Re Australian Property Custodian Holdings Ltd (in liquidation)

IN THE SUPREME COURT OF VICTORIA AT MELBOURNE

Not Restricted

COMMERCIAL AND EQUITY DIVISION
COMMERCIAL COURT
CORPORATIONS LIST

S CI 2013 05416

IN THE MATTER OF AUSTRALIAN PROPERTY CUSTODIAN HOLDINGS LIMITED
(ACN 095 474 436) (RECEIVERS AND MANAGERS APPOINTED) (CONTROLLERS APPOINTED) (IN LIQUIDATION)

BETWEEN:

STIRLING LINDLEY HORNE and PETR VRSECKY (in their capacity as joint and several liquidators of AUSTRALIAN PROPERTY CUSTODIAN HOLDINGS LIMITED (ACN 095 474 436) (RECEIVERS AND MANAGERS APPOINTED) (CONTROLLERS APPOINTED) (IN LIQUIDATION)) & OTHERS	Plaintiffs/Respondents
- and -
RETIREMENT GUIDE MANAGEMENT PTY LTD (ACN 125 225 390) AND OTHERS (according to the attached schedule)	Defendants/Appellants

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JUDGE:	JUDD J
WHERE HELD:	Melbourne
DATE OF HEARING:	13 October 2015
DATE OF JUDGMENT:	18 December 2015
CASE MAY BE CITED AS:	Re Australian Property Custodian Holdings Ltd (in liquidation)
MEDIUM NEUTRAL CITATION:	[2015] VSC 745

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CORPORATIONS – Originating Process – Service – Corporations Act 2001 (Cth) s 588FF – Supreme Court (Corporations) Rules 2013 r 2.7.

PRACTICE AND PROCEDURE – Extension of time for service – Application of Supreme Court (General Civil Procedure) Rules 2005 r 5.12.

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APPEARANCES:	Counsel	Solicitors
For the Plaintiffs	Mr L Armstrong, one of Her Majesty’s Counsel with Mr N Evans	Johnson Winter & Slattery
For the First and Third to Ninth Defendants	Mr N J Young, one of Her Majesty’s Counsel with Dr O Bigos	Minter Ellison
For the Second Defendant	Mr M Osborne, one of Her Majesty’s Counsel with Mr J Tomlinson	SBA Law

HIS HONOUR:

Introduction

This is an appeal from an Associate Judge under s 17(3) of the Supreme Court Act 1986 and r 77.06 of the Supreme Court (General Civil Procedure) Rules 2005. The substantive issue raised by the appeal is whether the time for service of an Originating Process, commenced under s 588FF of the Corporations Act 2001 (Cth), is amenable to adjustment under r 3.02 or r 5.12 of the General Civil Procedure Rules of this Court. If it is, in what circumstances is it appropriate to extend time for service?

Background

Stirling Lindley Horne and Petr Vrsecky are joint and several liquidators of Australian Property Custodian Holdings Ltd (liquidators appointed) (receivers and managers appointed) (controllers appointed). They were appointed on 18 and 19 October 2010 as joint and several administrators of APCHL and 19 other companies, most of which are subsidiaries of APCHL in its capacity as Responsible Entity of the Prime Retirement & Aged Care Property Trust. In November 2011, the administrators were appointed joint and several liquidators pursuant to a resolution of creditors.

Various secured creditors of the group appointed receivers and managers over the assets of various group members. The secured creditors included Suncorp‑Metway Limited, Members Equity Bank Pty Ltd, Bank of Western Australia Ltd, Capital Finance Australia Limited, Daytree Pty Ltd, and William Lewski, among others.

In 2009, Lend Lease Primelife Ltd, through Retirement Management Pty Ltd, acquired shares from Babcock & Brown Australia CPI Pty Ltd in a number of entities, including the first defendant, Retirement Guide Management Pty Ltd, and the third to ninth defendants. They will be referred to as the Lend Lease defendants. The second defendant, Retirement Guide Pty Ltd, had sold its shares in various entities in about September 2007 to Retirement Management, and was separately represented.

On 9 March 2012, Cornwall Stodart, solicitors acting on behalf of the liquidators, wrote to each of the defendants alleging unreasonable director‑related transactions within the meaning of s 588FDA of the Corporations Act, breaches of duties by Mr Lewski as a director and unauthorised related party transactions. The letters were, in all material respects, identical. They were lengthy. The letter to the first defendant concluded with the following demand:

We are instructed to demand that:
(a)RGM pay the liquidators the sum of $60 million plus interest of $29,058,663 (calculated from 11 September 2007 to 9 March 2012 by 30 March 2012; and
(b)RGM give to the liquidators acting on behalf of APCHL a detailed and verified account of all its dealings and transactions with regard to the Management Rights, and of all profits made from the use of the Management Rights.

If RGM does not comply with the demand, we have instructions to commence proceedings without further notice pursuant to which:
(a)Our clients, as the liquidators, will be seeking relief under section 588FF, read with section 588FDA, of the Act;
(b)Our clients as the liquidators acting on behalf of and in the name of APCHL pursuant to section 477(2) of the Act, will seek, amongst other things, one or more of the following relief:
(i)A declaration that RGM has been involved with the contravention by Mr Lewski of sections 180, 181, 182, 183 and/or 601FD of the Act, and APCHL as RE’s contravention of section 601FC of the Act;
(ii)An order for compensation pursuant to section 1317H(1) read with section 1317H(2) of the Act, alternatively damages, alternatively equitable damages or compensation;
(iii)An order for the taking of accounts, and in particular, that RGM gives a detailed and verified account of all its dealings and transactions with the Management Rights;
(iv)A declaration that all property received and acquired by RGM, in so far as the same is held in specie or in money, is held on a constructive trust for APCHL absolutely;
(v)A declaration that APCHL is entitled to trace into the identified assets of RGM to enforce and give effect to the constructive trust referred to in (iv).
(vi)An account of all profits made by RGM from its use of the Management Rights, and the payment of such other sums found upon the taking of accounts to have been improperly received by it;
(vii)Interest; and
(viii)Costs.[1]

[1]Court Book 754, [7].

Notwithstanding the threat to commence proceedings without further notice, a proceeding was not commenced until the day before the expiry of the period limited under s 588FF of the Corporations Act. It is common ground that the limitation period expired on 18 October 2013. By Originating Process filed 17 October 2013, the plaintiffs sought declarations that various transactions were:

(a) uncommercial, pursuant to s 588FB of the Corporations Act;

(b) an insolvent transaction, pursuant to s 588FC of the Act; and

(c) consequently a voidable transaction, pursuant to s 588FE of the Act.

As was required under the Supreme Court (Corporations) Rules 2013, the Originating Process was supported by an affidavit, sworn by Mr Horne on 17 October 2013, to which he exhibited a lengthy statement of claim. He verified the allegations as true and correct. The Prothonotary, as required under the rules, fixed a time, date and place for the hearing of the application. It was to be heard by an Associate Judge at 10.30 am on 15 November 2013. The Originating Process was not served prior to the date fixed for hearing, and on that day the application was adjourned to 20 December 2013.

On 19 December 2013, the liquidators filed an Interlocutory Process, in which they applied for the following orders:

(1) The hearing be adjourned to a date not before 19 December 2014.
(2)Further or alternatively the time for service of the Originating Process, dated 17 October 2013, be extended until 12 December 2014.
(3)Further or alternatively the period of the validity of the Originating Process, dated 17 October 2013, for service be extended so that the plaintiffs may serve the Originating Process on the defendants until 12 December 2014.

The application, supported by an affidavit of Jason Glen Stone sworn 18 December 2013, was heard by Randall AsJ without any notice to the defendants. The Lend Lease defendants became aware of the proceeding through litigation searches made of the Court file. A solicitor representing the Lend Lease defendants was in attendance as an observer.

The liquidators relied on written submissions prepared by their counsel. The hearing was very brief and the following orders made:

(1)The hearing is adjourned to 19 December 2014 at 10.00 am …
(2)The period of the validity of the Originating Process dated 17 October 2013 for service be extended so that the plaintiffs may serve the Originating Process on the defendants until 1 December 2014.
(3)The cost of this application is reserved.
(4)The affidavit of Jason Stone sworn 18 December 2013 be kept confidential and not be available for inspection by any person or party other than the plaintiff.

In his affidavit, Mr Stone gave some background to the proceeding, and explained difficulties confronted by the administrators and liquidators due to the complexity of the affairs of the APCHL group and various legal proceedings. He deposed to limited funds available to the liquidators to carry out their investigations. Mr Stone deposed to a proceeding commenced by the receivers and managers of APCHL, appointed by Capital Finance Australia Limited, on 18 March 2013. Claims in that proceeding were made against various parties to a management rights restructure that took place in July 2007. The proceeding became known as the ‘Management Rights proceeding’. The writ had not been served. Solicitors for the receivers advised that they did not intend to serve that proceeding until they had conducted further investigations.

