Agricultural & Rural Finance Pty Ltd v Kirk
[2011] NSWCA 67
•17 March 2011
Court of Appeal
New South Wales
Case Title: Agricultural & Rural Finance Pty Limited v Kirk & Anor Medium Neutral Citation: [2011] NSWCA 67 Hearing Date(s): 10 -11 February 2011 Decision Date: 17 March 2011 Jurisdiction: Before: Tobias JA at [1]
Macfarlan JA at [227]
Sackville AJA at [228]Decision: (a)Extend the time for the filing by the first respondent of his Amended Notice of Motion to 11 May 2009 and by the second respondent of his Notice of Motion to 14 August 2009;
(b)Grant leave to appeal against the orders made by Einstein J on 18 February 2010;
(c)Appeal allowed;
(d)Set aside the orders made by Einstein J on 18 February 2010 and in lieu thereof dismiss the Notices of Motion referred to in (a) above;
(e)The respondents to pay the appellant's costs of the Notices of Motion including any reserved costs;
(f)The respondents to pay the appellant's costs of the applications for leave to appeal and of the appeal.
(g)Each party to pay its or his own costs of the application to extend time referred to in (a) above.
[Note: The Uniform Civil Procedure Rules 2005 provide (Rule 36.11) that unless the Court otherwise orders, a judgment or order is taken to be entered when it is recorded in the Court's computerised court record system. Setting aside and variation of judgments or orders is dealt with by Rules 36.15, 36.16, 36.17 and 36.18. Parties should in particular note the time limit of fourteen days in Rule 36.16.]Catchwords: PROCEDURE - application to set aside orders setting aside service of summons - whether primary judgment should be set aside as it contained errors and a number of grounds of prejudice which the respondent no longer relies upon - Uniform Civil Procedure Rules rr 1.12, 12.11, 36.16
PROCEDURE - application to set aside orders - whether factors to be taken into account when exercising the discretion under UCPR r 1.12 are applicable to the discretion under UCPR rr 12.11 and 36.16 - Arthur Anderson Corporate Finance Pty Ltd v Buzzle Operations Pty Ltd (in liq) [2009] NSWCA 104
Legislation Cited: Civil Procedure Act 2005 (NSW)
Corporations Law (Cth)
International Conventions for the Unification of Certain Rules of Law Relating to Bills of Lading, Opened for Signature 25 August 1924, 120 UNTS 155
Managed Investments Act 1998 (Cth)
Suitor's Fund Act 1951 (NSW)
Supreme Court Rules 1970 (NSW)
Trade Practices Act 1978 (Cth)
Uniform Civil Procedure Rules (1999 (Qld)
Uniform Civil Procedure Rules 2005 (NSW)Cases Cited: Agricultural & Rural Finance Pty Ltd v Atkinson [2006] NSWSC 202
Agricultural and Rural Finance Pty Ltd v Gardiner & Anor [2008] HCA 57; (2008) 238 CLR 570
Aon Risk Services Australia Ltd v Australian National University [2009] HCA 27; (2009) 239 CLR 175
Arthur Anderson Corporate Finance Pty Ltd v Buzzle Operations Pty Ltd (in liq) [2009] NSWCA 104
Brisbane South Regional Authority v Taylor [1996] HCA 25; (1996) 186 CLR 541
Gardiner v Agricultural & Rural Finance Pty Ltd [2007] NSWCA 235; (2008) Aust. Contracts Reports 90-274
I.M.B. Group Pty Ltd (in liq) v Australian Competition & Consumer Commission [2006] QCA 407; [2007] 1 Qd 148
IBM Group Pty Ltd (in liq) v Australian Competition & Consumer Commission [2006] QCA 407; [2007] 1 Qd Rep 148
Maronis Holdings Ltd v Nippon Credit Australia Ltd [2000] NSWSC 507; (2000) 175 ALR 36
Tolcher v Gordon [2005] NSWCA 135; (2005) 53 ACSR 442
Van Leer Australia Pty Ltd v Palace Shipping KK 180 CLR 337 (1981)
Victa Ltd v Johnson (1975) 10 SASR 496Texts Cited: Category: Principal judgment Parties: Agricultural and Rural Finance Pty Ltd
Geoffrey Sinclair Kirk
Peter Andrew JonesRepresentation - Counsel: Counsel:
A: Mr T Hale SC / Mr C J Bevan
R: Mr N M Bender- Solicitors: Solicitors:
A: Evangelos Patakas & Associates
R: Henry Davis YorkFile number(s): CA 2010/57554SC 2003/92819 Decision Under Appeal - Court / Tribunal: - Before: Einstein J - Date of Decision: 11 February 2010 - Citation: Agricultural Rural Finance Pty Ltd v Atkinson [2010] NSWSC 42 - Court File Number(s) SC 2003/50063 Publication Restriction:
Judgment
TOBIAS JA : On 18 June 2003 the appellant (ARF) filed in the Commercial List of the Equity Division a summons (the summons) in which it joined 216 defendants, including the respondents, individually Mr Jones and Mr Kirk who were the 150th and 158 th defendants respectively although they are later referred to as 158 th and 167 th defendants respectively. During the course of 2003, all except 15 of the defendants were served. Those not served included the respondents. Bruce Walker Gardiner (Mr Gardiner) was the 36 th defendant. The first defendant, John Edward Atkinson, was one of the defendants served. Accordingly, the proceeding had the title Agriculture and Rural Finance Pty Ltd v Atkinson & Ors (the Atkinson proceedings).
On 19 March 2004, following the filing of Notices of Appearance by approximately 197 defendants (180 of which were represented by Clayton Utz, Solicitors), Bergin J, by consent, ordered that the proceedings against Mr Gardiner be determined separately. Her Honour's order covered all issues associated with ARF's claim against Mr Gardiner and his cross-claims against ARF and Oceania Agriculture Pty Ltd (OAL). In both cases, the issues were said to be common to all defendants. I refer to these proceedings as the " test case ".
The test case concluded with a decision of the High Court of 11 December 2008: Agricultural and Rural Finance Pty Ltd v Gardiner & Anor [2008] HCA 57; (2008) 238 CLR 570.
Although attempts were made to serve each of the respondents between June and September 2003, thereafter no such attempts were made until Mr Kirk was served on 4 December 2008 and Mr Jones on 29 December 2008.
The service of the summons on each of the respondents was made pursuant to an ex parte order made by Bergin J on 14 November 2008 whereby her Honour extended the time for the service of the summons pursuant to Uniform Civil Procedure Rules 2005 (NSW) r 1.12(1). Such an extension was required as the summons had become stale on 17 June 2004.
On 7 May 2009 Mr Kirk filed a Notice of Motion pursuant to UCPR r 12.11(1)(b) to set aside service upon him of the summons and/or to set aside pursuant to UCPR r 36.16(1) Bergin J's order of 14 November 2008. This Notice of Motion was also amended on 11 May 2009 to seek leave to withdraw his Notice of Appearance. On 14 August 2009 Mr Jones filed a Notice of Motion seeking similar relief.
The Notices of Motion were heard by Einstein J. On 11 February 2010 his Honour handed down judgment and on 18 February 2010 his Honour ordered that Bergin J's orders made on 14 November 2008, insofar as they related to the respondents, be discharged nunc pro tunc and that the service of the summons on each of those respondents be set aside. His Honour also made certain consequential costs orders: Agricultural and Rural Finance Pty Ltd v Atkinson & Ors [2010] NSWSC 42.
On 5 March 2010 ARF filed a Notice of Appeal against the orders of Einstein J. An issue arose as to whether the appeal was competent, the respondents contending that leave to appeal was required because, first, the primary judge's decision was interlocutory and, second, that the amount in issue (at least with respect to Mr Kirk) was less than $100,000. This issue was decided by Basten JA on 31 May 2010 when his Honour determined that the appeal brought by ARF purportedly as of right was incompetent and should be dismissed without prejudice to ARF's right to seek leave to appeal from Einstein J's orders: Agricultural and Rural Finance Pty Ltd v Kirk [2010] NSWCA 132.
In the meantime, on 6 April 2010, amended on 9 April 2010, ARF had filed a Notice of Motion seeking orders extending the time to apply for leave to appeal and for a concurrent hearing of the application for leave and the substantive appeal. That has occurred and is reflected in the orders made by Basten JA on 31 May 2010.
Although the respondents originally opposed the grant of leave, on the second day of the hearing of the appeal they conceded that the primary judge had made a number of errors that justified the granting of leave. Leave to appeal should, therefore, be granted.
The background to the applications to set aside service
On 28 April 1997 Oceania Agriculture Pty Ltd (OAL) as promoter lodged a prospectus for the Port Macquarie Tea Tree Plantation Project No.1 (Project 1) with the Australian Securities & Investment Commission (ASIC). On 6 March 1998 OAL lodged a further prospectus for Port Macquarie Tea Tree Plantation Project No.2 (Project 2). Supplementary prospectuses relating to Project 2 were issued on 9 June 1998 (and lodged with ASIC on 11 June 1998) and, apparently, in February 1999 and June 1999 (the supplementary prospectuses). Mr Kirk alleged that a supplementary prospectus for Project 2 was also issued in April 1999 but there was no direct evidence to support the allegation. Its relevance will appear in due course.
The prospectus for each of Projects 1 and 2 invited the public to subscribe for or buy " prescribed interests " and was, therefore, regulated by Chapter 7 Pt 7.12 of the then Corporations Law . In the prospectuses, OAL described the objective of each project as being " to establish and maintain a commercial tea tree plantation for the purposes of producing Australian tea tree oil, and to market and sell that oil ". Those who elected to participate in one or both projects were to enter into a Licence and Management Agreement with OAL as the manager of each project. Each participant was known in the documentation as a " farmer ".
The prospectuses recorded that a participant could obtain finance " to assist in funding the initial management fees payable " and that those " who take advantage of the finance offered by [ARF] have the option of entering into an Indemnity Agreement " with OAL. Most who participated in the scheme took advantage of the offer of finance and, on payment of a fee, entered into the indemnity agreement. Although investors were offered finance, they were required to provide approximately one third of the investment in cash. They were, however, required to make two extra payments on the loan in advance, the first payable on application and the second on commencement of the second year of the project.
Between October 1997 and May 1999 Mr Gardiner made two investments in Project 1 and two investments in Project 2. Mr Kirk invested in Project 1 on 27 June 1997 and in Project 2 on 29 June 1998 and 29 April 1999. In each case he entered into a loan agreement with ARF and the indemnity agreement with OAL. Mr Jones invested only in Project 2, entering into the loan agreement with ARF and the indemnity agreement with OAL on either 22 or 25 June 1998.
The aspects of the Projects relevant to the appeal
The terms of the loan and indemnity agreements with respect to each Project were common to all investors.
The Projects were promoted by Gerard Cassegrain & Co Pty Ltd (GCC), of which OAL was a wholly owned subsidiary. The owner of the land was Endwise Holdings Pty Ltd (Endwise) a company owned equally by GCC and Mr Claude Cassegrain (Mr Cassegrain) who was the managing director of GCC. For the purposes of the Corporations Law as in force in 1997, it was necessary for a project deed to be entered into by the relevant parties and approved by the regulator. It was also necessary to appoint an independent trustee to protect the rights and interests of the investors under the deed. The trustee nominated for both Projects was Australian Rural Group Ltd (ARG), a public company listed on the Stock Exchange in 1988 but to whom an Administrator was appointed on 27 September 2002. It retired as trustee on 5 November 2002.
Pursuant to s 1067(3) of the Corporations Law the Australian Securities Commission (ASC), the forerunner of ASIC, was required to issue an approval to ARG as the trustee. That approval was forthcoming. The Corporations Law required the project deed to impose various obligations on the trustee including an overriding obligation for it to exercise due diligence and vigilance in carrying out its functions and duties and protecting the rights and interests of the holders of the prescribed interests: s 1069(1)(e)(i) of the Corporations Law . Endwise leased the relevant land to ARG as trustee.
