Mulvaney v The Commissioner of Taxation for the Commonwealth of Australia No. DCCIV-02-411

MULVANEY v COMMISSIONER OF TAXATION
[2004] SADC 41
Judge Lee
Civil

This is an appeal from the decision of a Master on costs.
The plaintiff is the liquidator of the Hellenic Athletic and Soccer Club of SA Inc. (“the club”). He brought this action in this Court to recover a preference allegedly paid to the defendant by the club. Under s.588FGA of the Corporations Act 2001, the defendant has the right to claim an indemnity from the directors of the club in the event that the plaintiff succeeds against the defendant in the action. The word “Court” in s.588FGA(4) is defined in s.58AA as the Supreme Court, and so any claim by the defendant for an indemnity can only be brought in the Supreme Court.
By application dated 18 July 2003, the defendant sought two orders before the Master. The first was an order transferring the proceedings to the Supreme Court. The second was an order granting leave to issue third party proceedings against the directors.
On 6 August 2003, the Master ordered that the proceedings be transferred to the Supreme Court, but declined to grant the defendant leave to join third parties. He said:
“In light of the considerable uncertainty as to the jurisdiction of this Court to decide the defendant’s application for leave to join third parties, I consider it only appropriate for the Supreme Court, viz the only Court with jurisdiction to make the orders for indemnity that will be sought in the proposed third party proceedings, to hear and determine the question whether at this point the defendant should be granted leave to commence those proceedings. It would be preferable for the Court having jurisdiction to grant the relief sought to consider whether the proceedings should be allowed.”
On 31 October 2003, the Master resolved opposing arguments on costs by deciding that the defendant should have his costs of the transfer in any event, but that the plaintiff should have his costs of the application for leave. The Master said:
“Although it was, in my opinion, unreasonable of the plaintiff to attempt to impose the condition in question set out in the letter dated 4 August, ie, requiring irrevocable withdrawal of the application for leave to issue third party proceedings, it does not follow that the defendant should have the costs of the argument on that (unsuccessful) application. That application should have been abandoned: the Court did not, on reflection, have jurisdiction to grant leave, for the reasons that were put by Mr Cudmore in the course of his argument. There was no prospect that the application would succeed.
The plaintiff should have his costs of and incidental to the application for leave to commence third party proceedings including the argument thereon that took place on 5 August. The costs of the argument should be limited to 80 per cent of the time occupied, as I have indicated. I certify the argument fit for counsel.”
The submission of the defendant on the appeal is that the Master erred in finding that the District Court lacks jurisdiction to grant leave, and that, the Master’s exercise of his discretion having been based upon a false premise, I should exercise my own discretion on who should pay the costs of the application to join third parties.
Counsel on both sides are in agreement that, even though the relief sought in the third party action is justiciable only in the Supreme Court, the District Court does have jurisdiction to grant leave to join the third parties. Although not directly in point, the decision of the Court of Appeal in New South Wales in KBRV Resort Operations Pty Limited t/as Kingfisher Bay Resort & Village v Chilcott [2001] NSWCA 116 (unreported) shows that proceedings issued in an inferior court are not vitiated by the absence of power in that court to make the orders sought. Whether the District Court would grant leave is quite another matter. In most cases there would be no point. But where a transfer to the Supreme Court is also sought, doubtless it would and should grant leave if all parties consent.
Given the error, I will now proceed to exercise my own discretion. The outcome turns on letters which the solicitors for the parties to the action exchanged with respect to the defendant’s application before the Master.
In a letter dated 29 July 2003, the defendant’s solicitor said that the defendant would lose his right to an indemnity in a third party action to the principal action if his application for a transfer were refused, and that the question whether the defendant’s right to an indemnity should be determined in separate proceedings should be for the Supreme Court to decide.
The solicitor then went on to say:
“It is the Commissioner’s view that the District Court does have power to grant leave to issue the third-party proceedings although we agree that as a matter of convenience any dispute may be bypassed by allowing the matter to be transferred to the Supreme Court prior to the final determination of the Commissioner’s application.
We have set out in detail the Commissioner’s position in this letter in order to avoid incurring of what we consider to be unnecessary costs and delays associated with the preparation of this matter for argument. We would be grateful to hear from you in the near future indicating your client’s position as to whether he still wishes to proceed to oppose the transfer application and/or the application to join third parties.”
In their reply of 4 August 2003, the plaintiff’s solicitors said:
“We refer to your letter dated 29 July 2003 and to the hearing listed before Acting Master Kelly tomorrow at 10.30am.
1.The Liquidator will oppose the Commissioner’s application dated 18 July 2003. The Liquidator’s position is that:
1.1    the Liquidator and the Club would be severely prejudiced by the joinder of additional parties; and
1.2    the District Court lacks the jurisdiction to make the joinder orders sought.
2.Nevertheless, the Liquidator will consent to the transfer of the matter to the Supreme Court only on the condition that the Commissioner:
2.1    consents to paragraph 3 of his application being dismissed;
2.2    undertakes not to reinstate that application in future; and
2.3 agrees that trial of the Liquidator’s action be separate from any claim made by the Commissioner pursuant to section 588FGA of the Corporations Act.”
Although the Master appears to have based his decision of 6 August 2003, at least in part, upon a mistaken view of the law, I consider that the dictates of convenience and reason strongly favour the orders that he then made. The plaintiff opposed those orders, both in his solicitor’s letter of 4 August 2003, and before the Master the following day. I consider that his attitude was unreasonable. His right to oppose the joinder of additional parties once the action had been transferred to the Supreme Court had been effectively conceded by the defendant.
In the result, the appeal is allowed. I consider that the plaintiff is entitled to the costs that he would have incurred had he consented on 5 August 2003 to a referral of the joinder application to the Supreme Court, and that the defendant is entitled to the costs that he was obliged to incur in arguing his application before the Master on that day. The defendant is also entitled to his costs of and incidental to his subsequent application for costs before the Master, and of and incidental to the appeal before me.

[2004] SADC 41

5 March 2004