Arthur Andersen Corporate Finance Pty Ltd v Buzzle Operations Pty Ltd (in liq) - [2009] NSWCA 104

NEW SOUTH WALES COURT OF APPEAL

CITATION:
Arthur Andersen Corporate Finance Pty Ltd v Buzzle Operations Pty Ltd (in liq) [2009] NSWCA 104

FILE NUMBER(S):
40257/08

HEARING DATE(S):
20 April 2009

JUDGMENT DATE:
13 May 2009

PARTIES:
Arthur Andersen Corporate Finance Pty Ltd (Appellant)
Buzzle Operations Pty Ltd (in liq) (Respondent)

JUDGMENT OF:
Ipp JA Tobias JA McColl JA

LOWER COURT JURISDICTION:
Supreme Court

LOWER COURT FILE NUMBER(S):
SC 20177/06

LOWER COURT JUDICIAL OFFICER:
Rothman J

LOWER COURT DATE OF DECISION:
25 July 2008

LOWER COURT MEDIUM NEUTRAL CITATION:
Buzzle Operations Pty Ltd (in liquidation) v Breirl [2008] NSWSC 746

COUNSEL:
J T Gleeson SC; N M Bender (Appellant)
J C Sheahan SC; M A Izzo (Respondent)

SOLICITORS:
Baker & McKenzie Solicitors (Appellant)
Piper Alderman Solicitors (Respondent)

CATCHWORDS:
PROCEDURE - miscellaneous procedural matters - other matters - exercise of discretion to extend time for service of writ - factors relevant to exercise of discretion - where limitation period for underlying action had expired - where deliberate delay in service - influence of litigation funder who undertook to provide the necessary funds to pursue the defendant.
PROCEDURE - miscellaneous procedural matters - other matters - policy considerations - just, quick and cheap resolution of proceedings - objects of case management - avoidance of delay.

LEGISLATION CITED:
Civil Procedure Act 2005
Uniform Civil Procedure Rules 2005 (Qld)
Supreme Court Act 1970
Uniform Civil Procedure Rules 2005

CATEGORY:
Principal judgment

CASES CITED:
Battersby v Anglo American Oil Co Limited [1945] KB 23
Brealey v Board of Management Royal Perth Hospital [1999] WASCA 158; (1999) 21 WAR 79
Brisbane South Regional Health Authority v Taylor [1996] HCA 25; [1996] 186 CLR 541
CDJ v VAJ [1998] HCA 67; (1998) 197 CLR 172
Chalmers v Kensit [2008] WASCA 122
Dagnell v Freedman & Co [1993] 1 WLR 388
Foxe v Brown (1984) HCA 69; (1984) 59 ALJR 186
Itek Graphix Pty Limited v Elliott [2002] NSWCA 104; (2002) 54 NSWLR 207
Klein v Domus Pty Limited [1963] HCA 54; (1963) 109 CLR 467
Kleinwort Benson Ltd v Barbrak Ltd [1987] AC 597
Pell v Hodges [2007] NSWCA 234
Ramsay v Madgwicks [1998] VR 1
Regie National des Usines Renault SA v Zhang [2002] HCA 10; (2002) 210 CLR 491
The IMB Group Pty Limited (in liq) v Australian Competition and Consumer Commission [2006] QCA 407; [2007] 1 Qld Rep 148
Tolcher v Gordon [2005] NSWCA 153; (2005) 53 ACSR 442
Van Leer Australia Pty Limited v Palace Shipping KK [1991] HCA 11; (1991) 180 CLR 337
Victa Limited v Johnson (1975) 10 SASR 496

TEXTS CITED:

DECISION:
(a) The application for leave to appeal is granted and the appeal is upheld;
(b) The orders made by Rothman J are set aside;
(c) The orders made on 21 March 2007 and 22 August 2007 are discharged;
(d) It be declared that none of the defendants to Buzzle's action against Arthur Andersen has been served, validly, with a statement of claim or amended statement of claim;
(e) Buzzle pay the costs of the application for leave to appeal and the appeal;
(f) Buzzle pay the costs of the hearing before Rothman J; and
(g) Buzzle be entitled to a certificate under the Suitors' Fund Act 1951 if otherwise entitled.

JUDGMENT:

IN THE SUPREME COURT
OF NEW SOUTH WALES
COURT OF APPEAL

CA 40257/08
SC 20177/06
IPP JA
TOBIAS JA
McCOLL JA
13 May 2009

Arthur Andersen Corporate Finance Pty Ltd v Buzzle Operations Pty Ltd (in liq)