At the time the ASC issued Policy Statement 89, which contained detailed provisions outlining the criteria that the ASC applied when deciding whether to approve a person to act as a trustee in relation to the project deed. These included requirements as to the applicant's character, its ability and resources to perform its functions and to satisfy the ASC that the trustee and its officers would act independently of the management company and would establish appropriate standards of accountability. The relevance of the foregoing will become apparent in due course.
The Projects were intended to run for 17 years but terminated on 4 January 2003 approximately five years after their commencement. On termination of the Projects, the business of tea tree farming ceased. In part this was also apparently due to the collapse of the tea tree oil market. In part it was due to the position of the trustee remaining vacant for a period of 60 days after ARG retired as trustee in November 2002.
Upon the termination of the Projects, ARF as the lender sought to call up the loan monies which it claimed were repayable by each investor on cessation of the business of tea tree farming. However, with respect to those investors who had entered into indemnity agreements (which was most of them including the respondents), OAL alleged that its obligation to indemnify AFR only applied where the investor had punctually paid the interest payable pursuant to the relevant provisions of the loan agreement. Mr Gardiner had not paid punctually. Nor had Mr Jones with respect to Project 2. Mr Kirk had paid punctually with respect to Project 1 but not with respect to Project 2. It was thus common ground that Mr Kirk was indemnified by OAL with respect to Project 1. Accordingly, he was not sued by AFR with respect to his Project 1 loan but only under his loan agreement relating to Project 2.
The issue which therefore arose, and which was common to all the defendants including the respondents, was the proper construction of the relevant provision of the indemnity agreement that provided that the indemnity would be effective and enforceable if the relevant borrower had " punctually paid the interest payable pursuant " to the relevant clauses of the loan agreements.
The test case
Mr Gardiner filed a defence to ARF's claim alleging that, on the true construction of the relevant clause of the indemnity agreement, the indemnity applied even if the relevant payment under the loan agreement had not been made punctually where punctual payment had been waived by ARF. He also filed a cross-claim in which he asserted that the prospectus with respect to Project 1 was false and misleading in three respects. The first was referred to in the test case as " the repayment understanding "; the second was referred to as the " ARF funding arrangements " and the third was referred to as the " funds subscribed representation ". Mr Gardiner placed reliance on breaches of various provisions of both the Trade Practices Act 1974 (Cth) and the Corporations Law in respect of those alleged false representations.
Proceedings in the test case first came before Young CJ in Eq (as he then was) who rejected all of Mr Gardiner's defences to ARF's claim and dismissed his cross-claims: Agricultural & Rural Finance Pty Ltd v Atkinson [2006] NSWSC 202. This Court (Spigelman CJ, Basten JA and Handley AJA) allowed an appeal by Mr Gardiner in part and judgment was entered for ARF for a lesser sum than at first instance: Gardiner v Agricultural & Rural Finance Pty Ltd [2007] NSWCA 235; (2008) Aust Contracts Reports 90-274.
In this Court, Handley AJA, with the agreement of Spigelman CJ, held that with respect to the prospectus for Project 1 the " repayment understanding " did not, relevantly, render the prospectus false or misleading; nor did it convey the " funds subscribed representation ". In particular, their Honours held that the " repayment understanding " failed for lack of proof. So far as the " funds subscribed representation " was concerned, assuming it had been proved, the cross-claim based on it failed for lack of reliance on Mr Gardiner's part. With respect to Project 2's prospectus Handley AJA, also with the agreement of the Chief Justice, held that the failure of Mr Gardiner's case with respect to Project 1's prospectus meant that his case in respect of Project 2's prospectus based on the deficiencies of Project 1, also failed.
The foregoing summary may not be entirely accurate or do justice to the various findings of the judges concerned. However, it is clear that a majority of this Court rejected Mr Gardiner's cross-claim based on each of the three respects in which it was alleged that the prospectus for Project 1 was false and misleading.
For reasons that will become apparent it is unnecessary to analyse this Court's judgment in the test case to determine whether a majority held that the prospectus for Project 1 was not false and misleading in the respects alleged or whether it had been proved that the relevant representations relied upon to establish that the prospectus was false and misleading were not proven or, if they or any of them were, that there had been no relevant reliance on the part of Mr Gardiner. Such an analysis may have been required had it not been for the concession made on behalf of the respondents at the commencement of the second day of the hearing. At that time their counsel stated that they no longer relied on the alleged prejudice sustained by them in being deprived, due to the delayed service upon them of the summons, of the opportunity or potential to prefer against ARF and/or OAL the same cross-claims as had Mr Gardiner, but which were now statute barred due to that delay.
ARF sought and obtained special leave to the High Court in relation only to the punctual payment point. Mr Gardiner did not cross-appeal in respect of the judgment against him on his cross-claims. The issue with respect to punctual payment was determined by the High Court on 11 December 2008 in favour of ARF. This holding paved the way for ARF to continue the proceedings against all defendants who had not compromised ARF's claims against them.
The respondent's relationship to the Farmers Action Group and the test case
On or about 19 December 2001 the Tea Tree Farmers Action Group (the Action Group) was established. When the Projects collapsed the majority, if not all, of the defendants, including the respondents, became members of it. The evidence established that Mr Kirk joined the Action Group on or about 28 May 2002 and made financial contributions to its legal representative, Clayton Utz, up to 26 November 2002. Mr Jones joined the Action Group on or about 16 May 2002 and made a number of financial contributions to the solicitors up to 4 July 2003. Mr Kirk withdrew his active participation from the Action Group in or about mid-September 2003, although he continued to receive emails and correspondence from it informing him of the progress of the test case until about 23 April 2004. Mr Jones in effect withdrew from the Action Group in or about November 2003. On his return from six months overseas in about October or early November 2003 he first became aware that he had been named as a defendant to the summons. On 20 November 2003 Mr Jones signed a document whereby he agreed to be bound by the decision in the test case subject to his being served with the summons.
As already noted, the Action Group retained Clayton Utz to act on behalf of some 180 defendants who had been served. It would appear that one of the reasons for selecting this firm was that a number of its partners were investors in either or both of the Projects. Experienced commercial senior and junior counsel were retained.
I have already referred to the order of Bergin J on 19 March 2004 establishing the test case. Although the formal order was made on that date, it would appear that the appropriateness of such a test case had been a matter of some discussion between the parties for some time. Thus, on 29 August 2003 Bergin J by consent ordered that the defendants in the Action Group nominate a test case defendant; that the nominated defendant file a defence and cross-claim; and that the parties identify the issues common to all defendants in the Action Group. Mr Kirk was aware of those orders, but Mr Jones was not as he was then overseas. By 19 September 2003 Mr Kirk became aware that the nominated defendant was Mr Gardiner with whom he was very familiar as they had worked together at Coopers & Lybrand, an accountancy firm. However, it is common ground that as neither of the respondents had been served with the summons, neither took any active part in the preparation of the test case.
Although not served, on 4 August 2003 Mr Kirk provided Clayton Utz with what he referred to in his evidence before the primary judge as a " lengthy draft statement ". In his email to Clayton Utz of that date, he said that he wished to think about separate representation when he was served with the summons as he was mindful that his position was somewhat different to that of the other defendants as he had been introduced to the venture by the Cassegrain family. Although he thought there might be " tag team " advantages if there was more than one defendant being represented, he was also conscious of the advantages of solidarity. Mr Kirk's draft witness statement was not in evidence.
It would appear that the Atkinson proceedings (to which the respondents were unserved defendants) continued to be the subject of case management directions from time to time. The defendants who had been served and for whom Clayton Utz acted, gave written undertakings to be bound the findings in the test case on common issues. As a consequence, it would appear that orders were made suspending any obligation of those defendants to either file defences or cross-claims pending the final outcome of the test case. There was therefore a de facto stay of those proceedings pending that determination. This was understandable as there would have been no point in costs being incurred on behalf of the served defendants, other than Mr Gardiner, pending determination of the test case.
The ex parte application to Bergin J and the relevant history up to August 2009
At the time the summons was filed on 18 June 2003, ARF's solicitors were Piper Alderman. There was a change of solicitors to Byrnes Lawyers on 6 August 2004 and to ARF's present solicitors, Evangelos Patakas & Associates, on or about 26 May 2006.
The judgment of the Court of Appeal in the test case was handed down on 6 September 2007. On 4 October 2007 ARF filed an application for special leave to appeal to the High Court. Special leave was granted on 18 April 2008 and the appeal was heard on 31 July 2008 and, as noted above, decided on 11 December 2008.
On 10 November 2008 Mr Patakas filed a Notice of Motion on behalf of ARF seeking an extension of time for service of the summons upon those defendants who then remained unserved, including the respondents. In his affidavit in support of that application he stated, and it did not appear to be disputed by the respondents either before Einstein J or this Court, that since the order for the test case was made on 19 March 2004, the proceedings as against the defendants generally had effectively been suspended, save for directions which followed each of the judgments of Young CJ in Eq, and the Court of Appeal and the grant of special leave to the High Court. On 21 May 2008, Einstein J ordered that all defendants have leave to amend their cross-claims by adding certain claims and withdrawing failed test case defences and cross-claims; that ARF and OAL give discovery as to the punctuality of the defendants' loan repayments; and that the defendants file affidavits and give discovery as to that issue.
On 24 October 2008, after the High Court hearing but before judgment, McDougall J directed that ARF and OAL reply to the claims of punctuality made by the Clayton Utz defendants.
Mr Patakas also deposed that between 14 July 2006 and 12 December 2007, the summons against all defendants was, he believed, effectively stayed by orders made by Bergin J pending the decision of the Court of Appeal. On 12 December 2007 Bergin J refused parts of ARF's application for directions to be made as to the preparation for trial against all defendants.
Importantly, Mr Patakas deposed in his affidavit read before Bergin J that ARF needed to serve the summons on all unserved defendants by 4 January 2008 because it was arguable that its cause of action against all remaining defendants would then become statute barred, this being six years after demand for payment had been served on each defendant including the respondents. Mr Patakas ' evidence that there was an effective stay of the Atkinson proceedings pending the trial and determination of the test case, was contained in paragraph 7(b) of his affidavit of 6 January 2010 (filed for the purpose of the hearing before the primary judge) and which stated as follows:
"(b) This proceeding against all other defendants was effectively stayed against all defendants during the course of the Gardiner Test Case between late 2003 and late 2008, (namely, a period of 5 years). In particular the proceedings were generally adjourned:
(i) for a period of about 3 years between August 2003 when Justice Bergin made orders for the proposition (sic) of a test case to 11 April 2006 when the Chief Justice (In Eq) Young ordered all defendants represented by Clayton Utz ... file their defences and cross claims; and
(ii) for a further period of about 2 years between 11 April 2006 (when the Honourable Chief Justice (in Eq) Young gave judgment for ARF) and 21 May 2008 when the Honourable Justice Einstein ordered the ...defendants who ARF claimed were unpunctual in their loan instalment payments ...give discovery and serve their evidence on the punctuality by 9 September 2008.
(c) During this period Her Honour Justice Bergin ...adjourned the proceeding as against all defendants generally to allow the conclusion of the Gardiner Test Case, including the judgment of the High Court of Australia, which was delivered on 11 December 2008; and
(d) Further to the judgment of the High Court on 11 December 2008, ARF has since narrowed the substantive issues (subject to issues of costs) regarding ARF's claim as to punctual and unpunctual payments by the defendants generally including the Set A[s]ide Defendants."
The reference in the above passage to the "Set Aside Defendants" is a reference to the respondents.
On 14 November 2008 Bergin J acceded to the application and made an order extending the time for service of the summons upon certain of the unserved defendants including the respondents, such service to be effected prior to 4 January 2009.
As I have already noted, Mr Kirk was served on 4 December 2008 and Mr Jones on 29 December 2008. Thereafter, Mr Kirk and Mr Jones filed Notices of Appearance on 11 December 2008 and 19 January 2009 respectively. Between that time and 7 May 2009 there was some correspondence between Mr Kirk's solicitors and ARF's solicitors. In particular the former sought documents regarding the attempt at service on Mr Kirk in 2003 and at any other time.
