Hastie Group Ltd (in liq) v Moore

[2016] NSWSC 1682

Supreme Court

New South Wales

• Amendment notes

Medium Neutral Citation:	Hastie Group Limited (In Liquidation) v Moore [2016] NSWSC 1682
Hearing dates:	10 & 11 November 2016
Decision date:	30 November 2016
Jurisdiction:	Common Law
Before:	Ball J
Decision:	(1)   The orders made in proceeding 2014/247471 (the 2014 Proceeding) by Registrar Kenna on 17 February 2015 be discharged; (2)   The orders made in the 2014 Proceeding by Registrar Bradford on 17 December 2015 be discharged; (3)   The 2014 Proceeding be dismissed with costs; (4)   The orders made in 2015/245237 (the 2015 Proceeding) by Registrar Bradford on 9 February 2016 be discharged; (5)   The 2015 Proceeding be dismissed with costs.
Catchwords:	PROCEDURE – extension of time for service of statement of claim – whether to discharge extension under UCPR r 12.11(1)(e.
Legislation Cited:	Australian Securities and Investments Commission Act 2001 (Cth) Civil Procedure Act 2005 (NSW) Corporations Act 2001 (Cth) Trade Practices Act 1974 (Cth) Uniform Civil Procedure Rules 2005 (NSW)
Cases Cited:	Arthur Andersen Corporate Finance Pty Ltd v Buzzle Operations Pty Ltd (in liq) [2009] NSWCA 104 Berger Investments Group Pty Ltd v Coccoon Pty Ltd [2011] NSWSC 122 Bishopsgate Insurance Australia Ltd (in liq) v Deloitte Haskins & Sells [1999] 3 VR 863 Brisbane South Regional Health Authority v Taylor (1996) 186 CLR 541; [1996] HCA 25 Frigo v Culhaci [1998] NSWCA 88 Hunter v Hanson [2014] NSWCA 263 Ingot Capital Investments Pty Ltd v Macquarie Equity Capital Markets Ltd [2004] NSWSC 1219 Tolcher v Gordon [2005] NSWCA 135, Weston in Capacity as Special Purpose Liquidator of One.Tel Ltd (in liquidation) v Publishing and Broadcasting Ltd [2012] NSWCA 79
Category:	Procedural and other rulings
Parties:	2014/247471: Hastie Group Limited (in liq) and 31 others (Plaintiffs/Respondents) Bruce Ivan Moore trading as Deloitte Touche Tohmatsu and 172 others (Defendants/Applicants)   2015/245237: Hastie Group Limited (in liq) and 41 others (Plaintiffs/Respondents) Bruce Ivan Moore trading as Deloitte Touche Tohmatsu and 422 others (Defendants/Applicants)
Representation:	Counsel: CRC Newlinds SC with N Bender and Z Hillman (Plaintiffs/Respondents) RG McHugh SC with A Shearer and VL O’Halloran (Defendants/Applicants)   Solicitors: Hall & Wilcox (Plaintiffs/Respondents) Clifford Chance (Defendants/Applicants)
File Number(s):	2014/247471 & 2015/245237
Publication restriction:	Nil

Judgment

Introduction

1. On 22 August 2014 and 21 August 2015, the plaintiffs, which are all companies in the Hastie Group, each of which has been in liquidation since at least 31 January 2013, commenced by statement of claim filed in the Common Law division two proceedings (the 2014 Proceeding and the 2015 Proceeding, respectively) against the Australian partnership of Deloitte Touche Tohmatsu (Deloitte) in respect of the audit by Deloitte of the accounts of the group for the financial year ending 30 June 2008 (in the case of the 2014 Proceeding) and for the financial year ending 30 June 2009 (in the case of the 2015 Proceeding).

2. Under Uniform Civil Procedure Rules 2005 (NSW) (UCPR) r 6.2(4), the statements of claim were valid for service for six months after the date on which each was filed. By notices of motion dated 13 February 2015 (the First Extension Application) and 16 December 2015 (the Second Extension Application), the plaintiffs in the 2014 Proceeding successfully applied ex parte to a Registrar for an order under UCPR r 1.12 extending the time in which the statement of claim filed in that proceeding was valid for service first until 18 December 2015 and then until 3 June 2016. By notice of motion dated 1 February 2016 (the Third Extension Application), the plaintiffs in the 2015 Proceeding successfully applied ex parte to a Registrar for an order under UCPR r 1.12 extending the time in which the statement of claim filed in that proceeding was valid for service until 3 June 2016. Both statements of claim were served on that day.

3. UCPR r 12.11(1) relevantly provides:

In any proceedings, the court may make any of the following orders on the application of a defendant:

(a)   …

(b)   an order setting aside the service of the originating process served on the defendant;

(c)   …

(d)   …

(e)   an order discharging any order extending the validity for service of the originating process,

Following the transfer of the proceedings to the Commercial List, by notices of motion filed in each proceeding on 28 June 2016, Deloitte seek orders under UCPR r 12.11(1)(e) discharging each of the orders granting an extension of time together with orders under UCPR r 12.11(1)(b) setting aside service of the statements of claim. It is those motions with which this judgment is concerned.

Factual background

4. On 28 May 2012, Mr Ian Carson, Mr David McEvoy and Mr Craig Crosbie were appointed joint and several voluntary administrators of the first plaintiff (Hastie) and 43 of its subsidiaries, including the other plaintiffs in the 2014 Proceeding and the 2015 Proceeding. On the same day, receivers were appointed to a number of the plaintiffs by a syndicate of banks which had provided secured funding to the group (the Banking Syndicate). Messrs Carson, McEvoy and Crosbie were subsequently appointed liquidators of two subsidiaries of Hastie by order of the Federal Court on 16 August 2012. The remaining companies in the group were placed into liquidation on 30 and 31 January 2013 as a result of resolutions of creditors of those companies passed at meetings held on those days. Again, Messrs Carson, McEvoy and Crosbie were appointed liquidators of each of the companies. It will be convenient to refer to them as “the liquidators” irrespective of the capacity in which they acted.

5. Prior to its collapse, the Hastie Group carried on business of providing mechanical, electrical and plumbing services in Australia and a number of other countries around the world. It had approximately 7000 employees and an annual turnover in excess of $1.8 billion.