Judgment

IPP JA:
The application to the primary judge to renew a stale writ after the limitation period had expired
This application for leave to appeal and appeal, which were heard concurrently, concern a discretionary decision by Rothman J by which he dismissed two motions by 141 applicants for orders rendering ineffective the service on them of the respondent’s originating statement of claim.
The 141 applicants comprise 140 persons who had been partners at the relevant time of a firm of chartered accountants known as Arthur Andersen, and a company, Arthur Andersen Corporate Finance Pty Ltd (the Arthur Andersen Company”), which was associated with that partnership. I shall refer to the applicants, collectively, as “Arthur Andersen”.
The respondent is Buzzle Operations Pty Limited (in liquidation) (“Buzzle”). The liquidator of Buzzle is Mr A H J Wily. Mr Wily was appointed liquidator on 15 February 2002.
Buzzle commenced proceedings against Arthur Andersen claiming damages, both in contract and in tort, for professional negligence. Buzzle’s claims concerned the merger of several companies; Buzzle was incorporated in 2000 to effect the merger. The statement of claim alleged that Arthur Andersen breached duties that they owed Buzzle in the course of advising and performing services for Buzzle in connection with the merger.
Rothman J held (at [40]) that the limitation periods applicable to Buzzle’s claim in tort expired “some time in the second-half of 2006” and, in relation to the contractual claim, “at an even earlier date”.
On 15 May 2006, without advising Arthur Andersen, Buzzle filed its statement of claim. On 15 November 2006, the time permitted by the Uniform Civil Procedure Rules (UCPR) for the service of the statement of claim expired (see Rothman J’s judgment at [16]).
Some four months later, on 21 March 2007, the registrar, on Buzzle’s ex parte application, extended the time for service of the statement of claim until 15 June 2007. In obtaining this order, no disclosure was made to the registrar that the limitation period had expired. It is not in dispute that, on this ground alone, that order should be set aside.
On 14 June 2007, Mr Wily’s solicitor wrote to Baker & McKenzie, Arthur Andersen’s solicitors, enquiring whether they had instructions to accept service. Baker & McKenzie replied in the negative.
On 15 June 2007, Buzzle served its statement of claim on the Arthur Andersen Company at its registered office and on three individual partners of Arthur Andersen, as well. This was apparently done pursuant to the extension of time granted on 21 March 2007. All parties so served took issue with the service on the ground that the registrar should not have extended the time for service.
On 22 August 2007, Malpass AsJ, on Buzzle’s ex parte application, extended time for service until 22 October 2007. On 10 October 2007, Buzzle obtained an ex parte order for substituted service of the statement of claim on all the defendants by serving it on Baker & McKenzie. On 22 October 2007, Buzzle served the statement of claim on Baker & McKenzie.
Arthur Andersen’s notices of motion before Rothman J
By notices of motion dated 2 July 2007 and 16 November 2007, Arthur Andersen sought orders discharging the orders extending the periods for the service of the statement of claim, setting aside the service that had occurred, and a declaration, in effect, that no valid service of the statement of claim had taken place.
His Honour treated these notices of motion as applying to all ex parte orders Buzzle had brought relating to extending the time for service (see [2] of his Honour’s judgment). He dismissed the notices of motion. This dismissal is the subject of Arthur Andersen’s application for leave to appeal and appeal.
It is not apparent whether, in dealing with the application to discharge the orders extending time for service, Rothman J was acting under UCPR r 36.16(2)(b) (which empowers the Court to set aside an order made in the absence of a party) or s 121(3) of the Supreme Court Act 1970 read with UCPR r 49.19. Whatever the position in this regard, Rothman J treated the application as not requiring demonstration of error; he dealt with it on the basis that all issues were de novo before him. No issue was taken on appeal concerning his Honour’s approach and I accept that it was correct.
The application for leave to appeal concerns matters of importance and I would grant leave to appeal.
His Honour’s reasons for dismissing the notices of motion
In dismissing the notices of motion, his Honour had particular regard to the conduct of Mr Wily. His Honour held that Mr Wily acted reasonably in allowing the statement of claim to expire, in delaying the applications to renew the statement of claim, and in delaying service of the statement of claim.
At a relatively early stage, Mr Wily’s solicitors advised him that Buzzle’s prospects of success in establishing its damages claim were good. Mr Wily accepted that advice.
There was a practical difficulty in serving 141 defendants, but that was a problem capable of being solved readily by obtaining an order for substituted service – as, eventually, was done.
Although Buzzle was in liquidation, Mr Wily had entered into an agreement with a litigation funder (the “Funder”). By the terms of that agreement the Funder undertook to provide the necessary funds to pursue Arthur Andersen. The funding agreement was not in evidence but Mr Wily gave oral evidence as to its terms. In this regard, Rothman J said (at [12]):
“From approximately 2003, monies were available to Buzzle and Mr Wily to conduct the proceedings [against Arthur Andersen] and, to the extent necessary, to meet any order of the Court or to meet security for costs.”
This, in effect, was a finding that the Funder’s obligation to provide finance for Buzzle’s action against Arthur Andersen was unconditional. It was not formally challenged by Buzzle.
