Silvia v Commissioner of Taxation [2001] NSWSC 562 | Case summary

1 HIS HONOUR: In these proceedings, as the first affidavit tendered on behalf of the cross defendants came to be read, Mr Rares, of Senior Counsel for the plaintiffs, objected to the whole of the affidavit being admitted as against the plaintiffs. That objection was opposed by Mr Aldridge, of Senior Counsel for the defendant. It was joined in by Miss McColl, of Senior Counsel for the second to fifth cross defendants, but was not joined in by Mr Castle for the first cross defendant and is not joined in by Mr Walmsley of Senior Counsel, who today appears for the seventh cross defendant. 2 The objection arises as follows. The proceedings are proceedings brought by the liquidator of two companies under s 588FF of the Corporations Law ("the CL") to set aside a payment as an unfair preference and to order the repayment of the amount paid to the defendant, the Commissioner of Taxation. The Commissioner's defences include a defence under s 588FG of the CL to the effect that he at the time he became a party to the transaction had no reasonable grounds for suspecting that the companies were or would become insolvent and a reasonable person would have had no such grounds for so suspecting. The defendant cross claims against seven cross defendants who are alleged to have been at the material time directors of the companies. The cross claim is made under s 588FGA of the CL on the ground that, having been directors at the material time, they are obliged to indemnify the Commissioner of Taxation if the payment to him is set aside. The defences of the seven cross defendants include various defences under s 588FGB of the CL, including defences under subs (3) to the effect that, at the payment time, the cross defendants had reasonable grounds to expect and did expect that the companies were solvent and would remain solvent even if they made the payment. There was talk at various times during the interlocutory proceedings of an order being made for a separate trial of the claim and the cross claim in the proceedings, but no such order has been made and the trial of the issues upon claim and cross claim is proceeding before me. 3 The objection taken by Mr Rares is on the ground that the material in the relevant affidavit - and this will also apply to other affidavits to be relied on by the cross defendants - is utterly irrelevant to the plaintiffs' claim against the defendant and that the material, although clearly relevant and admissible in relation to the issues between the defendant and the cross defendants, ought not be admitted against his clients. This, he suggests, may be effected either by the evidence being admitted specifically on the basis that it is not admitted against the plaintiffs or, alternatively, by a limitation being placed on its use pursuant to the power of the Court to do so under s 136 of the Evidence Act 1995 ("the EA"). 4 Among other authority mentioned before me in the course of the debate were the recent decisions of the Court of Appeal in Sandtara Pty Ltd v Abigroup Ltd (1997) 42 NSWLR 5 and Insurance Exchange of Australasia v Dooley (2000) 50 NSWLR 222. These cases demonstrate that, as a result of the provisions of s 78 of the Supreme Court Act 1970 ("the SCA"), the parties to both claim and cross claim are indeed all parties in the one proceeding and are bound by its results. In Sandtara, the Court of Appeal held that a cross defendant in former proceedings was bound by decisions in those proceedings by way of issue estoppel as a result of it being a party to those proceedings, although it was not bound by way of res judicata because in those proceedings the issue was decided as between the plaintiff and the defendant and issue had not been joined on the subject matter between the plaintiff and the cross defendant. Insurance Exchange was a case decided not under the SCA and the Supreme Court Rules 1970 but under rules of the District Court. Nonetheless, in a similar framework, it was held that a third party was entitled to appeal the result between the plaintiff and the defendant in the proceedings, which result led on to the imposition of liability upon the third party, although issue was not joined in that regard in the District Court between plaintiff and third party. Mr Rares, however, relies upon the statement in the Insurance Exchange decision by Handley JA at 227: "However, there may be issues between plaintiff and defendant which are of no concern to the third party, who should not be permitted to meddle in the hearing on such issues." 5 He says that the disadvantage of my not following the course he proposes, which should compel me to follow that course, is that he will not know whether or not to cross examine the cross defendants' witnesses, because he will not be aware to what extent it may subsequently be suggested that their evidence has some bearing upon the claim as between the plaintiffs and the defendant, although he says that in reality they can have no bearing. He says that the issue ought be clarified by being dealt with as he suggests. The countervailing submission was put very briefly and succinctly by Mr Castle, of counsel for the first cross defendant. Mr Castle submitted that, under the pattern created by ss 55 and 56 of the EA, evidence was simply admitted or not admitted in the proceeding. If it were admitted, any use to which it could legitimately be put it could thereafter be put to. Limitation should be made under s 136 only if the requirements of that subsection were fulfilled. The requirement of that subsection is that there should be a danger that a particular use of the evidence might be unfairly prejudicial to a party or be misleading or confusing. No particular submission was put as to how that would arise in this case and it could not be said that it appeared at the moment that there was any such danger. I should say, in fairness to Mr Castle, that he put the matter even more briefly and succinctly than I have just repeated it. 6 In my view, Mr Castle's submission is essentially correct. Section 55(1) of the EA provides that the evidence that is relevant in a proceeding is evidence that could rationally affect the assessment of the probability of the existence of a fact in issue in the proceeding. Section 56, by subs(1), provides that, except as otherwise provided by the EA, evidence that is relevant in a proceeding is admissible in the proceeding and, by subs (2), that evidence that is not relevant in the proceeding is not admissible. In my view, that means that once evidence is relevant to an issue in the proceeding, it is admissible and will be admitted, subject to other material considerations, in the proceeding. Mr Odgers is correct when, in the 4th edition of his Uniform Evidence Law, he states in [56.2] that the effect of the EA is to sever the issues of the admissibility and the use of evidence. In this regard compare also the terms of ss 56 and 136 as to admissibility and use. The approach that I have taken was taken also by R D Nicholson J in the Federal Court of Australia in Maritime Union of Australia v Geraldton Port Authority [1999] FCA 685 [25] - [26]. 7 This means that the old practice under the common law whereby evidence was declared to be admitted or not admitted as against one party or another in a multi party suit has been superseded. The discretion to limit the use of evidence has been conferred by s 136 of the EA, but Mr Castle, in my view, is also correct in his submission that, on the material before me, it does not at this time appear that there is a danger that a particular use of the evidence in the affidavit under consideration might be unfairly prejudicial to the plaintiffs or be misleading or confusing. If what Mr Rares says is correct, and it almost certainly is (if not in whole then to a very large extent), the evidence that goes to the subjective state of mind of various of the directors cannot bear upon the question as between the plaintiffs and the defendant as to the state of mind of the defendant's officers. However, the plaintiffs will be protected in that regard at the time of submissions and decision by it being made clear that that evidence cannot and will not be put to an inappropriate use. 8 I propose, of course, to approach the admission of the rest of the cross defendants' evidence on the same basis. If Mr Rares cares to take the same general objection now to the remaining affidavits of the cross defendants, that may be recorded for his protection and will save him from objecting to each of them in turn. If, of course, there are particular considerations relating to passages in other affidavits, I shall hear any objection relating to those, and, equally, if Mr Rares sees at any time as the trial proceeds a danger arising that is within the terms of s 136, and makes or renews an application under that section in relation to any evidence, that will, of course, be heard and dealt with on its merits at the appropriate time. Equally Mr Rares indicates that his general objection should be taken as applying also to the tender of the defendant and cross defendants' bundle of documents and to the cross examination of the deponents of the various affidavits that have been mentioned. That objection is now recorded for Mr Rares' protection and to obviate the necessity of further objection on that general ground. …o0o…

Silvia v Commissioner of Taxation

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