the third party possibly on different materials, with the risk that a different result might be arrived at. The object of the third party procedure is then in the first place to get the third party bound by the decision between the plaintiff and the defendant. In the next place it is directed to getting the question between the defendant and the third party decided as soon as possible after the decision between the plaintiff and the defendant, so that the defendant may not be in the position of having to wait a considerable time before he establishes his right of indemnity against the third party while all the time the plaintiff is enforcing his judgment against the defendant. And thirdly, it is directed to saving the extra expense which would be involved by two independent actions. With these objects in view the third party order usually provides that the third party may appear at the trial between the plaintiff and the defendant.”
No doubt it was with these considerations in mind that r37 was made and in particular r37.05 which provides as follows:
“37.05 Unless the Court otherwise directs either at or before the trial where a third party is defending any part of the proceedings:
(a)The third party proceedings will be tried together with the trial of the plaintiff's action;
(b)The third party is to be at liberty at such trial to cross-examine the witnesses of the other parties to the extent permitted by the trial Judge;
(c)The third party is to be at liberty to adduce evidence at that trial on the issues as between the plaintiff and the defendant and between the defendant and the third party;
(d) The third party issues are to be determined at such trial;
(e)The third party is to be bound by the result of the trial between the plaintiff and the defendant.”
The Court has a discretion under r37.05 to direct a separate trial of the third party proceedings, and it is not necessary for a party seeking such an order to show exceptional circumstances before it is made. I agree with what Lander J said in Port Pirie City and Districts Council v Leenders & Partners Pty Ltd [2001] SASC 208 that although it is not necessary for an applicant for separate trials to show exceptional circumstances, the general rule is that the third party proceedings will be tried together with the trial of the plaintiff’s action. However, if the interests of justice suggest that an order for separate trials should be made then it will be made ([44] – [47]).
It should also be remembered that a refusal of leave to issue third party proceedings does not necessarily mean that (depending on the circumstances) an order may not be made at a later time that the two actions be heard together. This possibility was adverted to by Doyle CJ in Imagecolor (SA) Pty Ltd (in liq) v Curtis [2000] SASC 316 at [19 - 21] (“Imagecolor”).
In Imagecolor, the Chief Justice identified a number of the factors which he said are relevant to the decision whether to grant leave under r37.01(2). Those factors are:
1. The explanation for the delay in issuing the third party proceedings.
2.The impact of the proposed third party proceedings on the orderly conduct of the proceedings between the plaintiff and the defendant.
3.The risk of inconsistent findings if the two sets of proceedings are tried separately.
4.Overall efficiency, including the question of whether there are common witnesses.
Before dealing with each of these factors in turn, it is necessary to say a little more about the facts. Of course, it must be borne in mind that there is yet to be a trial in this action and that it is not possible to be certain what facts will be proved at trial.
There was a good deal of debate before me about the circumstances surrounding the first payment of $88,653.11, and very little debate about the circumstances surrounding the second payment of $8,480.35. I will concentrate on the circumstances surrounding the first payment.
It seems that in November 1998 there was a bank account in the name of the Adelaide Sharks Football Club (“Adelaide Sharks”) at the State Bank of New South Wales Ltd trading as Colonial State Bank SA. The person or persons who controlled the account may be in dispute at trial. The plaintiff says that Mr Makris controlled the account. A bank statement for the account shows a payment into the account of $80,000.00 from a company called Balgra Pty Ltd, which was a company controlled by Mr Makris, and then a transfer out of the account apparently to the Commissioner of $88,653.11 on 10th November 1998 (ie., the first payment). On 9th November 1998 the defendant served a notice under s 218 of the ITAA on the bank in relation to monies it held or may hold on behalf of the Club, or owed or may owe to the Club. The Commissioner had advised the Club on 6th November 1998 that it was about to serve such a notice on the bank.
It seems that Mr Makris and the Club entered into a Heads of Agreement on 24th July 1998, and that the Adelaide Sharks and the Club entered into what has been called a sponsorship agreement on 3rd November 1998. It is not my task on an application such as this to analyse the agreements. It is sufficient to say that under the agreements Mr Makris was to inject substantial funds into the Club and was to obtain control of the Club. It was envisaged that he might get a commercial benefit through increased exposure and market awareness by reason of the sponsorship and advertising activities of the Club.
The plaintiff says that his case is simple, largely documentary and will occupy no more than 2 to 3 days in hearing time. In relation to the first payment, he says, and I put it somewhat generally at present, that it was a payment by Mr Makris under the agreements he had with the Club and that that is sufficient to make it a payment made by the Club and therefore a transaction within Part 5.7B of the Law. The plaintiff relies on the decision of the Full Court of the Federal Court in Re Emanuel (No 14) Pty Ltd (in liq); Macks and Another v Blacklaw & Shadforth Pty Ltd (1997) 147 ALR 281.
The plaintiff submits that there may well be questions as to the effect, if any, of the notice under s 218 of the ITAA, and whether the first payment was made pursuant to the notice. They may be novel and interesting legal questions, but they are unlikely to occupy a great deal of time at trial.