On 6 February 2009 Bergin J, with the consent of all parties, directed that the respondents file defences and cross-claims by 20 March 2009. On that date Mr Kirk's solicitors sought an extension of time, which was granted by Einstein J on 27 March 2009 until 17 April 2009. On 24 April 2009 Einstein J further extended the date to 8 May 2009. On 4 May 2009 Mr Jones requested further and better particulars from ARF which were not provided until 21 July 2009. On 29 July 2009 Mr Jones served an unfiled Notice of Motion to set aside service of the summons filed by ARF. The Notice of Motion was ultimately filed on 14 August 2009.
In the meantime, on 7 May 2009 Mr Kirk filed his Notice of Motion to set aside service of the summons which was amended on 11 May 2009 to also seek leave to withdraw his Notice of Appearance.
On 11 May 2009 Mr Jones' solicitors requested copies of various affidavits from ARF's solicitors relating to the order made Bergin J on 14 November 2008. On 15 May 2009 Einstein J, by consent, extended the time for Mr Jones to file a defence and cross-claim to the summons to 5 June 2009. On 18 May 2009 a court-ordered mediation by Mr Ellicott AO QC took place and was attended by, inter alia, the respondents. It was unsuccessful.
The relevance of this chronology is that it was relied upon by ARF to support a submission that the respondents had deliberately delayed the filing of their respective applications to set aside service of the summons until after ARF's claims against them had become statute barred on 5 January 2009 were it not for service of the summons pursuant to Bergin J's ex parte order. However, as will appear, I do not think there is any substance in this submission.
The evidence before the primary judge as to the attempts at service in 2003 and the respondent's state of mind as to whether they would be served
It was common ground that unsuccessful attempts to serve Mr Kirk were made between June and September 2003, but no attempts were made thereafter. Mr Jones was overseas from 1 March 2003 to 1 November 2003. He deposed that he only became aware that the summons had been filed in or about October/November 2003 and that he had been named as a defendant when he returned to Sydney. He accepted that he could not have been served prior to his return.
Shortly after his return Mr Jones was asked by Clayton Utz to sign an undertaking to be bound by the decision in the test case, which he did on 20 November 2003 with the notation " subject to serving of Summons ". He deposed that at that time he knew he could be served, but he did not wish to be bound by the test case or otherwise be part of the proceedings until that occurred. He said that he withdrew from the Action Group in or about November 2003 as he had not been served and as time passed " without my being served, I thought that it was increasingly unlikely that I would be served ".
When cross-examined to the effect that he had received emails from the Action Group and/or Clayton Utz after November 2003, he agreed that up to a certain time he remained on the distribution list but that he did not read the emails he did receive because " my attitude at the time was that I had not been served and I thought there was no point in me looking at information until such time ."
When cross-examined with respect to the possibility of seeking to recover his losses from Mr Cassegrain, Mr Jones said that he considered that if Project 2 failed he would be covered by the indemnity subject to the cash that he had paid up front, but that he did not consider there to be any point in doing anything to recover those lost moneys until he was served. The following exchange then took place:
"Q. But you knew there was a possibility that you might be served?
A. Yes, and I wasn't."
Mr Kirk gave detailed affidavit evidence with respect to the issue of service which I can summarise by saying that there was no suggestion that he could not have been served at any time both before and after September 2003. He was in the country and ARF was aware of where he lived and how he could be contacted both by mobile phone and email. It would be fair to conclude that he was not served prior to September 2003 due to the incompetence of those responsible for effecting service upon him.
In his affidavit sworn 28 January 2010 Mr Kirk stated that he had terminated his involvement with the Action Group in or about August 2003, although from early 2003 he was aware of the possibility that ARF might institute recovery proceedings against him. He surmised that he became aware that he was a defendant to the summons in early July 2003. As time passed he became aware of more defendants being served whom he presumed to have purchased the indemnity from OAL. As a consequence he thought it likely that he would also be served. He emphasised that those involved with ARF had his contact details and that as far as he was concerned, there was no obstacle to his being served if ARF wished to do so. In an email to a Committee member of the Action Group dated 15 January 2004, he stated that his " position remains in limbo ". However, he deposed as follows:
"However, as time passed and this did not occur, I did not know why I was not brought into the proceedings. I speculated that this might have been due to a decision not to pursue me (perhaps because I knew Mr Cassegrain personally and on more than one occasion had discussed with him the effectiveness of the indemnity).
So although I entertained the possibility that I was not served because of incompetence on the part of ARF's legal representatives, I also thought that it may have been due to a deliberate decision to exclude me. As more time passed without communication from ARF or service of a Summons, I grew more confident that I would not be served."
We were not referred to any cross-examination of Mr Kirk on this topic.
Both Mr Kirk and Mr Jones deposed that, had they been served in a timely fashion, they would have pursued cross-claims against ARF and/or OAL. In particular, Mr Kirk went into great detail in his affidavit evidence on this subject. He relied, relevantly, on his extensive experience and expertise as a forensic accountant, including his experience in relation to commercial litigation. His qualifications in that respect were not challenged. However, he did not suggest in his evidence that as a consequence of the effluxion of time he had lost any relevant documents. In fact at paragraph 7 of his affidavit sworn 16 October 2009 he deposed that he was able to retrieve many documents from his old computer when he was served with a subpoena to produce on 17 August 2009.
By September 2003, although he had not been served, Mr Kirk became aware that there had been agreement to conduct a test case. He stated that had he been served with the summons at or about that time he would have attempted to bring to bear his experience in commercial litigation as an independent accounting witness, by providing guidance and instructions on the complex accounting issues of the case either to Clayton Utz or, had he chosen to be separately represented, to his own lawyers. In this respect he noted that as he had not been served, he neither attended nor participated in the preparation of or at any of the hearings of the test case.
Mr Kirk's affidavit evidence went into great detail as to how he could have assisted in the preparation of Mr Gardiner's cross-claim particularly with respect to the alleged accounting issues as well as to Mr Gardiner's reliance upon the relevant prospectus. His evidence was thus replete with assertions of lost opportunities to pursue the same cross-claims as had Mr Gardiner as well as others which, by the time he was served, had all become statute-barred.
However, much of that evidence became irrelevant on the appeal due to the concession made on the commencement of the second day of the hearing of the appeal that it would not be submitted that either of the respondents made his investment in either of the Projects in reliance upon false or misleading statements in the prospectuses for Project 1, it not being suggested that the prospectus for Project 2 contained any false or misleading statement. Accordingly, counsel stated it would not be submitted that the respondents had lost the opportunity due to the delayed service of the summons, to allege by way of cross-claim the breaches of the Trade Practices Act or the Corporations Law which had been asserted by Mr Gardiner in the test case. It was conceded that any such cross-claims would have been statute-barred by mid-2003 or shortly after the summons was filed on 18 June 2003 given that service thereof could have been effected at any time prior to 17 June 2004.
Accordingly much of Mr Kirk's evidence with respect to the lost opportunity to bring cross-claims against ARF, OAL, their directors and the investigative accountants, accepted and relied upon by the primary judge, became irrelevant except as to one claim against OAL and possibly ARF to which I shall refer below.
The decision of the primary judge
Notwithstanding that some of the primary judge's findings have now been undermined by the respondent's concessions on the appeal and to which I will not refer further except to place other claims in context, it is nevertheless relevant to set out some aspects of his Honour's reasons as well as some findings upon which they respondents still rely. Essentially the only finding of the primary judge that is no longer relevant is that the respondents have been prejudiced by the delay in serving them in that they have lost the opportunity of re-agitating the cross-claims of Mr Gardiner rejected by the Court of Appeal.
After setting out the introductory factual material, under the heading " The nature of the discretion " the primary judge recorded [28]-[34] of the judgment of Ipp JA, with whose reasons myself and McColl JA agreed, in Arthur Anderson Corporate Finance Pty Ltd v Buzzle Operations Pty Ltd (in liq) [2009] NSWCA 104. It was not suggested by ARF that the principles articulated by his Honour in Buzzle did not inform the exercise of the discretion to extend time in an application under UCPR r 1.12(1). Rather, as will appear, it was submitted that the application of those principles was inappropriate in a case such as the present. In Buzzle the application to extend the time for service of the originating statement of claim was made after the limitation period in respect of the plaintiff's claim had expired, whereas in the present case the application for extension was made prior to ARF's claim becoming statute barred. Even if this be so, there are aspects of the statements of Ipp JA in Buzzle which have relevance to the present case.
I should interpolate at this point that, as noted at [6] above, the primary relief sought in the Notices of Motion was for orders pursuant to UCPR r 12.11(1)(b) setting aside service of the summons upon the respondents rather than for an extension of time pursuant to UCPR r 1.12(1). Relief was also sought pursuant to UCPR r 36.16(1) for orders setting aside or vacating the ex parte order made by Bergin J on 14 November 2008 to extend time for service of the summons on each respondent. The relief sought in Buzzle was similar. Yet Ipp JA stated the relevant principles as applicable to an application to extend time for service pursuant to UCPR r 1.12(1). Be this as it may, in my view the applicable principles are the same irrespective of the applicable rule pursuant to which the relevant relief from service of the originating process is sought.
The primary judge relied in particular upon the statement of Keane JA in IBM Group Pty Ltd (in liq) v Australian Competition & Consumer Commission [2006] QCA 407; [2007] 1 Qld Rep 148 at [57], cited with approval by Ipp JA in Buzzle at [33], where Keane J said:
"What the plaintiffs were plainly not entitled to do was unilaterally to arrogate to themselves the benefit of a stay of proceedings in the Supreme Court in defiance of r 5(3) of the UCPR."
Rule 5 of Queensland UCPR was in the following terms:
"(1) The purpose of these rules is to facilitate the just and expeditious resolution of the real issues in civil proceedings at a minimum of expense.
(2) Accordingly, these rules are to be applied by the courts with the objective of avoiding undue delay, expense and technicality and facilitating the purpose of these rules.
(3) In a proceeding in a Court, a party impliedly undertakes to the Court and to the other parties to proceed in an expeditious way."
At [12] of his reasons the primary judge noted that after referring to ss 56, 57, 58 and 59 of the Civil Procedure Act 2005 (NSW), Ipp JA (at [36]) had stated that those sections required a judge exercising his or her discretion under UCPR r 1.12 to have regard to whether a party, seeking the exercise of the discretion in its favour, has:
"(a) diligently pursued the object of disposing of the proceedings in a timely way;
(b) used, or could reasonably have used, available opportunities under the rules or otherwise, to avoid delay; and
(c) reasonably implemented the practice and procedure of the Court with the object of eliminating any lapse of time between the commencement of the proceedings and their final determination."
At [13] of his reasons his Honour reiterated what Ipp JA had said at [43] of Buzzle when the latter concluded that
"The Court should consider, when exercising a discretion such as that under UCPR r 1.12 the attempts that have been made at service, the length of the delay, the reasons for the delay, whether the delay was deliberate, whether notice was given to the defendant, the conduct of the parties generally and the hardship or prejudice caused to the plaintiff by refusing the renewal or to the defendant by granting it."
The foregoing approach was sourced by Ipp JA from the judgment of Bray CJ in Victa Ltd v Johnson (1975) 10 SASR 496 at [503-54] and Stephen J in Van Leer Australia Pty Ltd v Palace Shipping KK (1981) 180 CLR 337 at 350.
Finally, at [14] the primary judge quoted the following passages from Ipp JA's judgment in Buzzle where his Honour said:
"81. In Battersby v Anglo American Oil Co Limited [1945] KB 23 (at 32) Lord Goddard said: 'It is for the Court and not for one of the litigants to decide whether there should be a stay'. This statement was made in the passage cited with approval in Kleinwort Bensen Ltd v Barbrak Ltd [1987] AC 597 and by Lord Browne-Wilkinson in Dagnell v J L Freedman & Co [1993] 1 WLR 388.
