Re APCH Ltd (in liquidation)

IN THE SUPREME COURT OF VICTORIA

Not Restricted

AT MELBOURNE

COMMERCIAL COURT

CORPORATIONS LIST

S CI 1136 of 2014

IN THE MATTER OF

AUSTRALIAN PROPERTY CUSTODIAN HOLDINGS LTD

(ACN 095 474 436) (liquidators appointed)

(receivers and managers appointed) (controllers appointed)

AUSTRALIAN PROPERTY CUSTODIAN HOLDINGS LTD (ACN 095 474 436) (liquidators appointed) (receivers and managers appointed) (controllers appointed)

and

STIRLING LINDLEY HORNE and PETER VRSECKY (in their capacities as joint and several liquidators of AUSTRALIAN PROPERTY CUSTODIAN HOLDINGS LIMITED (ACN 095 474 436) (liquidators appointed) (receivers and managers appointed) (controllers appointed))

Plaintiffs

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JUDGE:	ROBSON J
WHERE HELD:	Melbourne
DATE OF HEARING:	17 March and 2 April 2014
DATE OF JUDGMENT:	15 April 2014
CASE MAY BE CITED AS:	Re APCH Ltd (in liquidation)
MEDIUM NEUTRAL CITATION:	[2014] VSC 190

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PRACTICE AND PROCEDURE – Application by liquidators for extension of time to serve a writ and general endorsement – Company in liquidation previously under control of receivers and managers – Writ issued by receivers in company name alleging breach of duties by directors – Receivers release cause of action to liquidators – Application granted – Supreme Court (General Civil Procedure) Rules2005 (Vic) r 5.12.

CORPORATIONS – Application for directions – Whether liquidator justified in bringing application to extend time for service of writ – Directions ss 477(2B), 479 and 511 of the Corporations Act2001 (Cth).

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APPEARANCES:

Counsel

Solicitors

For the Plaintiffs

M D Wyles SC

with A P Trichardt

Cornwall Stodart

Cases referred to:

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

Australian Securities and Investments Commission v Australian Property Custodian Holdings Ltd (recs and mgrs apptd) (in liq) (controllers appointed) (No 3) [2013] FCA 1342.

Battersby v Anglo-American Oil Co Ltd [1945] KB 23.

Ebner v Clayton Utz (a firm) (2012) 36 VR 25.

Finlay v Littler [1992] 2 VR 181.

Gordon v Tolcher (2006) 231 CLR 334.

Howard v Power [2013] VSC 198.

Irving v Carbines [1982] VR 861.

Mali v Benchmark Healthcare Pty Ltd [2005] VSC 72.

M & I Samaras Pty Ltd (No 1) v John Holland Pty Ltd [2012] VSC 98.

Noitaroproc Pty Ltd (in liquidation) v Price Waterhouse (a firm) (Unreported, Supreme Court of Victoria, Byrne J, 26 March 1997).

Ramsay v Madgwicks [1989] VR 1.

Savcor Pty Ltd v Cathodic Protection InternationalAPS (2005) 12 VR 639, [2005] VSCA 213.

Tolcher v Gordon (2005) 53 ACSR 442, [2005] NSWCA 135.

Van Leer Australia Pty Ltd v Palace Shipping KK (1981) 180 CLR 337.

Zappelli v Falkiner (Unreported, Supreme Court of Victoria, O'Bryan J, 21 September 1987).

TABLE OF CONTENTS

Introduction............................................................................................................................... 1
The material facts supporting the application........................................................................... 2
The Horne affidavit.................................................................................................................... 2
Listing fee proceeding................................................................................................................ 5
ASIC proceeding........................................................................................................................ 6
Daytree proceeding.................................................................................................................... 7
LLP mismanagement claim and decision of Ferguson J............................................................ 7
Management rights structures.................................................................................................. 9
Management rights breach of duties claim.............................................................................. 13
Management rights voidable transactions claim..................................................................... 14
Auditor’s liability claim........................................................................................................... 16
Interrelationship between the management rights claims....................................................... 17
Timing of funding, and prospects of liquidation being in funds............................................. 18
Ashton Gardens....................................................................................................................... 18
Listing fee claim....................................................................................................................... 18
Extension of time for service of the originating process.......................................................... 19
Evidence of Craig Peter Shepherd............................................................................................ 20
Impact of the ASIC proceeding on the listing fee proceeding.................................................. 22
Evidence of Jason Glenn Stone................................................................................................ 23
The Rules.................................................................................................................................. 23
Duty on ex parte application................................................................................................... 24
Principles to be applied............................................................................................................ 24
Good reason and the circumstances of the case........................................................................ 27
New South Wales cases concerning liquidators and extension applications.......................... 40
Application of the principles.................................................................................................... 46
Conclusion............................................................................................................................... 50

HIS HONOUR:

Introduction

Stirling Lindley Horne and Peter Vrsecky are joint and several liquidators of Australian Property Custodian Holdings Limited (liquidators appointed) (receivers and managers appointed) (controllers appointed) (APCHL). By an originating process dated 13 March 2014, the liquidators made two applications. First, they applied, inter alia, for directions pursuant to s 479 or alternatively s 511 of the Corporations Act2001 (Cth) (the Act) in respect of the following matters in the liquidation of APCHL as responsible entity of the Prime Retirement Aged Care Property Trust (the Prime Trust):

(a)whether they should proceed with the management rights breach of duties claim (as defined in paragraph 75 of the affidavit of Stirling Lindley Horne sworn 13 March 2014 (the Horne affidavit)) as pleaded;
(b)whether they should proceed with an amended version of the management rights breach of duties claim; and
(c)whether they should proceed with the management rights breach of duties claim with a limited number of defendants.

These reasons do not deal with the application for directions under ss 479 and 511 of the Act.

Second, the liquidators applied for an order under r 5.12 of the Supreme Court (General Civil Procedure) Rules2005 (Vic) (the Rules) extending the time for service of the writ and general endorsement in Supreme Court of Victoria proceeding number 1341 of 2013 in respect of the management rights breach of duties claim (one of the three management rights claims) referred to in the Horne affidavit. It is this application with which these reasons for judgment deal.

On 17 March 2014, the applications came on for hearing before me ex parte. I made a direction that the liquidators were justified in making the application for the extension of the time for service of the writ. I did not consider the first application for directions under ss 479 and/or 511 of the Act; those matters are yet to be argued.

On the hearing of the application for the extension of time, I was not satisfied that I should exercise the Court’s discretion under r 5.12 on the material and submissions before me. Due to the urgency of the application, the plaintiffs did not refer me to any relevant authorities. I was not prepared to rule in an ex parte application without the plaintiffs providing me with the relevant authorities on the issue.

As it was, the time for service of the writ was to expire on 19 March 2014. In the circumstances, in order that I could give proper consideration to the application for extension, I decided that it was appropriate to grant an extension of one month to 19 April 2014 in order that further material and submissions could be put before me in support of the application.

The matter came back on before me on 2 April 2014. At that stage, the liquidators had secured funding for the management rights claims. The liquidators made more comprehensive submissions on the matter. For the reasons given below, I have decided to exercise the Court’s discretion to extend the time for service of the writ and general endorsement until 30 June 2014.

The material facts supporting the application

The liquidators relied upon the Horne affidavit. In his affidavit, Mr Horne canvasses the strengths and weaknesses of the management rights claims and, for good reason, does not wish those to be known publicly. Accordingly, on 17 March 2014, I ordered that the Horne affidavit be placed in a sealed envelope and marked “confidential: no access without leave of a judge or associate judge of the Court.”

The Horne affidavit

The relevant facts from the Horne affidavit that are appropriate to include in these reasons for judgment are as follows. On 18 and 19 October 2010, Mr Vrsecky and Mr Horne were appointed as joint and several administrators of APCHL and 19 other companies (the Prime group), all of which, save APCH Administrators Pty Ltd, are subsidiaries of APCHL in its capacity as responsible entity (the RE) of the Prime Trust. Their appointment as administrators was validated by order of Sifris J on 29 October 2010 and was taken to be valid from 18 October 2010. Mr Horne says that in November 2011, Mr Vrsecky and he were appointed as joint and several liquidators of the Prime group pursuant to resolutions of the creditors.

The directors of APCHL at the date of the liquidators’ appointment as joint and several administrators were Neil Rodaway, Michael Woolridge, Anthony Hancy and Kim Jaques.

Mr Horne describes the activities of APCHL and the Prime group. Up until June 2008, Daytree Pty Ltd (Daytree) was a shareholder of APCHL. Mr William Lewski was a director of Daytree and the chief executive officer of APCHL. APCH Administrators Pty Ltd (APCHA) provided management and administrative services to the Prime Trust. APCHA was a subsidiary of APCHL in its own right (not as RE of the Prime Trust).

The primary assets of the Prime Trust at the time of the liquidators’ appointment comprised 12 retirement villages which Mr Horne identifies. The retirement villages were owned either by APCHL or its subsidiaries, and were held beneficially for the unitholders of the Prime Trust. The Prime Trust beneficially owned the rights to manage the retirement villages. Those management rights, originally held by APCHL as RE for the Prime Trust, were ultimately transferred to various subsidiaries of Lend Lease Primelife Limited (LLP) through a series of leases, management services agreements and loan agreements. These arrangements are discussed below. LLP is not in the Prime group. LLP now owns the management rights.

Mr Horne says that the administration and liquidation of APCHL has been extremely complex. Receivers and managers were appointed by secured creditors over the assets of various companies within the Prime group. These secured creditors include Suncorp-Metway Limited, Industry Funds Management (Nominees 2) Pty Ltd (IFMN2) (a subsidiary of Members Equity Bank Pty Ltd), Bank of Western Australia Ltd, Capital Finance Australia Limited (CFAL) and Australian Property Administrators Pty Ltd. The security granted to Australian Property Administrators Pty Ltd is known as the APA charge.

Daytree is the named charge holder of a registered fixed and floating charge over the assets and undertakings of APCHL (Daytree charge). Daytree, together with Mr Lewski and other family members are the named charge holders of a further registered fixed and floating charge over the assets and undertakings of APCHL (Lewski-Daytree charge).

Mr Horne contends that cl 3.5 of the Daytree charge, Lewski-Daytree charge and the APA charge meant that $5 million held in APCHL’s bank account to satisfy net tangible asset requirements under APCHL’s Australian Financial Services license (the NTA deposit), was excluded from the charges. The relevance of this becomes clear below.

Mr Horne deals with the assets available to the liquidators. Mr Horne deposes that in the light of the securities referred to in his affidavit, limited funds have been available to the liquidators to fund the liquidation and to carry out investigations into the affairs of the Prime group. Mr Horne provides details of the few resources available to the liquidators.

Mr Horne addresses claims by unitholders in the Prime Trust. Mr Horne deposes that shortly after their appointment as administrators, Mr Horne and Mr Vrsecky were notified that a group of unitholders in the Prime Trust had banded together as the “Prime Trust Action Group” (PTAG) and sought to be admitted as creditors of APCHL (as the RE of the Prime Trust) as a result of the conduct of the RE and its directors.