Mr Stone deposed to reasons why the time for service of the Originating Process ought to be extended. He said that the liquidators had not been successful in obtaining funding from a litigation funder to brief counsel to settle a statement of claim and advise on the prospects of success. He explained that the reason why the commencement of this proceeding had been left until shortly before the limitation period expired was the absence of funds to conduct further investigations, and the existence of the related Management Rights proceeding commenced by the receivers. Mr Stone deposed that the liquidators were of the opinion that it was prudent to commence this proceeding before it became statute barred, as they were concerned the receivers may not proceed with the Management Rights claim. They were of the view that if the receivers continued with their proceeding, ‘it may impact on our decision to proceed, and might mean that we would not continue with this proceeding, or if we did, both proceedings would be heard in conjunction with each other’.

Mr Stone concluded:

90.We request that this Honourable Court extend the time for service of the Originating Process and supporting affidavit in this proceeding for the following reasons:
(a)the Receivers have until March 2014 in order to serve their Writ. It is not likely that we will know prior to that time what the Receivers intend to do in relation to their proceeding;
(b)if, after March 2014, the Liquidators determine to continue with this proceeding, it is likely that they will still be without funds. The further extension of time will enable the Liquidators to obtain funding, from the sale of Ashton Gardens, a successful outcome from the Daytree Proceeding, and/or a successful outcome in the Listing Fee proceedings. Those funds will enable us to complete further investigations that may assist us in obtaining funding for this proceeding; and
(c)to enable us to obtain funding, from a litigation funder, for this proceeding.

91.I believe that a period of 12 months will be necessary to enable the above process to be completed.[2]

[2]Emphasis added.

The reasons given by the liquidators were to accommodate their internal liquidation strategies. The defendants were well known to them as participants in other related litigation. Service on the defendants would not have proved difficult and, as it turned out, would probably have occurred by agreement. For reasons given below, the grounds advanced by the liquidators did not support the orders made, and the discretion, insofar as it was available, miscarried.

In her outline of submissions filed in support of the application before Randall AsJ, counsel for the liquidators identified a perceived anomaly in the Supreme Court (Corporations) Rules 2013, because they did not stipulate a period after which the Originating Process became stale. The liquidators’ primary contention was that the date for hearing be adjourned, but given the perceived doubt about the need to preserve the validity of the Originating Process, they sought orders expressly doing so. They submitted that in the absence of provision about a specific matter in the Corporations Rules, the court may look to other powers to regulate the procedure. The liquidators submitted that r 1.3(2)(a) of the Corporations Rules empowered the court to remedy a gap in the rules by reference to the General Civil Procedure Rules. The written submission expressly relied on the following General Civil Procedure Rules:

1.15(1)
Where the manner or form of the procedure—
(a)for commencing, or for taking any step, in a proceeding; or
(b)by which the jurisdiction, power or authority of the Court is exercisable—

is not prescribed by these Rules or by or under any Act, or for any other reason there is doubt as to the manner or form of that procedure, the Court shall determine what procedure is to be adopted and may give directions.

3.02
Extension and abridgement
(1)The Court may extend or abridge any time fixed by these Rules or by any order fixing, extending or abridging time.
(2)The Court may extend time under paragraph (1) before or after the time expires whether or not an application for the extension is made before the time expires.
(3)Unless the Court otherwise orders, any time fixed by these Rules or by any order fixing, extending or abridging time may be extended by consent without an order of the Court.

5.12
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.

Counsel for the liquidators conceded in her written submission that r 5.12 did not, on its face, limit the validity of an Originating Process issued under the Corporations Rules, or directly empower the court to extend the time for service. Counsel submitted that the liquidators wanted to avoid an argument in future that the Originating Process was invalid in the absence of an order extending the date for service. While mention was made in the submissions of r 2.7 of the Corporations Rules, it was not set out in full, and the requirement that service be effected ‘as soon as practicable’ was not mentioned. There can be no doubt that the court was moved to exercise its discretion under r 5.12 of the General Civil Procedure Rules to remedy the perceived gap, or ambiguity, and hopefully avoid a future dispute about the validity of the Originating Process. Any such hope or aspiration was unrealised.

The liquidators submitted to Randall AsJ that it was appropriate for the court to exercise its discretion and extend time so as to avoid injustice to the creditors of the defendants to the Originating Process. They failed to bring to the attention of the court the unique character of the proceeding commenced under s 588FF, the need for expedition, the need to balance the interests of commercial certainty for defendants and the interests of the creditors, and the mandatory requirement for service under r 2.7 of the Corporations Rules.

Rule 5.12(4) made provision for notice of the application to be given to the defendants. The court was not invited to consider such notice, and did not so direct. If, as the liquidators contended, there was ambiguity, or a gap, in the Corporations Rules, the court required the assistance of a contradictor. Of equal importance was the early resolution of any question about the liquidators’ obligation to serve the Originating Process ‘as soon as practicable’ prior to being relieved of the obligation by the orders made on 20 December 2013.

By the time the dispute came before Efthim AsJ on an application to set aside the orders made by Randall AsJ, the extended time for service had elapsed and the Originating Process had been served. The liquidators had enjoyed the full benefit of the orders made on 20 December 2013. Thus, the application to set aside the earlier orders lacked utility unless some further relief could be granted to achieve the same outcome as an order setting aside an extension under r 5.12. If, as the appellants contended, correctly in my opinion, there was no opportunity to extend the validity of Originating Process under r 5.12 of the General Civil Procedure Rules, there is no resulting invalidity under r 5.12(1) .

The appeal

The Originating Process was served on the Lend Lease defendants on 28 November 2014, together with an affidavit of Mr Horne sworn 17 October 2013, and the orders made by Randall AsJ on 20 December 2013. The Lend Lease defendants first became aware of the proceedings on about 22 October 2013, as a result of litigation searches. A solicitor from the office of the town agents for Clifford Chance, solicitors for the Lend Lease defendants, attended at court on 15 November and 20 December 2013 as an observer. The Lend Lease defendants were denied access to the confidential affidavit of Jason Glen Stone, sworn 18 December 2013, until mid‑December 2014. Following a variation to the confidentiality order made on 20 December 2013, the affidavit of Mr Stone was made available soon after service.

By Interlocutory Process filed 19 December 2014, the second defendant applied to set aside the orders made by Randall AsJ on 20 December 2013, and service of the Originating Process, and sought a permanent stay of the proceeding. A similar application was filed by the Lend Lease defendants on 23 December 2014. The applications were heard by Efthim AsJ on 18 March 2015. His Honour delivered judgment on 10 July 2015, upholding the orders made by Randall AsJ, and finding on re‑hearing that he would make the same orders. Consequently, Efthim AsJ dismissed the Interlocutory Process initiated by the defendants in December 2014 with costs. The defendants now appeal against those orders, including the orders for costs.

The appellants accepted that it was necessary to show error on the part of the Associate Judge. They submitted that there were jurisdictional errors, and insofar as discretionary considerations arose, there had been a miscarriage of discretion.

Grounds of appeal filed by the appellants with the notices of appeal were substantially the same. The first ground challenged the power or jurisdiction to extend the time for service and to maintain the validity of the process under r 5.12 of the General Civil Procedure Rules. The second ground, framed in the alternative, challenged the exercise of discretion to extend the date for service under r 5.12, alleging the discretion had miscarried because there was no ‘good reason’ to extend the time.

Before turning to the reasons for judgment, it is necessary to set out the legal framework, including relevant rules, which regulated, were relevant to or informed the power purportedly exercised by Randall AsJ when adjourning the proceeding and extending the date for service.

The starting point is the nature of the proceeding commenced by the plaintiffs. Under s 588FF, an application to a court for orders in relation to a voidable transaction may only be made by a company’s liquidator. There is a limited period within which an application may be commenced. Subsection (3) provides:

An application under subsection (1) may only be made:
(a) during the period beginning on the relation-back day and ending:
(i)3 years after the relation-back day; or
(ii)12 months after the first appointment of a liquidator in relation to the winding up of the company;

whichever is the later; or
(b)within such longer period as the Court orders on an application under this paragraph made by the liquidator during the paragraph (a) period.

In BP Australia Ltd v Brown & Ors, the Chief Justice had occasion to analyse the scope and purpose of pt 5.7B of the Act. The appeal in BP Australia Ltd concerned the proper construction, and application to the facts, of the time limit imposed on liquidators seeking orders with respect to voidable transactions.[3] Questions arose concerning the availability of s 1322(4)(d) of the Corporations Act to extend time to commence such a proceeding, and the need to give notice to or join parties with a substantial interest in the question to be determined. The trial judge had initially directed that the appellant and other large creditors be given notice of the application, and later held that it would be necessary to join the appellant as a party to the proceeding on the application to extend time to bring the proceeding.
[3][2003] NSWCA 216.

The Chief Justice said:[4]
[4][2003] NSWCA 216, [111]–[119].

