Yeo v Dannysam Pty Ltd
[2017] VSC 447
•11 August 2017
| ‘IN THE SUPREME COURT OF VICTORIA | Not Restricted |
AT MELBOURNE
COMMON LAW DIVISION
GENERAL LIST
S CI 2015 2907
| ANDREW REGINALD YEO (IN HIS CAPACITY AS TRUSTEE OF THE BANKRUPT ESTATE OF HARRY SAMUEL GROLL) | First Plaintiff |
| GESS MICHAEL RAMBALDI (IN HIS CAPACITY AS TRUSTEE OF THE BANKRUPT ESTATE OF HARRY SAMUEL GROLL) | Second Plaintiff |
| - and - | |
| DANNYSAM PTY LTD (and others according to the schedule attached) | Defendants |
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JUDGE: | JUDICIAL REGISTRAR MATTHEWS |
WHERE HELD: | Melbourne |
DATE OF HEARING: | 30 June 2017 |
DATE OF JUDGMENT: | 11 August 2017 |
CASE MAY BE CITED AS: | Yeo & Anor v Dannysam Pty Ltd & Ors |
MEDIUM NEUTRAL CITATION: | [2017] VSC 447 |
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PRACTICE AND PROCEDURE – Extending validity of writ – Relevant considerations – Howard v Power [2013] VSC 198 – Where proceeding commenced by trustees in bankruptcy – Where writ not served due to possibility of bankruptcy being annulled and request of bankrupt’s guardian and administrator for no further step to be taken in proceeding – Where good reason for extending the validity of the writ established – Supreme Court (General Civil Procedure) Rules 2015 (Vic), r 5.12.
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APPEARANCES: | Counsel | Solicitors |
| For the Plaintiffs | Mr A Silver | Frenkel Partners |
| For the First Defendant | No appearance | |
| For the Second, Third and Fourth Defendants | Mr D Snyder | Freed and Golding Lawyers |
JUDICIAL REGISTRAR MATTHEWS:
Introduction
The plaintiffs apply pursuant to r 5.12(2) of the Supreme Court (General Civil Procedure) Rules 2015 (‘the Rules’) to extend the validity of a writ filed on 5 June 2015 (‘Writ’). The application is supported by: affidavits sworn by Andrew Reginald Yeo on 26 May 2016 (‘First Yeo Affidavit’) and 23 May 2017 (‘Second Yeo Affidavit’); and by an affidavit of Amanda Jean Jowett sworn 29 June 2017 (‘Jowett Affidavit’).
The validity of the Writ was previously extended to 1 June 2017, by orders of Judicial Registrar Gourlay on 1 June 2016 (‘First Extension’). The First Yeo Affidavit was made in support of the application for the First Extension.
The plaintiffs made their current application prior to the expiry of the Writ, by way of a notice dated 24 May 2017 to the Prothonotary to produce the Court file. When this matter first came before me on 2 June 2017, I made orders adjourning the hearing of the application and requiring notice of the application to be provided to the defendants. When the matter returned for hearing on 30 June 2017, the second, third and fourth defendants were represented by counsel, and there was no appearance on behalf of the first defendant. The second, third and fourth defendants oppose the application.
For the reasons set out below, orders will be made extending the validity of the Writ to 11 February 2018, with liberty to apply.
Background
Mr Yeo, who is the first plaintiff, was appointed along with Gess Michael Rambaldi, the second plaintiff, as joint and several trustees of the bankrupt estate of Harry Samuel Groll pursuant to a sequestration order of the Federal Circuit Court on 2 September 2014 on the petition of the Commissioner of State Revenue.[1]
[1]Federal Circuit Court Proceeding no. MLG990/2014
The Writ attaches an indorsement of claim pursuant to r 5.04(2)(B) of the Rules (‘Indorsement’). In that Indorsement:
(a) the plaintiffs allege that in 1997 Harry Groll leased premises at the ground floor 764-768 North Road, Ormond East to the first defendant, Dannysam Pty Ltd, for a period of 10 years until 10 October 2017. It is alleged that the second, third and fourth defendants (‘the Guarantors’) guaranteed the first defendant’s performance of the lease and any renewal or extension thereof. It is also alleged that in 2007 the first defendant renewed the lease for a further period of 10 years. The first defendant has not paid all rent as required by the terms of the renewed lease and the plaintiffs’ claim from the first defendant and the Guarantors payment of that rent;
(b) it is alternatively alleged that at all times since the end of the lease until 19 May 2015 the first defendant occupied the premises as an overholding tenant under the terms of the lease. Again, it is alleged that the first defendant has not paid all rent as required by the terms of the lease during the period of the overholding. The plaintiffs’ claim from the first defendant and the Guarantors the payment of rent during the period of the overholding. Other claims are made in respect of the first defendant using and occupying the premises and being liable to pay amounts for such use and occupation.