6. The liquidators have had limited funds with which to investigate the affairs of the group. However, in or around July 2012, they engaged Saward Dawson, chartered accountants, to conduct a high level analysis of the group’s financial statements, with a particular focus on governance, accounting and auditing issues arising during the period from 2010 to 28 May 2012.

7. On or around 31 August 2012, Saward Dawson provided the liquidators with a preliminary report. The liquidators formed the view that the problems identified by Saward Dawson with the audits of the accounts for the 2010 and 2011 financial years were also likely to have existed in relation to the audits of the accounts for the 2008 and 2009 financial years. On that basis, in their report to creditors dated 21 January 2013 they expressed the view that the Hastie Group had arguable causes of action against Deloitte in relation to the audit reports for the 2008 to 2011 financial years. In particular, the liquidators concluded that it was at least arguable that there were underlying control and management issues that had caused the assets of the group, including construction WIP balances, trade receivables and deferred tax, to be overstated, that those matters should have been picked up by Deloitte during the relevant audits and, if they had been, remedial action would have been taken to prevent or reduce the losses subsequently suffered by the group.

8. From November 2012, the liquidators attempted to secure funding to conduct public examinations and to pursue claims that the liquidators had identified against the directors as well as Deloitte. Initially, they sought funds from the Banking Syndicate. Negotiations with the syndicate occurred over a number of months. Towards the end of May 2013, the liquidators gave a PowerPoint presentation to members of the Banking Syndicate concerning possible claims against the directors and Deloitte. One slide indicated that it was contemplated that the claim against Deloitte would be brought after the claims against directors. It was headed “Why auditor claim last” and answered that question by pointing to the fact that the liquidators “do not hold sufficient evidence … to prove [the] claim”, that the claim was complex, that a claim against the directors first was desirable to limit the diminution in the amount available under the relevant directors and officers liability policy and that the costs of the claim against Deloitte would be “c$10m - $15m”. The Banking Syndicate ultimately refused to provide funding for the proposed claims.

9. In about June 2013, Borrelli Walsh, a firm based in Hong Kong, indicated to Henry Davis York, the liquidators’ solicitors at the time, that it may be interested in providing litigation funding. The liquidators provided Borrelli Walsh with information about the proposed claims and it appears that there were discussions between Borrelli Walsh and Henry Davis York. However, those discussions ultimately went nowhere.

10. During the period between April and July 2014, the liquidators were approached by two firms about the possibility of providing the Hastie Group with litigation funding. The first approach was by Piper Alderman on behalf of International Litigation Partners Pte Ltd (ILP), which is based in Singapore. In May 2014, the liquidators formally engaged Piper Alderman to progress discussions with that company. At about the same time, the liquidators were approached by Hall & Wilcox about the possibility of obtaining litigation funding from Claims Funding Australia Pty Ltd (CFA), a litigation funder associated with Maurice Blackburn.

11. Mr Crosbie met with representatives of Hall & Wilcox and CFA on 23 May 2014 and on or about 24 July 2014 the liquidators engaged that firm to pursue discussions with CFA. Shortly afterwards, the liquidators received a draft proposal from ILP. However, they decided not to pursue negotiations with that company. Mr Crosbie, in the evidence given by him, gave various and somewhat inconsistent reasons for that decision. All that can be said is that it appears that he formed the view that the prospects of reaching an agreement on funding were better with CFA.

12. On 16 August 2014, CFA provided the liquidators with a letter setting out its requirements to fund the litigation. Mr Crosbie accepted in cross-examination that the CFA proposal was at the time as speculative and uncertain as the proposal from ILP.

13. Deloitte had provided the 2008 audit report to the Hastie Group on or about 26 August 2008. The liquidators were concerned that the limitation period in respect of a cause of action in negligence or for misleading or deceptive conduct in respect of that report might expire six years after that date. Consequently, they instructed Henry Davis York to issue the 2008 Proceeding. Not all partners of Deloitte as at 26 August 2008 had been identified at that time and the proceeding named only 173 of the partners. Mr Newlinds SC, who appeared for the plaintiffs, frankly conceded that the claim could not go forward on the basis of the current pleading. The claim is inadequately particularised. It pleads causes of action in negligence and based on misleading and deceptive conduct in contravention of s 52 of the Trade Practices Act 1974 (Cth) (as it then was) and equivalent provisions in the Corporations Act 2001 (Cth) and the Australian Securities and Investments Commission Act 2001 (Cth). However, it describes Deloitte’s negligence only in the most general terms and it gives no real indication of the nature of the loss that is said to flow from Deloitte’s breaches of duty, let alone particulars of that loss. It is brought on behalf of a number of companies which it is conceded suffered no loss at all.

14. Between October 2014 and January 2015, Hall & Wilcox and CFA negotiated the terms of a funding agreement. On 2 February 2015, CFA confirmed in writing that it was willing to provide funding to the liquidators to pursue claims against Deloitte and the directors, subject to a number of preliminary steps being undertaken by 30 September 2015 or such later date as was agreed. Those preliminary steps were:

1. the liquidators and Hall & Wilcox reviewing material relating, among other things, to the claim in respect of the 2008 audit with a view to identifying relevant documents and matters which would benefit from public examinations;

2. the liquidators providing Maurice Blackburn with access to relevant documents;

3. the liquidators carrying out public examinations;

4. senior counsel providing a detailed advice on the merits of the claims;

5. Hall & Wilcox providing a detailed costs estimate which was satisfactory to CFA in its sole discretion;

6. approval of the CFA board to the funding.

15. In early February 2015, Hall & Wilcox agreed to conduct the proposed public examinations on the basis of a conditional fee agreement.

16. On 13 February 2015, the liquidators made the First Extension Application. At the same time, Hall and Wilcox notified Deloitte that the Hastie Group had issued proceedings against them. The extension application was supported by an affidavit sworn by Mr Crosbie on 13 February 2015. According to Mr Crosbie, the liquidators estimated at that time that the Banking Syndicate would suffer a total shortfall on its debts in excess of $100 million, that priority creditors would suffer a total shortfall on their debts of approximately $44 million and that ordinary unsecured creditors would suffer a shortfall on their debts of approximately $390 million.