82. In my view it would be inappropriate to allow an extension of time for the service of a writ or statement of claim where a significant cause of the delay has been the willingness of the plaintiff to do nothing about service while awaiting a decision from a litigation funder as to whether or not to provide the necessary funds. Were that to be regarded as a good reason to extend time, the Court would be allowing plaintiffs to arrogate to non-parties the right to decide the period by which the time for service of a writ should be extended. That would be fundamentally in conflict with the Court's duty to exercise, alone, the discretion conferred upon it."
His Honour then turned to the attempts at service upon each of the respondents. With respect to Mr Kirk, he summarised the unsuccessful attempts made to serve him between June and September 2003. As I have already indicated, the evidence established Mr Kirk's correct address and his contactability by either mobile or email. It had not changed over the years.
With respect to Mr Jones, he lived at the Manly address shown on his loan application until 2001 as a consequence whereof an unsuccessful attempt was made to serve him in June 2003 although by then he had left for overseas. Nevertheless, his mobile number had not changed and was on ARF's file but was not discovered by its solicitors until December 2008. His Honour found that ARF had not reviewed its files in 2003 and he regarded as unacceptable that it had not taken the obvious step of checking Mr Jones' application form for contact details until December 2008. This was so notwithstanding that Mr Jones had not informed ARF of his change of address since leaving the Manly address in 2001. His Honour referred to the fact that "Jones" was a common name and that his evidence was that from about March to November 2003 he did not have an address in Australia as he was overseas and he could not be served until he returned. By that time the direction that a test case should be held had already been made (in August 2003).
Importantly, the primary judge recorded at [25] of his reasons that counsel for the respondents had submitted that ARF's failure to serve them before the summons became stale in June 2004 was really caused by its incompetence in their failure to properly investigate obvious internal records (being, in Mr Kirk's case, the letters that he had sent on his letterhead, including suggested means of contacting him by email and, in Mr Jones' case his application form). His Honour accepted that had either of these obvious steps been taken, the respondents would have avoided the prejudice they had suffered by reason of the late service of the summons upon them.
The point to be made from this submission was that it does not appear to have been submitted to his Honour, and his Honour did not expressly find, that ARF's failure to serve the respondents before the summons became stale (or shortly thereafter) was deliberate. On appeal, the respondents submitted that the primary Judge, in effect, had made such a finding.
The primary judge then turned to the respondents' evidence with respect to the alleged prejudice each had sustained as a consequence of late service. He noted that Mr Kirk contended for three heads of prejudice: first, his having lost the opportunity to participate in the test case; second, his having lost the opportunity to pursue cross-claims; and, third, his having lost or had diminished the opportunity to effectively participate in the final hearing of the Atkinson proceedings (which was then fixed to commence before the primary judge on 6 April 2010).
Relevant to the second of these matters, his Honour recorded those paragraphs of Mr Kirk's affidavit in which he deposed that he would have wished to pursue the " ARF funding arrangement " allegation with respect to the prospectuses in support of the allegation that they were false and misleading, a desire no longer pressed. He further deposed that he would have wished to investigate Mr Gardiner's cross-claim described by the Court of Appeal as " the repayment understanding " allegation.
Having noted that the Court of Appeal had found against Mr Gardiner in relation to both these alleged non-disclosures, his Honour observed that Mr Kirk had deposed that he would, had he been served in accordance with the Rules, have reviewed Mr Gardiner's draft affidavits and offered his services to Clayton Utz for the purpose of instructing both Mr Gardiner and an appropriate expert in relation to the issues. He had thus lost the opportunity of joining the Clayton Utz team.
His Honour then turned to Mr Jones' cross-examination and at [33] noted that his evidence was that in 2003 he may have brought a claim on his own (notwithstanding that subject to service, he had agreed to be bound by the test case) because his father had given him approximately $100,000 and, therefore, he had greater financial resources for the purpose of making a choice.
The primary judge then recorded (at [35]) the respondents' submissions that first, they could have involved themselves in the test case process and possibly been put into a different category of defendant; second, Mr Kirk could have assisted with the expert accounting evidence; third, that ARF had taken away the respondents' opportunity to be heard on those matters as they might not have wished to stay in limbo; and, fourth, that such loss of opportunity was prejudicial in itself.
After recording ARF's submissions at [36], his Honour (at [37]) stated that the Court must exercise its discretion informed by the various factors identified in Buzzle and, relevantly, must consider the " hardship or prejudice " caused by the grant of the renewal of the summons. He acknowledged that any loss of opportunity must be such as to have caused some material prejudice: that is a material possibility that the position of either of the respondents would have been better had the summons been served on him earlier.
At [38] his Honour made the following finding:
"The [respondents] have established that in effect [ARF] in all of the circumstances is seen to have unilaterally abrogated (sic) to itself the equivalent of a stay of proceedings in this Court."
It would appear that this finding was based upon what Ipp JA said at [81] and [82] of his judgment which I have recorded at [64] above: in particular, the statement of Lord Goddard in Battersby that it is not for one of the litigants to decide whether there should be a stay.
The primary judge then turned to the evidence given by Mr Patakas (ARF's solicitor) who deposed that he first became aware in mid to late 2007that not all defendants had been served. He further realised that the summons had become stale in respect of those defendants. In cross-examination he said that he then engaged in discussions with ARF with respect to the timing of service on those defendants. At that time he was awaiting the decision of the Court of Appeal (the four day hearing having commenced on 19 February 2007, with judgment delivered on 6 September 2007). Mr Patakas deposed that because he was awaiting the decision of the Court of Appeal, and as a consequence of some offers that had been made in anticipation of that decision, it was intended that when it came out
"then the rest of the proceedings would sort of all catch up with the Gardiner test case and we would then proceed to serve them [the unserved defendants including the respondents]."
However, as a result of the Court of Appeal's decision on the punctuality issue in favour of Mr Gardiner, it became necessary for ARF to seek special leave to appeal from the High Court as a consequence whereof the issue of serving the unserved defendants then again took a secondary position to finalising the test case in the High Court. Mr Patakas then referred to the matter coming before Bergin J on 12 December 2007 when orders were sought by ARF with respect to the overall conduct of the proceedings. However, her Honour had refused ARF's application for directions to be made for preparation of the trial against all defendants as a consequence of the fact that an application had been filed by ARF on 4 October 2007 for special leave to appeal in the High Court. The only order her Honour was prepared to make at that time was that the defendants represented by Clayton Utz were to notify ARF if they claimed to be punctual in the payment of their loans and if they proposed to continue pressing their cross-claims.
The following exchange with Mr Patakas, recorded by his Honour at [39] of his reasons, then took place:
"Q. But the question of what orders Bergin J would or wouldn't make in December 2007 doesn't alter the need to serve unserved defendants promptly, does it?
A. Look, it was an unusual situation where we had a test case, and on every occasion where we'd go to the Court, effectively the matter was constantly just being adjourned, so the way - it was just be adjourned until a decision would come out. Prior to the Court of Appeal decision coming out, we'd just, it just kept getting adjourned, no orders could be made or would be made by the Court even if we - when we did ask for them, her Honour declined to make any orders. She just said well, we'd wait till the High Court, the Court of Appeal. And then after the Court of Appeal pretty much the same thing happened except that her Honour was interested in just pinpointing after the Court of Appeal decision on punctuality came out, she did want to know who was claimed to be punctual and who claimed were unpunctual, or who admitted were unpunctual. And then of course pretty well everybody came back and said we're punctual.
Q. Was it ARF's intention so far as you understand it, ever to make further attempts to serve these unserved defendants if the High Court decision was unfavourable to ARF?
A. If the High Court decision on punctuality was such that it determined that being precisely - I mean the indemnities were held to apply because it was a force majeure event. So we're not in the threshold --
Q. I'm just asking if ARF --
A. -- had ended up losing the proceedings?
Q. Is it your understanding that ARF would have taken the view that the unserved defendants should never be served?
A. Well if we had lost the High Court and the High Court determined the punctuality was not relevant for the indemnities applying, and the indemnities applied come what may, there would have been no point in serving those people because we would not have been able to sue for the money that ARF is claiming for.
HIS HONOUR
Q. Is the answer yes to Mr --
A. I'm sorry, yes."
To the foregoing I would add the following evidence of Mr Patakas not directly referred to by the primary judge but which followed that set out in the preceding paragraph:
"Q. Well, is it your understanding they are executed, that you could file a summons against 20 defendants, pursue the claim against 19 of them and see how you go and bring the twentieth one in if and when the plaintiff saw fit. Is that what ARF thought, on your understanding?
A. No, no, not at all. In fact the plaintiff's --
Q. That amounts to that, doesn't it?
A. Not at all. I disagree with that, the orders that were made by the court notwithstanding ARF's requests for different orders to be made in relation to the defendants were always knocked back. They were just put back and just said no, you're going to wait till the Gardiner test case. It was ARF's understanding as I understand its solicitors and as well as OAL's, that no action was being prosecuted against any of the defendants until the test case came out. Because the issue of the test case was to see whether or not they were necessary anyway so ARF took the view that until that decision came down, if we had joined them nothing would have happened, - I beg your pardon, if we had served them, nothing would have happened in relation to those defendants.
...
Q. Why did you not seek, with instructions, urgently from the time in 2007 when you knew about this problem to repair it?
A. Because it did not occur to me that there was any real prejudice to these people and in fact from my understanding of the circumstances of the creation of the Gardiner test case it appeared to me the most efficient and cost-effective way for dealing with what were these issues. Yes, I take your point that they could have showed up to court and made any number of representations, but everything that I understood about the case and every communication I'd had, even with third - like defendants, reinforced in my mind the fact that it was the most cost-effective way for all concerned to have matters determined in the test case, so that's why."
His Honour noted that Mr Patakas ' understanding was that ARF made no substantial efforts of any kind after about September 2003 to serve either of the respondents. He certainly knew of no attempt to do so. No evidence to the contrary was called from ARF's former solicitors.
Finally, the primary judge referred to Mr Patakas' concession that he had received instructions in October 2008 to press ahead with service upon the unserved defendants as a consequence of his advice to ARF as to the imminent expiration of the limitation period with respect to the bringing of ARF's claims against those defendants. Mr Patakas accepted that this was necessary in order to predominantly protect ARF's interests.
I interpolate that what Mr Patakas had in mind was that in the event that an extension of time for service was refused, it would be necessary for ARF to institute fresh proceedings against the unserved defendants, and to do so before the limitation period applicable to ARF's claim expired on 4 January 2009. In this respect the Court's attention was drawn to UCPR r 6.2(5) which provided as follows:
"Failure to serve originating process within the time limited by these rules does not prevent the plaintiff from commencing fresh proceedings by filing another originating process."
This provision was in essentially identical terms to Supreme Court Rules (SCR) Pt 7 r 7(2), which was repealed in August 2005. SCR r 7(1) provided that the service of an originating process was valid for one year from the date of filing unless the Court otherwise ordered.
On the appeal ARF placed particular emphasis upon these provisions, submitting that having obtained an order for an extension of time to serve, inter alia, the respondents on 14 November 2008, and having effected service upon them in December 2008, it would suffer hardship and prejudice if service of the summons was now to be set aside as it would now be too late to institute fresh proceedings against the respondents as the claims against them became statute barred on 5 January 2009. I shall return to this submission below which was made to the primary judge but not referred to in his reasons.
I return to the primary judge's reasoning. At [40] his Honour referred to the observation by Lord Goddard in Battersby (cited by Ipp JA in Buzzle at [90]) that:
"[O]rdinarily it is not a good reason that the plaintiff desires to hold up the proceedings while some other case is tried or to await some future development."
The primary judge then made the following finding at [41]:
"The central problem for [ARF] in relation to the instant issues centres around the enormous difficulty facing the [respondents] who are expected to be able, many many years after the period of time when they should have been served, to now, with precision, demonstrate what precisely they would have done had they been served prior to the promulgation of the test case. Litigation is not a game. And it does not seem to me [to] be permissible for the plaintiff at this very late stage to blithely challenge the evidence put forward by the [respondents] as specious or ludicrous in the circumstances. A plea by the [respondents] that had they been served in time they would have become involved in parameters of the test case cannot be wiped out as specious after the expiry of such a lengthy period of time."