Later in his reasons (particularly at [69(d)]), Rothman J expressed the obligation of the Funder in more qualified terms, namely, that funding was available subject to advice on the prospects of success being favourable (as they were), and to Mr Wily (and the Funder) deciding that the proceedings would be worthwhile “in terms of the recoverability of any award of damages from defendants who, while insured, were in liquidation”.
His Honour found that the significant cause of the delay was Mr Wily’s concern that any damages award that Buzzle might obtain might be futile as Arthur Andersen might not have the funds to pay those damages. Whether Arthur Andersen would be able to pay any damages awarded against them was referred to as the “recoverability” issue.
His Honour held (at [34]):
“I do not consider that [Mr Wily’s concerns as to recoverability of damages] were unreasonable where the liquidator had duties to the creditors not to expend monies on litigation that would not achieve a practical result; where there may be significant limitations on the monies available under insurance policies; and, where other litigation (HIH litigation) against Arthur Andersen interests may have exhausted the insurance resources that would otherwise be available.”
The “HIH litigation” to which his Honour referred involved a claim for damages by the liquidator of HIH (a well-known insurance company) against Arthur Andersen.
At [69] of his reasons Rothman J said that, in exercising his discretion, he would take into account a number of factors that he enumerated. At [69](l) his Honour stated that “ultimately”, the most significant factor was “the limitation issue”. That is, the prejudice to Arthur Andersen if the proceedings were allowed to continue and the prejudice to Buzzle were its statement of claim to become statute-barred. At [70] his Honour repeated that these considerations represented “a fine balance” and at [71] a “very fine balance”. On weighing what could be construed as only the “limitation issues”, his Honour concluded (at [71]):
“[G]iven the nature of the proceedings, the delay in the notification of the defendants of the existence of the proceedings does not outweigh the injustice to Buzzle if the proceedings were allowed to lapse.”
I understand his Honour’s reference to “the delay in the notification of the defendants of the existence of the proceedings” as being a reference to the delay in the service of the statement of claim.
The grounds of appeal
The grounds of appeal are several and include contentions that his Honour failed to take certain relevant factors into account and wrongly took others into account. In addition, other grounds are asserted. In summary the relevant grounds are as follows:
(a)His Honour erred in failing to take the following factors into account:
(i)Buzzle failed to give a satisfactory explanation for its delay in serving the statement of claim;
(ii)Buzzle failed to show reasonable diligence in attempting to satisfy itself about the recoverability issue;
(iii)the length of the delay and the reasons for it;
(iv)Mr Wily’s deliberate decision to delay the service of the statement of claim; and
(v)the fact that the prosecution of the proceedings would endanger Buzzle’s resources (and the claims of creditors);
(b)His Honour erred (at [69(h)]) in finding that Buzzle’s reason for the delay was “essentially the need for satisfaction of the liquidator (and the litigation funder) of the recoverability of any damages that may be awarded”, instead of finding that the reason was Mr Wily’s failure to take adequate steps to allay his concerns about recoverability; and
(c)His Honour erred in not taking into account the effect of the expiry of the limitation period.
The nature of the discretion
Rothman J did not identify the precise rule that provided for the relevant discretion that he was required to exercise. It is common ground, however, that the rule in question was UCPR r 1.12 which provides:
“(1)Subject to these rules, the court may, by order, extend or abridge any time fixed by these rules or by any judgment or order of the court.
(2)The court may extend time under this rule, either before or after the time expires, and may do so after the time expires even if an application for extension is made after the time expires.”
His Honour said (at [50]) that the discretion was “a broad one and may be exercised for any good reason”. In my opinion, this formulation of the discretion was inadequate and incomplete, and was capable of leading to error. In my view, with respect, that is what occurred.
The rule requires the exercise of a judicial discretion, not fettered by inflexible prescriptions: Bray CJ in Victa Limited v Johnson (1975) 10 SASR 496 at 503, approved by Stephen J, sitting alone, in Van Leer Australia Pty Limited v Palace Shipping KK [1991] HCA 11; (1991) 180 CLR 337 at 343 - 344, and Mason J, sitting alone, in Foxe v Brown (1984) HCA 69; (1984) 59 ALJR 186 at [189]. But this does not mean that the discretion is at large. The discretion is to be exercised in the context of and by reference to the statute by which it is conferred (and any other statute that is relevant to the legislative context) and in accordance with principles developed by judicial decisions.
In CDJ v VAJ [1998] HCA 67; (1998) 197 CLR 172 Gaudron J (at [53] - [54], 185) observed that, where a general and unconfined discretion is conferred on a court, it is governed by the requirement that it be exercised judicially and consistently with the judicial process.
The point is illustrated by the approach of McHugh J in Brisbane South Regional Health Authority v Taylor (1996) HCA 25; (1996) 186 CLR 541. His Honour (at 551) emphasised that the discretion to extend time was to be exercised in the context of the rationales for the existence of limitation periods. His Honour applied the object of the limitation statute under consideration in that case (in terms of which the relevant discretion had to be exercised) in giving content to the criteria applicable to the discretion. He stated (at 554):