111.The policy considerations that arise in this context are not dissimilar to those which arise with respect to periods of limitation generally. These were stated by McHugh J in Brisbane South Regional Health Authority v Taylor (1997) 186 CLR 541 at 552–553, in the following terms:
“Courts and commentators have perceived four broad rationales for the enactment of limitation periods. First, as time goes by, the relevant evidence is likely to be lost. Second, it is oppressive, even ‘cruel’, to a defendant to allow an action to be brought long after the circumstances which gave rise to it have passed. Third, people should be able to arrange their affairs and utilise their resources on the basis that claims can no longer be made against them. Insurers, public institutions and businesses, particularly limited liability companies, have a significant interest in knowing that they have no liabilities beyond a definite period. As the New South Wales Law Reform Commission has pointed out:
The potential defendant is thus able to make the most productive use of his or her resources and the disruptive effect of unsettled claims on commercial intercourse is thereby avoided. To that extent the public interest is also served.’” [References omitted.]

112.There is, in my opinion, a broader public interest to be served by allowing persons who have had dealings with companies which become insolvent to conduct their commercial affairs with a degree of certainty about their exposure to having past transactions unravelled.
113.I note the traditional hostility of the common law to the exhumation of bodies which was once described as an “inhuman and barbarous felony”. (Haynes’ case (1614) 12 Co Rep 113, 77 ER 1389. See also R v Lynn (1788) TR 733, 100 ER 394; R v Sharpe (1857) 7 Cox CC 214, 169 ER 959.) In this respect, equity followed the common law. (P W Young “The Exclusive Right to Burial” (1965) 39 ALJ 50; Beard v Baulkham Hills Shire Council (1986) 7 NSWLR 273 esp at 280.) This policy is informed by considerations of decency and human respect. Nevertheless, in my opinion, there is also a public policy against the disinterring of corporate corpses. Commercial life must at some stage rule off the past and focus energy on the future.
114.The commercial and economic life of the community is sometimes better served by allowing the loss to lie where it falls, so that all concerned may proceed with a high degree of certainty as to their financial position. The passage of time, even the passage of three years, can be seen to legitimately alter the balance of conflicting interests in this regard.
115.A creditor or other person who has received the benefit of a voidable transaction is at risk of having to surrender it. The time limit in s588FF(3) has the effect that at the end of the period of three years, such a person will know whether s/he remains at risk. In a legislative scheme which seeks to balance conflicting commercial interests of this character, that appears to me to be a perfectly reasonable requirement. Those who have an interest, or who represent those who have an interest, to disturb transactions must indicate, within three years, whether they wish to keep open the option of doing so. In this, as in other areas, legal policy favours certainty.
116.As the House of Lords said in another context in R (Burkett) v Hammersmith and Fulham LBC [2002] 1 WLR 1593 at [46]:
“... [L]egal policy favours simplicity and certainty rather than complexity and uncertainty. In the interpretation of legislation this factor is a commonplace consideration. In choosing between competing constructions a court may presume, in the absence of contrary indications, that the legislature intended to legislate for a certain, predictable regime.”

117.While s70 and s1322 of the Act may constitute contrary indications for many purposes, the legal policy in favour of certainty is nevertheless manifest in the text of s588FF(3).
118.S588FF(3) does not have the effect of requiring all applications to be brought within a short period of time. It does, however, have the effect of requiring those who wish to keep open the option to do so, to determine that they do wish to do so within the three year period and to seek a determinate extension of the period. One thing that must be decided within the three year period is how long the process of deciding whether to pursue voidable transactions will take. Eventually, investigations to overcome deficiencies of information or the pursuit of funding must cease. Parliament has identified a reasonable time for such matters to occur, subject to a single determinate extension of time.
119.In a context where conflicting interests have to be balanced, the eventual loss of the ability to make a relevant claim can reasonably be regarded as something to be surrendered, in favour of providing certainty to others who have had dealings with the company, including other creditors, so that they can proceed with their business affairs with an assurance that they are no longer at risk.

On the question of notice the Chief Justice said:

Perhaps there will be circumstances in which it is not appropriate to give all who may be affected by an order under s588FF(3)(b) an opportunity to make submissions prior to the order being made. It is not necessary to determine this question. Here there was a clearly identified party with a substantial interest in the question to be determined. Nothing appeared by way of urgency or otherwise to require an ex parte order to be made. The Appellant was unnecessarily placed in the position of applying to the Court, pursuant to leave reserved by order of the Court, to have the order discharged.[5]

[5]Ibid, [136] (emphasis added).

On the question of the availability of a general power under s 1322(4)(d) to extend time, the Chief Justice concluded:

85.The time period identified in par (a) is itself subject to a specific power of extension under par (b). That is a comprehensive provision for extension of time which, in my opinion, is intended to cover the relevant field to the exclusion of s1322. This conclusion turns on the text of s588FF(3) and the scope and purpose of Pt 5.7B.

Section 1322(4)(d) provides:

Subject to the following provisions of this section but without limiting the generality of any other provision of this Act, the Court may, on application by any interested person, make all or any of the following orders, either unconditionally or subject to such conditions as the Court imposes: …
(d)an order extending the period for doing any act, matter or thing or instituting or taking any proceeding under this Act or in relation to a corporation (including an order extending a period where the period concerned ended before the application for the order was made) or abridging the period for doing such an act, matter or thing or instituting or taking such a proceeding;

and may make such consequential or ancillary orders as the Court thinks fit.

Subsection (6) provides that the Court must not make an order unless satisfied that no substantial injustice has been or is likely to be caused to any person.

Any application for an extension of time under s 588FF(3) must be made within the period specified in paragraph (a). That is, during the period beginning on the relation‑back day and ending three years after that day, or 12 months after the first appointment of a liquidator to the company, whichever is the later. As the Chief Justice in BP Australia Ltd pointed out, Parliament had identified a reasonable time within which investigations to overcome deficiencies in information must occur, subject to a single determinate extension of time.

The analysis of the Chief Justice in BP Australia was endorsed by the High Court in Fortress Credit Corporation (Australia) II Pty Limited v Fletcher.[6] The question for determination in Fortress was whether an extension can only be ordered in relation to particular transactions identified in the order, or more generally. Extensions granted when transactions were not able to be identified at the time of the order have been called ‘shelf orders’. The High Court held that the availability of a shelf order was a construction open on the text of s 588FF(3)(b), and was consistent with the evident purpose of that provision to allow the Court to mitigate the strictness of the time limit.
[6][2015] HCA 10.

In a joint judgment, the High Court observed that it was difficult to imagine that the judgment at first instance, and the appeal in BP Australia, were not known to those involved in the process leading to subsequent amendments to the Act, as decisions of considerable significance and likely to be applied nationally. The High Court held that the Court of Appeal in New South Wales, in its decision under appeal to the High Court, correctly followed the earlier decision of the Court of Appeal in BP Australia. The appeal was dismissed.

The decision in Fortress confirmed the existence of a unique legislative paradigm designed to balance the requirements of commercial certainty on the part of those who had past dealings with the corporation against the interests of the creditors of the company.[7] Expedition was of the essence. The High Court identified the function of s 588FF(3)(b) as reflecting its immediate purpose to confer a discretion on the court to mitigate, in an appropriate case, the rigours of the time limits imposed by paragraph (a).[8] On the nature of the discretion, the High Court said:

… That is a discretion to be exercised having regard to the scope and purposes of Pt 5.7B, characterised in the Harmer Report as the continuing “policy” which underpinned its recommendations. That policy included the avoidance of transactions by which an insolvent company has disposed of property in circumstances that are regarded by the legislature as unfair to the general body of unsecured creditors. It is, however, a policy qualified in its application by the requirement that liquidators be placed under a reasonable time limitation for taking action under the voidable transaction provisions. A purpose of that qualification, expressed in “clear and emphatic” terms, is to favour certainty for those who have entered into transactions with the company during the periods in respect of which designated transactions may be voidable.[9] There is, however, no independent basis for the assertion that any extension of time which does not identify a particular transaction or transactions must be an unreasonable prolongation of uncertainty militating against a construction which would allow such an order to be made. The section provides for the exercise of discretion by the court. Questions of what is a reasonable or an unreasonable prolongation of uncertainty and the scope of such uncertainty are more appropriately considered case-by-case in the exercise of judicial discretion than globally in judicial interpretation of the provision.[10]

[7]See also (2003) 58 NSWLR 322 at 354, [171].

[8][2015] HCA 10, [24].

[9]Grant Samuel Corporate Finance Pty Ltd v Fletcher [2015] HCA 8 at [21], citing Texel Pty Ltd v Commonwealth Bank of Australia [1994] VicRp 62; [1994] 2 VR 298 at 300.

[10]Emphasis added.

The limited scope to extend time, without the need to define transactions or identify defendants, may be said to highlight a material difference in the approach to be taken when exercising discretion under s 588FF(3)(b) and r 5.12 of the General Civil Procedure Rules. Any such distinction is not, however, directly relevant to the facts of this case, because the liquidators had identified claims and defendants, and commenced the proceeding. The liquidators might have sought an extension for the purpose of continuing their investigation to ascertain whether there existed a proper basis to commence the proceeding. But once a proceeding had been commenced, the liquidators verified the existence of a ‘proper basis’. Mr Horne did so in his affidavit in support of the Originating Process.