After their appointment as trustees of Mr Groll’s bankrupt estate and subsequent to the filing of the Writ, the Victorian Civil and Administrative Tribunal (‘VCAT’) appointed Samuel Linton Groll as guardian and administrator (‘the Guardian’) of Mr Groll on 18 June 2015.
By letter dated 19 October 2015, the Guardian’s lawyer gave a direction to the plaintiffs not to take any further steps in respect of some matters in the administration of Mr Groll’s bankrupt estate, including any steps in this proceeding. The Guardian reiterated this to the plaintiffs by email dated 31 March 2016. The First Yeo Affidavit states that the plaintiffs accepted these directions as it was anticipated that the bankruptcy would be annulled with all creditors to be paid in full. For the reasons referred to below, that annulment has been delayed and has still not occurred. There is no evidence to say that the Guardian’s direction has been changed.
On 24 December 2015, the Guardian made complaints to the Australian Financial Services Authority (‘AFSA’) about the plaintiffs’ administration of the bankrupt estate (‘Groll Complaint’).
At the time of making the order granting the First Extension, Judicial Registrar Gourlay noted in ‘other matters’ the following:
After reading the affidavit of Andrew Reginald Yeo sworn 26 May 2016, the Court is satisfied that there is good reason in this case to extend the validity of the writ for service, because:
(a)the VCAT appointed guardian and administrator of Groll directed the plaintiffs not to take any further step in respect to the administration of Groll’s bankrupt estate on 19 October 2015.
(b)the administrator has indicated that the bankrupt estate would be annulled by making a distribution of 100 cents in the dollar to creditors, plus interest on interest bearing accounts.
(c)the annulment of the bankrupt estate has been delayed due to issues with the interest calculation by the Australian Taxation Office and a complaint made by the administrator to Australian Financial Services Authority on or about 24 December 2015 against the plaintiffs about the administration of the bankrupt estate.
Subsequently, a dispute arose between the plaintiffs and AFSA as to how to deal with the remuneration incurred by the plaintiffs in relation to the Groll Complaint and how this would impact upon the annulment of the bankrupt estate and any application for a release by the plaintiffs pursuant to s 183 of the Bankruptcy Act 1966 (Cth) (‘Act’).
On 31 March 2017, AFSA informed the plaintiffs that the Inspector General in Bankruptcy (the ‘Inspector General’) had accepted the Groll Complaint for investigation and outlined various observations as a result of inspecting the administration files.
On 1 May 2017, the plaintiffs received a letter from AFSA stating that the Inspector General had made a decision in relation to remuneration claimed by the plaintiffs. The effect of the decision was to disallow the sum of $277,183.70 (inclusive of GST) from the plaintiffs’ claim for reimbursement and required that such sum be refunded to the bankrupt estate. AFSA has not informed the plaintiffs of any decision made regarding the other matters included in the Groll Complaint.
On 16 May 2017, the plaintiffs filed an application in the Federal Court to appeal the decision made by the Inspector General (‘the Appeal’).
I was informed by counsel for the plaintiffs that on 9 June 2017, orders were made in the Federal Court regarding the conduct of the Appeal. It appears that a preliminary question as to the nature of the Appeal by the plaintiffs is listed for hearing on 30 August 2017.
In the Second Yeo Affidavit, Mr Yeo states that the Writ has not yet been served on any of the defendants in the proceeding. This is due to the bankruptcy not yet having been annulled, as a consequence of the dispute between ASFA and the plaintiffs referred to above.
Applicable Law
The principles associated with an application of this type are well established and were summarised by Derham AsJ in Howard v Power.[2] I adopt that summary, which I have set out below, omitting citations:
[2][2013] VSC 198 (23 April 2013) (‘Howard v Power’), [10(a) to (p)].
(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 the 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 context, 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.
Consequently, the task is to consider these matters and then exercise the Court’s discretion in light of all relevant factors.
Consideration
The parties’ submissions focused on three areas: whether there was a good reason to extend the validity of the Writ; prejudice to either party in connection with a limitations defence; and prejudice to the defendants associated with the lapse of time. In this case, as there had not been any attempts to serve the defendants, the plaintiffs must establish that there is ‘some other good reason’ to extend the validity of the Writ.
It is convenient to note here the following. In Dagnell v Freedman & Co,[3] Lord Browne-Wilkinson stated:
It is also established by the Waddon case [1988] 1 All ER 996 at 1001, [1988] 1 WLR 309 at 314 that, although what has to be shown is good reason for granting the extension of the writ, it is normally impossible to show such good reason without first showing good reason for the failure to serve the writ during the period of its validity.[4]
In Ramsay v Madgwicks, after referring to the need to consider prejudice, Young CJ stated that an extension ‘should only be granted where the court is satisfied that good reasons appear to excuse the delay in service …. The best reason, of course, would be that the defendant has been avoiding service, or that his address is unknown, and there may well be others’.[5]
[3][1993] 2 All ER 161 (‘Dagnell’).