“The object of the discretion, to use the words of Dixon CJ in [Klein v Domus Pty Limited (1963) 109 CLR 467 at 473], ‘is to leave scope for the judicial or other officer who is investigating the facts and considering the general purpose of the enactment to give effect to his view of the justice of the case’. In determining what the justice of the case requires, the judge is entitled to look at every relevant fact and circumstance that does not travel beyond the scope and purpose of the enactment authorising an extension of the limitation period.”
Kirby J, in the same case, expressed like views. His Honour stated (at 564 - 565), that the “discretion” must be exercised to achieve the purposes for which Parliament provided it. This requires the identification of its intended operation” (see also at 570).
TheIMB Group Pty Limited (in liq) v Australian Competition and Consumer Commission [2006] QCA 407; [2007] 1 Qld Rep 148 illustrates how the content of a discretion of the kind provided for by UCPR r 1.12 may be confined or affected by the statutory regime that confers the discretion. In that case the Queensland Court of Appeal was concerned with the renewal of a statement of claim where there had been considerable (and deliberate) delay in service. The discretion to renew was contained in the Queensland Uniform Civil Procedure Rules r 24(2). Keane JA (with whom McMurdo P and Cullinane J agreed) said (at [27], 153):
“Importantly for the present case, it must be borne in mind that the discretion conferred by r 24(2) of the UCPR falls to be exercised in a context which includes r 5 which states the philosophy of the UCPR. Rule 5 of the UCPR provides:
(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.”
Keane JA, after pointing out that that the plaintiffs had deliberately decided to refrain from serving their statement of claim, proceeded (at [54], 160]:
“Whatever the position may have been … in the absence of a provision such as r 5(3) of the UCPR, the presence of r 5(3) means that the approach pursued by the plaintiffs in the present case should not be vindicated by the court.”
And (at [57], 161) he 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.”
This case demonstrates that a statute that confers what, on its face, appears to be a broad and general discretion, may require criteria to be applied to its exercise that significantly limit its effect. Such criteria, in recent times, are frequently found in connection with discretionary powers to cure irregularities, amend pleadings or add parties with retrospective effect. Other examples of this phenomenon can be seen in the reasons of the Western Australian Full Court in Brealey v Board of Management Royal Perth Hospital [1999] WASCA 158; (1999) 21 WAR 79 and in Chalmers v Kensit [2008] WASCA 122 (which followed Brealey).
There are several statutory provisions applicable in New South Wales that have effect akin to (and, in some respects, go further than) the Queensland and Western Australian rules, the subject of TheIMB Group Pty Limited (in liq), Brealey and Chalmers v Kensit. Sections 56, 57, 58 and 59 of the Civil Procedure Act 2005 (NSW) provide:
“56 Overriding purpose
(1)The overriding purpose of this Act and of rules of court, in their application to civil proceedings, is to facilitate the just, quick and cheap resolution of the real issues in the proceedings.
(2)The court must seek to give effect to the overriding purpose when it exercises any power given to it by this Act or by rules of court and when it interprets any provision of this Act or of any such rule.
(3)A party to civil proceedings is under a duty to assist the court to further the overriding purpose … .
…
57Objects of case management
(1)For the purpose of furthering the overriding purpose referred to in section 56 (1), proceedings in any court are to be managed having regard to the following objects:
…
(d)the timely disposal of the proceedings, and all other proceedings in the court, at a cost affordable by the respective parties.
(2)This Act and any rules of court are to be so construed and applied, and the practice and procedure of the courts are to be so regulated, as best to ensure the attainment of the objects referred to in subsection (1).
58Court to follow dictates of justice
(1)In deciding:
(a)whether to make any order or direction for the management of proceedings, including:
…
(iii)any other order of a procedural nature, and
…
the court must seek to act in accordance with the dictates of justice.
(2)For the purpose of determining what are the dictates of justice in a particular case, the court:
(a)must have regard to the provisions of sections 56 and 57, and
(b)may have regard to the following matters to the extent to which it considers them relevant:
(i)…
(ii)the degree of expedition with which the respective parties have approached the proceedings, including the degree to which they have been timely in their interlocutory activities,
(iii)the degree to which any lack of expedition in approaching the proceedings has arisen from circumstances beyond the control of the respective parties,
(iv)…
(v)the use that any party has made, or could have made, of any opportunity that has been available to the party in the course of the proceedings, whether under rules of court, the practice of the court or any direction of a procedural nature given in the proceedings,
….
59Elimination of delay
In any proceedings, the practice and procedure of the court should be implemented with the object of eliminating any lapse of time between the commencement of the proceedings and their final determination beyond that reasonably required for the interlocutory activities necessary for the fair and just determination of the issues in dispute between the parties and the preparation of the case for trial.”