PTAG informed the then administrators of various concerns its members held regarding the management of the Prime Trust. Mr Horne lists the concerns, which include:

(a)a claim relating to certain amendments to the constitution of the Prime Trust to provide for the payment by the Prime Trust of a ‘listing fee’ (about $33 million) and a ‘removal’ or exit fee to APCHL which is alleged to have been improper and contrary to unitholders’ rights (listing fee claim);
(b)a claim that APCHL gave the management rights to a company controlled by Mr Lewski, Retirement Guide Pty Ltd (Retirement Guide), for nil consideration. The management rights were subsequently sold to Babcock and Babcock Communities Ltd in about September 2007 for $60 million;
(c)a claim relating to the restructuring and sale of management rights in August 2007, in which it is contended that Retirement Guide received fees to which it was previously not entitled;
(d)a claim relating to the investment of the Prime Trust funds outside of the authorised investments; and
(e)a claim relating to misleading statements in the Product Disclosure Statement dated June 2007 (PDS) relating to the financial position of the Prime Trust and the funds available for distributions to unitholders in the 2007 and 2008 financial years;
(collectively, the unitholders’ claims).

Mr Horne gives details of the liquidators’ investigation of these claims. On 15 July 2011, the liquidators received a letter from Clarendon Lawyers acting on behalf of the PTAG, in which it was alleged that APCHL and its directors committed various breaches of the Act and the Prime Trust constitution.

Mr Horne deposes that the liquidators instructed their solicitors Cornwall Stodart to commence proceedings in respect of the listing fee claim against the directors, former directors, and various advisers of APCHL.

Listing fee proceeding

On 5 March 2012, Cornwall Stodart filed and served an originating process and an affidavit in support sworn by Mr Horne, to commence the listing fee claim in the Supreme Court of Victoria.

Following the decision of Ferguson J, referred to below, the listing fee proceeding has been run by the receivers since about April 2012. The receivers have been represented in the listing fee proceeding by Clayton Utz. The listing fee proceeding has been adjourned pending the hearing and determination of the ASIC proceeding discussed below.

ASIC proceeding

In a Federal Court proceeding (ASIC proceeding), ASIC sought, amongst other things, declarations of contravention and pecuniary penalty orders against APCHL and five of the former directors of APCHL. The director defendants in the ASIC proceeding are also defendants in the listing fee proceeding. The factual matrix in the ASIC proceeding and the listing fee proceeding are substantially identical, that is, both proceedings involve claims in relation to the payment of the listing fee.

The ASIC proceeding (in relation to liability) was heard by Murphy J in May 2013, and his Honour handed down his reasons for decision on 12 December 2013.

His Honour found that:[1]

(a)the amendment of the constitution of the Prime Trust by APCHL to create an entitlement to be paid a fee on the listing of the Prime Trust on the ASX was in breach of its duties as RE of the Prime Trust;
(b)the directors, including Mr Lewski, were involved in that breach; and
(c)payment of a listing fee by APCHL as RE, to itself in its own capacity, was a breach of s 208 of the Act, and the directors were involved in that breach.

[1][2013] FCA 1342.

Murphy J has not made declarations or final orders in the ASIC proceeding. The matter has been adjourned until 28 July 2014 for further hearing on relief from liability and penalty.

As mentioned above, the listing fee proceeding has been adjourned pending the resolution of the ASIC proceeding and thus has still to be heard.

Daytree proceeding

On 5 April 2012, Daytree (and others) filed a writ and statement of claim in the Supreme Court of Victoria seeking declarations to the effect that the NTA deposit was property charged by the Daytree charge, the Daytree-Lewski charge and/or the APA charge (Daytree proceeding). The liquidators instructed Cornwall Stodart to file the defence to the Daytree proceeding. The liquidators contended that on the proper construction of the charges, and in particular cl 3.5 of those charges, the NTA was excluded from the charges.

The trial of the Daytree proceeding is currently adjourned to a date to be fixed pending judgment in the listing fee claim. If the liquidators are successful in the Daytree proceeding, a sum exceeding $5 million will immediately become available. The funds will be held by APCHL in its own right (they are not funds belonging to the Prime Trust). Subject to any restriction on the liquidators utilising funds belonging to the company in its own right, those funds will be available to the liquidators.

LLP mismanagement claim and decision of Ferguson J

Shortly after the appointment of Messrs Horne and Vrescky as administrators, Mr Lewski identified to them a potential claim against LLP and its subsidiaries relating to mismanagement of the retirement villages (LLP mismanagement claim). Mr Lewski said the quantum of that claim might approach $200 million (calculated by reference to the difference between the value of the villages prior to LLP being appointed as managers in June 2008, and the value of the villages at June 2010). Acting for Mr Lewski, Madgwicks Lawyers and senior counsel instructed by them prepared a detailed general endorsement of claim and provided a copy to the liquidators. Subsequently, the liquidators commenced proceedings in respect of the LLP mismanagement claim.

The LLP mismanagement claim is not related to the management rights claims, although all claims stem from the management rights, and would include similar defendants, being subsidiaries of LLP.

Mr Horne deposes to considerations relating to the liquidators pursuing the LLP mismanagement claim and attempts to obtain funding to pursue the claim.

On 30 November 2011, the liquidators applied for directions concerning the proposed LLP mismanagement claim including directions as to whether the proposed LLP mismanagement claim constituted property charged to National Australia Bank (NAB),[2] CFAL, Suncorp-Metway and/or IFMN2. CFAL and IFMN2 each counterclaimed that the proposed LLP mismanagement claim and the management rights claims were property subject to various charges. In addition, CFAL claimed that three of its charges charged APCHL’s right of indemnity in respect of the property of the Prime Trust.
[2]Earlier in Mr Horne’s affidavit he identifies the Bank of Western Australia as a secured lender, along with CFAL, Suncorp-Metway and IFMN2, but does not mention, at that point, NAB.

On 4 April 2012, Ferguson J dismissed the liquidators’ originating process in respect of the proposed LLP mismanagement claim and gave judgment in favour of CFAL, Suncorp-Medway and IFMN2 in respect of their counterclaims. Ferguson J made orders and declarations to the effect that:

(a)the proposed LLP mismanagement claim was subject to and secured by the charges granted to CFAL and IFMN2, and the management rights claims were secured by the charges granted to CFAL; and
(b)CFAL’s charges extended to APCHL’s right of indemnity against the property and assets of Prime Trust. Her Honour found that through the right of indemnity, CFAL indirectly held security over otherwise unencumbered assets of the Prime Trust (including Ashton Gardens, the listing fee proceeding and cash at bank); and
(c)the liquidators pay the secured creditors’ costs of the claim and counterclaims.

The effect of the judgment was that all assets of the Prime Trust became charged property pursuant to the CFAL charges and the funds available to the liquidators were significantly reduced. At that time, the liquidators held approximately $360,000 in cash.

The matter (insofar as it related to CFAL’s charge) was appealed and the appeal was mediated in October 2012 when a confidential settlement was reached between the liquidators and the receivers appointed by CFAL. The settlement governed the respective responsibilities of the liquidators and the receivers in respect of assets of APCHL.

Since the settlement, the liquidators have been able to access:

(a)approximately $360,000, being the balance of cash held at the time of the judgment of Ferguson J;
(b)$370,000, which was received from the sale of a loan that had been made by the Prime Trust to a third party to construct a retirement village in return for a mortgage and a right of first refusal to purchase the village; and
(c)$113,660.18, which the liquidators recovered from an unfair preference claim against the State Revenue Office.

Those sums have been expended on expenses of the liquidation that were outstanding at the time the sums were received. Otherwise, the liquidation has been without funds since April 2012. The liquidators have continued to perform their duties as liquidators without funding, and their solicitors have continued to act for them on a conditional basis, that is, without requiring payment until such time as the liquidation is in funds again. It is anticipated that the liquidation may be in funds again on the sale of Ashton Gardens and/or a successful outcome in the listing fee proceeding, or any of the other proceedings, subject to the charges.

Management rights structures

In its capacity as RE, APCHL was entitled to manage the retirement villages the subject of the Prime Trust, in return for a fee (management rights). The liquidators have been informed by the directors of APCHL that:

(a)in order for the Prime Trust to avoid being classified as a “public trading trust” for tax purposes (which classification would cause it to be taxed like a company, not a fixed trust), it was necessary that the Prime Trust remain a “passive” landholding trust that derived its income from rent. Therefore it could not be actively engaged in the management of retirement villages;
(b)prior to 2004, APCHL’s aged care facilities were managed by Primelife Corporation Limited (Primelife). When APCHL acquired Buderim Gardens in 2004, it approached Primelife to manage the village. However, APCHL was unable to conclude a satisfactory arrangement with Primelife for the management of Buderim Gardens;
(c)Mr Lewski considered he had the requisite knowledge and expertise to manage Buderim Gardens effectively and profitably. Accordingly, he incorporated a company, Retirement Guide, of which he was the sole director, which entered into an agreement with APCHL to manage Buderim Gardens; and
(d)subsequently when APCHL acquired further retirement villages, it entered into agreements with Retirement Guide to manage those villages.

The liquidators have been informed by the directors that, in or about 30 July 2007 and prior to the listing of the Prime Trust on the ASX, Retirement Guide and APCHL restructured the management arrangements in respect of the retirement villages that Retirement Guide was, at that time, managing for APCHL (together with one further village, Brentwood, which was purchased on or about 31 August 2007) (management rights restructure). The management rights restructure resulted in:

(a)a lease agreement, for a term of 25 years, between the relevant owner of the retirement village (an entity in the Prime group) (as the “landlord”) and a tenant entity wholly owned by APC RV Holdings Pty Ltd (APC RV Holdings), a subsidiary of Retirement Guide (“tenant”) (lease agreement);
(b) a loan between the landlord (an entity in the Prime group) (“borrower”) and the relevant tenant (“lender”) (loan agreement); and
(c)a management services agreement for a term of 25 years, between the landlord (an entity in the Prime group) (as the “owner”), the relevant tenant and Retirement Guide Management Pty Ltd (RGM), an entity wholly owned by Retirement Guide (as the “manager”) (management agreement).

Mr Horne deposes that no consideration was paid to APCHL in its capacity as RE of the Prime Trust for the management rights, by Retirement Guide, APC RV Holdings or the various other parties to the management rights restructure.

Mr Horne deposes that he has been informed by the directors that, in or about September 2007, subsequent to the listing of the Prime Trust, Retirement Guide completed the sale of its shares in APC RV Holdings and RGM (the tenant and manager entities that were wholly owned by Retirement Guide) to Retirement Management Pty Ltd (Retirement Management). Retirement Management was an entity owned by Babcock and Brown Australia CPI Pty Ltd and Babcock and Brown Communities Pty Ltd. Retirement Management paid approximately $60 million for the shares.