While both applications seek an extension of time, an application under s 588FF(3)(a) is concerned with the commencement of a proceeding, whereas an application under r 5.12 is concerned with the preservation of validity. Notwithstanding that distinction, the exercise of any discretion under r 5.12 to extend the time for service of Originating Process issued under s 588FF must have regard to the statutory context, and in particular, the need for expedition beyond that which is ordinarily required in other litigation.

The Corporations Rules constitute an important part of the legal context in which any discretion to extend the time for service must be exercised. They form part of a uniform and harmonious code for all States and Territories. Rule 1.3 provides:

(1) Unless the Court otherwise orders—
(a)these Rules apply to a proceeding in the Court under the Corporations Act or the ASIC Act; and

…
(2)The other Rules of the Court apply, so far as they are relevant and not inconsistent with these Rules—
(a)to a proceeding in the Court under the Corporations Act or the ASIC Act; and …

Rule 1.8 provides:

The Court may give directions in relation to the practice and procedure to be followed in a proceeding if it is satisfied, in the circumstances of the proceeding, that—
(a)the provisions of the Corporations Act, the ASIC Act, or the rules of this Court do not adequately provide for the practice and procedure to be followed in the proceeding; or
(b)a difficulty arises, or doubt exists, in relation to the practice and procedure to be followed in the proceeding.

Rule 1.10 provides:

Unless the Corporations Act, the ASIC Act, or these Rules otherwise provide, the rules of this Court that provide for the extension or abridgment of a period of time fixed for the doing of any act or thing in relation to a proceeding apply to a proceeding to which these Rules apply.

Rule 2.2 provides:

(1)Unless these Rules otherwise provide, a person must make an application required or permitted by the Corporations Act to be made to the Court—
(a)if the application is not made in a proceeding already commenced in the Court—by filing an originating process; and
(b)in any other case, and whether interlocutory relief or final relief is claimed—by filing an interlocutory process.

…
(3) An originating process must—
(a)be in accordance with Form 2 or, if an originating process is sought or required to be filed electronically in RedCrest, in Form 2A; and
(b)state—
(i)each section of the Corporations Act or the ASIC Act, or each regulation of the Corporations Regulations, under which the proceeding is brought; and
(ii)the relief sought.

…

Rule 2.3 provides:

On receiving an originating process or interlocutory process, the Prothonotary—
(a) must fix a time, date and place for hearing and endorse those details on the originating process or interlocutory process; and
(b)may seal a sufficient number of copies for service and proof of service.

Rule 2.4(1) provides:

Unless the Court otherwise directs, an originating process, or interlocutory process, must be supported by an affidavit stating the facts in support of the process.

Rule 2.7 provides:

(1)As soon as practicable after filing an originating process and, in any case, at least 5 days before the date fixed for hearing, the plaintiff must serve a copy of the originating process and any supporting affidavit on—
(a)each defendant (if any) to the proceeding; and
(b)if the corporation to which the proceeding relates is not a party to the proceeding—the corporation.

(2)As soon as practicable after filing an interlocutory process and, in any case, at least 3 days before the date fixed for hearing, the applicant must serve a copy of the interlocutory process and any supporting affidavit on—
(a)each respondent (if any) to the application in the interlocutory process; and
(b)if the corporation to which the application in the interlocutory process relates is not a party to the application in the interlocutory process—the corporation.

The requirements that an application be commenced by Originating Process, in a prescribed form, fixing a time, date and place for hearing and supported by an affidavit, appear to be mandatory unless, in the case of the supporting affidavit, the court otherwise directs. The same may be said of the requirement for service. In Ingot Capital Investments Pty Ltd & Ors v Macquarie Equity Capital Markets Limited,[11] Bergin J held:

Although there is provision for the application of the other rules of the Court, in my view the use of the term “must” in CL Rule 2.2 makes it mandatory for a party wishing to bring an application that is required or permitted under the Corporations Act 2001, to do so by way of Originating process unless the application is to be made in a proceeding already commenced in the Court. CL Rule 2.4 in relation to the supporting affidavit does not use the term “must be filed”. It may be suggested that the use of the term “must be supported” in the Rule combined with the requirement in CL Rule 2.7 that the plaintiff “must serve” the Originating process and “any supporting affidavit” within the specified period and the reference in Form 2 to the “facts stated in the supporting affidavit” make it mandatory for a party to file the affidavit. However it is possible to “support” a claim with an affidavit without filing it. It seems to me that it may have been intended that the affidavit in “support” should be filed but the CL Rules do not require it expressly although it is certainly the case that the affidavit in support “must” be served. It is perhaps understandable in the circumstances that Ms Merrick apprehended that NCRA was required to file the supporting affidavit at the time the Originating process was filed.

[11][2004] NSWSC 40, [30].

The nature of a proceeding commenced under s 588FF, the manner in which it must be commenced, and time within which an Originating Process must be served, is to be contrasted with the regime for the commencement of proceedings by writ and origination motion and for service and extensions of time under the General Civil Procedure Rules. Under r 4.01 of the General Civil Procedure Rules, except where otherwise provided by or under any Act or the rules, a proceeding in the Supreme Court ‘shall be commenced by writ or by originating motion’. Each has a prescribed form. A writ or an originating motion is only valid for service for one year after the day it is filed.[12] 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.[13] Under r 5.12(4) an application to extend the period of validity may be made without notice to the defendant, unless the Court otherwise directs. Under r 3.02, the Court may extend or abridge any time fixed by ‘these Rules’ or by any order fixing, extending or abridging time.
[12]Rule 5.12(1).
[13]Rule 5.12(2).

In Howard v Power,[14] Derham AsJ helpfully summarised the principles to be applied on application to extend the validity for service of a writ under r 5.12. The summary was adopted by Robson J in Re APCH Ltd (in liquidation) (No 3).[15] In Howard v Power, his Honour said:[16]
[14][2013] VSC 198, [10].
[15][2014] VSC 456.
[16][2014] VSC 456, [10] (citations omitted).

10The 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. 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:
(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.
(b)The jurisdiction given by the rule ought to be exercised with caution.
(c)It is the duty of a plaintiff to serve a writ promptly.
(d)An application to extend time for service is not granted as a matter of course.
(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.
(f)The plaintiff carries the onus of showing that there is a good reason for extending the time to serve the writ; 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.
(g)Whether there is good reason depends on all the circumstances of the case; and it is not possible to define or circumscribe the scope of the expression “good reason”.
(h)Where the application is made after the period for service has expired, the reason must be one of substance.
(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.
(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. 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.
(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.
(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.
(m)The lapse of time is itself generally to be regarded as prejudicial to the defendant. In this contest, the relevant delay is to be measured from the time at which the plaintiff’s cause of action arose.
(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; delay preceding (as well as following) the issue of the writ is material.
(o)The expiration of the limitation period will not in itself constitute a good reason for extending the validity of the writ, although it is relevant; and
(p)It may be appropriate to have regard to the balance of hardship.

Thus, in an application for the extension of time, or to validate a proceeding under r 5.12 of the General Civil Procedure Rules, the nature of the proceeding and its legislative context will provide guidance on the exercise of discretion. A proceeding commenced under s 588FF of the Corporations Act will give rise to different considerations than a proceeding of a different nature commenced under the General Civil Procedure Rules. The Civil Procedure Act also provides important legislative context.[17]
[17]Ebner v Clayton Utz (2012) 36 VR 25, [21].

In Arthur Andersen Corporate Finance Pty Ltd v Buzzle Operations Pty Ltd (in liq),[18] Ipp JA said that regard must be had to the policy behind the applicable limitation statute. His Honour made reference to Tolcher v Gordon,[19] where Hodgson JA said:

3.Although the three-year period is a limit for the commencement of such proceedings, not service of the proceedings, in my opinion an important aspect of the public policy behind the limitation period is that potential defendants should be made aware of claims against them within a reasonable time; so that in my opinion, delay in service of such proceedings, in contravention of the rules, is particularly serious if it occurs after the expiration of the three-year limitation period. A liquidator who does not commence proceedings until just before expiry of the limitation period should in my opinion be especially diligent in pursuing prompt service of the proceedings.

[18][2009] NSWCA 104 [37].

[19][2005] NSWCA 135, [3] (emphasis added).

The ‘rule’ under consideration in Arthur Andersen was pt 18 r 9 of the District Court Rules (NSW), not the Corporations Rules. While the proceeding in Tolcher was an application made under s 588FF, it did not comply with the Corporations Rules. Tobias JA, with whom Ipp JA agreed, doubted that the proceeding could be commenced in the District Court, however, no point had been taken on the issue, so the irregularity was disregarded for the purpose of the application for an extension of time under pt 3 r 2 of the District Court Rules.