Sections 56, 57, 58 and 59 require a judge, exercising a 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.
In addition, in my opinion, when exercising the discretion conferred by UCPR r 1.12 regard must be had to the policy behind the limitation statute applicable. This point was made by Hodgson JA in Tolcher v Gordon [2005] NSWCA 153; 53 ACSR 442 (at [3], 443):
“Although the 3-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 3-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.”
In the judgment of Tobias JA (with which I agreed) in that case, his Honour said (at [98], 461):
“I do consider that it was irrelevant for the primary judge to take into consideration the public policy behind the 3-year limitation period … .”
In context, as appears from [97] of his Honour’s reasons, Tobias JA’s comments concerned the application of public policy in the respect mentioned to the plaintiff’s conduct in delaying the institution of proceedings until three days before the expiry of the limitation period. The remarks of Hodgson JA (at [3]), however, concerned the delay in instituting proceedings that occurred after the expiration of the limitation period and the subsequent conduct of a liquidator who does not commence proceedings until just before expiry of the limitation period. In my view, there is no conflict between their Honour’s respective observations. They were concerned with different periods. I would, with respect, endorse the observations of Hodgson JA.
I have so far discussed the requirement inherent in the notion of a judicial discretion to have regard to the restrictions and other criteria applicable to that discretion by the conferring statute, and related legislation. But there is another source of criteria to which the judge is required to have regard to when exercising a judicial discretion. This was made plain in Regie National des Usines Renault SA v Zhang [2002] HCA 10; (2002) 210 CLR 491 by Gleeson CJ, Gaudron, McHugh, Gummow and Hayne JJ. Their Honours said (at [22], 503):
“[A judicial discretion is] to be exercised in accordance with principle. The principles to be applied are encompassed within the doctrine developed by judicial decision. They are not extraneous to it.”
There are a number of principles “developed by judicial decision” relating to the exercise of a discretionary decision under a rule such as UCPR r 1.12 when dealing with an application to renew a statement of claim nunc pro tunc. These may be seen from the remarks of Bray CJ in Victa Limited v Johnson, as approved in Van Leer Australia Pty Ltd and Foxe v Brown. When dealing with the relationship between a statute of limitations and a rule providing discretionary power to renew a stale writ, Bray CJ said:
“It is not correct to say that the defendant has acquired an absolute right to immunity when a writ issued within the limitation period is not served within twelve months of its issue and the limitation period has in the mean time expired. What has expired is in reality not the limitation period but the period which would have been the limitation period if no writ had ever been issued. What the failure to serve a writ within twelve months gives the defendant is no more than a right to contend that the Court in the exercise of its discretion should not renew the writ. The efficacy of the writ does not expire absolutely at the end of the twelve months, it only expires if and in so far as the Court sees fits not to renew it.
The Rule first directs the Court to inquire whether reasonable efforts have been made to serve the defendant. If they have, it seems to me that the Court should renew the writ. If not, the Court has to consider whether other good reasons exist for the renewal. I will not attempt an exhaustive category of such reasons. That would probably be impossible and would certainly be undesirable. Prominent, however, amongst the matters for the consideration of the Court, apart from whatever attempts have been made at service, will be the length of the delay, the reasons for the delay, the conduct of the parties and the hardship or prejudice caused to the plaintiff by refusing the renewal or to the defendant by granting it.”
In Van Leer Australia Pty Ltd Stephen J concluded that, on a proper exercise of discretion, the writ in that case should not have been renewed. His Honour (at 350) took account of the long delay in its service. He said:
“[The delay] bears at least three aspects: first, it involved a very considerable period, secondly, it was quite deliberate, there being no question of mishap or oversight; thirdly, no notice was given to the defendant in this case … .”
Accordingly, 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.
Mr Wily’s evidence concerning the delay
In dismissing Arthur Andersen’s motions, Rothman J relied on the evidence of Mr Wily. He considered Mr Wily to be a truthful witness although there were areas “in which it would have been more helpful if he had taken a more active role in the litigation process”. Mr Sheahan SC who, together with Mr Izzo appeared for Buzzle, rightly accepted that Mr Wily’s evidence was given “at the highest level of generality” and was affected by a surprising inability to remember matters that he could have been expected to recall. Mr Wily’s inability to remember made it difficult to obtain clarity from him in regard to several significant issues.
In the course of cross-examination, Mr Wily said that the Funder’s obligation to provide the funds for Buzzle’s legal costs had “always been in his funding agreement”. He agreed that, since 2003, he had had the ability, through the funding agreement, to obtain funds for security for costs and funds for the costs of the action. In response to the question whether it had at all times since 2003 been within his power to compel the Funder to provide the funds for security for costs and for Buzzle’s legal costs, Mr Wily replied, “should they become required, yes”. This evidence by Mr Wily was to the effect that the Funder’s obligation to fund the Arthur Andersen action was unconditional (as his Honour at [12] appears to have found).