Subsequently, in 2009, LLP acquired shares in Retirement Management (and, in turn, it became the ultimate holding company of APC RV Holdings and RGM) from the Babcock and Brown shareholders, resulting in:

(a)the “tenant”, “lender” and “principal” under the lease agreement, loan agreement and management agreement in respect of each of the 12 retirement villages, becoming subsidiaries of LLP; and
(b)the “manager” under the management agreement in respect of each of the 12 retirement villages, becoming a subsidiary of LLP.

LLP, by acquiring as its subsidiaries RGM, APC RV Holdings and Retirement Management, assumed the ownership of the management rights from that time onwards.

In March 2012, the liquidators instructed Cornwall Stodart to send letters of demand to various parties against whom the liquidators believed that claims might lie in relation to the management rights restructure. On 30 March 2012, the liquidators’ solicitors received a response from Arnold Bloch Leibler on behalf of each of the various entities save for Retirement Guide.

Mr Horne deposes that, broadly speaking, the basis of the claims arising from the management rights restructure fall into three categories:

(a)claims that the various parties to the management rights restructure breached certain duties, such as directors’ duties (including their duties as officers of a responsible entity, pursuant to s 601FD of the Act), and fiduciary duties, owed to the Prime Trust in their capacities as directors of the RE and advisers to the Prime Trust. In addition, that APCHL had breached its various duties, including fiduciary duties and statutory duties (such as its duties as responsible entity pursuant to s 601FC of the Act), and that other parties were involved in those contraventions (management rights breach of duties claim);
(b)that the management rights restructure was an insolvent uncommercial transaction, an unreasonable director-related transaction, and a voidable transaction pursuant to ss 588FB, 588FC, 588FDA and 588FF of the Act (management rights voidable transactions claim); and
(c)that the management rights restructure, and its effect on the business of the Prime Trust, was not properly recorded in the financial reports of the Prime Trust, and, consequently, the audit of the financial reports was (amongst other things) negligent (auditor’s liability claim).
(Collectively, the management rights claims).

Mr Horne deposes that in the liquidators’ view, having been administrators and then liquidators of the Prime Trust for more than three years, it is the management rights restructure, more than any other factor (including the payment of the listing fee), that had the most impact on the financial position of the Prime Trust and ultimately resulted in the insolvency of the RE and the trust.

Management rights breach of duties claim

Mr Horne deposes that pursuant to the settlement agreement with the receivers referred to earlier, the claims broadly discussed above are charged to CFAL, and the receivers had a “right of first refusal” to run, and benefit from, the claims. Mr Horne deposes that the management rights voidable transactions claim can only be brought by the liquidators. However, the breach of duties and voidable transactions claims arise from substantially the same factual matrix and would seek, ultimately, the same remedy (being compensation for the loss of the value of the management rights).

On 19 March 2013, the receivers for CFAL caused to be filed with the Supreme Court of Victoria a writ and general endorsement in relation to the management rights breach of duties claim naming seventeen defendants. This is the writ the subject of this application for extension of time for service.

On 28 March 2013, the liquidators were informed that the receivers did not intend to serve the writ until they had concluded further investigations.

In about early February 2014, the liquidators’ solicitors wrote to the solicitors for the receivers requesting confirmation as to whether the receivers intended to proceed with the management rights breach of duties claim. The liquidators and their solicitors did not receive a response to that letter.

On 25 February 2014, the liquidators wrote directly to the receivers requesting confirmation of whether the receivers intended to proceed with the management rights breach of duties claim.

On 28 February 2014, the liquidators received a letter from the receivers proposing, inter alia, that the deed of settlement be varied such that the liquidators would have sole carriage of the management rights breach of duties claim. At the time of Mr Horne swearing his affidavit on 13 March 2014, the liquidators were continuing to negotiate with the receivers regarding the precise terms upon which the liquidators would resume control of the management rights breach of duties claim.

Subsequently, on or about 19 March 2014, the receivers entered into a deed of variation of release and settlement with the liquidators. In effect, the deed of variation gave control of the management rights breach of duties claim to the liquidators. The circumstances surrounding the release are discussed below when I consider the evidence of Craig Peter Shepard, one of the receivers and controllers of APCHL.

Mr Horne deposes that, pursuant to the Rules, the plaintiffs are obliged to serve all defendants within 12 months of the writ and general endorsement being filed. That is, no later than 18 March 2014, failing which the writ will become stale and the claim will be statute barred. During oral submissions, counsel for the liquidators contended that the claims in equity may not be statute barred.

Mr Horne deposes that, for the reasons summarised above, the liquidation is presently without sufficient funds to fund the management rights breach of duties claim or to pay the costs of the numerous defendants to that claim in the event that the claim is unsuccessful. Mr Horne deposes that, since 28 February 2014 when the receivers proposed a deed of variation, there has not been sufficient time to secure funding from a litigation funder, although the liquidators intended to explore this possibility. As discussed below, Mr Horne has now obtained litigation funding.

Management rights voidable transactions claim

Mr Horne deposes that on or about 17 October 2013, the liquidators instructed their solicitors to file an originating process in the Supreme Court seeking declarations and orders in relation to the management rights voidable transactions claim (which can only be brought by the liquidator).

In the management rights voidable transactions claim, the liquidators are claiming that:

(a)the lease agreement, loan agreement, and management agreement entered into (for each of the relevant retirement villages) as part of the management rights restructure were uncommercial transactions and that each of certain named companies must repay the benefits to APCHL; and
(b)the call option transaction (referring to a call option deed relating to the lease agreement, loan agreement and management services agreement) was an uncommercial transaction and that Retirement Guide must repay the benefits to APCHL; and
(c)the lease agreement, loan agreement and management agreement entered into (for each of the retirement villages) as part of the restructure were uncommercial transactions and that each of certain named companies must repay the benefits to APCHL.

Mr Horne deposes that the reasons the commencement of this proceeding was left until shortly before the expiry of the limitation period, being three years after the relation back day pursuant to s 588FF(3) were:

(a)the related management rights breach of duties claim had been commenced by the receivers. In the view of the liquidators, it was prudent to commence the management rights voidable transactions proceeding to avoid it becoming statute barred, in case the receivers did not proceed with the management rights breach of duties claim. Further, if the receivers did continue with their proceeding, the liquidators having commenced the voidable transactions proceeding may have impacted on the receivers’ decision to continue their proceeding. Mr Horne deposes that at the time, the liquidators were not aware of the receivers’ intentions regarding the management rights breach of duties claim; and
(b)the liquidators were without funds to conduct further investigations or to pursue their proceeding from April 2012 onwards, and only commenced the proceeding to prevent the expiry of the limitation period.

In or about December 2013, the liquidators instructed Cornwall Stodart to file an ex parte application for an order extending the time for service of the originating process in the management rights voidable transactions claim.

On 20 December 2013, Randall AsJ made orders extending the validity for service of the originating process in the management rights voidable transactions claim. The orders of Randall AsJ allowed the liquidators to serve process in the management rights voidable transactions proceeding at any time up to 1 December 2014.

Auditor’s liability claim

In or about September 2013, in order to preserve the cause of action that was about to become barred due to the expiry of the limitations period, the liquidators instructed their solicitors to commence proceedings against Pitcher Partners, who were the auditors for APCHL and the Prime Trust for the 2007 financial year.

The auditor’s liability claim was commenced by writ and general endorsement in the Supreme Court of Victoria on 27 September 2013. At the time, the receivers had a right of first refusal in relation to the auditor’s liability claim, which they had not exercised.

Mr Horne deposes that the claims outlined in the general endorsement are broader than just the way in which the financial reports record the management rights restructure, but the audit of the management rights restructure would be a central pillar of the claim.

Mr Horne deposes that the reasons that the commencement of the proceeding was left until shortly before the expiration of the limitation period were as follows:

(a)the claim was charged to CFAL; and
(b)the period for CFAL to decide whether it intended to prosecute the claim had not yet expired.

Mr Horne deposes that in the liquidators’ view, it was not in the interests of creditors generally to proceed with the claim when it ultimately only benefited a secured creditor. Mr Horne deposes, however, that it was necessary to preserve the claim until such time as the receivers had exercised their rights in relation to the claim. Further, the liquidators were not then in funds to enable them to further investigate the auditor’s liability claim.

By letter dated 18 February 2014, the receivers confirmed, amongst other things, that they did not intend to pursue the auditor’s liability claim.

Pursuant to the Rules, the liquidators are required to serve Pitcher Partners within 12 months of the writ and general endorsement being filed (no later than 26 September 2014), failing which the writ will become stale and the claim will be statute barred, because any fresh writ filed by the liquidators will be outside the limitation period.

Interrelationship between the management rights claims

Mr Horne deposes that there is a common factual matrix among the management rights claims. Further, the auditor’s liability claim relates in a large part to the reporting of the management rights restructure. Mr Horne deposes that the liquidators consider that there is a strong possibility that the auditors would claim that the defendants in the management rights breach of duties claim (or at least the director defendants) are concurrent wrongdoers.

Mr Horne deposes that the liquidators are of the view that it is convenient and more efficient for the three management rights proceedings to be heard together. For example, if the auditors claim that the directors or other persons are concurrent wrongdoers, any claim by the liquidators for contribution from those parties would be statute barred, save for the corresponding breach of duties claim, which has already been initiated in time.

Timing of funding, and prospects of liquidation being in funds
Ashton Gardens

At the time of the settlement with the receivers in early 2013, the liquidators were of the view that the sale of Ashton Gardens could be completed relatively quickly and that would likely return approximately $2million, of which the liquidators would receive a significant share. The sale of Ashton Gardens was only completed on 28 February 2014. The purchaser was LLP. The liquidators were informed by the receivers that LLP’s refusal to offer the management rights for Ashton Gardens to be sold along with the freehold, plus the issues with local council, has had the effect of reducing its value and also increasing the sale costs significantly. Mr Horne deposes that the liquidators now expect to receive approximately $372,000 from the sale of Ashton Gardens, but the moneys have not yet been received.

Listing fee claim

Mr Horne deposes that the liquidators have been informed by the receivers that in the ASIC proceeding, the receivers are seeking compensation orders pursuant to s 1317H and 1317HA of the Act. Mr Horne deposes that any moneys paid pursuant to a compensation order will be at least partly payable to the liquidators pursuant to the terms of settlement with the receivers. Mr Horne says that whether or not this occurs, the liquidators believe that Justice Murphy’s findings bode well for the prospects of the listing fee proceedings. Mr Horne deposes that accordingly the liquidators believe that in the next 12 months there are reasonable prospects that the ASIC proceeding and the listing fee proceeding, or either of them, may result in significant funds being available to the liquidators.

Mr Horne also deposes to the attempts of the liquidators to obtain funding. This evidence has now been superseded by events, as the liquidators have received an offer of litigation funding which I will deal with below.

Mr Horne deposes that the liquidators are concerned to ensure that they do not allow the management rights breach of duties claim to become statute barred without having fully investigated the prospects of obtaining funding (which the liquidators have since obtained) and the prospects of success of the claim.