The requirement to show ‘good reason’ for an extension will not be satisfied by demonstrating that no prejudice will be occasioned to the defendant if an extension is granted. In his reasons for judgment, Efthim AsJ relied substantially on the absence of prejudice. In Re APCHL (No 3),[20] Robson J said:

29Statements that there is a tendency to relax rigid time limits, and that seeing that justice is done is a good reason for granting an extension, must be read in light of the requirement to show a good reason for granting the extension. The cases show that good reason is not merely that no prejudice will be occasioned to the defendant if the extension is granted, or that the plaintiff will suffer more prejudice if the extension were denied than the defendant would suffer if the extension were granted. Rather, even if the defendant has been on notice of the claim since the day the writ was filed and will have no difficulty in preparing its defence, the plaintiff must nevertheless establish a good reason why the court should grant an indulgence in extending time for service.

[20][2014] VSC 456 [29].

The cases establish that a deliberate decision to refrain from serving process is inconsistent with ‘good reason’ for an extension.[21] In Arthur Andersen Corporate Finance Pty Ltd v Buzzle Operations Pty Ltd (in liq),[22] Ipp JA, with whom Tobias and McColl JJA agreed, said:

In my view it would be inappropriate to allow an extension of time for the service of a writ or statement of claim where a significant cause of the delay has been the willingness of the plaintiff to do nothing about service while awaiting a decision from a litigation funder as to whether or not to provide the necessary funds. Were that to be regarded as a good reason to extend time, the Court would be allowing plaintiffs to arrogate to non-parties the right to decide the period by which the time for service of a writ should be extended. That would be fundamentally in conflict with the Court’s duty to exercise, alone, the discretion conferred upon it.

[21]INB Group Pty Ltd (in liq) v Australian Competition and Consumer Commission [2007] 1 QdR 148; Arthur Andersen [2009] NSWCA 104, [27]–[28].

[22][2009] NSWCA 104, [82].

From the foregoing statutory provisions, rules and cases emerge the following propositions relevant to this appeal:

(1)The liquidators’ opportunity to extend the period within which to commence a proceeding under s 588FF is a once‑only opportunity.
(2)An extension of time under s 588FF(3)(b) may be justified to enable a liquidator to complete investigations, and identify potentially voidable transactions and defendants.
(3)The opportunity for extension under s 588FF(3)(b) covers the field, excluding other avenues to obtain further time within which to commence a proceeding.
(4)An application for extension under s 588FF would ordinarily require notice to be given to putative defendants, who have ‘a substantive interest in the question to be determined’.
(5)When deciding whether to extend time under s 588FF, the court must balance the interests of business certainty against the prospects for recovery to benefit creditors. Expedition is of the essence.
(6)The Corporations Rules impose a mandatory obligation to serve the Originating Process as soon as practicable.
(7)The regulatory context (statute and rules) informs the exercise of any discretion to extend time for service, including under r 5.12.
(8)On commencement of a proceeding, the liquidators must verify a proper basis for the allegations made in the proceeding.
(9)A extension under r 5.12 would not usually be granted to enable a plaintiff to further investigate the merits of the claims or obtain litigation funding.
(10)It is the duty of a plaintiff to serve legal process promptly. The obligation is more acute in the case of a proceeding commenced under s 588FF, arising directly under r 2.7 in relation to an Originating Process, and more generally under s 25 of the Civil Procedure Act.
(11)Even in the absence of a requirement under the rules to serve as soon as practicable, an applicant for an extension under r 5.12 would be required to demonstrate reasonable steps had been taken to serve the court process.
(12)A decision not to serve, made by a plaintiff for forensic or strategic purposes, is antithetical to the duty to serve promptly.
(13)An extension will not ordinarily be granted to facilitate a plaintiff’s decision not to serve process on a defendant, whose whereabouts were known and who might readily be served.
(14)A delay in service of a proceeding commenced under s 588FF, in contravention of the applicable rules, is particularly serious if it occurs after the expiration of the limitation period.

Reasons for judgment under appeal

The liquidators’ submissions on appeal reflected those made before Randall AsJ and on the rehearing before Efthim AsJ. They were substantially accepted and recited in his Honour’s reasons for judgment. In substance, the liquidators submitted that the procedure for the adjournment of the date fixed for a hearing, or an extension of time for service, of Originating Process for claims made under s 588FF of the Corporations Act was ambiguous. The liquidators claimed to be entitled to choose between options. First, they might have made an application under s 588FF(3)(a) for an extension of time within which to commence the proceeding; second, they might have applied for an adjournment of the date fixed for the hearing; or third, adopt the more cautious approach, as they did before Randall AsJ, to adjourn the date for the hearing and preserve the validity of the Originating Process by extending the date for service until 1 December 2014. The liquidators argued that the course adopted by Randall AsJ ‘cut through all this ambiguity’. They argued that r 1.3(2) of the Corporations Rules expressly applied the General Civil Procedure Rules, which were relevant, and not inconsistent. Alternatively, r 1.10 of the Corporations Rules expressly adopted the General Civil Procedure Rules providing for the extension or abridgment of a period of time, because the Corporations Act, the ASIC Act and the Corporations Rules did not otherwise provide.

The liquidators submitted that r 2.7 of the Corporations Rules was silent as to the effect upon an Originating Process if not served in accordance with r 2.7(1). It was, they claimed, for that reason they sought an order extending the period of validity of the Originating Process.

In his reasons for judgment, concerning the power to extend time for service, Efthim AsJ said:[23]
[23][2015] VSC 327 (emphasis added).

30.I accept that r 2.7 of the Corporations Rules does not preclude the operation of rr 1.3 and 1.10 of the Corporations Rules. I also agree that the Corporation Rules are otherwise silent as to extension of time with the result that r 1.10 enlivens the operation of r 5.12. In my view, r 5.12 is not inconsistent with r 2.7, as stated by the Lend Lease defendants. I am of the view that there is power in the Court to extend times prescribed by r 2.7 to ensure that there is no distinction between the extension of time for service and the extended period of the validity of the originating process by the proper framing of an order.
31.Retirement Guide submits that while r 5.12 of the Civil Procedure Rules does not limit the validity of the originating process issued under the Corporations Act, it is picked up by r 1.3(2)(a) of the Corporations Rules, which provides that the other Rules of Court apply so far as they are relevant and not inconsistent with the Corporations Rules. If that is so, then the originating process, absent the extension granted by Randall AsJ on 20 December 2013, expired on 16 October 2014. It therefore submits that if r 5.12 of the Civil Procedure Rules does not apply, then there is no period of validity for service of an originating process, with the time for service being a matter of judicial direction only.
32.Retirement Guide challenges the order made on 20 December 2013, which the plaintiff sought and obtained before Randall AsJ, by which it was permitted some 14 months to serve a process in respect of matters resulting from events which occurred in 2007. To provide for an unlimited period of time to serve an originating process, or to provide for a period of validity for service of some thirteen and a half months, is said to be incompatible with the specification of strict time limits prescribed by s 588FF(3) of the Corporations Act. Section 588FF(3) of that Act states that an application must be made during the period beginning on the relation-back day and ending three years after the relation back day. An application has been made within the time prescribed. The extension of service is not incompatible with s 588FF(3), nor does it subvert the 3 year limitation period, as was submitted by the Lend Lease defendants.
33.I agree with the submission that if r 5.12 of the Civil Procedure Rules did not apply, then the originating process needed to be served within one year of its filing, with the consequence that if service was irregular, then the purported service should be set aside. However, in my view, r 5.12 of the Civil Procedure Rules does apply and therefore that submission cannot succeed.
34.Senior counsel for the Lend Lease defendants conceded that the Court did have power to extend time for service but that could be done pursuant to r 3.02 of the Civil Procedure Rules. That rule was referred to in the submissions put before Randall AsJ, but his Honour did not refer to which rule his order was made under, nor did he say in the transcript which rule he was relying upon.
35.I accept that r 3.02 of the Civil Procedure Rules can also be invoked to obtain an extension, but it is my view that r 5.12 also applies. On reading the submissions put before his Honour, it would appear that his Honour made his order pursuant to r 5.12 of the Civil Procedure Rules.
36.The Lend Lease defendants note that his Honour appeared not to have been addressed on or otherwise considered whether the application for extension could and should have been made on notice to the defendants as the parties named in the originating process. The failure to give notice in such circumstances is said to be at least a significant oversight. Rule 5.12(4) of the Civil Procedure Rules provides that the plaintiff may apply without notice. There is no real prejudice suffered by the defendants as the order can always be set aside. I also note that the Lend Lease defendants were present in court when the order was made.

The liquidators submitted on appeal that while Corporations Rule 2.7 fixed time for the service of the Originating Process, it did not deal with the separate question of extending or abridging time. The court had jurisdiction to regulate its own processes, by varying deadlines otherwise prescribed by the rules. They submitted that it would require clear language before it could safely be concluded that the inherent jurisdiction had been abrogated.