Other evidence by Mr Wily, however, is capable of being understood as reflecting some uncertainty on his part as to whether the funds would be forthcoming as and when he desired them. He appeared to consider that the Funder had a significant say in regard to this issue.
In his affidavit of 17 August 2007, Mr Wily said that the funds for the Arthur Andersen action were limited to the amount the Funder would provide “in addition to the competing priorities of the Deloitte proceeding and the Apple proceeding”. The Deloitte and Apple proceedings were actions that Buzzle had commenced against these parties and which the Funder had agreed to finance.
Mr Wily said that until March 2007 he was unable ascertain whether he would continue with the Arthur Andersen proceedings “given the extent to which the [Apple and Deloitte proceedings] may impact upon [the Arthur Andersen proceedings], particularly in relation to the damages claimed”. Mr Wily did not explain the nature of the difficulties caused by the Deloitte and Apple proceedings save to say that there was a similarity in the damages claimed in the three actions and that the damages overlapped.
Mr Wily stated in his affidavit of 17 August 2007 that he expected that Buzzle’s “ability to source funds for the future conduct of this proceeding” would involve a decision being made “as to the likelihood of recovery for the [F]under arising from these proceedings”. In addition, he said that it was necessary “to investigate fully the prospects of recovery before it was commercially realistic for substantial funds to be allocated to this litigation”.
In cross examination, Mr Wily said that, during the period May 2006 to February 2007, he asked the Funder whether he wanted to proceed with the Arthur Andersen proceeding. Why this was a decision of the Funder was not explained. The Funder replied, “We need to continue on with the statement of claim whilst we investigate the ability of Arthur Andersen to pay or deal with the statement of claim”. Mr Wily agreed that this was the Funder’s main concern. He accepted that the Funder wanted him to leave the statement of claim unserved.
Mr Wily said that the major issue on the minds of himself and the Funder was “investigating the ability to get money out of the Arthur Andersen partners”. Mr Wily accepted that he and the Funder had agreed that, because there were doubts about the ability to recover damages from Arthur Andersen, and because the damages overlapped with Buzzle’s claims against Apple and Deloitte, proceedings should first be pursued against the latter two and the claim against Arthur Andersen should be put “on the back burner”.
The inference that arises is that Mr Wily was concerned about the Deloitte and Apple proceedings because the Funder wanted those proceedings to be resolved before proceeding against Arthur Andersen.
According to Mr Wily, by 3 March 2008, he was no longer uncertain about the desirability of proceeding against Arthur Andersen. He changed his mind on this issue because of a newspaper article that reported details of the settlement of the HIH claim against Arthur Andersen. He said that, having so learned of the details of the settlement, he and the Funder thought that it was worth pursuing the Arthur Andersen action. He said that this decision was made in 2007 but after 17 August 2007. This evidence emphasises, yet again, the significant influence the Funder appears to have had over Mr Wily’s attitude whether or not to prosecute, expeditiously, the action against Buzzle.
The Funder’s practical control over the decision to prosecute the Arthur Andersen claim is capable of explaining the extraordinary little interest Mr Wily took in the Arthur Andersen action. From May 2006 until at least June 2007, when Buzzle first made what were abortive attempts to have the statement of claim served, Mr Wily took virtually no steps to investigate matters properly and to get the claim moving.
Mr Wily’s lawyer told him that the limitation statute required Buzzle to file a statement of claim as the limitation period was likely to expire shortly after 15 May 2006. Mr Wily understood that, once he filed a statement of claim, there was a period of months within which the statement of claim had to be served. He understood that, if the statement of claim was not served within time, the document would become stale unless an extension of time was granted.
Nevertheless, Mr Wily said that, after instructing his lawyer to file the statement of claim in May 2006, he gave no instructions to his lawyer until March 2007. He considered that he was entitled to do nothing in the matter during this period and first prosecute the other two proceedings against Apple and Deloittes. During this period, he never gave his solicitor instructions to investigate the ability of Arthur Andersen to pay any damages that might be ordered against it.
Mr Wily stated in his affidavit of 23 July 2007 that he thought it inappropriate to serve a statement of claim earlier as, on service “the practices and procedures of the Court would have come into effect”. The control of the action by the case management procedures of the Court was something that Mr Wily wished to avoid.
Mr Wily persisted in asserting in evidence that a reason for delaying the service of the statement of claim was that he wished to avoid Buzzle paying costs unnecessarily as this would reduce the funds that might become available to Buzzle’s creditors. In my view, this assertion is not persuasive.
Prosecution of the Arthur Andersen action would only reduce creditors funds should Buzzle fail in the action and a costs order be made against it. Mr Wily gave no evidence, however, that indicated in any way the resources that were in fact available to creditors. He did not assert that, but for an adverse costs order, creditors would receive a dividend. Indeed, there was no evidence that, without a costs order being made against Buzzle, creditors would receive any dividend at all. Moreover, Mr Wily gave no evidence as to whether the Funder had provided an indemnity for any costs order made against Buzzle.
It is therefore not possible to know whether a costs order against Buzzle would have a detrimental effect on creditors.