Extension of time for service of the originating process

Mr Horne deposes that the liquidators request that this Court extend the time for service of the writ and general endorsement in respect of the management rights breach of duties claim for the following reasons:

(a)the receivers have only recently indicated that they do not intend to pursue the management rights breach of duties claim;
(b)the liquidators have until 17 March 2014 to serve the management rights breach of duties claim or seek an extension of time to serve the writ in respect of the management rights breach of duties claim;
(c)the liquidators are still without funds. The extension of time would enable the liquidators to obtain funding from the sale of Ashton Gardens, the successful outcome in the Daytree proceeding, and/or a successful outcome in the listing fee proceeding. Those funds would enable the liquidators to complete further investigations that may assist the liquidators in obtaining funding for the management rights breach of duties claim, the voidable transactions claim and the auditor’s liability claim; and
(d)to enable the liquidators to obtain funding from a litigation funder for the auditor’s liability claim, the management rights breach of duties claim, the management rights avoidable transaction claim and the auditor’s liability claim.

Mr Horne deposes that he believes the period of 12 months would be necessary to enable the above process to be completed.

As discussed below, by the time the matter came on for hearing the circumstances had changed considerably as funding for the management rights breach of duties claim had been obtained by the liquidators. The liquidator sought an extension of time in which to serve the writ in the management rights breach of duties claim, to properly instruct the solicitors nominated by the funder (who were to have the carriage of the management rights breach of duties claim) to seek the approval of the committee of creditors for the funding agreement and - if approved - to effect service.

Evidence of Craig Peter Shepherd

As mentioned above, the application for an extension of time to serve the writ issued on 13 March 2013 was adjourned to permit the plaintiffs to make further submissions in support of the application. When the matter came back on before me on 2 April 2014, the plaintiffs sought to rely on an affidavit of Craig Peter Shepherd sworn 1 April 2014.

Mr Shepherd and Mark Anthony Korda are the joint and several receivers and managers and joint and several controllers of APCHL. Mr Shepherd and Mr Korda were appointed by CFAL, which was a creditor of the Prime group for approximately $221 million. Since the appointment of the receivers, CFAL has assigned its debt to AET SPV Management Pty Ltd (AET SPV) as trustee of the Lawson Trust.

Mr Shepherd deposes that on 15 October 2010, Mr Korda and he were appointed receivers and managers and on 3 November 2010 as controllers, over assets of various companies within the Prime group. Mr Shepherd deposes that while AET SPV has continued the receivership appointment, Mr Korda and he were retired and reappointed as controllers on 11 September 2012 at the time of the CFAL assignment of debt to AET SPV. He details the many securities pursuant to which they have been appointed.

Mr Shepherd deposes that he caused to be filed in this Court the writ and general endorsement in respect of the management rights breach of duties claim in order to preserve certain causes of action that otherwise would have become statute barred.

Mr Shepherd deposes that it was his intention to conduct further investigations into the merits of the management rights breach of duties claim and to seek funding for that claim before serving the writ and general endorsement.

Mr Shepherd deposes that following the filing of the writ and general endorsement, his appointers continued their deliberations regarding whether they would provide funding for the commencement of the management rights breach of duties claim.

Mr Shepherd deposes that he was initially hopeful that the mediation of the listing fee proceeding would also be able to include a mediation of the management rights breach of duties claim, given the similar defendants to each claim. Accordingly, besides investigations and searches for funding, service was also delayed in anticipation of potential mediation. Mr Shepherd deposes that he considered that this was the strategy which was most likely to achieve the maximum overall return in respect of both claims.

Mr Shepherd deposes that in or about September 2013, given that his appointers were continuing their deliberations, he approached a litigation funder, IMF, with a view to obtaining funding for the management rights breach of duties claim. Mr Shepherd deposes that his initial impression from preliminary discussions with IMF was that there was a good prospect that IMF would provide funding for the receivers to pursue the management rights breach of duties claim. However, on 27 February 2014, IMF declined to provide funding.

Mr Shepherd deposes that he continued discussions with the appointers regarding the claim. While these discussions were ongoing, Mr Shepherd deposes that he notified the liquidators on 28 February 2014 that the appointers were reconsidering whether they would fund the claim. He informed the liquidators that the receivers were open to varying the deed of settlement such that the liquidators would take carriage of the management rights breach of duties claim. This would minimise the risk that the asset would be lost in the event that the appointers determined not to provide funding.

Mr Shepherd deposes that ultimately the appointers declined to provide funding for the claim and that on or about 19 March 2014, he entered into a deed of variation with the liquidators to, in effect, give control of the management rights breach of duties claim to the liquidators.

Impact of the ASIC proceeding on the listing fee proceeding

Mr Shepherd deposes that it was his intention to progress the listing fee proceeding with a view to holding a mediation encompassing both the listing fee proceeding and the management rights breach of duties claim. Mr Shepherd deposes that the progress of the listing fee proceeding has been impacted by the ASIC proceeding.

Mr Shepherd deposes that the ASIC proceeding commenced in or about August 2012. The five director defendants in the ASIC proceeding are also defendants in the listing fee proceeding. Mr Shepherd deposes that in May 2013, the parties to the listing fee proceeding agreed to adjourn the listing fee proceeding to allow mediation to take place following the delivery of judgment in the ASIC proceeding. At that time it was envisaged that the judgment in the ASIC proceeding would be delivered in or about September 2013.

Mr Shepherd deposes that judgment in the ASIC proceeding in relation to liability was not handed down until 12 December 2013. This meant the parties were unable to arrange mediation of the listing fee proceeding between May 2013 and December 2013.

Mr Shepherd deposes that following the delivery of judgment in the ASIC proceeding, the parties attempted to schedule a date for mediation of the listing fee proceeding but were unable to agree on a date. The time within which the parties are required to mediate the listing fee proceeding has now been extended until after the penalty phase of the ASIC proceeding, which is listed on 28 July 2014. Mr Shepherd deposes that accordingly, he has been unable to substantively progress the listing fee proceeding since the time of filing the writ and general endorsement in respect of the management rights breach of duties claim. As Mr Shepherd intended to mediate the management rights breach of duties claim alongside the listing fee proceeding, delays in mediating the listing fee proceeding caused delays in prosecution of the management rights breach of duties claim.

Evidence of Jason Glenn Stone

At the hearing on 2 April 2014, Jason Glenn Stone, a partner in PKF Lawler (the firm of the liquidators), gave oral evidence. Mr Stone is assisting the liquidators in their duties.

Mr Stone gave evidence that he had only recently (that day) received a litigation funding proposal for the proceeding. He said that for the litigation funder’s proposal to be accepted by the liquidators it would have to be put to a meeting of the Committee of Creditors. Mr Stone said that a report on the funding proposal would have to be prepared by the liquidators and notice of the meeting given to the members of the committee. Mr Stone said a minimum of two weeks would be required to convene a creditors’ meeting to obtain approval.

Mr Stone also said that the funding proposal required that new solicitors be instructed to conduct the litigation; Johnson Winter and Slattery.

Mr Stone said that Johnson Winter and Slattery and the liquidators would need to consider against which defendants the claim should be pursued. The proposed funding agreement was tendered in evidence.

No evidence was tendered that the defendants to the management rights breach of duties claim have been notified of the claim. As the authorities below disclose, this is a relevant factor in the exercise of the Court’s discretion.

The Rules

Applications for an extension of validity for service of a writ are made under r 5.12 of the Rules, which provides as follows:

Duration and renewal of originating process
(1) A writ or an originating motion shall be valid for service for one year after the day it is filed.
(2) Where a writ or originating motion has not been served on a defendant, the Court may from time to time by order extend the period of validity for such period from the day of the order as the Court directs, being not more than one year from that day.
(3) An order may be made under paragraph (2) before or after expiry.
(4) The plaintiff may apply under paragraph (2) without notice to the defendant, but if the Court considers that the defendant ought to be heard, the Court shall adjourn the further hearing and direct the plaintiff to give notice to the defendant by summons or otherwise.
(5) Where an order is made under paragraph (2), the Prothonotary shall stamp any sealed copy originating process for service with the date of the order and the extended date of validity.

Although r 5.12(2) does not expressly require a good reason for extension, the Full Court of the Supreme Court in Ramsay v Madgwicks[3] has held that a good reason is required nevertheless. This means cases considering the requirement under the old rules to show ‘good reason’, are relevant to the application of r 5.12(2). In Zappelli v Falkiner[4], O’Bryan J described his task under the new rule as follows:

In exercising a discretion it is fair to observe that the new rule is less rigid in its requirements than the old rule. I ask myself the question is there good reason to extend the validity of the Writ herein, having regard to the relative hardship to the plaintiffs were an extension to be refused against the hardship to the defendants were an extension to be granted.
[3][1989] VR 1 (Ramsay v Madgwicks).
[4](Unreported, Supreme Court of Victoria, O'Bryan J, 21 September 1987).

Duty on ex parte application

An applicant for an ex parte order has an obligation to the court of the utmost good faith, “uberrimae fidei.” In Savcor Pty Ltd v Cathodic Protection International APS[5] the Court of Appeal held that this duty expressly applies to an ex parte application to extend the time for service of a writ.[6] There, Gillard AJA said that “[t]he obligation requiring full disclosure of all material facts must be complied with on pain of penalty that the order will be set aside”.
[5]Savcor Pty Ltd v Cathodic Protection International APS (2005) 12 VR 639 (Savcor v Cathodic).
[6]Ibid, [24] per Gillard AJA (with whom Ormiston and Buchanan JJA agreed).

Principles to be applied

The plaintiffs submitted that the principles to be applied to extend the validity for service of a writ have been conveniently summarised by Derham AsJ in Howard v Power as follows:[7]
[7][2013] VSC 198, [10].