The Commissioner submits that the first payment was not a payment made by the Club or at least there is a real question on the material presently available as to whether it was a payment made by the Club. The Commissioner submits that it is likely that in relation to the issue of whether the payment was a payment made by the Club Mr Makris’ arrangement with the Club will come under close scrutiny and it is likely that he will be called as a witness. I think that latter submission by the Commissioner is right.
I turn now to consider the defences the third parties are likely to raise. The correspondence which has passed between the Commissioner and the third parties suggests the following:
1.Mr Makris and the Adelaide Sharks were not members of the committee of the Club at the time of the payments and therefore, are not liable under s 588FGA(2) of the Law. They did not act in the position of and/or in the capacity of directors of the Club. Alternatively, they have a defence under s 588FGB in that because of the notice under s 218 they could not have taken steps to prevent the payment.
In later correspondence, solicitors for Mr Makris and the Adelaide Sharks assert that the monies might have been paid into the bank account by reason of a mistake, and they may have a claim by way of constructive trust to recover the monies.
2.The other third parties deny that they were members of the committee of the Club at the time of the payments and assert that they were “a committee in waiting” organised at the invitation of Mr Makris should he be successful in gaining control of the Club. They are not liable under s 588FGA(2) of the Law because they did not act in the position of and/or in the capacity of directors of the Club. The other third parties also assert that the Club was solvent because its debts were being underwritten by Mr Makris.
I turn now to consider the relevant factors as identified by the Chief Justice in Imagecolor.
The delay is reasonably substantial. It is partly explained by the fact that the Commissioner was communicating with the third parties to see if they or any of them had defences to the proposed actions by the Commissioner. It is true that the plaintiff referred to possible actions by him against the Commissioner, and in turn, claims for indemnity by the Commissioner, in a report he prepared in April 1999 but I do not think the Commissioner can be criticised, or at least strongly criticised, for failing to make inquiries in 1999. On the other side, the fact that the plaintiff issued proceedings within days of the expiration of the time limit of three years, sought and obtained a renewal of the summons and did not serve a r6A notice or letter of demand before commencing the action are matters of significance. No explanation for the failure to serve a r6A notice or letter of demand was provided by the plaintiff. The plaintiff was entitled to take his time but I think I am entitled to take that fact and the failure to serve a r6A notice or letter of demand into account when assessing the plaintiff’s criticisms of delay by the Commissioner.
As far as the orderly conduct of the proceedings between the plaintiff and the Commissioner is concerned, I think it is fair to say this factor suggests that leave should be refused. As far as I can see, the action between the plaintiff and the Commissioner is almost ready for trial. On the other hand, it may be assumed that the action will not come on for trial for some time if leave is given to issue third party notices.
As far as the risk of inconsistent findings and overall efficiency are concerned, I think that these matters favour the granting of leave. The relationship between the Club and Mr Makris and the circumstances surrounding the first payment are, on the material presently available, likely to be issues in the proceedings between the plaintiff and the Commissioner and in the proceedings between the Commissioner and the third parties, and it is likely that Mr Makris will be a witness on these issues. I recognise that there may be issues between the Commissioner and the third parties which are of no concern to the plaintiff. For instance, some of the third parties are likely to raise the defence in s 588FGB(4) (ie., expectation that the Club was solvent) and that issue may prolong the trial. The Commissioner tried to counter this point by submitting that the solvency of the Club was likely to be an issue between it and the plaintiff either because his admission may be withdrawn and/or because the Court, irrespective of any admission by the defendant, must be satisfied that the transaction was voidable (s 588FF, Crosbie v Commissioner of Taxation [2003] FCA 922; (2003) 21 ACLC 1659). I would not be inclined to place much weight on the suggestion that an admission may be withdrawn, and it may be that the decision in Crosbie v Commissioner of Taxation can be distinguished or may not be followed (Dean-Willcocks (as liquidator ofSJP Formwork (NSW) Pty Ltd (in liq)) v Commissioner of Taxation (No 2) [2004] NSWSC 286). Even so, I think there is at least one important common issue and likely to be one important witness common to both proceedings and that the need to avoid inconsistent findings and for overall efficiency favours the granting of leave.
I do not think the issue of whether leave should be granted is clear-cut. Weighing the matters referred to above, I have come to the conclusion that leave should be granted. In the result, I am most influenced by the fact that the plaintiff did not serve a r6A notice or letter of demand and he has not prosecuted the action as quickly as he might have, and by the fact that there is an important common issue which probably – and I can put it no higher at this stage – cannot be confined in the manner suggested by the plaintiff.
It is perhaps implicit in what I have said that at this stage the third party proceedings should proceed in the manner envisaged in r37.05(a) – (e) inclusive. However, I cannot fetter the discretion of the trial Judge, and I would not wish to fetter the ability of the plaintiff at an appropriate time when the consequences of the third party proceedings being tried with the plaintiff’s action can be more precisely identified than they can be at present, to apply under r37.05 for an order for separate trials. That is a matter for another day and of course I can express no opinion on such an application.
Conclusions
I would make an order granting leave to the defendant under r37.01(2) to issue within 7 days third party notices which are exhibit “KGB 14” to the affidavit of Kimley Grant Barry sworn on the 18th July 2003. I would hear the parties as to other orders and costs.
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