I would add that there was no evidence that Mr Wily or his legal advisors considered the possibility of serving the statement of claim and then applying for a stay of proceedings – thereby seeking to limit the costs that Buzzle might incur while the recoverability issue remained unresolved.
Errors in failing to take into account Buzzle’s lack of diligence
Mr Sheahan did not challenge the proposition that Mr Wily had not acted diligently in prosecuting the claim against Arthur Andersen. That proposition was unarguable. From the time the action was commenced on 15 May 2006, Mr Wily was virtually indifferent to the further progress of the matter. His supine attitude continued until at least June 2007, even though he knew that the limitation period had expired in the second half of 2006. Steps that he might have taken to satisfy himself on the recoverability issue included considering the relevant documents in his possession (such as insurance policies), undertaking examinations of relevant witnesses and obtaining the production of other relevant documents. Mr Wily, however, simply remained passive.
Mr Sheahan submitted, however, that Rothman J took this into account, at least implicitly. He relied on the statements of his Honour (at [69(j)]) that Mr Wily was not “entirely blameless (and may be wholly to blame) for the delay in the service of the statement of claim”. I would accept this submission.
However, although his Honour had regard to Mr Wily’s responsibility for the delay, he did not take into account a number of relevant and important matters. I deal with these below.
The failure to apply the criteria required by the Civil Procedure Act
The judge did not take account of the fact that Buzzle, through Mr Wily’s policy of deliberate delay, was in breach of its duty under s 56(3) of the Civil Procedure Act to assist the court in furthering one of the overriding purposes of the Act, namely, to facilitate the quick resolution of the real issues in the proceedings.
The judge did not take account of the fact that, by s 57(1) of the Act, proceedings in any court are to be managed with the object of achieving the timely disposal of the proceedings.
The judge did not take account of the fact that Buzzle’s conduct was fundamentally in conflict with s 59 of the Act; I reiterate that that section requires, generally, that the practice and procedure of the court should be implemented with the object of eliminating any lapse of time between the commencement of the proceedings and their final determination.
The policy behind the limitation period
In weighing delay after a limitation period has expired, regard must be had to the public policy behind the limitation period. His Honour did not take that policy into account and erred thereby.
The point was crisply made by Handley AJA (with whom Tobias JA and Basten JA agreed) in Pell v Hodges [2007] NSWCA 234 (at [44]):
“A plaintiff who issues proceedings just before the limitation period and only then has the merits of the case investigated should not have any expectation of obtaining an extension of time to enable investigations to continue. There should also be no expectation that time spent in this way after the statement of claim has been issued, especially after it has become stale, will be accepted as an adequate explanation for such delays.”
Difficulties in serving the statement of claim
I have mentioned that the judge appeared to consider that difficulties in serving the statement of claim on the 140 partners of Arthur Andersen constituted a valid reason for the delay. His Honour said (at [38]):
“Once … the decision was taken to effect service, there was the obvious practical difficulty associated with serving all of the partners of Arthur Andersen in the short time then available.”
His Honour appears to have ignored the fact that Mr Wily should have considered the practical difficulties involving service long before service was first attempted. Mr Wily must have been aware of those difficulties since 2003 when monies became available to him from the Funder to proceed with the litigation. The obvious practical way of dealing with these problems was to obtain an order for substituted service on the partners (which, later, was done), but Mr Wily took no steps to obtain such an order in good time.
Errors in regarding the recoverability issue as a justification for delay
Rothman J accepted that “the reason or delay was essentially the need for satisfaction of the liquidator (and the litigation funder) of the recoverability of any damages that may be awarded” (at [69(h)], see also [69(i)]). His Honour, impliedly, accepted that this need was a reason for exercising his discretion in favour of Buzzle. In my opinion, this decision involved a number of errors in the exercising of that discretion.
The effect that an adverse costs order would have on creditors
One of the reasons his Honour gave for finding that the recoverability issue was significant was that “it concerned the resources, if any available to creditors”. He came to this conclusion, however, without determining whether creditors’ resources would or might in fact be affected by Arthur Andersen not being able to meet a damages judgment.
I have pointed out that no evidence was led to establish that, should Buzzle ultimately be unsuccessful in the proceedings, the creditors would receive less than they would have received had no action been taken.
His Honour also said (at [34]) that Mr Wily “had duties to the creditors not to expend monies on litigation that would not achieve a practical result”. Mr Wily, however, was not expending monies in the Arthur Andersen litigation that had any bearing on the creditor’s rights. The monies were forthcoming from the Funder. It was immaterial to creditors that Mr Wily might expend monies in litigation as those monies were not to be paid out of the company’s assets but by the Funder.
The approach his Honour adopted in regard to the affect the Arthur Andersen litigation would have on creditors was erroneous and constituted an error in the exercising of his discretion.
The influence of the Funder on Mr Wily’s decisions
I have pointed out that Mr Wily was materially influenced in his decision by the attitude of the Funder. I do not regard that as a valid reason for delaying the proceedings and I consider that his Honour erred in attaching weight to it.