I interpolate to observe that whatever criticism might be made of ARF with respect to the decisions it took regarding the service of the unserved defendants including the respondents, there was no proper basis for asserting, as his Honour appears to have done, that it was treating the litigation between it and those defendants as some sort of game. Certainly, ARF submitted to his Honour that the claims of prejudice alleged by the respondents should be rejected but it was well within its rights to so contend.
Furthermore, as I have indicated, his Honour recorded ARF's submissions at [36] of his reasons and a reading of them does not, with respect, support the finding that ARF was acting ' blithely " or that it was asserting that the respondents' evidence was either specious or ludicrous. Certainly it was submitted that the evidence should be rejected, but that is another matter.
The primary judge then turned to what he referred to as " the limitations point ". His finding with respect to it was as follows:
"45. Both Mr Jones and Mr Kirk have given evidence of claims that they would wish to make against parties other than OAL and ARF. These claims include claims arising from the defects in the prospectus against the directors of the entities (as persons knowingly concerned in the contraventions) and, particularly, against the investigating accountant of the Projects. The failure of the [respondents] to assert these claims while unserved is immaterial to the relevant prejudice. As outlined below, it is entirely unrealistic to expect Mr Kirk and Mr Jones to have voluntarily joined the litigation by filing those cross-claims despite not having been served with the summons in these proceedings.
46. The right of these third parties to raise limitations defences is a further clear and highly material prejudice to the [respondents] arising from the delay in service of the summons."
As I have noted above, on the hearing of the appeal, the respondents expressly abandoned the proposition that they had lost the opportunity to institute cross-claims against the directors of ARF and/or OAL or against the investigating accountants. Accordingly, it was accepted that his Honour had erred in accepting that the respondent's had suffered prejudice as consequence of those claims now being statute barred. As pointed out at [54], it was conceded that they were statute barred within days of the summons having been filed on 18 June 2003.
The primary judge dealt further with the effect of the loss of these alleged claims by the respondents against third parties under the heading " The [respondents'] loss of the opportunity to influence the conduct of the test case ". At [48] he rejected ARF's contention that it would have been irrelevant to the test case process if the respondents had available to them different or more meritorious cross-claims than those available to Mr Gardiner. At [51] he observed that the fact that Clayton Utz decided not to raise cross-claims in the test case that the respondents may have had against third parties, such as the directors of ARF and/or OAL and the investigating accountants, demonstrated the prejudice that the respondents had suffered by reason of their exclusion from the process.
Again, his Honour's reliance upon those elements of prejudice has now been abandoned as a consequence of the concessions that such cross-claims as his Honour identified would have been statute-barred either before or shortly after the summons was filed in June 2003. They therefore do not require further consideration. It follows that as his Honour's conclusion that the prejudice to the respondents was such as to justify the setting aside of the service of the summons upon them can no longer be maintained, it is now necessary for this Court to re-exercise the relevant discretion.
There is one other matter upon which his Honour relied (at [60] of his reasons) and which the respondents still maintain. His Honour heard the respondents' Notices of Motion on 2 and 3 February 2010. He gave judgment on 11 February 2010. At that time the hearing date for the proceedings against all the remaining served defendants was fixed to commence before his Honour on 6 April 2010.
The respondents submitted and the primary judge accepted that if they were unsuccessful in having the service upon them set aside, they would be prejudiced in preparing for that hearing due to its proximity. His Honour considered that was an appropriate factor to be taken into account in the exercise of his discretion given the decision of the High Court in Aon Risk Services Australia Ltd v Australian National University [2009] HCA 27; (2009) 239 CLR 175. To entertain an application by the respondents to vacate that hearing, given its effect upon the remaining defendants to those proceedings, would be contrary to the approach to litigation laid down in Aon .
The relevant principles to be applied in the exercise of the discretion
As the primary judge recognised, the principles relevant to the exercise of the discretion to extend the time for service pursuant to UCPR r 1.12 were the subject of extensive discussion by Ipp JA, with the agreement of McColl JA and myself, in Buzzle. The governing principle is that articulated by his Honour at [43] of his reasons that I have recorded at [ 62 ] above.
In that case the plaintiff (the liquidator of Buzzle ) filed his statement of claim on 15 May 2006 in circumstances where the limitation period applicable to Buzzle's claim both in tort and in contract had not yet expired but was about to. Under UCPR r 6.2(4)(a) the statement of claim had to be served within six months of the date of filing, namely, by 15 November 2006. An ex parte application to extend the time for service of the statement of claim was not made until 21 March 2007 when the Registrar extended the time for filing until 15 June 2007. There was no disclosure to the Registrar that the limitation period had then expired - a fact that vitiated the Registrar's order.
The statement of claim was served on the corporate defendant (Arthur Andersen) on 15 June 2007 and on the individual defendants in August and October 2007. By Notices of Motion filed in July and November 2007 Arthur Andersen sought orders discharging the orders extending the period for service of the statement of claim and setting aside that service. That application was unsuccessful before Rothman J, but was successful before this Court.
The point of distinction between the present case and Buzzle upon which ARF relies and to which I referred in passing at [ 57 ] above, is that in that case, although the statement of claim was filed before the limitation period in respect of Buzzle's claim against the defendants expired, the application for an extension of time for service was not filed until after that limitation period had expired. By way of contrast, in the present case the application for an extension of time was made to Bergin J before the expiry on 5 January 2009 of the limitation period in respect of AFR's claim against the respondents and those respondents were in fact served with the summons prior to that date.
At [37] of his reasons in Buzzle , Ipp JA considered that when exercising the discretion conferred by UCPR r 1.12, regard must be had to the policy behind the applicable limitation statute. His Honour noted that this point was made by Hodgson JA in Tolcher v Gordon [2005] NSWCA 135; (2005) 53 ACSR 442 at [3] where his Honour said:
"3 Although the three-year period is a limit for the commencement of such proceedings, not service of the proceedings, in my opinion an important aspect of the public policy behind the limitation period is that potential defendants should be made aware of claims against them within a reasonable time; so that in my opinion, delay in service of such proceedings, in contravention of the rules, is particularly serious if it occurs after the expiration of the three-year limitation period. A liquidator who does not commence proceedings until just before expiry of the limitation period should in my opinion be especially diligent in pursuing prompt service of the proceedings."
Tolcher was a case where the plaintiff had delayed the institution of proceedings until three days prior to the expiration of the limitation period applicable to the plaintiff's claim. The present is not such a case as the summons was filed more or less at the commencement of the limitation period rather than at its end. However, in my opinion that fact does not invalidate the application of the general principles required to be considered in approaching the exercise of the discretion under UCPR r 1.12 in a case such as the present. All factors that are relevant to the exercise of the discretion have to be considered. These include the delay of the respondents in filing their Notices of Motion to set aside the service of the summons until after the limitation period relating to commencement of fresh proceedings against them, had expired.
This factor was not present in Buzzle. However, contrary to ARF's submission, it does not render the general principles with respect to the approach to the exercise of the discretion adumbrated in Buzzle inapplicable to the present case.
Of particular relevance to the present case is the statement of Lord Goddard in Battersby cited by Ipp JA at [81] of his reasons and recorded at [ 64 ] above. To that citation can be added, as a related issue, the following reasons from the passages of Ipp JA in Buzzle which were made in the context of the liquidator's decision to await the resolution of the well-known HIH litigation before proceeding to seek an extension of time to serve the defendants. At [88] his Honour considered that there were difficulties with the reasonableness of the liquidator lying by and waiting for the HIH proceedings to be resolved. At [89] he noted that the trial judge (Rothman J) himself had said (omitting citations):
"Ultimately, an extension of time in which to serve originating process would be granted for only good reason, which would not usually include awaiting the outcome of other proceedings."
At [90] his Honour added the further observation of Lord Goddard in Battersby to which I have already made reference (at [84]) but which for convenience I shall repeat:
"[O]rdinarily it is not a good reason that the plaintiff desires to hold up the proceedings while some other case is tried or to await some future development."
For present purposes emphasis should be placed on the word " ordinarily ". It is clear that his Lordship was not laying down an inflexible rule. This is evidenced by the context in which the sentence in Lord Goddard's judgment in Battersby at 32-33 was made. The full passage is as follows:
"It is the duty of a plaintiff who issues a writ to serve it promptly, and renewal is certainly not be granted as of course on an application which is necessarily made ex parte. In every case care should be taken to see the renewal will not prejudice any right of defence then existing, and in any case, it should only be granted where the court is satisfied that good reasons appear to excuse the delay in service, as, indeed, is laid down in the order. The best reason, of course, would be that the defendant has been avoiding service, or that his address is not known, and there may well be others, but ordinarily it is not a good reason that the plaintiff desires to hold up the proceedings while some other case is tried or to await some future development. It is for the court and not for one of the litigants to decide whether there should be a stay, and it is not right that people should be left in ignorance that proceedings have been taken against them if they are here to be served ." (Emphasis added)
At [32] of Buzzle , Ipp JA referred to the decision of the Queensland Court of Appeal in the I.M.B. Group Pty Ltd (in liq) v Australian Competition & Consumer Commission [2006] QCA 407; (2007) 1 Qd R 148 and in particular to passages from the judgment of Keane JA, with whom McMurdo P and Cullinane J agreed, at [54] and [57]. That was a case where the plaintiffs had deliberately decided to refrain from serving their statement of claim in circumstances where they knew of facts sufficient to enable their case to be pleaded. At [57] Keane JA said:
"...what the plaintiffs are plainly not entitled to do was unilaterally to arrogate to themselves the benefit of a stay of proceedings in the Supreme Court in defiance of r 5(3) of the UCPR."
However, the facts in I.M.B. Group that led to his Honour making that observation are fundamentally different from those of the present case. As Keane JA pointed out at [55], at no stage was it suggested by the plaintiffs in that case that they were unable to serve their statement of claim because of the need for further investigation of the factual basis for it. In that case the plaintiffs had filed a statement of claim on 16 September 1999 but had not served it on the defendants until 15 September 2004. Since September 2000, they had obtained ex parte renewals of their statement of claim from the Registrar at roughly six monthly intervals. His Honour rejected claims by the plaintiffs of impecuniosity on their part, given that the costs involved in serving the statement of claim would have been minimal. Furthermore, the plaintiffs' reliance upon the fact that it was defending proceedings in the Federal Court was rejected as those proceedings had been determined on 20 February 2003 and, therefore, could not support of an application to renew the claim a year later.
Whilst it was accepted by Keane JA that the outcome of the proceedings in the Federal Court were likely to have had a real bearing on the success that the plaintiffs' claims against the defendants, the plaintiffs well understood that those claims were not dependent on their success in the Federal Court proceedings. The facts of the present case are far removed from those in I.M.B Group .
Finally, I refer to the judgment of Stephen J in Van Leer , noted by Ipp JA in Buzzle at [42] and by me at [ 63 ] above. In that case the plaintiff imported two consignments of steel from Japan that arrived in Australia in November/December 1977. The plaintiff alleged that much of the steel was rusty on arrival. It sued the company that had chartered the ship and Palace Shipping - alleged to be the Japanese owner of the ship. The plaintiff did not issue its writ until November 1978, almost a year after the arrival of the steel. The writ was served on the charterer in September 1979 but notice of the writ was not served on Palace Shipping in Japan until October 1980.
The plaintiff's writ was " stale " when notice of it was served on Palace Shipping. Under the International Convention for the Unification of Certain Rules of Law Relating to Bills of Lading, opened for signature on 25 August 1924, 120 UNTS 155 (the Hague Rules). Rule 6 states that the carrier is discharged from all liability in respect of loss or damage unless suit is brought within a year after delivery of the goods. That period had not expired when the writ was served on the Australian company but had long expired when notice was given to Palace Shipping.