17. The identified claims against Deloitte were an asset of the Hastie Group and therefore subject to the security held by the Banking Syndicate. However, according to the affidavit sworn by Mr Crosbie, it was anticipated that it would be a term of any funding agreement that the Banking Syndicate would release its security interest in whole or in part in respect of any claim that the Hastie Group may have against Deloitte or the Hastie Group directors.

18. Mr Crosbie also stated in his affidavit that if an extension of time were not granted and the liquidators were forced to serve the statement of claim in its present form:

(a)   the plaintiffs would be without funds to further investigate or run the proceeding to completion;

(b)   any adverse costs order made in the proceeding would reduce the quantum of any distribution that the creditors may ultimately stand to receive; and

(c)   the statement of claim may be susceptible to challenge on the basis that it lacks the necessary particulars.

Mr Crosbie also pointed out that if the proceeding was abandoned an important potential avenue for recovery for the benefit of creditors would be lost.

19. Mr Crosbie proposed in his affidavit the following “anticipated timetable to progress the proceeding”:

(a)   application for the issue of summonses in approximately March 2015;

(b)   summonses issued in approximately April 2015;

(c)   first return of summonses date in approximately April 2015;

(d)   review of documents completed in approximately June 2015;

(e)   substantive examinations concluded in approximately August 2015;

(f)   advice of Senior Counsel obtained in approximately 30 September 2015;

(g)   funding secured in approximately 31 October 2015; and

(h)   amended statement of claim finalised in approximately 30 November 2015.

20. Lastly, Mr Crosbie deposed to the fact that the plaintiffs intended to confirm the identity of all necessary defendants and to seek advice on how they could be named as additional defendants in the proceeding.

21. The extension application was heard by Registrar Kenna on 17 February 2015. As I have said, the Registrar granted an extension until 18 December 2015. She delivered ex tempore reasons at the time. In those reasons, she indicated that she was concerned that if an extension was not granted, the plaintiffs may have to abandon their claim, with the result that “the possibility of obtaining any recovery for the alleged negligence would be gone and that would ultimately impact the creditors of the Hastie Group”. It is apparent that that concern arose from the fact that the liquidators had not yet obtained funding for the action and it was arguable that the limitation period had expired. On the other hand, the Registrar thought that there were safeguards available to Deloitte in the form of an application under UCPR r 12.11(1)(e) if the extension was wrongly granted.

22. Mr Crosbie conceded that full disclosure was not made to the Registrar at the time of the application. In particular, Mr Crosbie did not disclose that it was unlikely that any recovery that was made would be available to unsecured creditors and that the proceeding was being brought essentially for the benefit of the Banking Syndicate, which had the ability through the receivers appointed by it to bring the claim itself but had chosen not to do so.

23. It was also put to Mr Crosbie that he should have disclosed that the claim against Deloitte would be last and that he had not followed up IMF as a potential provider of litigation funding, although Henry Davis York had advised him to do so. Mr Crosbie said in cross-examination that he would have needed to take advice on the first matter. In any event, it appears that that was not the view ultimately formed by the liquidators. Mr Crosbie accepted that he should have disclosed the second matter. However, whether that concession was properly made is open to some doubt. The important question is whether the liquidators should have done more than they did to arrange litigation funding, not whether they should have disclosed that they had advice that they should take a particular step which they chose not to take.

24. On or about 26 May 2015, at the request of Allens Linklaters, who were then acting for Deloitte, Hall & Wilcox provided Allens Linklaters, on an informal basis, with copies of the statement of claim filed on 22 August 2014, the notice of motion filed on 13 February 2015, Mr Crosbie’s affidavit sworn that date and the judgment of Registrar Kenna delivered on 17 February 2015.

25. Following the granting of the extension, the liquidators issued summonses for the production of documents and to a number of persons to attend public examinations. During the period from March to October 2015, they reviewed a large number of documents. In addition, they conducted 18 days of public examinations of former directors and officers of the Hastie Group during the period 28 May 2015 to 16 September 2015 and conducted three days of public examinations of six of the partners and employees of Deloitte on 27, 28 and 29 October 2015. They also engaged an audit expert to review Deloitte’s audit file.

26. On 21 August 2015, the liquidators filed the statement of claim in the 2015 Proceeding, again to guard against the possibility that the limitation period in respect of that claim was about to expire. The statement of claim made similar allegations to the statement of claim filed in the 2014 Proceeding. It suffered from the same defects.

27. On 21 October 2015, at the request of Ashurst, who by then were acting for Deloitte, Hall & Wilcox provided to Deloitte on an informal basis a copy of the statement of claim filed in the 2015 Proceeding.

28. On 11 December 2015, the liquidators obtained advice from senior counsel on what was described in submissions as “liability” but is perhaps more accurately described as duty and breach.

29. On 16 December 2015, the liquidators made the Second Extension Application. That application was supported by an affidavit sworn by Mr Crosbie. In that affidavit, Mr Crosbie set out what work the liquidators had done since the last extension application and explained what further work needed to be done. The work that still needed to be done included reviewing several thousand documents which “will be relevant to the foreshadowed amendments to the statement of claim”. Although not clear from the affidavit, it appears that those documents were Hastie Group documents which were relevant to causation and damages. Mr Crosbie also said that, in addition to the documents produced by Deloitte that were yet to be reviewed, “the parties continue to correspond in connection with important documents the subject of the summonses but not produced by Deloitte”. Mr Crosbie said that, if agreement could not be reached on the terms of production, it was likely that the liquidators would need to seek a further order for production. Mr Crosbie also said that, once that had happened, senior counsel would be able to finalise his advice and CFA would be able to make a final decision on whether to provide funding.

20. Mr Crosbie explained that the liquidators had been unable to meet the timetable outlined in his affidavit sworn on 13 February 2015. He gave a number of reasons including:

1. logistical difficulties in scheduling public examinations;

2. difficulties in obtaining documents from Deloitte. In particular, Mr Crosbie said that over a period of several months Deloitte “refused to produce one particular category of documents but ultimately did so after confidentiality undertakings were given” and that “[t]he Liquidators and Deloitte are still in dispute about another category”;

3. the sheer size of the Hastie Group and the enormous amount of work which was required in order for the liquidators to undertake their investigations.