The principles applicable are well settled. They derive in part from earlier Rules (Order 8 Rule 1), which provided that the court might order that a writ be renewed if satisfied that reasonable efforts had been made to serve the defendant, or for “other good reason”. Despite the change in language, however, the authorities make it clear that the court should determine the question of extending the validity of the Writ on the same basis as previously.[8] Amongst the differences between the old and new Rules is a change of terminology, from renewal of the writ to ‘extension of its validity. The principles applicable are, in summary, as follows:
[8]Kleinwort Benson Ltd v Barbrak Ltd & Ors [1987] AC 597, 622-3; Ramsay v Madgwicks [1989] VR 1.
(a)Although the power conferred by Rule 5.12 is wholly discretionary, a judge has to approach the exercise of the discretion in accordance with established principles: Dagnell v Freedman & Co [1993] 2 All ER 161 at 165 (“Dagnell”);
(b)The jurisdiction given by the rule ought to be exercised with caution: Battersby v Anglo-American Oil Co Ltd (“Battersby”);[9] Ramsay v Madgwicks[10] (“Madgwicks”);
[9][1945] KB 23, 32-3 per Lord Goddard.
[10][1989] VR 1, 5.5.
(c)It is the duty of a plaintiff to serve a writ promptly: Battersby at 32;
(d)An application to extend time for service is not granted as a matter of course: Battersby at 32; Madgwicks; Savcor Pty Ltd v Cathodic Protection International APS[11] (“Savcor”);
[11](2005) VR 639, 651.
(e)The first question to consider is whether the plaintiff has taken reasonable steps to serve the writ. If not, it then becomes necessary to consider whether there was “some other good reason” for making the order to extend time for service of the writ: Soper v Matsukawa[12] (“Soper”); Battersby;
[12][1982] VR 948 at 952.9.
(f)The plaintiff carries the onus of showing that there is a good reason for extending the time to serve the writ (Soper at 952; Madgwicks at 6; Savcor at [41]); the applicant’s burden is no greater if the limitation period has expired between the date of issue of the writ and the date on which the application is made: Findlay at 187.
(g)Whether there is good reason depends on all the circumstances of the case: Dagnell at 165; Kleinwort Benson Ltd v Barbrak Ltd & Ors [1987] AC 597 at 622-3 (“Kleinwort”); and it is not possible to define or circumscribe the scope of the expression “good reason”: Kleinwort;
(h)Where the application is made after the period for service has expired, the reason must be one of substance (Savcor at [41]);
(i)The selection of relevant factors to establish that there is a good reason for making the order, and the significance to be given to each of the factors, are matters of discretion (Soper at 954);
(j)The fact that the plaintiff decides not to serve the writ whilst some other case is tried, or to await some future development, is generally not a good reason to justify extending time for service. Madgwicks at 4 and 5; Savcor at [42]); Dagnell at 165-168. It is for the Court and not for one of the litigants to decide whether there should be a stay, and it is not right that people should be left in ignorance that proceedings have been commenced against them if they are there to be served: Battersby at 32;[13]
(k)It is a relevant factor against the exercise of the discretion that the renewal of the writ might deprive the defendant of a limitation defence where the plaintiff has been aware that the passage of time might be dangerous: Battersby at 31–2; Madgwicks at 7; Soper at 953; see also Finlay v Littler [1992] 2 VR 181 at 187 (“Finlay”).
(l)It is a relevant factor against the exercise of the discretion that the defendant was unaware of and had no reason to expect that a writ had been issued against them: Madgwicks at 7; Kleinwort at 623–4).[14]
(m)The lapse of time is itself generally to be regarded as prejudicial to the defendant (Madgwicks at 7; Finlay at 188). In this contest, the relevant delay is to be measured from the time at which the plaintiff’s cause of action arose (Tyson v Morgan [200] 1 Qd R 100 at 104.50);
(n)Any delay in making the application to extend the time for service of the writ is a relevant factor against the exercise of the discretion (Finlay at 187); delay preceding (as well as following) the issue of the writ is material (Soper at 953);
(o)The expiration of the limitation period will not in itself constitute a good reason for extending the validity of the writ (Finlay at 187), although it is relevant (Soper at 952); and
(p)It may be appropriate to have regard to the balance of hardship: Kleinwort at 622; Van Leer Australia Pty Ltd v Palace Shipping KK (1981) 180 CLR 337 at 343 and 346 (“Van Leer”) (adopting the approach of Bray CJ in Victa Ltd v Johnson (1975) 10 SASR 496 at 502 (“Victa”)).

The Australian cases differ from the English cases as to the effect of a limitation defence arising after the issue of a writ but before the application to extend the validity of the writ. The difference is traced by Stephen J in Van Leer at 341–6. His Honour preferred the approach of the Australian and Canadian courts. He quoted with approval what Bray CJ said in Victa.[15] Bray CJ stated that there was no rule that a defendant acquired an absolute right to immunity when a writ issued within the limitation period is not served and in the meantime the period expires. The English cases had stated a test that if the limitation period had expired it was only in exceptional circumstances that the writ would be renewed. This is not the Australian position.[16]
[13]But there are cases where to await the outcome of a test case is a good reason: see Kleinwort, above n [8], 619-624.
[14]It seems that this factor may be based in part on what Lord Goddard said in Battersby, above n [9], 32 that it is not right that people should be left in ignorance that proceedings have been taken against them if they are available to be served.
[15](1975) 10 SASR 496.
[16]Savcor v Cathodic, [41].

Good reason and the circumstances of the case

The High Court considered ‘good reason’ in Van Leer Australia Pty Ltd v Palace Shipping KK.[17] In that case the plaintiff had obtained an order for renewal of a stale writ. After the extended period for service expired, the plaintiff served the writ on the defendant. The defendant applied to have the writ, its service, and the renewal order set aside. The plaintiff sought a further renewal. Stephen J, sitting alone, set aside the initial renewal/extension. The limitation period had expired since the filing of the writ.
[17](1981) 180 CLR 337 (Van Leer) per Stephen J.

Stephen J first considered the effect of the limitation period having expired. His Honour eschewed the English cases and instead followed the approach of the South Australian Supreme Court and the Canadian courts. His Honour said:

…It follows that renewal out of time cannot properly be described as depriving a defendant of a defence the essence of which is failure to issue within time… All this is not to deny the considerable relevance to the plaintiff's application of the fact that the period of twelve months prescribed by the Hague Rules has long since passed. That period, prescribed in an international code which has found its place in the domestic law of most trading nations, no doubt reflects the need for relatively prompt initiation of claims which arise in the international shipping trade. On any view this is a matter to which regard must be had in considering these applications: the question is what weight is to be accorded to it. The modern English authorities, and they are numerous, place considerable weight upon the expiration of periods of limitation, partly under the influence of older cases such as Doyle v. Kaufman and of what was said by Lord Goddard in Battersby. They treat renewal after a time bar has arisen as only to be permitted in quite exceptional circumstances.[18]

[18]Ibid, 341. (Citations omitted.)

His Honour said that in contrast, the Australian cases:

….do not give to the expiration of a limitation period quite the same great significance as does most English authority; they look rather to the general justice of the case, paying regard to all the circumstances, including not only any limitation statute but also the relative hardships which grant or refusal of renewal would impose upon the parties. They also recognize that it is non-compliance with rules of court, not disregard of a statute of limitations, that has brought an applicant to Court seeking an exercise of discretion in his favour.[19]

[19]Ibid, 342.

Accordingly, in Australia, the limitation period having expired after the filing of the writ and before the extension application is merely a circumstance of the case. The defendant does not have an absolute right to immunity, as the writ is not a nullity. This means that the plaintiff’s burden in seeking an extension is not increased by reason of the limitation period expiring. Equally, the burden is not reduced by reason of the defendant’s limitation defence to any refiled writ.

In Van Leer the plaintiff had not made reasonable efforts to serve the defendant, so Stephen J next considered whether there was a good reason for renewing/extending the writ. When considering ‘good reason’, his Honour said:

I do not, for the reasons already stated, regard the expiration of the limitation period of twelve months as of itself casting upon the plaintiff that heavy onus which the English decisions would impose. However I do take account of the long delay in serving Palace Shipping. It 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 [the plaintiff wished to avoid the cost of suing the defendant if proceedings against other defendants were successful]; thirdly, no notice was given to the defendant in this case, although the giving of such notice may sometimes mitigate the prejudice which a defendant may otherwise suffer through delay in actual service of process.
These are all substantial considerations. To be weighed against them is the plaintiff's effective loss of its rights against Palace Shipping if the renewal of the writ in November 1979 is to be set aside. But this seriously prejudicial consequence will be present whenever renewal of a writ is in question after a limitation period has run its course; and in the present case the prejudice is self-inflicted in the sense that Palace Shipping did nothing to induce delay in service or to encourage a belief that the claim against it might be settled without recourse to litigation.
In these circumstances I conclude that, on a proper exercise of discretion and in the light of the facts as now known to me, the writ should not have been renewed as a result of the ex parte application made to me in November 1979.[20]

[20]Ibid, 350-351.

Stephen J said that evidence of particular prejudice suffered by the defendant was not necessary, as the long delay was evidence of prejudice in itself.[21]
[21]Ibid, 351.

As mentioned above, in Ramsay v Madgwicks the Full Court of the Supreme Court, comprising Young CJ, Kaye and Southwell JJ, decided that the power to extend the validity for service of writs should only be exercised for good reason, even though extension under r 5.12(2) is not expressly premised on the existence of ‘good reason’.

In Ramsay v Madgwicks, a writ was extended and later served on the defendant before the extended deadline elapsed. The defendant then challenged the extension, and the matter ultimately came before the Full Court.

Young CJ, with whom Kaye and Southwell JJ agreed, said that the question was ‘whether there was good reason in all the circumstances for extending the period of the writ.’[22] It should be emphasised that the Court said that the good reason is for extending the writ rather than good reason for the past failure to serve the writ.
[22]Ramsay v Madgwicks, 4.

The reason advanced was that the plaintiffs had wished to await the outcome of an appeal to the Supreme Court in other proceedings before proceeding with the action the subject of the writ. The plaintiffs said they wished to save the costs of their action if it were possible. There had been no attempt to serve the defendants or advise them that a writ had been filed.

Young CJ said:

…it must at least be doubtful whether the mere wish of the party can ever be a sufficiently good reason for extending the time of the writ. If an extension in the ordinary case is refused, a plaintiff can, of course, always issue another writ. But more significantly than that, it is not for a party to proceedings, but for the Court to say whether there should be effectively a stay of proceedings.[23]

[23] Ibid.

The Chief Justice said that this proposition was clearly enunciated in Battersby v Anglo-American Oil Co Ltd[24] by Lord Goddard in a passage where his Lordship said:[25]

We conclude by saying that, even when an application for renewal of a writ is made within 12 months of the date of issue, the jurisdiction given by the rule ought to be exercised with caution. It is the duty of a plaintiff who issues a writ to serve it promptly, and renewal is certainly not to be granted as of course on an application which is necessarily made ex parte. In every case care should be taken to see that the renewal will not prejudice any right of defence then existing, and in any case it should only be granted where the court is satisfied that good reasons appear to excuse the delay in service, as indeed, is laid down in the order. The best reason, of course, would be that the defendant has been avoiding service, or that his address is unknown and there may well be others, but ordinarily it is not a good reason that the plaintiff desires to hold up the proceedings while some other case is tried or to await some future development. It is for the court and not for one of the litigants to decide whether there should be a stay, and it is not right that people should be left in ignorance that proceedings have been taken against them it they are here to be served. While a defendant who is served with a renewed writ can, no doubt, apply for it to be set aside on the ground that there was no good reason for the renewal, his application may very possibly come before a master or judge other than the one who made the order and who will not necessarily know the grounds on which the discretion was exercised.

[24][1945] KB 23.

[25]Ibid, 32-33.

The Chief Justice added “[b]ut, of course, in spite of those observations, all the circumstances of a particular case must be considered before a discretionary judgment is exercised.”[26]
[26]Ramsay v Madgwicks, 5.