After dealing with the conflict in the English authorities as to whether a " stale " writ was or was not a nullity and expressing the view that it was not, Stephen J noted that there were a number of factors which led to the plaintiff initially making no endeavour to serve Palace Shipping. At 350 his Honour observed:
"Some two years had then passed since delivery of the steel and almost a year since both issue of the write and also expiration of the twelve months' limitation period. During that time the plaintiff had done nothing directly to inform Palace Shipping of the damaged condition of the steel; it had informed other parties, including Simsmetal, and may have assumed that Palace Shipping would have heard of the matter. However, there is no evidence from which I can infer that Palace Shipping had in fact become aware of the claim against it before it was served with notice of the writ in October 1980 .
Moreover, until October 1979 the plaintiff had done nothing in preparation for effecting service on Palace Shipping in Japan. For example, what proved to be the very time-consuming preliminary of having prepared in acceptable form a Japanese translation of the notice of writ had not been set in train. The reason for this inaction was neither mishap nor oversight. It seems, rather, to have been due to a calculated decision to incur no costs in prosecuting the case against Palace Shipping so long as there were thought to be prospects of a successful outcome against Simsmetal. It follows from what I have already said that Palace Shipping who, for all that appears, knew nothing of the proceedings, can have played no part in encouraging the plaintiff to adopt this course ." (Emphasis added)
His Honour therefore concluded that it could not be said that reasonable efforts had been made to serve the defendant as a consequence whereof unless " another good reason " existed the writ should not have been renewed. His Honour referred to three aspects of the delay - the very considerable length of the delay; the fact that the delay was deliberate; and the absence of notice to the defendant (Palace Shipping).
Unlike the position of Palace Shipping in Van Leer , it was common ground in the present case that each of the respondents had on 6 January 2003 received a Notice of Demand from ARF advising of the termination of Projects 1 and 2 and demanding repayment of their loans. Further, in July 2003 an offer of compromise was made by ARF to each of them, although at this time Mr Jones was overseas. On 4 August 2003 Mr Kirk provided Clayton Utz with a draft witness statement that went into the matter in some detail.
By November 2003 (after Mr Jones returned from overseas), it was clear that both respondents were aware not only of the proceedings against them, but also as to the nature of those proceedings and the fact that they had been joined as defendants to the summons. They knew all this well before the summons became stale in June 2004.
Furthermore as a member of the Action Group, Mr Kirk was aware that on 29 August 2003 Bergin J had by consent ordered that the defendants in the Group represented by Clayton Utz should nominate a test case defendant; that that nominated defendant should file a defence and cross-claim and that the parties should identify the common issues of all defendants in the Group. By November 2003 Mr Jones was also aware of the proposed test case and agreed, subject to being served with the summons, to be bound by its determination. Accordingly, there was nothing about ARF's claim against them that the respondents only learned when they were served in December 2008.
The submissions of the respondents on the appeal
ARF's grounds of appeal and its written submissions proceed on the basis that the respondents would seek to defend the whole of the primary judge's judgment and reasoning. In view of the concessions made on behalf of the respondents to which reference has been made, it is more convenient to deal with the respondents' more limited submissions on which they rely to persuade this Court to exercise the discretion to set aside service of the summons in their favour.
(a) Was the failure of ARF to serve the summons upon each of the respondents after September 2003 deliberate?
Between June and September 2003 there were four unsuccessful attempts to serve the summons upon Mr Kirk and four unsuccessful attempts to serve it upon Mr Jones. In the case of the latter, it was accepted that there was no way ARF could have served him until he returned from overseas in November 2003. By that time Bergin J had made directions in August 2003 that a test case be established. Mr Jones' evidence was that he ceased residing at his Manly address (being the address shown on his loan application form) in or about May 2001 and had resided at a different address in Manly since about May 2004 until 2007 when he moved to a different unit in the same building.
However, it was not suggested that Mr Jones ever advised ARF of his changes of address. Nevertheless, he maintained, and the primary judge accepted, that he at all times retained the same mobile phone number and that a phone call to him would have been sufficient to ascertain his address if it was desired to effect service upon him.
Without going into detail, it may be accepted that the attempts to serve Mr Kirk were replete with incompetence. There is no doubt that ARF had sufficient information to enable him to be successfully served. The position with respect to Mr Jones was somewhat different but nevertheless his whereabouts could have been ascertained, as they in fact were in November/December 2008.
Furthermore, it is common ground that no attempts were made to serve either of the respondents after September 2003 until it dawned upon Mr Patakas that there were still a number of unserved defendants, including the respondents, and that it was necessary to serve them before ARF's claim against them became statute barred in early January 2009.
In one sense, therefore, the failure to pursue service upon the unserved defendants including the respondents, of which there were only approximately 15 out of a total of 216 (of which 206 had been served), was intentional or deliberate. Clearly, ARF's inaction with respect to service upon these defendants was, to the quote the words of Stephen J in Van Leer, " neither mishap nor oversight ". For present purposes I can accept that it was a calculated decision, but it was not one made in a vacuum. There was a reason or explanation for it, namely, that on 29 August 2003 Bergin J had made orders by consent that the defendants in the Action Group represented by Clayton Utz should nominate a test case defendant and that the proceedings should proceed by way of a test case with respect to issues common to all defendants in the Action Group which would include the respondents notwithstanding that they had not been served.
In order to put the matter beyond doubt, during the course of the hearing of the appeal the Court invited the respondents to propose undertakings that it would accept from ARF and OAL with respect to the limitation issue. The undertakings sought by the respondents in response to that request were set out as follows in an email from the respondents' counsel to senior and junior counsel for ARF dated 15 February 2011:
·In the event that leave is granted by the Court of Appeal on the re-exercise of the discretion to extend the time for service, that leave be conditional on ARF not raising any limitation defence in relation to any cross-claim raised against it by the respondents in which case leave would be revoked; and
·OAL give[s] an undertaking to the Court that it will not raise any limitation defence in relation to any cross-claim raised against it by the respondents.
ARF responded by indicating that it was prepared to give an undertaking in the terms sought by the respondents. Senior counsel for ARF tendered a letter on behalf of OAL, the second cross-defendant to the respondents' proposed cross-claims (ARF being the first cross-defendant), which gave an undertaking in the terms now sought by the respondents. It was indicated that if a new undertaking was required, that could be done. It has now been so done in a letter of 23 February 2011 from Mr Condon addressed to the Registrar of the Court of Appeal which I set out in full:
" RE: AGRICULTURAL & RURAL FINANCE PTY LTD (ARF) v KIRK & JONES SUPREME COURT OF NSW, COURT OF APPEAL PROCEEDINGS NO. 2010/57554
RE: AGRICULTURAL & RURAL FINANCE PTY LTD (ARF) v KIRK & JONES SUPREME COURT OF NSW, COURT OF APPEAL PROCEEDINGS NO. 2003/92819
We are the solicitors on record for Oceania Agriculture Pty Ltd (OAL) in Supreme Court of New South Wales Proceedings No.2003/92819 (the Proceedings).
OAL is the 2 nd cross-defendant to the cross claims filed by numerous defendants to the Summons filed by the plaintiff (ARF).
We are informed by ARF's solicitors that the Summons was served on the (sic) Mr Kirk (the 167 th defendant) on 4 December 2008 and Mr Jones (the 158 th defendant) on 29 December 2008 pursuant to the Orders of Bergin J made on 14 November 2008.
On 2 February 2010, this firm gave a written undertaking on behalf of OAL in the Proceedings that it will not raise Statute of Limitations defences to any cross-claims raised by Mr Kirk and Mr Jones against OAL.
We are again instructed by OAL to give an undertaking to the Court that OAL will not raise any Statute of Limitations defences to any cross claims brought against it by Mr Kirk and Mr Jones, if the court of Appeal is minded to extend the time for service of the Summons on Mr Kirk and Mr Jones."Further, in a written memorandum to the Court dated 15 February 2011 signed by senior and junior counsel for ARF, the following is stated:
"1. By email dated 15 th February 2011, Counsel for the respondents has specified the terms of the undertakings not to plead limitations defences to proposed cross claims which the respondents seek as a condition of the grant on appeal of an extension of time for the service of the summons on them. A copy of the email is annexed to this memorandum for each of reference (respondents' undertakings email).
2. The appellant, as first cross respondent to those proposed cross claims, gives an undertaking in the terms sought in the respondents' undertakings email."I accept the undertaking referred to as one made to the Court.
In a note to the Court dated 21 February 2011 counsel for the respondent responded to the memorandum of 15 February 2011 as follows:
"2. In relation to ARF, it is understood that the effect of paragraph 2 of the Appellant's submissions is an undertaking to the Court by ARF through its counsel not to raise any limitations defence to any cross claim pressed by the Respondents.
3. An undertaking of that nature is acceptable to the Respondents."It follows that undertakings to the Court have been given on behalf of both ARF and OAL which are acceptable to the respondents. I also find them acceptable. In the foregoing circumstances it follows that even if a limitation defence is available to ARF and/or OAL in respect of any cross-claim brought against either of them by either of the respondents, any actual prejudice that would otherwise have been sustained by them as a consequence of its claims being statute barred, no longer has any effect.
(d) Presumptive prejudice
The respondents submitted that even if there was no actual prejudice established by them as a consequence of the delay in the service of the summons upon them, nevertheless, there was presumptive prejudice that could not be overcome. Reliance was placed upon the following passage from the reasons of McHugh J in Brisbane South Regional Authority v Taylor (1996) 186 CLR 541 at 551 where his Honour said:
"Prejudice may exist without the parties or anyone else realising that exists. As the United States Supreme Court pointed out in Barker v Wingo, 'what has been forgotten can rarely be shown'. So, it must often happen, that important, perhaps decisive, evidence has disappeared without anybody now 'knowing' that it ever existed. Similarly, it must often happen that time will diminish the significance of a known fact or circumstance because its relationship to the cause of action is no longer as apparent as it was when the cause of action arose."
So far as Mr Kirk is concerned and as I noted at [ 51 ] above, it appears that he has been able to access old documents relating to his investment. Nevertheless, he is now 72 years of age and he deposed in his evidence that he anticipated his ability to recollect complex arrangements and events going back 12 or so years, as well as his physical ability to coherently assemble relevant historical documents and to give evidence, has deteriorated with the passing of time. This form of prejudice would have carried more weight were it not for the fact that the only cross-claim which, it was conceded would have been available to him had he been served before the summons became stale, was that relating to the trustee issue. Material relating to that issue is a matter of record.
As to Mr Jones, he deposed that he no longer has certain documentary material although, again given the limited cross-claim that has been advanced on his behalf, this would not seem to be a crucial matter.
Given the abandonment of the cross-claim against Mr Fallon, the only cross-claim now relied upon by Mr Jones is that based upon his evidence that I have recorded at [173] above. However, he prefaced his recollection of the relevant conversations by deposing that because of the length of time that has passed, he can no longer remember the precise details of the conversations or how many conversations he had with each of Ms Edwards and/or Mr Lloyd. Unless they made diary notes at the time, Ms Edwards and Mr Lloyd will have the same recollection issues.
192Although I accept the principle of presumptive prejudice is applicable to a case such as the present, I do not think that it should carry much weight when balancing the various factors which the Court is required to take into account in the re-exercise of the relevant discretion. It must be remembered that, on the findings I have made, Mr Jones never believed that ARF's claims against him had been abandoned. Just two months before Bergin J made orders in March 2004 for the conduct of the test case, Mr Jones said in an email that his position remained in limbo. Mr Jones had also undertaken in November 2003 to be bound by the results of the test case and he knew what the issues were in that case. If he believed that he had been misled into failing to appreciate the potential significance of punctually making interest payments, he had the opportunity to record his recollections of the relevant conversations and to collect any material documentation in late 2003 or even earlier.
(e) Did the respondents sustain financial prejudice by the delay in the service of the summons upon them?
In his affidavit evidence Mr Kirk deposed that because of the late service of the summons he lost the opportunity of settling ARF's claim at an earlier point of time, thus avoiding future compounding of interest at 10.5% per annum. In 2003 he held funds in a cash management account that he could have applied towards any such settlement. His financial resources at the time of swearing his affidavit, he said, were significantly more limited than they were six years previously, especially as in 2003 he enjoyed a reasonable income from his forensic accounting practice and was thus better able to afford the inevitable costs associated with mounting a defence and cross-claim in what to him seemed to be complex litigation.