31. In cross-examination, Mr Crosbie conceded in effect that the production of documents by Deloitte had not been a source of delay. The documents that Mr Crosbie said Deloitte had refused to produce over a period of several months were documents relating to its insurance arrangements. They were relevant only to the question of recoverability of any judgment. It is plain that that was not a matter that was holding up obtaining further advice from senior counsel. As to the category that was the subject of dispute, those documents were in the possession of Deloitte Dubai, which was a separate firm. It is plain that the liquidators were not entitled to those documents.

32. The Second Extension Application was heard ex parte by Registrar Bradford on 17 December 2015. The Registrar made an order extending the time for which the statement of claim was valid for service until 3 June 2016. He delivered ex tempore reasons at the time. In those reasons, he observed that if an extension was not granted, the liquidators would suffer prejudice “both in relation to limitation questions and also if they do serve it, then they will need to have to counter possible applications in relation to the form of the statement of claim, the need to amend it, and at this stage, deal with the same without funding”. On the other hand, it was unlikely that Deloitte would suffer any prejudice, since it was open to them to make an application to discharge the order granting an extension.

33. On 24 December 2015 Hastie Group commenced proceedings against various directors and officers in the Corporations List. Those proceedings were subsequently transferred to the Commercial List.

34. On 1 February 2016, the liquidators made the Third Extension Application in the 2015 Proceeding. That application was supported by an affidavit sworn by Mr Crosbie on the same day. In that affidavit, Mr Crosbie repeated much of what he had said in his two earlier affidavits. He stated that there were two principal impediments to the plaintiffs progressing their claims against Deloitte. One was that the liquidators “are presently without funds to run a substantive proceeding or meet a potential adverse costs order”. The other was that “the Liquidators do not yet have sufficient evidence to prosecute the claim in an efficient and cost effective manner”. Mr Crosbie accepted in cross-examination that by the time he swore his affidavit in support of the Third Extension Application this second reason was “just wrong”.

35. The Third Extension Application was heard ex parte by Registrar Bradford on 9 February 2016. At that time, the Registrar extended the time for which the statement of claim filed in the 2015 Proceeding was valid for service until 3 June 2016. It is not clear from the evidence whether the Registrar delivered any reasons for that decision at the time.

36. On 23 May 2016, senior counsel had still not provided a detailed advice, with the result that the conditions for funding had not been satisfied. It appears that the principal source of delay was that the liquidators and Hall & Wilcox were still examining the Hastie Group’s documents so as to be able to identify and particularise the losses claimed by the plaintiffs. According to an affidavit sworn by Mr Crosbie, the liquidators had identified in excess of 22 terabytes of data taken from 135 storage devices and had been engaged since March 2015 in a process of interrogating that data in batches to obtain relevant material. The task has been made more difficult by the fact that the financial records of the Hastie Group are unreliable and inaccurate and key staff, include the chief executive officer, have refused to assist the liquidators.

37. The liquidators and their legal advisors met with the solicitors for CFA on 23 May 2016. The position of the liquidators at that meeting was that they were not prepared to serve the statements of claim unless they had a sufficient expectation that unconditional funding would become available after service was effected and, in the meantime, the plaintiffs were indemnified against adverse costs orders. Following that meeting, on 2 June 2016, CFA provided the liquidators with a letter of comfort confirming that it would provide the indemnity sought by the liquidators. As I have said, the statements of claim were served the following day.

38. On 29 July 2016 orders were made transferring the two proceedings from the Common Law Division to the Commercial List.

39. On 23 August 2016, the Hastie Group commenced a proceeding in the Commercial List in respect the audit of the accounts for the financial year ending 30 June 2010 (the 2016 Proceeding). The 2016 Proceeding makes similar allegations to the allegations made in the 2014 Proceeding and the 2015 Proceeding. Directions have been made in the 2016 Proceeding requiring the plaintiffs in that proceeding to provide Deloitte with an Amended Commercial List Statement by 25 November 2016 and giving Deloitte an opportunity to indicate whether they object to the amended document by 2 December 2016.

40. On 24 August 2016, CFA executed a funding agreement which was conditional on court approval, which has since been obtained. Under the terms of the funding agreement, CFA agrees to fund each of the three proceedings against Deloitte together with the proceeding against the directors and officers together with any adverse costs order against the Hastie Group and the liquidators in those proceedings. In return, the Hastie Group and the liquidators agree to pay commission calculated as a percentage of any recoveries made by them in the proceedings. The percentage ranges from 25 percent to 40 percent, depending on the amount funded. At the same time, ANZ Fiduciary Services Pty Limited, the security trustee for the Banking Syndicate, executed a Deed of Priority giving priority to the Hastie Group of amounts expended by them in conducting the public examinations and any commission payable to CFA under the funding agreement. It is not clear from the evidence who will be entitled to any amount paid to the Hastie Group as reimbursement for the costs of conducting public examinations. There was some suggestion that it would be the priority creditors, although it also seems possible on the evidence that the amount may be payable to Hall & Wilcox under the conditional costs agreement or may be used to reimburse the liquidators for their costs of conducting the public examination. Whatever the position, it is plain that, after the payment of legal expenses, most of any recoveries will be paid as commission to CFA or will be paid to the Banking Syndicate. The evidence is that members of the Banking Syndicate were only prepared to give their consent to the Priority Deed if they were assured that none of their employees would be required to give evidence and that, apart from the possibility of having to produce some documents, such as bank statements, on subpoena, their documents would not be required for the proceedings.

Relevant legal principles

41. The principles applicable to the exercise of the discretion conferred by UCPR r 12.11(1)(e) were summarised by Sackville AJA in Weston in Capacity as Special Purpose Liquidator of One.Tel Ltd (in liquidation) v Publishing and Broadcasting Ltd [2012] NSWCA 79 at [20] in the following terms:

(1) The principles relevant to an application to extend time for service under r 1.12 also apply to a motion pursuant to r 12.11(1)(e) to discharge orders for extension: Kirk, [Agriculture & Rural Finance Pty Ltd v Kirk [2011] NSWCA 67, 82 ACSR 390] at 402 [58], per Tobias JA (with whom Macfarlan JA and Sackville AJA agreed).