[4]Dagnell, 166.
[5][1989] VR 1 (‘Madgwicks’), 5.
I will approach this question as follows: there needs to be a good reason for extending the Writ, which requires, inter alia, there to be a good reason for not having served it within the period of its validity. If a good reason for extending the Writ is established, then that is not the end of it, as the other factors identified above must be considered. Here, the focus is on prejudice to the parties, depending on whether the Writ is extended.
Is there ‘some other good reason’ to extend the validity of the Writ?
The plaintiffs and the Guarantors were in agreement regarding the position of the authorities that awaiting the outcome of other proceedings is ‘generally not a good reason to justify extending the time for service’.[6] I was assisted by the submissions made by counsel regarding the relevant authorities.[7] The parties had different views about whether ‘some other good reason’ was established in this case.
[6]Howard v Power, 10(j). This is often referred to as the ‘Battersby principle’, from Battersby v Anglo-American Oil Co Ltd [1945] KB 23 (‘Battersby’), 32.
[7]Apart from Howard v Power, these were Madgwicks, Dagnell, and Battersby.
Delayed annulment of the bankruptcy and the direction from the Guardian to the plaintiffs
The plaintiffs contend that they are not waiting for the outcome of the Appeal as a justification for extending the Writ. Rather, the plaintiffs submit that they are waiting on the bankruptcy being annulled, which cannot take place until the issue of their fees has been resolved.
The plaintiffs also rely on the direction given to them by the Guardian to not take any further action in the administration of the estate, including any action in respect of this proceeding, as a good reason for extending the validity of the Writ. The primary reason for this direction is the expectation that the bankruptcy will be annulled, with creditors to receive full payment. The plaintiffs contend that it was and would be imprudent in these circumstances for them to incur costs as trustees in bankruptcy in running a case which is capable of being returned to Mr Groll. They do not contend that it is not imprudent because of legal fees, as these would be incurred anyway, but because of the incurring of fees as trustees in bankruptcy.
The plaintiffs submit that at the time of issuing the Writ the annulment was expected in the near future and there was no other work to be done in the administration of the bankrupt estate. At that time, the plaintiffs believed that if the Writ was not issued, parts of the claim would have been statute barred. The plaintiffs acknowledge that at the time of issuing the Writ they were aware that a smaller part of their claim could have been subject to a limitations defence in any event. However, they say that they were fulfilling their duty to preserve the assets of Mr Groll, by issuing the Writ at the time that they did and preserving the chose in action.
The Guarantors submit that there is no good reason here to justify extending the validity of the writ. They say that awaiting the outcome of the Appeal is not a good reason, in conformity with the Battersby principle, as applied in cases such as Dagnell and Madgwicks.
The Guarantors contend that there is a real question here as to whether the proceeding should have been issued at all. The decision of the Inspector General seems to suggest that the bankruptcy should have been annulled earlier and there is no need for this litigation to be pursued for the creditors or for the plaintiffs’ own benefit in terms of a recovery to ensure there are funds to pay their fees. The Guarantors say that there are two possible outcomes of the plaintiffs’ appeal to the Federal Court. First, they may not be entitled to their costs. Second, they may be successful and not have to repay the fees already paid to them to the bankrupt estate. They submit that there is presumably a surplus and to the extent the plaintiffs have incurred further costs they can be reimbursed out of the surplus. For these reasons, the Guarantors submit that the plaintiffs do not need to pursue this proceeding for the benefit of the bankrupt estate or for themselves.
The Guarantors submit that there is no good reason here for the plaintiffs needing to preserve this cause of action for the benefit of Mr Groll. They contend that if the intention is to preserve the assets of the bankrupt estate, then the Writ here alleges ongoing failures to pay rent since 2007. This is seven years prior to the bankruptcy commencing. The Guarantors say that there is no evidence that Mr Groll wanted to prosecute the proceeding or no evidence of the Guardian wanting to bring the action. Rather, he gave the directions referred to above after the proceeding had been commenced.
In response, the plaintiffs submit that it is clear from the correspondence exhibited to the Jowett Affidavit that Mr Groll may well have been unable to pursue the action earlier himself, as the indication is that he may have been unable to administer his own affairs.
Further, the plaintiffs submit that they have acted to preserve the action for Mr Groll, and although they agree with the submission that by now there is no benefit to the creditors (or to the plaintiffs personally, given the sufficiency of funds to meet their fees), they still have a duty to preserve the assets of the bankrupt estate for the benefit of Mr Groll.