His Honour said that the circumstances of the present case to be considered when deciding whether to extend the writ were:

…first, that the renewal of the writ might deprive the respondents of a defence under the Statute of Limitations; next, that the respondents had no knowledge of the issue of the writ until it was served upon them nearly eighteen months after its issue; next, that the respondents had no reason to expect the fact that there was a writ outstanding against them, and I refer in that connection to observations in the judgment of the Court in Irving v Carbines, at p. 867, and, further, the consideration that mere lapse of time is itself generally to be regarded as prejudicial.[27]

[27]Ibid, 7.

In the result, the Chief Justice agreed with the trial judge that the plaintiffs had not shown that there was good reason for extending the writ.

In Irving v Carbines,[28] the Full Court considered whether good reason had been shown for extension of a writ under the old rules. This was a case of a dual application; an application for enlargement of the time for making an extension application, and then an application for extension.
[28][1982] VR 861.

The Full Court, comprising Young CJ, McInerney and King JJ, affirmed the trial judge’s decision and upheld the enlargement and extension. The good reasons in favour of extension included that: the defendant and his insurer were on notice that the plaintiff intended to claim; the insurer was told that service would be withheld pending reply of the insurer’s attitude to the claim, and the insurer then (probably deliberately) failed to notify the plaintiff of its attitude; failure to serve within the time limit was due to incompetence/negligence on the part of the solicitor, and the plaintiff was therefore not responsible; and the defendant would not be embarrassed or prejudiced in his defence on negligence (fault) or damages.[29]
[29]Ibid, 867.

Other factors were that the plaintiff’s new solicitors had pursued the claim with diligence since taking over its conduct. Arguments raised against the extension included that the defendant would be able to rely on a limitations defence if the plaintiff were required to issue a new summons; the defendant had been available to be served; and there was no cogent reason for non-service.

McInerney J also dealt with the nature of the discretion and said:

…What is conferred is a power exercisable in those terms; it is not a power exercisable in other terms, and it is unfortunate in the extreme that courts, in a search for consistency, appear to have exhibited a tendency to search for and travel on or in tramlines or (to quote the language of Bowen, LJ, in Gardner v Jay (1885) 29 Ch D 50, at p. 58) "grooves in which the discretion should run" where no such tramlines or grooves are laid down or prescribed by the relevant Act or Rule: cf. also Shepperdson v Lewis, [1966] VR 418, at p. 423, per Smith, J.
Most applications under the rules under consideration in the instant appeal come before a judge at first instance and are seldom reported--for the very good reason that it is realized by the law reporter that the decision was one made in the exercise of discretion on facts which will seldom if ever be the same as the facts of any subsequent case arising under those rules. Nevertheless, the law reports will be found to have included over the years an embarrassing number of reports of the reasons for decision on such applications.[30]

[30]Ibid, 868.

In Finlay v Littler,[31] the Full Court dismissed an appeal from a decision not to allow extension. The plaintiff had filed a writ and then applied for an extension after the writ had been stale for over two years. The plaintiff failed to appear at the first application for extension, and so the application was dismissed. The plaintiff was unsuccessful at the second application, and so appealed.
[31][1992] 2 VR 181.

Crockett J, with whom Southwell J agreed, said in relation to r 5.12(2) that ‘[i]t is clear that the court has a wide and unfettered discretion to exercise pursuant to that rule.’[32] His Honour said that under the new rule, when showing ‘good reason’, the plaintiff is required to disclose whether reasonable efforts have been made to serve the defendant, as that is a matter of considerable importance.[33]
[32]Ibid, 184.
[33]Ibid, 186.

The appellant argued that a good reason for renewal/extension was that if not renewed/extended, the plaintiff’s claim would be statute barred. Crockett J said that this did not itself constitute a good reason for renewal, nor did it make the plaintiff’s burden of proof greater.[34]
[34]Ibid, 187.

The primary reason for not renewing/extending the writ was the plaintiff’s delay in applying for the extension, which was inordinate and inexcusable. When seeking extension, the plaintiff was seeking the court’s indulgence, and should have acted expeditiously.[35] Second, little had been done to locate and serve the defendant despite the considerable period of time. Finally, delay itself is a basis for inferring that the defendant will suffer prejudice if the extension is granted.[36]
[35]Ibid.
[36]Ibid, 188.

In Savcor v Cathodic, the Court of Appeal reinstated the master’s decision to extend the period for service of a writ. The plaintiff had successfully sought an extension. The defendant had entered a conditional appearance which later became unconditional when no steps were taken to challenge service or the extension. Eight months later, after several interlocutory steps had been taken, the defendant applied to have service set aside, on the ground that the plaintiff had not placed all relevant material before the master; not on the ground of there being no good reason for extension. The trial judge set aside the master’s decision to grant the extension.

Ormiston JA said that an extension will almost certainly be set aside if there is shown an intention to defeat the relevant limitation period.[37]
[37]Savcor v Cathodic, [2].

Gillard AJA, with whom Ormiston and Buchanan JJA agreed, said in relation to applications to set aside orders made ex parte:

It is a rehearing of the whole application…and gives the right to the party affected by the order to appear before the court and put submissions as to why the order should not be made on the materials which were before the judge who made the first order. It is a rehearing and the court may reach a different decision after hearing submissions.[38]

[38]Ibid, [21].

His Honour said that the case before the Court was not a rehearing, so the task was not to consider whether a different decision should have been made on the material before the trial judge. Rather, the question was whether the plaintiff had failed to discharge the obligation in ex parte applications to make full and fair disclosure of all material matters within the plaintiff’s knowledge, and if so, whether the decision should be set aside. So the Court of Appeal was not considering the meaning of ‘good reason’ for the purpose of r 5.12(2).

In passing, Gillard AJA said he doubted whether there were good reasons for extending the validity for service of the writ.[39] His Honour set out some general propositions about extending the validity for service of writs: [40]

(i) It is the duty of the plaintiff to serve the writ promptly.
(ii) There must be a good reason for the grant of an extension, and if the application is made after the period has expired the reason must be one of substance.
(iii) It is not possible and indeed is unwise to attempt to define the circumstances which amount to a good reason. It is trite observation but not very helpful that whether or not it is a good reason must depend upon all the circumstances of the particular case. As a general proposition difficulties serving the writ within the 12-month period will usually establish a good reason, for example where the defendant is evading service, his whereabouts are unknown or some other difficulty is experienced in serving the defendant.
(iv) By reference to decided cases it is possible to compile a list of the circumstances which constitute a good reason. The cases also provide examples where the circumstances have not been a good reason to extend the period of validity. For example, it is not a good reason that negotiations are continuing between the parties, or legal aid has not been granted and the plaintiff is waiting for the grant. There are cases which say that the latter proposition is not a good reason. But in Waddon v Whitecroft-Scovill Ltd it was said delay caused by the authorities to grant aid may be a good reason. Other examples which have not found favour are difficulty tracing witnesses or obtaining evidence.
(v) The Australian cases differ from the English cases as to the effect of a limitation defence arising after the issue of a writ but before the application to extend the validity of the writ. The difference is traced by Stephen J in Van Leer Australia Pty Ltd v Palace Shipping KK. His Honour preferred the approach of the Australian and Canadian courts. He quoted with approval what Bray CJ said in Victa Ltd v Johnson. Bray CJ stated that there was no rule that a defendant acquired an absolute right to immunity when a writ issued within the limitation period is not served and in the meantime the period expires. The English cases had stated a test that if the limitation period had expired it was only in exceptional circumstances that the writ would be renewed. This is not the Australian position.

[39] Ibid, [38].

[40]Ibid, [41]. (Citations omitted.)

After setting out those principles Gillard AJA noted that the defendant did not seek a rehearing of the application for extension. Had it sought a rehearing, it is doubtful an extension would have been granted, because as a general rule, the mere wish of a party to await the outcome of some other proceeding is not a good reason for granting an extension.[41] The reason relied upon was that the managing director of the defendant was giving evidence for the plaintiff in an arbitration with a third party. The plaintiff was concerned that if it served the defendant, the ability of the managing director to give evidence for the plaintiff might be prejudiced.
[41]Ibid, [42].

The most recent Court of Appeal decision considering extension of a writ’s validity for service is Ebner v Clayton Utz(a firm).[42] There, the applicants had filed a writ against a firm of solicitors. The writ went stale and the applicants then obtained an order from an associate judge extending the period of validity. The reasons relied on were that the applicants had been trying to negotiate a settlement with the firm in order to avoid litigating the dispute, they had believed the writ was valid for longer than it actually was, and they sought an extension to preserve their rights under the statute of limitations. The limitation period had expired since filing the writ. After being served with the writ within the extended period, the firm applied to have the order for extension set aside. The extension was set aside by an associate judge, whose decision was upheld on appeal by a trial judge. The Court of Appeal refused leave to appeal from the trial judge’s decision, which was interlocutory in nature.
[42](2012) 36 VR 25 (Ebner v Clayton Utz).

It was accepted before the Court of Appeal that continuing negotiations are not a good reason for extension. Further, Mandie JA, with whom Kyrou AJA agreed, said that the alleged inadvertence as to the date of expiry was not explained by the applicants, and his Honour doubted whether inadvertence is a relevant circumstance in any event.[43] Mandie JA also doubted whether the inability of the applicants to proceed with their action due to the limitations period constituted substantial injustice.[44]
[43]Ibid, 31.
[44] Ibid, 32.

Finally, it is worth mentioning that the applicants argued the overarching purpose in the Civil Procedure Act 2010 (Vic) was a factor weighing in favour of extending the writ. The overarching purpose is the ‘just, efficient, timely and cost-effective resolution of the real issues in dispute’.[45] Mandie JA said the overarching purpose cuts both ways; the applicants had impeded the achievement of the overarching purpose by delaying in serving the writ, failing to particularise the cause of action, and causing the firm to suffer prejudice.[46]
[45]This is contained in s 7(1) of the Civil Procedure Act 2010 (Vic).
[46]Ebner v Clayton Utz, 30.

In Mali v Benchmark Healthcare Pty Ltd,[47] Bongiorno J considered whether delaying service in order to investigate further the strength of the plaintiff’s case was a good reason for extending the period for service of a writ. In the circumstances of the case, it was a good reason. The plaintiff’s solicitor had issued a writ to preserve the plaintiff’s rights. The solicitor was fearful of impending legislative changes that might affect her clients’ ability to obtain a remedy at common law. The solicitor continued to investigate the negligence claim and, before the writ went stale, obtained an order extending the validity for service of the writ. The writ was eventually served, and the defendant applied to have the extension set aside. This was done. The plaintiff appealed.
[47][2005] VSC 72 (Mali v Benchmark).