(2) In exercising the discretion conferred by r 12.11(1)(e), the court should consider:

"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 [discharging the orders] or to the defendant [by refusing to discharge the order]."

Buzzle, [Arthur Anderson Corporate Finance Pty Ltd v Buzzle Operations Pty Ltd (in liq) [2009] NSWCA 104] at [43], per Ipp JA (with whom Tobias and McColl JJA agreed) cited with approval in Kirk, at [94].

(3)   The discretion is to be exercised in the context of, and by reference to, the statute by which it is conferred: Buzzle, at [28]. Consequently, in New South Wales, ss 56-59 of the Civil Procedure Act 2005 ("CP Act") require a judge exercising the discretion to have regard to whether the relevant party 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: Buzzle, at [36].

(4)   The court must take into account the policy considerations underlying the relevant limitations statute. Thus, defendants or potential defendants should be made aware of claims against them within a reasonable time and liquidators who do not commence proceedings until just before expiry of the limitation period should be especially diligent in pursuing prompt service: Buzzle, at [37]-[39]; cited with approval in Kirk, at 410 [98]-[99].

(5)   It is for the court and not one of the litigants to determine whether there should effectively be a stay of proceedings. Accordingly, it is generally:

"inappropriate to allow an extension of time for the service of a ... 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."

Buzzle, at [82] cited with approval in Kirk, at 411 [101].

(6)   Ordinarily, it is not a good reason for delay that a plaintiff wishes to hold up proceedings while some other case is tried: Buzzle, at [90]. However, this is not an inflexible rule: Kirk, at 411 [102].

(7)   If a defendant knows that claims have been made against him or her and understands the nature of the claims that have been made, that may mitigate the prejudice the defendant might otherwise suffer by reason of a delay in service: Kirk, at 415 [123].

42. It is common ground that an application under UCPR r 12.11(1)(e) is by way of rehearing and that the onus lies on the plaintiffs to satisfy the court that the extensions of time were properly granted: see Buzzle at [14]; Berger Investments Group Pty Ltd v Coccoon Pty Ltd [2011] NSWSC 122 at [28] per Kirby J. It is also common ground, consistently with the decided cases, that the question for the court is whether the applications for extension of time that were granted should have been granted; and that that question is to be determined by reference to evidence led at the rehearing, but only to the extent that that evidence concerns the state of affairs that existed at the time the original applications were made. The court is not exercising a discretion to grant an extension afresh on the basis of the facts as they exist at the time of the rehearing. One consequence of that approach is that it may be necessary to examine the circumstances relevant to each extension to determine whether that extension was properly granted.

43. Deloitte submits that another consequence of that approach is that it is impermissible for the court to take into account subsequent events, such as the fact that if an extension is not granted any claim in respect of the 2008 and 2009 audits is now likely to be statute barred. Instead, the position must be examined having regard to the circumstances at the time. If, for example, the evidence demonstrates that the plaintiffs would have served the proceedings immediately if the extension had been refused, or that that was an available option, then the plaintiffs’ prejudice if the extension is refused must be measured by reference to those matters, and in particular the prejudice they would have suffered if they had served the proceedings immediately after the application for an extension was rejected, not by reference to the fact that, unless the extension is granted, the present proceedings will have to be dismissed and the likely expiration of the limitation period will mean that further proceedings cannot be brought.

44. However, whether that is so is doubtful. The ultimate question before the court is whether orders extending time that were previously made should be discharged. The answer to that question involves the exercise of a discretion. In my opinion, it is relevant in exercising that discretion to consider the prejudice that will be suffered by the plaintiffs if the discretion is exercised against them – that is, if the orders for an extension are discharged. That is so even if the answer to that question is determined principally by reference to whether the original ex parte extensions should have been granted. That conclusion is consistent with the way in which the principle was summarised by Sackville AJA in Weston by reference to the passage quoted from Buzzle in subpara [20](2) quoted above. In this respect, there is a difference between the original extension application and an application to discharge the orders made on that application.

45. Although the current form of the rule permitting the court to grant an extension of the time for which an originating process is valid for service does not in express terms require the applicant for an extension to show that the applicant has a good reason for seeking the extension, it is generally accepted, and the plaintiffs conceded in this case, that that is one of the matters that must be demonstrated by the applicant for an extension: see Hunter v Hanson [2014] NSWCA 263 at [59] per McColl JA (with whom Macfarlan and Emmett JJA agreed).

46. The relevant delay is the delay between the time when the proceedings were commenced and the time when the originating process was served; and it is the length of that delay and the reasons for it which are relevant: see Weston at [168]. On commencement of proceedings, a plaintiff becomes bound by the obligations imposed by ss 56-60 of the Civil Procedure Act 2005 (NSW) (CPA); and a failure to comply with those obligations is relevant to an exercise of the discretion conferred by UCPR r 12.11(1)(e). Consequently, the fact that an originating process remains valid for service for six months does not mean that the plaintiff can wait six months before serving the originating process with impunity. Indeed, as Sackville AJA pointed out in Weston at [20](4), where proceedings are issued just before the expiration of the limitation period, there is an obligation on the plaintiff to proceed more diligently than otherwise: see also Bishopsgate Insurance Australia Ltd (in liq) v Deloitte Haskins & Sells [1999] 3 VR 863 at [32] per Tadgell and Ormiston JJ (with whom Brooking J agreed); Tolcher v Gordon [2005] NSWCA 135 at [3] per Hodgson JA.

47. That is not to say, however, that events prior to the time when the proceedings were commenced are irrelevant. Those events may shed light on the delay in question. For example, there is a difference between delays that arise from matters that could have been attended to by the plaintiff before proceedings were commenced but were not and delays that arise from matters that only arose after proceedings were commenced.

48. The original orders extending time were made ex parte. It is common ground that the normal principles relating to ex parte orders apply. If a party who applies for an order ex parte fails to make full disclosure to the court at the time the application is made, that itself is a reason for discharging the order. That does not prevent the party from applying for a further order. However, the fact that the party failed to make full disclosure at the time the original order was sought is very relevant to the question whether the further order should be made: Frigo v Culhaci [1998] NSWCA 88.