The liquidators further submitted that r 2.7 was found within a framework which incorporated by reference the whole of the General Civil Procedure Rules. They relied on rr 1.3 and 1.10 of the Corporations Rules to incorporate rr 3.02 and 5.12 of the General Civil Procedure Rules. They contended that, as a matter of policy, if Corporation Rule 2.7 was regarded as ‘covering the field’, it would have the effect of denying to the court the ability to defer, in any circumstances, the time within which the Originating Process was to be served. Accordingly, they contended that Efthim AsJ was correct to conclude in paragraph 30 of his reasons for judgment that r 2.7 did not preclude the operation of rr 1.3 and 1.10 of the Corporations Rules. The liquidators contended that as the Corporations Rules did not address the validity of an Originating Process that was not served ‘as soon as practicable’, the orders made by Randall AsJ were necessary to address that ambiguity.

The appellants contended that, contrary to the decision of Efthim AsJ, the Corporations Rules are unambiguous in their requirement for service ‘as soon as practicable’. They are not silent as to an extension of time, with the result that r 1.10 of the Corporations Rules does not enliven the operation of r 5.12 of the General Civil Procedure Rules.

The appellants contended that there was no occasion for any application of the General Civil Procedure Rules, or an application that would relieve the liquidators of their obligation to comply with the requirement under Corporations Rule 2.7 to serve a copy of the Originating Process and any supporting affidavit on each defendant ‘as soon as practicable’. They contended that the approach adopted by the liquidators, if endorsed by the court, would undermine the integrated regime for the commencement and service of the Originating Process, which differed in material respects from the regime for service that applied to conventional litigation, commenced by writ or originating motion or other process commenced under the General Civil Procedure Rules. The appellants submitted that the policy considerations evident in the Corporations Act and the Corporations Rules were symmetrical, designed to achieve prompt service and prompt hearings.

The appellants argued that r 5.12 was neither relevant nor available to support the orders that were made. That rule was concerned solely with the validity and service of a ‘writ or originating motion’ that was deemed to be stale after one year, if not extended and validated. They argued that the requirement under r 2.7 that service be effected as soon as practicable, was inconsistent with the purpose and scope for operation of r 5.12. If further time was required for the liquidators to investigate transactions, before filing an Originating Process, they should have applied for an extension of time under s 588FF(3)(a).

Efthim AsJ found that r 3.02 of the General Civil Procedure Rules was also available to a liquidator to extend the time for service. The gateway to this power, the liquidators submitted, was Corporations Rule 1.10. In response, the appellants advanced alternative submissions. First, they contended that Corporations Rule 1.10 was concerned with the extension or abridgment of ‘a period of time fixed for the doing of any act or thing’. Corporations Rule 2.7 did not, in terms, fix a time amenable to extension or abridgement. Instead, it contained a central and mandatory command that the Originating Process be served as soon as practicable, and at least five days before the date fixed for hearing. But even if the command in Corporations Rule 2.7 was to be characterised as involving a ‘period of time fixed’, any extension that might be granted under r 3.02 of the General Civil Procedure Rules must be qualified by the central command, and the policy considerations evident in the Corporations Act and the Corporations Rules for a proceeding commenced under s 588FF of the Act.

A second, and related, contention of the appellants was that the so‑called gateway to the General Civil Procedure Rules, under Corporations Rule 1.10, was not available because ‘the Corporations Act … or these Rules otherwise provide’. The mandatory requirement that service take place as soon as practicable ‘otherwise provided’. Thus, at the heart of the appellants’ case was the mandatory requirement for service on the defendants as soon as practicable. Service was not a matter left up to a plaintiff to choose a time during the ‘validity’ of court process.

Conclusion on jurisdiction

The basis upon which Efthim AsJ reached his conclusion, on the question of jurisdiction and power, was unambiguous. While it may be convenient to support a construction of the relevant provisions of the Corporations Act, and Corporations Rules, to facilitate the perceived dilemma faced by the liquidator, in my opinion the construction adopted by both associate judges was incorrect, and the appeal must be allowed.

Modern case management principles, reinforced by the Civil Procedure Act, require that a proceeding not be commenced before the plaintiff is in a position to verify that, on the factual and legal material available, each allegation of fact in a document has a proper basis. A proceeding may not be commenced in the hope that evidence will emerge to support allegations.

The obligation imposed upon liquidators may be particularly onerous. By definition, most liquidators will be unfamiliar with the affairs of the company. With a complex liquidation, such as in the present case, it may take months, even years, to accumulate sufficient information to enable a liquidator to be satisfied of a proper basis for claims made against third parties. Should a liquidator require more time within which to investigate claims, the proper course is to make application for an extension under s 588FF(3)(a). A ‘shelf order’ may be made for that purpose. When considering such an application, the court will balance the interests and have regard to the factors mentioned in BP Australia and Fortress Credit. Section 588FF(3) of the Corporation Act provides a singular and unique regime under which the commencement of proceedings by a liquidator may be deferred. Ordinarily, an application to extend time would require notice to be given to any party with a substantial interest in the question to be determined.[24]
[24][2003] NSWCA 216 [136].

The tension between expedition in the resolution of such proceedings, to assist the commercial and economic life of the community, and the interests of creditors, can be adjusted by the court to accommodate the reasonable requirements of experienced and industrious liquidators, properly funded, to complete their enquiries and initiate proceedings. The court would ordinarily require evidence of the complexity of the liquidation, the industry of the liquidators, and a reasonable timeline for completion of work before extending the statutory period.

I reject the contention that the liquidators had a choice of options in late 2013. Had they made an application under s 588FF(3)(b) on the grounds relied upon before Randall AsJ, and on notice to the appellants, they may not have been successful. But that is not the point. They commenced the proceeding and sought to delay service for their own internal liquidation and litigation strategies.

That is not to say that, once a proceeding had been commenced, by Originating Process, a hearing date could not be adjourned. Plainly, such an application may be made. There was no need to resort to the so‑called ‘gateway’ to a General Civil Procedure Rule. But any such application must be determined within the statutory context, including the Corporations Rules, which include a requirement that service be effected as soon as practicable.

An application to adjourn the date for hearing must ordinarily be made on notice to the defendants identified in the Originating Process. Once the Originating Process has issued, there is no occasion to exclude the participation of the defendants by making an ex part application to adjourn the date for the hearing notified in the Originating Process. The liquidators’ desire to withhold service, to avoid an application for security for costs, a consequential stay, or legal costs did not excuse them from giving notice of their application for an adjournment to the defendants. As named defendants in the Originating Process, the appellants had a very material interest in the management of the proceeding, any delay, and any application for an adjournment of the date for hearing.

I reject the liquidators’ contention that resort may be had to r 5.12 of the General Civil Procedure Rules to extend the date for service and validity of the Originating Process. Rule 2.7 is merely a reflection of the policy which underlies pt 5.7B of the Corporations Act, requiring expedition in the resolution of claims. An ex parte application under r 5.12 of the General Civil Procedure Rules, for an order purporting to extend the period of validity of the Originating Process, was antithetical to the policy and the mandatory obligation under the Corporations Rules to serve the Originating Process. Put another way, the regime for commencing a proceeding under s 588FF is inconsistent with an order extending the validity of the Originating Process, as if a writ or originating motion under the General Civil Procedure Rules.

I do not consider Corporations Rule 1.10 provides a gateway to r 3.02 of the General Civil Procedure Rules. First, the Corporations Rules ‘otherwise provide’. Second, r 2.7 of the Corporations Rules does not fix a time that is amenable to extension or abridgement. The obligation that service be effected as soon as practicable is a substantive obligation, without any fixed time for doing the act, save that it is to be done not less than five days before the date fixed for the hearing.

The liquidators conceded that the effect of the orders made by Randall AsJ, affirmed by Efthim AsJ, had the effect of relieving them of the obligation that otherwise arose under Corporations Rule 2.7 to serve the Originating Process as soon as reasonably practicable. In my opinion, the General Civil Procedure Rules cannot be employed to subvert the mandatory and purposeful obligation of service. The first ground in each notice of appeal is made out, and the appeals will be allowed on that basis.

Miscarriage of discretion

In the alternative, the appellants contended that to the extent Randall AsJ had power to extend the time for service of the Originating Process, his Honour’s discretion miscarried. The short point advanced on behalf of the appellants was that neither of the two reasons given by the liquidators to justify the adjournment and the extension of time for service under 1 December 2014 was a ‘good reason’ for extension.

The matters for consideration on 20 December 2013 were not identical to those considered by Efthim AsJ on 18 March 2015. Before Randall AsJ, the liquidators relied on the affidavit of Jason Stone. The first matter advanced by the liquidators was their desire to await developments in the Management Rights proceeding, commenced by the receivers in March 2013. In that proceeding, the receivers alleged contraventions by the directors of duties owed to the corporations, and contraventions by the responsible entity of its duties. The receivers informed the liquidators that they did not intend to serve the writ until they had concluded further investigations. As at December 2013, the liquidators did not know whether the receivers had completed their investigations, or whether they intended to continue the proceeding. The receivers had until March 2014 to serve the writ. Mr Stone deposed that, ‘if the receivers do continue with their proceeding, it may impact on our decision to proceed, and might mean that we would not continue with this proceeding, or if we did, both proceedings would be heard in conjunction with each other’.