If it be correct that the Funder had an unconditional obligation to fund the proceedings, it would follow that the Funder had a greater economic interest than Buzzle in the recoverability issue. While the Funder had to balance the economic benefit of expending money on legal costs against the expected return of damages, Mr Wily (on behalf of Buzzle) did not have to undertake that exercise. That is because the Funder was paying the legal costs as part of a commercial venture in the hope that he would make profits, whereas the duty of Mr Wily was simply to get for Buzzle’s benefit whatever was owing to it. Mr Wily did not need to be concerned about the costs of litigation (apart from a possible adverse costs order) as the finance for those costs was to be provided by the Funder.
Thus, if the Funder’s obligation to finance the Arthur Andersen action was unconditional, the Funder’s concerns as to the recoverability issue had no bearing on Buzzle’s position. On this basis, Mr Wily’s agreement to put the Arthur Andersen action on the backburner seems inexplicable.
If, on the other hand, the Funder’s obligation to finance the Arthur Andersen action was dependent on the Funder being satisfied as to the recoverability issue, Mr Wily’s decision to do nothing until the Funder had resolved his doubts was not an appropriate factor for his Honour to take into account.
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 BensonLtd vBarbrak Ltd [1987] AC 597 and by Lord Browne-Wilkinson in Dagnell v Freedman & Co [1993] 1 WLR 388.
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.
Limitations on Arthur Andersen’s insurance policies
Rothman J found (at [34]) that one of the factors that rendered Mr Wily’s concerns as to recoverability of damages reasonable was the possibility of “significant limitations on the monies available under insurance policies.
No evidence was adduced concerning any such limitations. Mr Wily had been given the relevant insurance policies but he said nothing in his evidence to the effect that they had any influence on him. The question whether there were significant limitations on monies under insurance policies was speculative. In my view, his Honour erred in having regard to the notional possibility of any such limitations.
The HIH litigation
Rothman J found (at [34]) that a factor that rendered Mr Wily’s concerns as to recoverability of damages reasonable was the fact that the action brought by the liquidator of HIH “may have exhausted the insurance resources that would otherwise be available”.
At trial there was no investigation of the extent, if any, to which the insurance resources available to Arthur Andersen might have been “exhausted” by the HIH claim. Mr Wily did not explain why the amount of the HIH settlement persuaded him to serve the statement of claim. Mr Wily adduced no evidence that supported the proposition that HIH’s claim might affect Arthur Andersen’s ability to meet Buzzle’s damages. Such evidence could have taken the form of testimony as to the nature of HIH’s claim and its prospects of success, and the financial position of Arthur Andersen.
It is therefore not apparent why the amount of the HIH settlement had any influence on his Honour’s decision. It was not possible for his Honour to judge objectively whether Mr Wily’s decision to await the resolution of the HIH proceedings was reasonable.
There are other difficulties with the reasonableness of Mr Wily lying by and waiting for the HIH proceedings to be resolved.
His Honour himself said (at [57]):
“Ultimately, an extension of time in which to serve originating process will be granted for only good reason, which would not usually include awaiting the outcome of other proceedings: Pell v Hodges [2007] NSWCA 234; Ramsay v Madgwicks [1989] VR 1.”
To these authorities I would add Battersby v Anglo American Oil Company Limited where Lord Goddard said (at 32 - 33):
“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.”
This observation was quoted with approval in Kleinwort Benson at 617. According to Lord Browne-Wilkinson in Dagnell v Freedman & Company (at 396), Lord Goddard’s remarks remain applicable.
His Honour did not consider how the approach adopted in these authorities should affect the discretion he was required to exercise. In my view, he erred thereby.
Error in not taking into account that Mr Wily deliberately decided to delay service
The judge did not take into account the fact that Mr Wily made a deliberate decision to delay proceedings. In Itek Graphix Pty Limited v Elliott (2002) 54 NSWLR 207, with the concurrence of Spigelman CJ and Sheller JA, I observed at ([91], 225):
“A deliberate decision to allow a statutory limitation period to expire would be a powerful factor against the grant of leave. Were a deliberate decision to allow the period to expire has been made, ordinarily it would be difficult to provide an explanation for that decision sufficiently cogent to warrant the grant of leave.”
In my opinion, for the reasons set out in Itek Graphix Pty Limited, a deliberate decision to allow a writ to become stale after a limitation period had expired would be a powerful factor against the grant of the order sought (see also Van Leer at 350). Any prejudice suffered, in such circumstances, were the writ not to be extended, would be self-inflicted.
Mr Sheahan drew attention to the fact that in Tolcher, Tobias JA (at [50]) considered that the deliberate decision by the liquidator in that case not to attempt service of the statement of claim until “the litigation funding was in place” was “appropriate, prudent and responsible and not a decision for which the liquidator can be justifiably criticised”. Two points can be made in this regard. First, a deliberate decision to delay is not a factor that has an absolute effect on the discretion to be exercised. Each decision depends on its own circumstances. I would add that the delay in Tolcher was far shorter than that in the present case and the circumstances differed, substantially. Secondly, Rothman J’s error is his omission to take into account Mr Wily’s deliberate decision to delay in the particular circumstances that obtained. His error is not that he attached incorrect weight to that decision but that he ignored it.
Other errors of Fact
At [37] Rothman J said that the statement of claim was initially not served because of Mr Wily’s duty to ensure, firstly, that the proceedings were more than arguable on liability and damages and, secondly, that the expenditure necessary for such significant proceedings would be warranted. His Honour erred in this regard.
Firstly, the reason for the statement of claim not being served in time had nothing to do with the duty of Mr Wily to ensure that the proceedings were more than arguable on liability and damages. He had been given positive advice in this regard before the statement of claim was filed and he accepted that the only reason for the delay in service was the recoverability issue.
Secondly, as the Funder had agreed to pay the costs of the proceedings, Mr Wily had no concern whether the prospects of success would “warrant the expenditure necessary for such significant proceedings”.
At [38] his Honour said that the “ultimate decision to serve” involved a “balancing of the commercial decision”. He said that the commercial decision involved the elements of “likelihood of success” and the “likelihood of receiving substantial damages that would warrant the litigation”. The latter element concerned the likelihood of proving entitlement to substantial damages. This is apparent from the context as his Honour goes on to refer to a third element in the “commercial decision”, namely, “the likelihood of recovering those damages”. The first two elements played no part in Mr Wily’s decision and his Honour erred in holding that they did.
The way in which the ultimate discretionary decision was exercised
His Honour stated (at [69(l)]) that, ultimately, the most significant factor was “the limitation issue”, that is, the prejudice to Arthur Andersen if the proceedings were allowed to continue and the prejudice to Buzzle were its statement of claim to be allowed to lapse.
It is arguable that, despite saying at [69] that he would take into account the factors that he listed in that paragraph, when his Honour ultimately made his decision he merely undertook a balancing exercise in regard to the factors relevant to “the limitation issue”. That is to say, it is arguable that the judge in effect undertook a balancing of hardship and did not – when making his final decision – consider the other relevant matters.
When the judgment is read as a whole, however, it appears to me that his Honour took all matters referred to in [69] into account. I would nevertheless add that it is necessary, in every case, to have due regard to all relevant circumstances. Any other approach would be erroneous.
A fresh exercise of the discretion
I have listed above a series of errors in discretion on the part of the judge. Each of these errors entitles this Court to exercise the discretion afresh.
I take into account the following factors:
(a) the length of the delay;
(b)the reasons for the delay (and, in particular, the recoverability issue);
(c)the conduct of Buzzle through Mr Wily (and its lack of diligence) in attempting to overcome the reasons for the delay;
(d)the deliberate decision made by Buzzle to allow the delay to occur, first, in the knowledge that the limitation period would soon expire and, secondly, after the limitation period had expired;
(e) the relationship between Buzzle and the Funder;
(f)sections 56, 57, 58 and 59 of the Civil Procedure Act;
(g)the policy behind the limitation period as explained by Hodgson JA in Tolcher at [3]; and
(h)the hardship or prejudice to Buzzle by refusing the renewal and to Arthur Andersen by granting it.
In my opinion, when regard is had to all these factors, the cogency of the case in favour of refusing renewal is far stronger than the cogency of the case for granting it. I would accordingly exercise my discretion by refusing to renew the statement of claim.
Conclusion
I propose the following orders:
(a)The application for leave to appeal is granted and the appeal is upheld;
(b)The orders made by Rothman J are set aside;
(c)The orders made on 21 March 2007 and 22 August 2007 are discharged;
(d)It be declared that none of the defendants to Buzzle’s action against Arthur Andersen has been served, validly, with a statement of claim or amended statement of claim;
(e)Buzzle pay the costs of the application for leave to appeal and the appeal;
(f)Buzzle pay the costs of the hearing before Rothman J; and
(g)Buzzle be entitled to a certificate under the Suitor’s Fund Act 1951 if otherwise entitled.

TOBIAS JA: I agree with Ipp JA. In particular, I endorse his Honour’s remarks at [39].
McCOLL JA: I agree with Ipp JA.

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LAST UPDATED:
13 May 2009