49. As Sackville AJA pointed out in Weston at [20](2), one matter relevant to the exercise of the discretion is the extent to which the defendant will suffer prejudice as a consequence of the delay arising from an extension of the time for which the originating process is valid for service. In this context, it is not necessary for the defendant to lead evidence of prejudice. The court presumes that delay by a plaintiff in bringing or pursuing a claim is likely to cause the defendant prejudice. That prejudice includes the risk the defence may be prejudiced because relevant evidence is lost, witnesses may become unavailable and memories are likely to fade: Weston at [167]ff; Brisbane South Regional Health Authority v Taylor (1996) 186 CLR 541; [1996] HCA 25 at 552-3. in the case of claims against individuals, it may also be presumed that the defendants will suffer prejudice as a consequence of the stresses and strains that allegations going to their probity or competence are likely to place on them: see Bishopsgate at [60]; Ingot Capital Investments Pty Ltd v Macquarie Equity Capital Markets Ltd [2004] NSWSC 1219 at [70]; Weston at [173].

50. Although it is generally the case that it is inappropriate to grant an extension of time where the plaintiff seeks to delay service pending the decision of a litigation funder whether to fund the litigation, that is not an inflexible rule: see Weston at [187], where Sackville AJA (with whom Campbell and Young JJA agreed) said that he was "inclined to doubt that a desire to secure litigation funding can never justify delay in serving initiating process”. In that case, the evidence demonstrated that the special purpose liquidator had sufficient funds available to him to pursue the litigation and to meet any likely adverse costs order absent an indemnity of up to $40 million he was seeking from a litigation funder. Consequently, the delay while waiting to obtain the indemnity was not justified.

51. In Buzzle, where the principle in relation to litigation funding was first stated, the terms of the funding agreement, which was not in evidence, were unclear. However, it was apparent that a funding agreement had been entered into and there was a question whether the liquidator was entitled under that agreement to be paid the costs of pursuing the action or whether the funder had some discretion in that regard. Whatever the position, it appears that the liquidator had delayed serving the originating process on the defendants, Arthur Andersen, at the funder’s request. The funder had adopted that approach because it wanted to be satisfied that any judgment was recoverable from Arthur Andersen and because the liquidator was pursuing other proceedings where the damages overlapped with those that were claimed and the funder wanted to know the outcome of those proceedings before pursuing a claim against Arthur Andersen. It was in that context that the court expressed the view that to permit the outcome of the application to turn on the availability of litigation funding would be to arrogate the court’s discretion to a third party.

42. Weston and Buzzle are to be contrasted with the decision in Tolcher, where Tobias JA (with whom Ipp JA agreed) said “it seems to me that it would have been irresponsible for the [statement of liquidated claim] to have been served upon the opponent before [the] litigation funding was in place” (at [108]). However, that statement was made in a context where the relevant limitation period was three years, where the liquidator had delayed service of the originating process until he had obtained litigation funding and then had had difficulties in serving the defendant before the time required by the relevant rules and where there was no evidence to suggest that the liquidator was dilatory in his attempts to obtain litigation funding.

Consideration

53. The plaintiffs submit that it was reasonable in this case to delay serving both proceedings until they at least had in place an agreement or understanding with a litigation funder that the funder would provide the plaintiffs with an indemnity against any costs orders against them and an expectation that the litigation funder would agree to fund the proceedings themselves, which did not occur until 2 June 2016. They submit that Buzzle is distinguishable because in that case it appeared that the funder had already agreed in principle to fund the litigation but wanted to wait for the outcome of other proceedings before making a final decision. Moreover, in this case it would be wrong to characterise the delay as relating solely to obtaining litigation funding. During the period of the delay, the liquidators were doing considerable work in order to formulate an amended claim and obtain legal advice. That work would have needed to have been done whether or not the proceedings were served.

54. I do not accept this submission and, in my opinion, the discretionary factors on balance point against granting the extensions. I say that for several reasons.

55. First, in my opinion, the only real ground on which the liquidators sought to delay service of the proceedings was the desire to obtain an indemnity in respect of adverse costs orders before being exposed to those orders following service of the proceedings and to obtain some indication that the funder was likely to agree to fund the costs of the proceedings. That is plain from what actually happened.

56. Although Mr Crosbie in his affidavit sworn on 13 February 2015 gave as a further reason for granting the extension the need to amend the statement of claim in the 2008 Proceeding, that consideration was of marginal relevance. The liquidators were prepared to serve the unamended statements of claim once they were satisfied that they were protected against adverse costs orders. Moreover, the only effect of serving the proceedings in their original form was that, following service, the conduct of the litigation came under the scrutiny of the court. It hardly seems a good discretionary ground for permitting a party to delay service of proceedings that the delay would enable the party to avoid that scrutiny. In this respect, the facts of this case seem closer to those of Buzzle than Tolcher. CFA had been identified as the litigation funder, and it was a matter for it to decide if and when it would agree to indemnify the liquidators against adverse costs orders pending a determination of whether it would fund the litigation. In that way, it had control over when the proceedings would be served.

57. Second, the work for which the extensions were required could have been undertaken before the extensions became necessary and no reasonable explanation has been given for why it was not.

58. Broadly speaking, on the plaintiffs’ case, the work in question had two components. The first involved conducting sufficient enquiries and investigations so that the liquidators and their solicitors could be satisfied that there was a reasonable basis for bringing the relevant claims and the claims could be pleaded properly. That work also needed to be undertaken if the liquidators intended to approach a third party to fund the litigation, since it is obvious that any litigation funder would want to be satisfied that the funded proceedings had reasonable prospects of success. The second type of work that the liquidators needed to undertake was to locate someone prepared to fund the litigation if the litigation could not be funded from the assets of the companies in liquidation. I accept that it would have been imprudent for the liquidators to serve the proceedings before having a reasonable degree of confidence that they would be able to meet the costs of the proceedings, including any costs orders against the plaintiffs, and that in some circumstances those considerations may justify an extension of time for service of the proceedings.

59. In the present case, the liquidators identified possible claims in respect of the 2008 and 2009 audits no later than about January 2013. However, it appears that they did no or very limited further work on those claims before early 2015, after the 2014 Proceeding had been commenced and shortly after the First Extension Application. That was a delay of approximately two years. No reasonable explanation is given for why further work was not done on the claim in respect of the 2008 or 2009 audit during that time or why the liquidators thought that there was a proper basis for issuing the 2008 Proceeding before that work was done. It is difficult to see why the court should grant extensions to enable work to be done that could have been done two years earlier and much of which should have been done before the proceedings were issued.