Mr Kirk deposed that had he been served with the summons, he could have settled and made payment in 2003 because he believed that part of any amount paid (relating to interests and costs) would have been tax deductible. As he no longer has a significant income, he is not in a position to claim a tax deduction for any payment he might now be required to make either as a consequence of a court order or settlement. Furthermore, had he been served and not been able to reach a negotiated settlement himself, he might have requested Clayton Utz to also act for him thereby reducing his costs.
In cross-examination Mr Kirk accepted that it would have been expensive to fund his own defence and cross-claim but that he had hoped that he would attain some benefit from riding on the coat tails of the other defendants represented by Clayton Utz. The effect of his evidence, in my view, is that it is more probable than not that had he been served, he would have engaged Clayton Utz to act on his behalf. Nevertheless, if he had been served, he also had the option not to do so, although he appreciated that that would require him to fund a new set of lawyers.
Mr Jones is also subject to the requirement to pay compounding interest. Notwithstanding that his father had provided him with $100,000 to assist in the defence of the proceeding instituted against him by ARF, as a member of the Action Group it seems unlikely that he would have instructed solicitors other than Clayton Utz. This is confirmed by the fact that in November 2003 he undertook to be bound by the result of the test case subject to his being served. When asked whether he thought that $100,000 would have been enough to finance a claim against Mr Cassegrain and his related companies, he responded " I do not know ".
I do not accept that had the respondents been served prior to June 2004, they would have instructed separate solicitors except on a very limited basis. In my view each of them would have relied upon Clayton Utz to represent their interests at least in relation to the common issues that were the subject of the test case. Had they been so served, they may or may not have negotiated a settlement with ARF. On balance, it seems to me that the probabilities are that they would not have settled ARF's claim if only because had the test case resulted in a decision favourable to Mr Gardiner, all defendants including the respondents would have been relieved from any liability to repay their loans.
Furthermore, each of the respondents at all material times was aware of the proceedings instituted against them and of the issues in the test case. Mr Jones agreed to be bound by its outcome subject to being served. There is no evidence that Mr Kirk approached Mr Cassegrain (whom he apparently knew well) with a view to negotiating a settlement or to ascertaining whether he was to be released from any liability under his loan agreements.
As I have found, there is no probative evidence that either of the respondents considered that ARF had abandoned its claim against them by the non-service of the summons. It seems to me that each of the respondents was prepared to await the ultimate outcome of the test case. No proper basis existed for either of the respondents to consider that they were " off the hook ". In these circumstances there was nothing to prevent either of them seeking to negotiate a settlement of their liability to ARF under the loan agreements. They did not do so. Their loans had been outstanding for a lengthy period and they were at all times aware that they would be subject to the payment of interest on the balance outstanding. Further, the interest that has accrued since the respondents were served in December 2008 has not been as a consequence of any conduct on the part of ARF. Rather than accept that they had been served and then proceed to defend or negotiate a compromise of ARF's claim, they instituted the present motions to have service set aside. This they were entitled to do but, if ultimately unsuccessful, they can hardly complain that interest has run on the outstanding amount of their loans in the meantime.
Were the respondents prejudiced in not being able to participate in the trial of the Atkinson proceedings before Einstein J fixed for April 2010?
At [60] of his reasons the primary judge said (omitting citations):
"Submissions were also addressed by the Applicants pointing out the particular problems for them should their application be denied, which arise from the proximity of the final hearing date fixed in April for the Court to deal with all remaining matters concerning the parties. This is also is a parameter appropriate to be taken into account. Many parties would be affected if those hearing dates required to be vacated and to do so would be contrary to the approaches to litigation laid down by the recent decision of the High Court in Aon Risk Services Australia Ltd v Australian National University ."
ARF submitted that the primary judge was in error in attributing the respondents' lack of readiness for the final hearing of the proceedings in April 2011 to late service of the summons upon them. Given that they were served in December 2008, any delay thereafter was due to their own delay in the filing of their notices of motion to set aside service especially as the return date of the summons served on Mr Jones was 6 February 2009 on which date Bergin J directed both respondents to file their defences and cross-claim by 20 March 2009.
The respondents submitted that having filed their motions to set aside service, they had no option but to await the determination of those applications before taking any steps to prepare a case for hearing which would become academic if their applications succeeded. Accordingly, it was proper for the primary judge to weigh the prejudice to the respondents that resulted from the fact that they would have had insufficient time after 11 February 2010 to prepare their cases for trial had service of the summons upon them not been set aside.
The parties only touched on this aspect of prejudice in their written submissions and not at all in oral argument. Although I am prepared to accept that had service not been set aside, the respondents would only have had from 11 February 2010 to 6 April 2010 to file their defences and cross-claims, as a consequence of the concessions made on behalf of the respondents on appeal, Mr Kirk would not have had any defence to ARF's claim except for a cross-claim confined to the trustee issue whereas Mr Jones would only have had an estoppel defence to ARF's claim based on his conversations with Mr Edwards and/or Mr Lloyd and a possible cross-claim against OAL based on the same conversations.
204It follows that the issues between ARF/OAL and the respondents were so limited that I am not prepared to find that they would have been materially prejudiced by only having just under two months to prepare their separate cases. The position may have been different had the cross-claim relied upon by the primary judge in concluding that the respondents were prejudiced by the delay in service upon them, been successfully maintained on the appeal.
Has ARF suffered any prejudice as a consequence of the orders of the primary judge setting aside service of the summons upon the respondents?
ARF submitted that it has sustained prejudice as a consequence of the applications of the respondents to set aside service of the summons upon them as such applications were not made, and allegedly deliberately not made, until after the limitation period expired before which fresh proceedings could have been instituted against the respondents which would have overcome both the limitation issue as well as the delayed service issue.
There is no doubt that instead of seeking an ex parte order from Bergin J to extend the time for service of the summons upon the respondents, ARF could have instituted fresh proceedings as long as it did so prior to 5 January 2009. It could have taken that course immediately after the High Court delivered its judgment on 11 December 2008 that resolved the punctuality issue in ARF's favour. It elected not to do so. Rather, it sought an ex parte order to extend the time for service. Service was only then effected on each of the respondents in December 2008. ARF's legal advisers must have been aware that in view of the significant delay in serving the summons on the respondents, it was likely that they would apply to set aside service pursuant to UCPR r 12.11(1)(b) and that any such application was unlikely to be filed prior to 5 January 2009.
In my view, having elected to make an ex parte application to extend the time for service rather than to institute fresh proceedings before 5 January 2009, it does not lie in the mouth of ARF to now assert that it is being prejudiced by the respondents having moved to set aside service after the limitation period expired. That situation, in my view, was of ARF's own making.
In this respect it is not unimportant to appreciate that when ARF made its application to Bergin J in November 2008 it was only concerned with its own position with particular reference to the impending expiry of the limitation period on 5 January 2009. It had no regard at that time for the respondents' position. For these additional reasons, in my view, no weight should be attached to the fact that the course taken by ARF has denied it the opportunity to institute fresh proceedings against the respondents within the relevant limitation period.
ARF nevertheless submitted that it had been denied the opportunity of instituting fresh proceedings against the respondents as a consequence of their failure to comply with UCPR r 12.11(2) which provides that an order may not be made setting aside the service of an originating process on a defendant unless a notice of motion seeking such an order is filed by the defendant within the time limited for the defendant to enter an appearance in the proceedings. As the present originating process was a summons, UCPR r 6.10(1)(b)(i) required a notice of appearance to be filed on or before the return date stated in the summons.
The ex parte order for an extension of time made by Bergin J on 14 November 2008 amended the return date of the summons served on Mr Kirk to 12 December 2008. Mr Kirk was served on 4 December 2008 and filed an appearance on 11 December 2008. He did not file his Notice of Motion to set aside service until 7 May 2009. It was submitted that had he complied with UCPR r 12.11(2) and filed and served his notice of motion prior to 12 December 2008, it would have been open to ARF to institute proceedings against Mr Kirk prior to 5 January 2009 when the limitation period in respect of its action against him expired. Even if such a course of conduct required it to discontinue the summons served on Mr Kirk on 4 December 2008, there is no reason why such leave would not have been granted pursuant to UCPR r 12.1(1)(b) to so discontinue.
The position with respect to Mr Jones is somewhat different. On 29 December 2008 Bergin J dispensed with personal service of the summons upon Mr Jones. Her Honour ordered that he be served by facsimile, email and by mail. Her Honour's orders provided that service was deemed to have occurred on the day following the day on which those steps were taken. The return date for the summons was 6 February 2009. The evidence established that Mr Jones received the summons by email on 29 December 2008 and by post on 5 January 2009. He filed a notice of appearance on 19 January 2009. As Mr Jones was not required to file his application to set aside service until 5 February 20009, a month after the limitation period expired within which ARF could institute fresh proceedings against him, ARG's submission that his failure to comply with the rule (he did not file his Notice of Motion to set aside service until 14 August 2009) prevented it from instituting such proceedings, cannot be sustained.
As I have indicated, ARF submitted that had at least Mr Kirk complied with UCPR r 12.11(2), it would have had the opportunity to discontinue the existing summons and to institute fresh proceedings against Mr Kirk within the limitation period. UCPR r 12.11(2) only requires the relevant notice of motion to be filed by the defendant within the time limited for the defendant to enter an appearance: it does not require a notice of motion to be served within that time. However, pursuant to UCPR r 10.1(1), the Notice of Motion was required to be served " as soon as practicable ".
Mr Patakas deposed to the fact that had Mr Kirk filed a notice of motion to set aside service prior to 12 December 2008 and served that notice of motion shortly thereafter, ARF would have commenced fresh proceedings against him prior to the expiry of the limitation period on 5 January 2009. It does not appear that he was challenged on this statement, or at least the Court was not referred to any cross-examination to suggest that he was. There was no evidence to suggest that Mr Patakas made any enquiry of either respondent or their solicitor prior to 5 January 2009 as to whether they intended to apply to set aside service. There was correspondence, but that does not appear to have commenced (according to ARF's chronology) before 16 January 2009, and this correspondence was commenced by Mr Kirk's legal representatives.
In the foregoing circumstances I do not consider that ARF was prejudiced by not instituting fresh proceedings against the respondents prior to 5 January 2009.
After each respondent had filed a Notice of Appearance, there was correspondence between the solicitors for the respective parties and some interlocutory orders made on approximately three occasions extending the time for the respondents to file their defences and cross-claims. Thus on 16 January 2009 Mr Kirk's solicitors wrote to ARF's solicitors requesting copies of the documents filed by ARF in its ex parte application to Bergin J for an extension order. Importantly, however, the solicitors made it clear that Mr Kirk's filing of his notice of appearance should in no way be taken as a concession of any of his rights or any other matter the subject of the proceedings.
On 30 January 2009 Mr Kirk's solicitors served a Notice to Produce upon ARF's solicitors seeking documents with respect to the attempted service on Mr Kirk in 2003. Those documents were not produced until 9 April 2009 although in the meantime there appear to have been arguments as to width of the Notice to Produce. Meanwhile, on 6 February 2009 Bergin J made a consent order that the respondents file defences and cross-claims by 20 March 2009 which was extended by Einstein J on 31 March 2009, 24 April 2009 and 15 May 2009. Finally, on 18 May 2009 the Court ordered that mediation take place with respect to the claims against the defendants which was attended by the respondents. It was, as I have already observed, unsuccessful. It is to be noted that that order was made after Mr Kirk had on 7 May 2009 filed his Notice of Motion to set aside service of the summons.
ARF submitted that by filing Notices of Appearance and otherwise partaking, albeit to a limited degree, in some interlocutory skirmishes as well as seeking documents by serving a Notice to Produce, the respondents had, in effect, submitted to the jurisdiction of the Court from which they could not resile or had waived their right to challenge service of the summons. At the very least, their conduct was such as to mandate that the Court exercise its discretion to refuse the respondents an extension of time within which to file their Notices of Motion to set aside service of the summons.