The appellants submitted that the authorities made it clear that a desire to await the outcome of another proceeding is not a good reason for an extension.[25] Efthim AsJ seemed to accept that submission, although went on to consider other factors.[26] These were (a) notice to the appellants of the claims; (b) prompt action by the liquidators; and (c) the absence of prejudice to the appellants. The absence of prejudice seemed paramount in his Honour’s consideration of the application before him. His Honour found, ‘there could be no prejudice to the defendants at the time the application was heard by Randall AsJ’. That finding overlooked presumptive prejudice. In any event, the absence of prejudice does not constitute a ‘good reason’ for an extension of time.
[25]Re Australian Property Custodian Holdings Ltd [2014] VSC 190, [144]; Howard v Power [2013] VSC 198, [10], [28]; Ramsay v Madgwicks [1989] VR 1, 4–5.
[26][2015] VSC 327, [61].

The appellants submitted that even if the desire to await the outcome of another proceeding was to be considered a good reason for an extension, it ceased to be a good reason on 19 March 2014, when the liquidators assumed the conduct of the Management Rights proceeding.

The second matter advanced by the liquidators to Randall AsJ through the affidavit of Mr Stone, was the absence of funding. He deposed that the liquidator only commenced the proceeding to prevent the expiry of the limitation period. He deposed that they would probably still be without funds after March 2014, and required time to sell assets or get in funds as a result of other proceedings.[27] Mr Stone deposed that funds derived from those sources ‘will enable us to complete further investigations that may assist us in obtaining funding for this proceeding’. In other words, to place themselves in a position to be able to persuade litigation funders of a sufficiently meritorious case.
[27]The Daytree proceeding and the Listing Fee proceedings described in paragraphs 54 to 63 inclusive of Mr Stone’s affidavit.

The appellants submitted that the liquidators’ lack of funding was not a good reason for an extension.[28] They submitted that even if this could be said to constitute a good reason for an extension of a writ, it ceased to be so on 6 June 2014, when litigation funding was agreed.
[28]Arthur Andersen Corporate Finance Pty Ltd v Buzzle Operations Pty Ltd (in liq) [2009] NSWCA 104, [82]; Savcor Pty Ltd v Cathodic Protection International APS [2005] VSCA 213; (2005) 12 VR 639, [41].

In his affidavit sworn 6 February 2015, Mr Horne deposed to the execution of a funding agreement, which was to apply to this proceeding, the Management Rights proceeding and an audit claim. He deposed that:

from the date of signing the funding agreement, I instructed [our solicitors] to examine the then available records of APCH for the purpose of investigating the merits of the proposed causes of action in the various proceedings.

Presumably, the litigation funders were satisfied with the available evidence. Mr Horne set out various steps taken to obtain advice as to the prospects of the Management Rights claim, although as a result of orders made by Robson J on 17 September 2014, the writ became stale. Mr Horne instructed his solicitors to commence a new proceeding. He deposed to further work done on the audit claim. He told of the lack of funding available to the liquidators to undertake investigations between April 2012 and the execution of the funding agreement in June 2014. He deposed:

45If the Extension Orders made by Randall AsJ in December 2013 had not been granted then, given the considerations which the Liquidators were taking into account in later 2013 to preserve potential claims against the defendants to the various proceedings I believe the Liquidators probably would have:
(a)served the originating process very promptly after rejection of the interlocutory application for an extension of time, and then
(b)sought a long adjournment of the interlocutory procedures in order to allow time for the completion of the other steps described above.

This would have been an alternative means of avoiding the incurring of possibly unnecessary costs by all the parties, and allowing better investigation of the circumstances giving rise to the claims. The option did not arise for consideration because the Liquidators believed that the Extension Orders clarified the time available to them for those other steps, and relied on those Extension Orders that service could be effected at any time up until 1 December 2014.

In his affidavit sworn 6 February 2015, Mr Horne also foreshadowed an amendment to the Originating Process in this proceeding.

After reciting events that occurred following the orders made by Randall AsJ, most of which were set out in the affidavit of Mr Horne, Efthim AsJ said:[29]

53In such circumstances, in my view there has not been inordinate delay. There does not appear to be any prejudice to the defendants by the conduct of the liquidator.

[29]2015 VSC 327.

It is difficult to see how such events are relevant to the circumstances in which the order was made on 20 December 2013, and I presume that Efthim AsJ was not here concerned with delay at that time. The appellants had sought orders setting aside the decision of Randall AsJ, setting aside service under r 8.08 of the General Civil Procedure Rules, or a permanent stay. It seems reasonable to assume that Efthim AsJ considered subsequent events as relevant to the stay application, or the application under r 8.08, although that was not entirely clear.

His Honour also noted that the liquidators would seek to amend the proceeding to include director‑related transactions. At the time of the hearing before Efthim AsJ, the liquidators had not conveyed their intention to not rely upon the allegations made in the Originating Process when issued, substituting for those allegations new, and at present unpleaded, director‑related transactions.

Having considered the ‘two reasons’ upon which the liquidators relied before Randall AsJ, his Honour continued:[30]

60The plaintiffs’ submitted that there is good reason to give the extension pursuant to r 5.12 of the Civil Procedure Rules because they have:
-put the defendants on notice of this proceeding;
-acted promptly and appropriately in going to court and advised the court that they were awaiting the completion of another proceeding and there was a lack of funding and they were making efforts to obtain funding; and
-the defendants have not suffered prejudice.

[30]Ibid.

Efthim AsJ took into account the fact that notice had been given to the defendants of a proposed proceeding in March 2012. He regarded the notice, contained in correspondence from the solicitors for the liquidators, to be a matter of importance. In my opinion it was, although not for the same reason. Presumably, the liquidators had sufficient information to instruct their solicitors to prepare and send such letters, which threatened immediate action unless demands were met. Such notices would inevitably have a destabilising effect on the recipients.

The liquidators argued that nothing had been advanced by any of the appellants before Efthim AsJ to support prejudice or destabilisation. They argued that the appellants were already parties to litigation involving the same or related transactions in the Management Rights proceeding. Thus, they were already caught up in controversy with the liquidators, which would have caused or contributed to any claimed destabilisation that might have resulted from this proceeding.

The allegations in the Management Rights proceeding are different. The claims are different. The writ became stale on 17 September 2014. While it is true that a new proceeding, relying on equitable grounds, has been commenced, the nature of the controversy remains quite different.

The extent to which such notice may be destabilising will vary, but at the very least will create uncertainty in the management of the business of a recipient until resolved. To make such allegations, threatening immediate action if demands are not met, and then defer the commencement and service of proceedings, as occurred in this case, distorts or undermines the purpose of pt 5.7B of the Corporations Act. In my opinion, the liquidators’ reliance upon the letters of demand to support the exercise of a discretion is misplaced.

Notice given by letters of demand and litigation searches did not substitute for notice of the application made to Randall AsJ. Merely because r 5.12 permitted an application of the kind contemplated under that rule to be made ex parte did not excuse a failure to give notice in this case. The defendants were known; the legislative regime required expedition; the rules required prompt service; and there was so‑called ambiguity identified by the liquidators.

The liquidators submitted that despite notice of the application to Randall AsJ, the appellants took no step to challenge the orders. They argued that the appellants might have written to the liquidators complaining about the orders made by Randall AsJ. The submission was accepted by Efthim AsJ, who went further and held that by their delay, the appellants had ‘allowed the plaintiffs to proceed and incur costs’. This contention by the liquidators was unusual. The appellants had been denied the right to appear on the application, and access to the confidential affidavit of Mr Stone. Had an application been made on notice, as it should have been, the appellants would have had access to that material, and the right to address the grounds relied upon by Mr Stone. It was incorrect to impose upon the defendants in a proceeding commenced, but not yet served, and which may never have been served, some obligation to initiate a challenge prior to service.

His Honour considered the question of delay and resulting prejudice as at 20 December 2013. He noted as relevant the litigation searches undertaken by the Lend Lease defendants in October 2013, and the fact that they had an observer at the hearings in 2013. He found that there could be no prejudice to the defendants at the time the application was heard by Randall AsJ, and continued:[31]
[31]Ibid.

67The liquidators came to court relatively quickly. They did not leave it to the last day to extend the originating process, as occurs in many of these applications for an extension. They were faced with r 2.7 of the Corporations Rules, which required them to serve an originating process as soon as practicable after filing an originating process or in any case at least five days before the date fixed for hearing. In effect, they sought guidance by the court before the period for service of the originating process ran out. The hearing was an ex parte hearing, but here the Lend Lease defendants had an observer in the court and could have chosen to be heard had they so desired. There is also no prejudice in such an ex parte hearing, because it is allowed pursuant to r 5.12 and secondly because any order made can be undone if it has been done improperly.

…
69While waiting for a proceeding to be complete or a lack of funding may not be sufficient to allow an extension, they should be considered in all of the circumstances before the Court.
70Since service of the writ, there has been extensive work done by the liquidator in relation to the funding and in relation to all of the actions that the liquidator had before him. In my view, the liquidator has acted appropriately.