60. Mr Crosbie in his affidavit sworn on 13 February 2015 points to the complexity of the investigation into the affairs of the Hastie Group generally and the fact that those investigations were hindered by the unreliable nature of its records, the lack of cooperation from key staff and the lack of funds. However, he does not indicate what those investigations involved or why they took priority over any further investigations in relation to the potential claim against Deloitte.

61. There is a suggestion that the liquidators were waiting to obtain litigation funding before conducting further investigations into the claim. But that does not provide an adequate reason for delaying those investigations. It must have been apparent that those investigations would need to be undertaken to satisfy CFA that the claims had reasonable prospects of success. In any event, the fact is that the further investigations actually undertaken by the liquidators between early February 2015 and the date of the funding agreement (24 August 2016) were paid for from funds available from the plaintiffs or as a result of a conditional costs agreement entered into with Hall & Wilcox. It is not clear why those sources of funding were not available earlier. According to Mr Crosbie’s affidavit sworn on 13 February 2015, the liquidators at that time controlled Hastie Group funds totalling approximately $6.2 million of which approximately $1.4 million had been set aside for priority creditors. That amount was subject to the Banking Syndicate’s security. There is no evidence that that amount had only recently been received by the liquidators. There is evidence that the liquidators received a tax refund of approximately $2.8 million from the Australian Taxation Office in November 2014 as a result of work done by Ernst & Young. However, of that amount approximately $764,000 was paid as fees to Ernst & Young and approximately $949,000 was applied to the liquidators’ outstanding professional fees and disbursements (including legal fees). None of that evidence demonstrates that the funds ultimately used by the liquidators to do further work on the Deloitte claims were not available before 2015.

62. Deloitte submit that the liquidators were also guilty of delay once the further investigations started in February 2015 and they point to the fact that the liquidators did not comply with the timetable set out in Mr Crosbie’s affidavit sworn on 13 February 2015 and, indeed, never completed most of the tasks referred to in that affidavit before the proceedings were served. However, I am not satisfied that the delay in undertaking further investigations during the period from February 2015 until the time the proceedings were served was such as itself to justify a refusal to grant the Second Extension and the Third Extension. I accept that the investigations were complex and that some delay was inevitable. Consequently, I would not have refused the extensions for that reason.

63. As to funding, the liquidators identified that they would need funding for the proceedings as early as November 2012, when they approached the Banking Syndicate. It is to be expected that they would be preoccupied with other matters at least until all of the companies in the group went into liquidation, and it seems to me reasonable for the liquidators to have waited until they knew the position of the Banking Syndicate before investigating other funding options. However, in my opinion, the liquidators delayed unreasonably from that time. To some extent this issue is tied up with the further investigation of the claim. A contributing factor to the delay in obtaining a funding agreement was the delay in investigating the claim. As I have said, it must have been obvious to the liquidators that they would need to satisfy any third party litigation funder that any claim against Deloitte would have reasonable prospects of success and that that would require further work to be done on the claims. It is not apparent why that work could not have been done earlier.

64. That point aside, it seems to me that the liquidators delayed unreasonably in pursuing alternative funding once they knew the position of the Banking Syndicate. Apart from the approach of Borelli Walsh in June 2013, roughly a year elapsed before the liquidators did anything about alternative funding. Even then, they only dealt with ILP and CFA. For reasons which are not really explained by the evidence, they did not pursue discussions with ILP and they did not follow advice they had received from Henry Davis York to approach IMF. It took approximately ten months to reach a position where CFA indicated specifically the somewhat obvious steps that it would require the liquidators to take before it would make a final decision whether to provide funding. Why it took that long to reach that position is not clear from the evidence. Those delays, of course, are not themselves relevant. However, in the absence of an explanation for them, it is difficult to see why the liquidators should be given extensions of time to do what it appears they could have done much earlier.

65. The overall impression created by the evidence is that the liquidators identified potential claims against Deloitte by about the end of 2012. Apart from preparing an inadequate statement of claim, which they filed in August 2014 to avoid the possible expiration of a limitation period, they did very little to investigate or progress those claims until it was necessary to make an application to extend the period for which the statement of claim that they had filed remained valid for service. They then sought to justify that extension and subsequent extensions so as to permit them to do work that they could and should have done before it became necessary to apply for any extensions. In my opinion, that provides a strong discretionary ground for refusing each of the extensions they sought.

66. Third, I accept that Deloitte will suffer prejudice if the extensions are granted. The plaintiffs submit that that prejudice is minimal for three reasons. First, the extensions of time have not been long. In the case of the 2014 Proceeding, it has been approximately 15.5 months from the time when they were entitled to serve the statement of claim. In the case of the 2015 Proceeding, it has only been approximately 3.5 months. Second, Deloitte is well resourced. It has been on notice of the 2014 Proceeding since February 2015 and has had a copy of the statement of claim since May 2015. It undoubtedly undertook preparations for the public examinations. Consequently, it was in a position to preserve evidence and take steps to ensure that potential witnesses’ then current recollections were recorded. Third, the 2016 Proceeding raises similar allegations to the earlier proceedings. As a result, the 2008 and 2009 audits are likely to be relevant to the 2016 Proceeding and whatever disadvantages Deloitte face in the 2014 Proceeding and the 2015 Proceeding they will face in the 2016 Proceeding in any event.

67. The points raised by the plaintiffs are relevant to the assessment of the prejudice likely to be suffered by Deloitte, but I do not think that they demonstrate that the prejudice is likely to be minimal.

68. As to the point about timing, it is not correct to say that the relevant time is from the last day that the statements of claim remained valid for service. As I have explained, once the proceedings were issued, the plaintiffs become bound by the duties imposed by ss 56-60 of the CPA. The fact that the statements of claim remained valid for service for six months does not mean that the plaintiffs were entitled to delay serving them for six months and that that delay was irrelevant to the exercise of any discretion given to the court under the UCPR. The plaintiffs had a duty to act promptly in serving the proceedings once they were issued. Consequently, it is more appropriate to view the relevant delay as approximately 21 months in the case of the 2014 Proceeding and approximately 9 months in the case of the 2015 Proceeding. Those delays, particularly in the case of the 2014 Proceeding, are significant.