In Maronis Holdings Ltd v Nippon Credit Australia Ltd [2000] NSWSC 507; (2000) 175 ALR 36 Bryson J held that a defendant out of the jurisdiction who has filed an unconditional appearance was not prevented from having service set aside, although the fact that an appearance had been filed was a relevant factor within the ambit of the discretion under the relevant rule but was not conclusive and thus did not exclude the exercise of the discretionary power.
In the present case, there is no question of a submission by the respondents to the jurisdiction of the Court as the defendants have at all times been within the jurisdiction. It must follow that their filing of Notices of Appearance is but a factor to be taken into account in determining whether the Court should exercise its discretion under UCPR r 1.12 to extend time. Certainly no question of election or waiver arose.
Further, ARF's submission that the Court was required to re-exercise the discretion exercised by Bergin J as at 14 November 2008 cuts the ground away from its submission that the subsequent conduct of the respondents in 2009 was relevant to that re-exercise. However, it should be said that the basis for ARF's submission is misconceived as the Court is not being asked to re-exercise the discretion exercised by Bergin J to grant an extension of time for service but to exercise the discretion under UCPR r 12.11(1)(b) to set aside that service.
Nevertheless, in all the circumstances, in my opinion it cannot be said that any conduct on the part of the respondents where the service upon them was pursuant to an order extending time made by Bergin J and, therefore, not irregular, relevantly misled ARF or otherwise prejudiced it in a manner which would justify refusing to extend the time for the filing by the respondents of their Notices of Motion to set aside service of the summons. In my view such an extension of time should therefore be granted.
Summary and conclusion
I would summary my findings as follows:
(a) Although the respondents filed their Notices of Motion to set aside service of the summons upon them out of time, the Court should exercise its discretion under UCPR r 1.12 to extend the time for the filing by Mr Kirk of his amended Notice of Motion to 11 May 2009 and by Mr Jones to 14 August 2009.
(b) Leave to appeal against the orders made by the primary judge on 18 February 2010 should be granted; such leave was ultimately not opposed.
(c) The primary judge's orders of 18 February 2010 should be set aside. The respondents' concessions on the appeal undermined the primary judge's reasoning and the conclusions on the question of prejudice (the errors being by no means exclusively of the primary Judge's making). Accordingly, discretion to set aside service of the summons pursuant to UCPR r 12.11(1)(b) must be re-exercised by this Court.
(d) The matters to be taken into account when exercising the discretion under UCPR r 1.12 in a case such as the present are those referred to by Ipp JA in Buzzle at [43], namely, the attempts that have been made at service; the length of the delay in effecting service; the reasons for that delay; whether the delay was deliberate; whether notice was given to the defendants of the nature of the claim against them; the conduct of the parties generally; and the hardship or prejudice caused to ARF by refusing the renewal of the summons or to the respondents by granting it.
(e) The attempts by ARF to assert that the principles alluded to by Ipp JA in Buzzle have no application to the present case due to the factual differences between them should be rejected.
(f) The statement by Lord Goddard in Battersby referred to at [102] is not an inflexible rule: its application must depend on the circumstances and, in particular and relevantly, whether there is a rational and plausible explanation for the plaintiff delaying service until some other case is decided, the outcome of which will have a direct bearing on whether the plaintiff has a claim against the unserved defendant;
(g) Equally, his Lordship's statement that it is for the court and not the litigants to decide whether there should be a stay of the proceedings and that a plaintiff cannot arrogate to itself the right to impose such a stay, also depends on the circumstances of the particular case: it is also a general but not inflexible rule.
(h) There was nothing to prevent ARF effecting service upon Mr Kirk at any time and on Mr Jones after November 2003. In one sense its failure to do so was deliberate or at least the result of incompetence. But the failure was, rightly or wrongly, essentially due to the establishment of the test case and any decision not to further attempt to serve the small number of unserved defendants, including the respondents, was guided by, and was the consequence of, the decision of the parties and the Court to proceed with the test case in order to resolve issues common to all parties including the unserved defendants.
(i) Accordingly, the decision for the Atkinson proceedings to proceed by way of a test case had the effect, endorsed by the Court, of effecting a de facto stay of those proceedings against all defendants other than Mr Gardiner.
(j) In the circumstances, it would not be proper to find that ARF unilaterally arrogated to itself the equivalent of a stay of proceedings: any such arrogation was not unilateral but multilateral in that it included not only the defendants represented by Clayton Utz but also the concurrence and, it would appear, insistence of the Court as a matter of case management that the Atkinson proceedings should proceed by way of a test case with respect to all common issues.
(k) In any event, both respondents were fully aware in and from 2003 that, first, they had been joined as defendants to the summons; second, of the nature of ARF's claim against them; third, of the reason for and issues in the test case; and fourth, that if the outcome of the test case was in Mr Gardiner's favour, that would be the end of ARF's claim against them.
(l) Although it was an error of judgment, (at least in hindsight) on the part of ARF and its advisers not to have served the respondents, there was a rational explanation for not doing so.
(m) It follows generally from the foregoing, contrary to the submission of the respondents, that the delay in the service of the summons upon them by ARF has been explained and that that explanation, whatever its shortcomings in hindsight, was in the unique circumstances of this case, rational, and understandable. Accordingly, subject to the question of prejudice caused to the respondents, the delay in service should not weigh heavily in the balancing exercise which this Court is required to undertake.
(n) The submission of the respondents that at least by November 2008 each considered that ARF had abandoned its claim against them and that they were " off the hook " should be rejected. Although each believed by then that service was unlikely, they always regarded it as at least a continuing possibility. Neither asserted that they believed that the proceedings had been abandoned against them.
(o) Mr Kirk alleged on the appeal that he was prejudiced by the delay in being served in two respects. The first related to the trustee issue. The second was that he was prevented from contributing his expertise as a forensic accountant to the preparation of the test case.
(p) As to the trustee issue, it is not self-evident why the revocation to which the ASIC media release referred was required to be disclosed in the alleged April 1999 supplementary prospectus for Project 2 or at all. Further, there was no acceptable evidence that there was such a prospectus or that it contained statements which would be misleading if the trustee issue was not disclosed in it. Nor was there any evidence that ARF or OAL or its advisers were or ought to have been aware of the media release before it filed the alleged April supplementary prospectus. In relation to Projects 1 and 2 ASIC had the power to revoke ARG's approval as a trustee " for any reason " but it apparently did not. In the foregoing circumstances little, if any, weight should be accorded to this limb of alleged prejudice.
(q) The same conclusion should be reached with respect to Mr Kirk's alternative submission that all the prospectuses contained an express, or at least an implied, representation that ARG was a trustee of good repute which was rendered false when ASIC revoked its trusteeships of the schemes referred to in the media release.
(r) As to the alleged lost opportunity to influence the outcome of the test case by contributing to its preparation, that claim of prejudice was undermined by the abandonment on the appeal of the suggestion that Mr Kirk could have succeeded on Mr Gardiner's cross-claim where Mr Gardiner did not. This element of prejudice, upheld by the primary judge, should be rejected.
(s) Ultimately, Mr Jones relied only on one ground of prejudice being a claim, now statute barred, against ARF and/or OAL that its representatives informed him that he would not be prejudiced if the payment due under his loan agreement on 30 October 1998 was not paid in time. However, the relevant representation could now be pleaded as an estoppel in Mr Jones' defence to ARF's claim in respect of which the statute of limitation would be irrelevant. To the extent that it is to be asserted in a cross-claim against ARF or OAL, it would potentially be met with a defence based on the statute.
(t) However, at both the trial before the primary judge and on the appeal, both ARF and OAL gave and have given undertakings to the Court not to plead any limitation defence to any cross-claim which might be filed by either respondent. Those undertakings are sufficient to negative any possible prejudice which might otherwise have arisen had they not been given.
(u) The respondents also relied on presumptive as distinct from actual prejudice caused by the lengthy delay in service being effected upon them. As to Mr Kirk, his claim to presumptive prejudice was undermined by his abandonment of all possible cross-claims other than that with respect to the trustee issue. It should be accorded little weight. The same conclusion should be arrived at with respect to Mr Jones given the nature of his sole defence or cross-claim.
(v) Each respondent alleged that they were financially prejudiced by the delay in service of the summons upon them. This claim should be rejected or, at least, accorded little weight. Had each been served, as a matter of probability it can be inferred that they would have awaited the outcome of the test case rather than have settled early as Mr Gardiner's success would have relieved them of all liability to repay their loans. In any event, by not repaying the loans, ARF has sustained a loss represented by the interest they would have otherwise earned on the money had it been repaid at an earlier point of time. At no time did the respondents seek to be pro-active by at least ascertaining whether ARF proposed to serve them if it was successful in the test case. Rather, they preferred (as they were entitled to do) to let 'sleeping dogs lie' in the hope, no doubt, that either they would be forgotten or the test case would be resolved in the defendants' favour. The prejudice they have sustained in adopting the stance they did is not such as would justify it being accorded any weight.
(w) Finally, the submission accepted by the primary judge that the respondents would be prejudiced in preparing for the final hearing of the Atkinson proceedings fixed to commence on 6 April 2010 should be rejected. The true issues between the respondents on the one hand and ARF and/or OAL on the other are so limited that it could not be fairly asserted that with a modicum of effort, their case could not have been prepared in the period available prior to 6 April 2010.
(x) ARF's submission that it was prejudiced by the late filing by the respondents of their notices of motion to set aside service of the summons upon them should be rejected. ARF elected to proceed by way of an ex parte application to extend the time for service rather than instituting fresh proceedings against the respondents in order to avoid the expiry of the limitation period applicable to its claim against the respondents. This was a problem of their own making.
(y) ARF's submission that it was denied the opportunity of instituting fresh proceedings against the respondents as a consequence of their failure to comply to comply with UCPR r 12.11(2) should also be rejected. Although this alleged ground of prejudice applied to Mr Kirk, it did not apply to Mr Jones. In any event, it should be accorded little weight.
(z) Finally, ARF's contention that the conduct of the respondents and/or their solicitors after they were served amounted to a waiver of their right to apply to set aside service of the summons cannot be sustained. It has no merit when the facts are examined.In my view ARF has not demonstrated that it will suffer any material prejudice as a consequence of the conduct of the respondents in seeking to set aside service of the summons upon them. Nor has it sustained any relevant prejudice to which I would accord any weight, by now being denied the opportunity of instituting fresh proceedings against the respondents.
On the other side of the ledger, in my opinion the delay in the service of the summons upon the respondents will not cause them any relevant prejudice in defending ARF's claim or in pursuing any cross-claim which might be available to them against either ARF or OAL. This is so particularly in light of the undertakings to the Court by ARF and OAL not to raise any limitation defence to any such cross-claim.
Finally, in my opinion AFL has adequately explained the delay in service which has occurred. In particular, it has not arrogated to itself the benefit of a stay of proceedings, unilaterally or at all. Applying those principles stated by Ipp JA in Buzzle which are relevant to the issues in this appeal I have come firmly to the view that the Court's discretion to set aside service of the summons upon the respondents should not be exercised in their favour. The service of the summons pursuant to the orders extending time for service made by Bergin J on 14 November 2010, should stand.
I would therefore propose the following orders:
(a)Extend the time for the filing by the first respondent of his Amended Notice of Motion to 11 May 2009 and by the second respondent of his Notice of Motion to 14 August 2009;
(b)Grant leave to appeal against the orders made by Einstein J on 18 February 2010;
(c)Appeal allowed;
(d)Set aside the orders made by Einstein J on 18 February 2010 and in lieu thereof dismiss the Notices of Motion referred to in (a) above;
(e)The respondents to pay the appellant's costs of the Notices of Motion including any reserved costs;
(f)The respondents to pay the appellant's costs of the applications for leave to appeal and of the appeal;
(g)Each party to pay its or his own costs of the application to extend time referred to in (a) above.MACFARLAN JA : I agree with Tobias JA.
SACKVILLE AJA : I agree with the orders proposed by Tobias JA and with his Honour's reasons .
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