His Honour then set out the submissions made by Mr Lewski before Robson J in APCHL v Lewski,[32] of factors militating against an extension of the writ in that proceeding, and Lewski’s reliance on alleged contravention of the Civil Procedure Act by the receivers. Robson J held that the delay was inconsistent with s 25 of the Act, but qualified by the desire for mediation. His Honour, Efthim AsJ, continued:

73As neither Mr Stone nor Mr Horne referred to mediating this proceeding, the Lend Lease defendants submit that the Civil Procedure Act is in effect a way against extending time for the service of the originating process. I do not accept that submission, because here there has not been a long delay by the liquidators. They have acted rather quickly to bring the matter to regularise the time to be taken and have, in effect, put the matter under the court supervision.

[32][2014] VSC 456, [17].

Next, his Honour dealt with Mr Horne’s evidence that, had an extension not been granted, the liquidators would have acted promptly to serve the Originating Process. I regard Mr Horne’s evidence as a frank admission that the liquidators had made a deliberate decision not to serve for their own strategic purposes. They considered they had options, only one of which involved service of the Originating Process on the defendants. The proceeding may well have been stayed, as he foreshadowed, but that would have been on application by the appellants. At least the appellants would have been a party to the process before the court in which the future conduct of the proceeding would be determined.

The liquidators submitted that while the grounds relied upon for the exercise of the discretion to extend the validity of the process may not, if considered individually, be sufficient, they ought to be viewed collectively. The liquidators contended that they had come to court very promptly, seeking more time.

They submitted that they did not reserve to themselves the right to decide the period by which the time for service of the writ should be extended. I disagree. That is precisely what they did. They chose not to serve the Originating Process for their own strategic purposes. Their choice of procedure had the effect, and was intended to have the effect, of shutting the appellants out of the decision‑making process of the court, and relieving themselves of the mandatory obligation in r 2.7 of the Corporations Rules to serve the Originating Process as soon as practicable. The liquidators’ contention that they had a choice of procedures is, in my opinion, untenable.

Their desire to wait and see what happened to the Management Rights proceeding may be readily explicable in terms of commercial pragmatism. The difficulty with such an approach is that pragmatic strategic decisions, explicable in terms of an efficient application of liquidators’ time and funds, must be balanced against the purpose of limitation periods and more particularly, in the present case, the balancing of interests under pt 5.7B of the Corporations Act.

The liquidators contended that the time required to get in funds was a good reason to extend time. There were assets that could be sold. They ought not be required to incur unnecessary expenses, absent sufficient funds, while at the same time discharging their obligation to commence a proceeding to recover funds. The liquidators contended that if it be held that they were required to serve the defendants in such circumstances, there may arise a disincentive for liquidators to file a ‘holding writ’ in order to preserve the rights of insolvent estates. In such circumstances, they argue, it was entirely proper for them to file the Originating Process and move promptly to clarify the procedure they ought to follow.

The authorities make it clear that to do nothing about service while awaiting a decision of a litigation funder is to arrogate to a non‑party the right to decide the period for service.[33] In Savcor, the Court of Appeal held:[34]
[33]Arthur Andersen Corporate Finance Pty Ltd v Buzzle Operations Pty Ltd (in liq) [2009] NSWCA 104, [82].
[34][2005] VSCA 213, [41].

41.The principles which guide a court on an application to extend the period for service have been discussed in Van Leer Australia Pty Ltd v. Palace Shipping K.K. and Simsmetal Pty Ltd,[35] Irving v. Carbines[36] especially at p.865, Ramsay v. Madgwicks (a firm) and the Kleinwort Benson case. Those cases establish the following general propositions:
(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 months’ period will usually establish a good reason. By way of 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[37] 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 wait but before the application to extend the validity of the writ. The difference is traced by Stephen J in Van Leek Australia Pty Ltd v. Palace Shipping K.K., supra at pp.245-247. His Honour preferred the approach of the Australian and Canadian courts. He quoted with approval what Bray, C.J. said in Victa Ltd v. Johnson.[38] Bray, C.J. 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]

[35](1981) 55 ALJR 243 at 249.

[36][1982] VicRp 86; [1982] VR 861.

[37][1988] 1 WLR 309.

[38](1975) 10 SASR 496.

[39]See Soper v Matsukawa [1982] VicRp 96; [1982] VR 948 at 953.

The liquidators may well have had real difficulty in funding litigation and saw the possibility of asset sales as a means by which some funding may be available to undertake investigations in order to persuade a litigation funder to assume funding risk. These are all circumstances that placed the timing of service in the hands of third parties, such as willing purchasers of assets and litigation funders. In the present case, the liquidators placed themselves in a position where their ability to prosecute the proceeding, once commenced, depended on a wide range of factors outside of their control, but which they decided to convert into conditions under which they would be prepared to serve the process and thus prosecute the proceeding.

The appellants complained of the absence of any explanation for the delay in serving the Originating Process after litigation funding was obtained. They submitted that s 25 of the Civil Procedure Act 2010 required parties to use reasonable endeavours to act promptly and minimise delay. It was no longer appropriate for a party to adopt a holding position or to hedge its bets.[40]
[40]Chen v Kevin McNamara & Son Pty Ltd [2013] VSC 539, [77].

There is merit in that contention. If it was ever appropriate for a party to adopt a holding position, that option expired in this State with the introduction of the Civil Procedure Act 2010 and the overarching obligations. Merely because a party has an additional period within which to serve a legal process, does not entitle the party, without good reason, to deliberately choose to refrain from serving the process. In the present case, the duty to act promptly and minimise delay is more emphatic because of the mandatory requirement contained in r 2.7 of the Corporations Rules, that the Originating Process be served as soon as practicable. The liquidators’ failure to act promptly after funding became available reinforces my conclusion that they reserved to themselves the right to choose the time for service to suit their own liquidation and litigation strategy.

Finally, the appellants challenged the finding of Efthim AsJ, that they had suffered no prejudice before Randall AsJ and at the time of the hearing before his Honour. They relied on presumptive prejudice.[41] The events the subject of the proceeding occurred more than eight years ago. The absence of any perceived prejudice to the appellants appeared paramount, or at least a very important consideration to the reasoning of the Associate Judge. After considering observations of Robson J in Lewski, in which his Honour relied on presumptive prejudice, Efthim AsJ continued:

77The prejudice referred to by Robson J does not apply here. Legal representatives of the Lend Lease defendants had been aware of the order extending time for service of the writ, considered it and decided to do nothing about it. They allowed the plaintiffs to proceed and incur costs. Only later was a decision made to set aside the order. The second defendant knew about the proceedings in May 2014, only four months after the order of Randall AsJ.[42]
78In my view no prejudice was suffered. In the circumstances of this case, it is my view that the order of Randall AsJ was appropriate and on a re-hearing I would make the same order.

[41]Re Australian Property Custodian Holdings Ltd (No 3) [2014] VSC 456, [140].

[42]Emphasis added.

Randall AsJ and Efthim AsJ both relied upon the power under r 5.12 of the General Civil Procedure Rules to extend the power of validity of the Originating Process, as if a writ or originating motion. While the rule no longer expressly requires the discretion to be exercised for ‘good reason’, that omission has been held to be of no consequence. The applicant must establish a good reason.[43]
[43]Savcor Pty Ltd v Cathodic Protection International APS (2005) 12 VR 639, 651, [40].

The decision of Efthim AsJ under appeal was a re‑hearing of the application made to Randall AsJ. His Honour found no prejudice to the defendants by reason of the orders made on 20 December 2013. His Honour appeared to overlook presumptive prejudice. His Honour did not give sufficient weight to the expedition required in a proceeding under s 588FF, or to the requirement under the rules for prompt service.

Having commenced the proceeding under s 588FF(3), the liquidators were required to serve the Originating Process as soon as practicable. There was no uncertainty about the whereabouts of the defendants, or any impediment to service. The reasons given by the liquidator for delaying service were strategic, to avoid cost and inconvenience in the liquidation. In my opinion, that is not a proper basis upon which to extend the date for service, or the validity of a proceeding commenced under s 588FF of the Corporations Act.

For the reasons given above, the exercise of discretion to extend the date for service and validity of the Originating Process, as if a writ or originating motion under r 5.12 of the Civil Procedure Rules, miscarried.

Conclusion

The appeal is allowed with costs. The orders made by Randall AsJ on 20 December 2013 are set aside. The question then arises as to what should happen to the proceeding.

Having formed the view that the Originating Process commenced by the liquidators is not amenable to application under r 5.12 of the General Civil Procedure Rules, it is not invalid or stale by reason of the operation of r 5.12(1).

The appellants applied under r 8.08 to set aside service. They have also applied for a permanent stay of the proceeding. Submissions have not been directed to these remedies. I propose to give the parties an opportunity to consider what, if any, other orders should be made as a consequence of the liquidators’ failure to serve the process in compliance with their obligation under r 2.7 of the Corporations Rules.

[2015] VSC 745

18 December 2015