69. As to the plaintiffs’ second point, the position is not as straightforward as the plaintiffs suggest. No doubt, Deloitte have been able to take some steps to ameliorate the effect of the delay. However, I do not accept that they could take steps that would eliminate the effect of the delay entirely. As I have said, the statements of claim are poorly drafted and inadequately particularised. Consequently, it has not been possible for Deloitte to focus their enquiries and preparation on the case that will ultimately be put against them. Moreover, it is one thing to prepare evidence in chief. It is another to be cross-examined on events that occurred a number of years previously. In addition, the likely effect of the delay is that the hearing will be delayed. It is uncertain what effect that may have on matters such as the availability of witnesses at the trial.

70. Apart from those matters, the delay may affect Deloitte’s preparation in relation to other aspects of the case, such as causation and damages. At the moment, it is still unclear how the case on causation and damages will be put. The allegation appears to be that if Deloitte had not breached their duties, the Hastie Group would not have entered into particular loss making contracts or would have entered into those contracts on different terms, with the result that it would not have suffered the losses it did or those losses would have been reduced. So far, however, the relevant contracts have not been identified. Once they are, it may be necessary for Deloitte to investigate the circumstances in which those contracts were entered into. Some of the information relevant to that investigation will be available on discovery. However, relevant information may be held by third parties and that information may only be available through subpoenas or interviewing potential witnesses. As time goes by that information may be or may already have been lost. It is not possible to say what effect the delay of 21 months or 9 months has had on the these matters but there is no reason not to apply the presumption in relation to delay in this context.

71. As to the point about the 2010 audit, Mr Moore was the lead auditor for each of the 2008, 2009 and 2010 financial year audits. The likelihood is that the stresses and strains on him will be the same irrespective of whether an extension is granted or not. However, it is unclear whether all the same people were involved in each of the three audits and it cannot be assumed that the position of others will be unaffected whether the extensions are granted or not. Although the allegations in respect of each of the audits may be similar, there is clearly a difference between a claim that a particular audit was conducted negligently and a contention that conduct in relation to past audits is relevant to whether Deloitte breached their duties in relation to a subsequent audit. Consequently, the delay takes on added significance if the allegation is that Deloitte breached their duties in relation to the earlier audits.

72. Fourth, I accept that a very relevant factor is whether, if the extensions are not granted, the plaintiffs will be able to bring fresh proceedings or whether those proceedings with be statute barred. In the present case, it appears to be common ground that any claim based on the 2008 or 2009 audit would be statute barred. However, in my opinion, that consideration is mitigated by two factors in the present case.

73. The first of those is that these proceedings are being brought principally for the benefit of the Banking Syndicate and CFA. They are not being brought for the benefit of creditors besides the Banking Syndicate. I accept Deloitte’s submission that that is a matter that ought to have been disclosed on each of the extension applications. However, in my opinion, it is the facts not the non-disclosure which is important to the exercise of the discretion.

74. The fact that CFA may lose the benefit of commission is irrelevant to the exercise of the discretion. It is plain that the Banking Syndicate has no interest in seeing the proceedings being brought. It refused to fund the proceedings, although it was the obvious entity to do so. Its members sought an assurance that they would not have to provide assistance in relation to the proceedings before agreeing to the Priority Deed. It is difficult to see why the court should place much emphasis on the fact that, if the extensions are not granted, the claims will not be brought, when the only entity with a legitimate interest in those claims apparently has no interest in seeing them being pursued.

75. The plaintiffs submitted that the court should place little weight on the position of the Banking Syndicate. Its members were no different from any other creditor who stood to benefit from an action taken by the liquidators. I do not accept that submission. The Banking Syndicate had the ability and the mechanisms in place which easily permitted it to fund the proceedings. In this respect its position is different from other creditors, whose capacity to fund any litigation may be different and who are unlikely to have any formal structure in place to ensure that each provides funding and each receives benefits that are fair as between them. Moreover, unlike other creditors, the Banking Syndicate had a right to bring the claims in question through the receivers but chose not to do so. In a very real sense the claim was its to bring and it chose not to bring it. Finally, the members of the Banking Syndicate have not simply chosen to leave the claim to the liquidators. Rather, their consent was required, and they gave that consent apparently on the condition that they not be involved.

76. The second point to be made in this context is that the plaintiffs will not be denied relief altogether if they cannot bring a claim in respect of the 2008 and 2009 audits. The Hastie Group will still be entitled to pursue the 2016 Proceeding. Although the evidence is not clear, it appears that there may be some overlap in the damages that will or would be claimed in each of the proceedings. To the extent that there is an overlap, the Hastie Group will not be left without a remedy altogether.

Orders

77. As I have said, the question before the court is whether each of the extensions that were granted should have been granted. However, in the circumstances of these two proceedings, each extension raises similar issues. In relation the 2014 Proceeding, the plaintiffs must succeed in respect of both extension applications. Although different weight may be attached to some of the discretionary considerations that apply to each application, for the reasons I have given neither of them should have been granted. Similarly, although different weight may be attached to some of the discretionary considerations that apply to the Third Extension Application, again for the reasons I have given that application should not have been granted.

78. It was common ground that if the orders granting the extensions were discharged, then the proceedings should be dismissed.

79. It follows that the orders of the court are:

1. The orders made in proceeding 2014/247471 (the 2014 Proceeding) by Registrar Kenna on 17 February 2015 be discharged;

2. The orders made in the 2014 Proceeding by Registrar Bradford on 17 December 2015 be discharged;

3. The 2014 Proceeding be dismissed with costs;

4. The orders made in 2015/245237 (the 2015 Proceeding) by Registrar Bradford on 9 February 2016 be discharged;

5. The 2015 Proceeding be dismissed with costs.

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Amendments

01 December 2016 - Following typographical errors amended:

[13] Australian Securities and Investments Act 2001 now Australian Securities and Investments Commission Act 2001.

[50] ‘he “was inclined’ now ‘he was “inclined’.

[53] ‘solely to obtain’ changed to ‘solely to obtaining’.

Decision last updated: 01 December 2016