Bongiorno J said that the solicitor:

…had not concluded her enquiries as to the issue of negligence as at the date of that affidavit and needed more time to confirm that her clients had a case which could be made out.
Had Ms Toop served the valid writ within the first 12 months after it was issued without confirming that her clients had a case she would have run the risk that prudence would later dictate that the proceeding be discontinued with costs consequences for them which may well have been significant. Also, the defendants would have been put to the trouble, expense and inconvenience, not to mention the anxiety, of commencing to defend a case which may not be going to proceed. Not all of their costs would be recoverable from the plaintiffs and, in any event, the second defendant, in particular, would never be compensated for his intangible losses.
…
The question of good cause is not to be determined by the attempted application of fact situations from other cases. It is, of necessity, a matter of judgment depending peculiarly on the circumstances of the particular case. In the instant case the plaintiffs’ solicitor acted appropriately in not serving the writ until she had further investigated the strength of her clients’ case. Similarly, she acted appropriately in commencing the proceeding at the earliest opportunity to preserve her clients’ rights as they then stood. Finally, she acted appropriately in seeking an extension of the writ a sufficient time before it expired to enable her to take other remedial action within time had the extension not been granted. There are no apparent countervailing features of this case which suggest that an extension of the writ ought not have been ordered.[48]

[48]Ibid, [13]-[14], [20]. (Emphasis added).

The defendant raised as a factor against granting the extension the fact that it would benefit from the legislative changes to tort law if the plaintiff had to file a fresh writ. The Court did not consider this in its analysis, as the plaintiff’s application for extension was made while the writ was current, so had the extension been refused, the plaintiff may have filed the un-investigated writ, rather than filing a fresh writ and being exposed to legislative changes.

In their submissions the liquidators cite M & I Samaras Pty Ltd (No 1) v John Holland Pty Ltd.[49] In that case Bell J upheld an order extending time for service of a writ. His Honour considered the principle that the plaintiff’s mere wish not to serve a writ is not a ‘good reason’. However, it was not by mere wish that the plaintiff had failed to serve the writ. Rather, the plaintiff was contractually bound to go through compulsory dispute resolution processes before litigating. Serving the writ may have prejudiced the dispute resolution process. The decision not to serve was one of forensic prudence, not mere wish.[50]
[49][2012] VSC 98.
[50]Ibid, [16], [21].

The defendant argued that the plaintiff should have served the writ and then sought a stay of proceedings pending the outcome of the dispute resolution process, but Bell J said this was not a reason for refusing an extension or holding that there was no good reason for not serving the writ. His Honour also said that in the modern approach, the limitation period having expired was a neutral consideration.[51] In reaching the conclusion that there was good reason for granting an extension and that countervailing factors did not overcome such good reason, Bell J said:

The predicament in which Samaras found itself was caused by the requirement to undergo dispute resolution according to the exclusive contractual processes. By not serving the writ and then seeking an extension of the period for service, Samaras was not giving itself a stay, as John Holland submitted, but was preserving its position in the light of the provisions of the contracts. As Samaras submitted, the subject-matter of the proceedings instituted in the court were inextricably intertwined with the subject-matter of the dispute resolution processes. Those processes had been underway for over three years. Having regard to the time delay, the amounts involved, the apparent complexity of the issues and the relationship between the parties in respect of the dispute, there appears to have been good reason for Samaras to think that it would not have been conducive to settlement for the filing of the writs to be disclosed to John Holland. In my view, these matters should be taken into account when determining whether the company had a good reason for not serving the writs.
Of course it is necessary to take countervailing considerations into account. But here there has been no inordinate or inexcusable delay. All of the delay has been explained entirely by the compulsory participation of the parties in the contractual dispute resolution processes. There has been no material prejudice on the part of John Holland, beyond the prejudice which any delay might cause. For example, John Holland has not alleged that it will lose access to important witnesses by reason of the delay. On the materials before me, if the period for service of the writ is extended, John Holland will be able to participate in the proceedings in the court just as well as it would have been if the writs had been served.[52]

[51]Ibid, [25].

[52]Ibid, [21]-[22].

In Noitaroproc Pty Ltd (in liquidation) v Price Waterhouse (a firm)[53] Byrne J considered an application with some similarities to the case before me, where the company’s liquidator lacked the funds to pursue the proceeding, so they sought an extension of the validity for service of the writ. The liquidator made several attempts to obtain funding, including from the company’s creditors, but was unsuccessful. He sought an extension so that he could continue searching for funding.
[53] (Unreported, Supreme Court of Victoria, Byrne J, 26 March 1997).

The defendant said there was no practical difficulty in serving the writ, had the liquidator chosen to do so. Byrne J accepted that the fact that the liquidator deliberately chose not to serve the writ in order to seek funding first was a factor weighing against the liquidator; ‘a defendant against whom process has issued is entitled to have it promptly served’. Another factor against the liquidator was the nature and complexity of the issues, some of which were being litigated in a related joint trial. This meant the proceeding would not be heard for some time, perhaps even years away. The lapse of time between the relevant events and the likely date of trial would be considerable.

A factor weighing in favour of the liquidator was that within three months of filing the writ, the defendants became aware of the claim. So the defendants were not in ignorance of the claim.

After weighing the factors on both sides, Byrne J refused to grant the extension. If the extension were granted, the liquidator would commence a fresh trial of issues many of which were being decided in the joint trial. The prejudice to the defendants would far outweigh the prejudice that the company would suffer if the extension were refused. The liquidator was concerned with the interests of the creditors, but none of the creditors took up the liquidator’s funding proposal. Further, it appeared that the liquidator had done all he could to obtain funding from other sources.

His Honour considered in the weighing process proposals by the liquidator that the claims be incorporated into the joint trial, so that the delay was minimised. The proposals were not accepted because they would prejudice all the parties in the joint trial and cause delays to the joint trial. As the proposals were not practicable, that left the prospect of a separate trial at a later stage, which was ‘unthinkable and no good reason has been offered’ to encourage the Court to entertain it.

As mentioned above, the plaintiffs rely on the principles set out in Howard v Power.[54] There, a solicitor plaintiff had filed proceedings against a barrister defendant. The primary reason the solicitor did not serve the writ was that he was waiting for a decision to be handed down in an appeal by him.
[54] [2013] VSC 198.

Derham AsJ summarised the principles applicable to extensions.[55] His Honour applied the principle that ‘[t]he fact that the plaintiff decides not to serve the writ whilst some other case is tried, or to await some future development, is generally not a good reason to justify extending time for service…It is for the Court and not for one of the litigants to decide whether there should be a stay, and it is not right that people should be left in ignorance that proceedings have been commenced against them if they are there to be served’,[56] and refused the application for extension. Awaiting an appeal decision and desiring to avoid incurring additional costs were not good reasons to grant an extension.[57]
[55]Ibid, [10].
[56]Ibid, [10(j)].
[57]Ibid, [20], [28].

New South Wales cases concerning liquidators and extension applications

In Tolcher v Gordon,[58] the New South Wales Court of Appeal granted an extension of validity for service of a writ. The appeal to the High Court did not concern the Court of Appeal’s exercise of discretion to grant the extension.[59]
[58](2005) 53 ACSR 442 (Tolcher).
[59] See Gordon v Tolcher (2006) 231 CLR 334.

In Tolcher, the liquidator of a company filed proceedings against the defendant seeking repayment of certain moneys. The action was taken to be dismissed under the rules because service was not effected within one month of the claim being filed, and the proceeding was dormant for the 6 months and 28 days after filing (these rules applied to statements of liquidated claim). This is different from the Victorian rule, under which the writ remains valid despite being stale (it is only service that is no longer valid).

The liquidator had filed proceedings three days before the expiry of the limitation period. The liquidator had put the proceedings on hold while he sought and obtained litigation funding. The liquidator’s solicitor was not aware of the special rules that applied to actions commenced by statements of liquidated claim. Some attempts at service were made after litigation funding was in place, but the attempts failed.

Tobias JA, with whom Ipp JA agreed, said that the principles applicable to extensions of time for service of regular initiating process also applied to the statement of liquidated claim (despite the different consequences for failure to serve within time).[60]
[60]Tolcher, [75].

The test in NSW for extensions of time for service is different from the Victorian test. There is no good reason test. Rather, in NSW courts consider the factors for and against granting an extension, and then decide on balance whether it would be just and fair in the circumstances of the case to exercise the discretion to extend time.[61]
[61]See ibid, [129].

In Victoria, the plaintiff must show a good reason for extending the time for service and the court in exercising its discretion whether or not to extend the time for service must consider all the circumstances of the case including the factors for and against the exercise of the discretion.

Tobias JA said that the fact that extension would deprive the defendant of a limitations defence (which would arise if the plaintiff were required to issue fresh proceedings) is just one of the circumstances of the case, and that the discretion to extend is an unfettered one.[62] Not relevant to the exercise of the discretion to extend time for service was the fact that proceedings were commenced three days before the limitation period expired. Once proceedings are commenced in time, any delay within that limitation period is irrelevant, and the policy behind the limitation period is also irrelevant.[63] Such factors are relevant in applications to extend the limitation period.[64] His Honour said:

Of course, the present case is neither a limitation period case nor a want of prosecution case, but a case involving a service of process rule and a case management rule. What then is the position in such a case? In my view, the position is the same as that in want of prosecution matters. In the case of both Pt 5 r 5(1)(c) and Pt 18 r 9, time begins to run from the filing of the statement of claim. The court in the present case is being asked to extend these time limits in order that the action, already commenced within the relevant limitation period, may be prosecuted. Thus, as in the case of want of prosecution matters, it is only the delay in prosecuting the action that is relevant to the exercise of the court’s discretion. That delay is to be measured from the time the action was commenced.[65]

[62]Ibid, [78].

[63]Ibid, [91], [96]-[98], [100], [103].

[64]Ibid, [89].

[65]Ibid, [96]. Compare with Tyson v Morgan [2000] 1 Qd R 100, 105, where Ambros J held that the relevant delay (and the way in which it prejudices the defendant) is the delay between the accrual of the cause of action and the application for extension. The approach of Ambros J was endorsed by Derham AsJ in Howard v Power [2013] VSC 198.

The liquidator was held not to be blameless in the delay in prosecuting the proceedings, but the main reason for the delay was the inaction and incompetence of the liquidator’s solicitor.

The Court of Appeal was quite forgiving of the liquidator’s deliberate decision at the early stages not to prosecute the proceedings due to a lack of funding. Tobias JA accepted that the liquidator believed the company had no assets, so it was suitable and responsible for the liquidator not to serve process until he had obtained litigation funding.[66] To serve prematurely may have exposed the company and the liquidator to costs liability when there were no assets to meet such liability.[67]
[66]Ibid, [107].
[67]Ibid, [108].

The matters that were ultimately considered in the balancing exercise are set out by Tobias JA at [125]-[126]. Key considerations in favour of granting the extension were:

(a) If no extension were granted, the liquidator would have to file fresh proceedings, which would be barred by the limitation period.

(b) Initial delays in service were due to the liquidator seeking funding so he could duly prosecute the action and meet the costs of doing so.

(c) There were significant errors made by the liquidator’s solicitors, chief among them, ignorance of the special rules applicable to statements of liquidated claim.

Key considerations against the granting of the extension were:

(a) The liquidator deliberately chose not to attempt service until litigation funding was in place. This was listed as a countervailing factor, but in substance, the Court did not consider this is as a factor against extension.

(b) The liquidator was not blameless in the delay in service after litigation funding was in place.

(c) If the extension were refused, the defendant would be able to rely on a limitations defence against any fresh proceedings. Tobias JA said that had the liquidator been solely responsible for the delays between the obtaining of litigation funding and the action being dismissed under the rules, this limitations factor may have carried the day.[68] But, blame lay with the solicitor, not the liquidator.

[68]Ibid, [127].

On balance, Tobias JA said the time for service should be extended.

Hodgson JA generally agreed with Tobias JA, but differed on the point of the timing of filing proceedings and the public policy behind the limitation period. Hodgson JA said those two factors were relevant to the discretion to grant extensions.[69] According to his Honour, because the delay in service occurred after the expiry of the limitation period, the liquidator should have been especially diligent in pursuing prompt service.[70]
[69]Ibid, [2].
[70]Ibid, [3].

A liquidator’s excuse of finding litigation funding was also at issue in Arthur Andersen Corporate Finance Pty Ltd v Buzzle Operations Pty Ltd (in liq).[71] In that case, orders extending the period of validity for service of a writ were upheld by a trial judge. The defendants appealed.
[71][2009] NSWCA 104.

Ipp JA, with whom Tobias and McColl JJA agreed, set aside the extension. His Honour summarised the court’s discretion under the NSW equivalent of r 5.12(2) as follows:
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.[72]
[72]Ibid, [43].
The Court of Appeal said that another factor relevant to the court’s discretion is the public policy behind the limitation statute.[73] The Court accepted the remarks of Hodgson JA in Tolcher.
[73]Ibid, [37], [68]-[69].

The evidence was that the liquidator had deliberately chosen not to serve the writ because other proceedings were on foot, and funding may have depended on recovery in those other proceedings. The funder and the liquidator agreed to put the subject proceedings on the back burner. The funder had significant influence over the liquidator’s decision whether or not to prosecute the action expeditiously. For a significant period of time the liquidator did not take any steps to investigate the matter properly (including the defendant’s ability to meet a damages award) or get the claim moving. The liquidator admitted he wished to avoid service because after service, the court’s case management procedures would come into operation. There was no evidence that the liquidator considered serving the writ then applying for a stay of proceedings.

The liquidator argued he wished to avoid unnecessary costs to creditors and did not want to diminish the funds available for distribution among the creditors. The Court of Appeal rejected this argument. There was no evidence that there were any funds to be distributed, and in any event, the costs of the litigation would have been borne by the funder.

There was some uncertainty as to whether the liquidator’s litigation funding was conditional or unconditional. Ipp JA said that if it was unconditional, the liquidator should have prosecuted the proceedings without regard for the likelihood of recovery in the other proceedings. If conditional, the liquidator should have continued investigating and prosecuting the proceedings, because ‘to do nothing about service while awaiting a decision from a litigation funder as to whether or not to provide the necessary funds’ is not a good reason for an extension.[74]
[74]Ibid, [82].

Ipp JA said the trial judge erred in not considering that through his policy of deliberate delay, the liquidator was in breach of the overriding purpose obligations under s 56 of the Civil Procedure Act2005 (NSW). This was a factor weighing against extension. Tolcher was distinguished on the basis of different facts and a shorter delay.[75]
[75]Ibid, [94].

The Court of Appeal noted the difficulties in service, but said they should have been contemplated by the liquidator much sooner. The liquidator might have obtained an order for substituted service much earlier in the piece.

The most significant factor weighing against extension was the liquidator’s deliberate choice not to effect service. Ipp JA said:

In my opinion…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.[76]
[76]Ibid, [93].

Application of the principles

The power to grant an extension of time for service of the writ is discretionary. The discretion is wide and unfettered. The discretion must be exercised with caution by the court having regard to all the relevant circumstances - guided by the principles established by the authorities - and looking at the general justice of the case.

The exercise of the discretion requires a close examination of the peculiar circumstances of the case. Accordingly, the court exercises its discretion and does not seek to predict how another court may or may not have exercised its discretion.

One matter the authorities do establish is that the applicant bears the onus of establishing a good reason why time for service should be extended. If the applicant does establish a good reason then the court’s discretion is enlivened. The authorities have canvassed a wide range of factors as to what does and does not constitute a good reason. In my opinion, what constitutes a good reason in one case may have little or any weight in another. Similarly, matters that have been held not to constitute a good reason in some cases may, depending on the circumstances of the case, constitute good reason in another. The question of good reason is not to be determined by the attempted application of fact situations from other cases.[77]
[77]Mali v Benchmark, [20].

The writ was issued on 18 March 2013. The writ was to be served by 17 March 2014. The plaintiff, under the control of the receivers, faced no practical difficulty in serving the writ. The plaintiff deliberately elected not to serve the writ prior to the application for the extension of time made on 13 March 2014, which was heard on the last day for service, 17 March 2014.

The receivers issued the writ to avoid the expiration of the limitation period with respect to some of the claims made under the Act. The alleged wrongful conduct took place in about July 2007. The limitation period may have expired in July 2013. Further, the receivers refrained from serving the writ while they sought funding and/or the support of their appointers (one of the secured creditors of APCHL). The receivers and the liquidators had an arrangement as to who could seek to recover damages under APCHL’s claims. Ferguson J had decided that the claims were property charged to the secured creditors such that the receivers were entitled to bring them. The parties compromised the issue when Ferguson J’s decision was appealed.

At the end of February 2014, the receivers informed the liquidators that they did not intend to pursue the management rights breach of duties claim. The liquidators and the receivers then set about amending their settlement agreement in order to permit the liquidators to pursue the claim. When the matter came on before me on 17 March 2014, I was informed that agreement between the receivers and liquidators had just been reached. Subsequently, I was informed that the deed of variation was entered into on 19 March 2014.

The liquidators said that they needed further time to serve the writ as they were seeking funding from a litigation funder. The liquidators did not have the resources to pursue the claim without external funding. Secondly, the liquidators said that they wished to investigate the claim further. On 17 March 2014, the plaintiffs were not able to properly canvass the relevant authorities and I extended the time for service by one month to 17 April 2014 to give the liquidators further time to present their arguments.

When the matter returned before me on 2 April 2014, the liquidators had just secured funding from a litigation funder. The liquidators said they wished to extend the time for service of the writ for several weeks to enable the Committee of Creditors to meet and (if thought fit) to approve the funding offer. No further time was sought to investigate the claim. I infer that the liquidators had been able to convince the litigation funder of the merits of the management rights claims and had thus investigated the claim sufficiently to do so.

A condition of funding was that the liquidators use the solicitors nominated by the funder to pursue the claim. No doubt the liquidators would require some time to instruct the new solicitors if the Committee of Creditors approved the funding and then for the new solicitors to effect service.

The plaintiffs in this case rely on four matters as constituting good reason for extending the time for service of the writ. First, the plaintiffs rely on the fact that APCHL has had three controllers since the alleged wrongs in the subject of the claim; the directors, the receivers and managers, and the liquidators. Although APCHL went into liquidation in November 2011, the liquidators have only had control of the management rights breach of duties proceeding since 17 March 2014.

The second reason put forward is the explanation for the receivers not serving the writ, which was lack of funding. In my view, in a liquidation, lack of funding is a relevant consideration. Liquidators are duty bound to get in the assets of the company in order to mitigate the loss and damage suffered by the company’s creditors. On the other hand, they are not required to fund their duties from their own moneys.

It seems only sensible for the receivers to have issued the writ. If they had not done so the company would have lost the causes of action to recover damages, to the potential prejudice of the creditors. The alleged wrongdoers include those who were in control of APCHL. It is unlikely the directors would have caused the company to sue themselves. It is also relevant that the liquidators and receivers were hampered in their activities by not being privy to the company’s affairs. The proper conduct of their duties is time consuming and in this case arduous.

Third, the liquidators rely on the fact that the management rights voidable transactions claim is being pursued by the liquidators against at least one of the defendants in the management rights breach of duties proceeding. The time for service in the management rights voidable transactions proceeding has been extended to 1 December 2014. The liquidators have also issued proceedings in the auditor’s liability claim, and service in those proceedings must be effected by 26 September 2014.

Fourth, the liquidators claim that the creditors stand to receive very little from the liquidation. The liquidators wish prudently to pursue all potential claims to the benefit of those creditors. The management rights breach of duties claim is a very substantial claim which if successful may recover significant sums for the creditors. The claim is based on an alleged diversion of a valuable asset of the company to Mr Lewski and his interests.

In the exercise of the Court’s discretion, I must have regard to the general justice of the case, paying regard to all the circumstances, including not only the limitation statute, but also the relative hardships which grant or refusal of extension would have upon the parties.[78] On one side there are the company’s creditors including its unsecured creditors. On the other, there are the defendants to the proceeding.
[78]Van Leer, 341.

If I refuse the extension of time, the liquidators are unlikely to effect service as they will not have received approval from the Committee of Creditors and finally secured funding. If the liquidators served the writ before obtaining the approval of the committee, the liquidators might expose APCHL to costs orders that would prejudice the creditors. I therefore take into account the potential prejudice to the creditors if the extension is not granted. The unsecured creditors have very little, if any, responsibility for the delays to date in service of the writ.

On the other hand, the directors and others who are named as defendants are facing a proceeding that challenges conduct that allegedly took place in about July 2007. The prejudice to the defendants of further delay cannot be ignored. Delay constitutes prejudice, especially where the circumstances surrounding complicated transactions need to be examined many years after the relevant events. I also take into account that there is no evidence that the defendants are aware of the proceeding.

I acknowledge that in Ramsay v Madgwicks the Full Court held that it must at least be doubtful whether the mere wish of the party can ever be a sufficiently good reason for extending the time of the writ.[79] However, in this case, the circumstances and arguments put forward by the liquidators for extending the writ go well beyond the mere wishes of the liquidators. The liquidators have found themselves in an invidious position beyond their own control that has effectively prevented them from serving the writ within time.
[79]Ramsay v Madgwicks, 4.

Having regard to the peculiar circumstances of the case, and doing what I think best resolves the interests of justice, in the exercise of the Court’s wide and unfettered discretion, I will extend the time for the valid service of the writ.

Currently, the time for service expires on 17 April 2014. In order to leave time to enable the Committee of Creditors to convene, digest the relevant report (prepared by the liquidators on the management rights claims and the funding agreement) and to resolve on the issue, for the liquidators to instruct new solicitors and then for the new solicitors to serve the defendants, I extend the time for service until 30 June 2014.

Conclusion

I order and direct that:

1 The liquidators are justified in bringing the proceeding herein to seek an order under r 5.12 of the Supreme Court (General Civil Procedure) Rules2005 (Vic) to extend the period for which it is valid to serve the writ in matter no 1341 of 2013 for 12 months.

2 The period for which it is valid to serve the writ in matter no 1341 of 2013 be extended to 30 June 2014.

3 The further hearing of the originating process dated 13 March 2014 be otherwise adjourned to a date to be fixed.

4 The costs of the application be costs in the liquidation.

[2014] VSC 190

15 April 2014