Section 153A of the Act provides that if the trustee in bankruptcy is satisfied that all of the bankrupt’s debts have been paid in full, then the bankruptcy is annulled on the date on which the last such payment was made. For the purposes of this section, the ‘bankrupt’s debts’ include the ‘costs, charges and expenses of the administration of the bankruptcy, including the remuneration and expenses of the trustee’.
Section 183 of the Act provides for the release of the trustee by the court.[8] Under that section, the court has to be satisfied of a number of things, including that the trustee has ‘realized all the property of the bankrupt or so much of it as can be realized without unduly protracting the trusteeship or has distributed a final dividend’ or that the trustee has resigned or been removed from office. It further provides that in hearing the application, the court must consider any objections to the orders sought from a range of people, including the Inspector General or ‘any other interested person’.
[8]For matters under the Act, the ‘court’ is the Federal Court or the Federal Circuit Court: see the Act, s27.
It is therefore readily apparent why the plaintiffs say that the bankruptcy cannot be annulled until the dispute over their fees has been resolved. Without a resolution, the annulment cannot occur and the plaintiffs may be in a position where their ability to obtain a release of the trusteeship is impaired or compromised.
It is also clear that absent an annulment or discharge of the bankruptcy (or an assignment of property, as to which, see below), Mr Groll’s property continues to vest in the plaintiffs by operation of s 58(1)(a) of the Act.
In my view, the plaintiffs are not awaiting the outcome of other proceedings, being the Appeal, before deciding whether to serve the Writ. Rather, as a result of the Guardian’s direction to them and the delay in achieving an annulment of the bankruptcy, the plaintiffs are not in a position to progress the conduct of the proceeding, which includes service of the Writ. I do not regard the plaintiffs’ situation as awaiting the outcome of collateral litigation.
Assignment of the chose in action to Mr Groll
The Guarantors then submitted that a more fundamental point is that a trustee in bankruptcy can permit a bankrupt to pursue litigation, by utilising the power of assignment under s 134 of the Act. They submit that arrangements could be made for the Guardian to pursue this on behalf of Mr Groll. It is submitted that because the plaintiffs will be paid out of other assets, there is no reason for the plaintiffs not to allow Mr Groll or his Guardian to take over the proceeding. They argue that this means the plaintiffs do not need to await the annulment of the bankruptcy before steps can be taken in the proceeding. Consequently, they submit that there is no good reason to extend the validity of the Writ.
In reply, the plaintiffs submitted that the chose in action cannot be assigned per se. They say that they can sell one or more of Mr Groll’s assets under s 134, which could be the chose in action, and then assign it.
At the conclusion of the hearing, counsel for the parties asked if I would be assisted if they reviewed further the position in respect of assigning the chose in action to the bankrupt (or his Guardian). I indicated that this would be desirable and asked that counsel confer and, if they wished, send a short submission to my Associate. On 4 July 2017, my Associate received an email from the Guarantors’ counsel, which stated as follows:
At that hearing, I submitted that the trustees in bankruptcy had power to assign the cause of action to the bankrupt. On reflection, and having had time to consider the position more fully, it has come to my attention that there is a line of authority that suggests that a trustee in bankruptcy cannot validly assign a cause of action to an undischarged bankrupt. In this regard, it is submitted that the authorities can be summarised as follows:
1.A trustee in bankruptcy may assign a cause of action to a discharged bankrupt: Re Cirillo (1996) 65 FCR 576, 583, upheld on appeal: Citicorp Australia v Official Trustee in Bankruptcy (1996) 71 FCR 550, 558.
2.In various cases, it has been held, or assumed, that a trustee in bankruptcy may assign a cause of action to an undischarged bankrupt: eg Gargan v Official Trustee in Bankruptcy (unreported, Federal Court, 18 August 1995) BC9506524 at p 20, upheld on appeal: Gargan v Official Trustee in Bankruptcy (unreported, Full Federal Court, 4 November 1995); Re Capel (1994) 120 ALR 480, 483-4; Re Turner; Ex parte Mulley (unreported, Federal Court, 22 June 1995), BC9507910 at p 7; Willoughby v Official Trustee in Bankruptcy [2001] FCA 753, BC200103174 at p 3; Freeman v Joiner [2005] FCAFC 149, [17]-[19]; Stein v Blake [1996] 1 AC 243, 258, 260; Ramsey v Hartley [1977] 2 All ER 673, 680.
3.However, there is a line of authority which has held that a trustee in bankruptcy cannot assign a cause of action to an undischarged bankrupt: eg Temsign v Biscen (1998) 157 ALR 83, 93; Willoughby v Clayton Utz [2005] WASC 47, [31]; Meriton Apartments Pty Ltd v Industrial Court of New South Wales (2008) 171 FCR 380, [146], [245], cf [14]-[17]; see also Jambrecina v Official Trustee in Bankruptcy [2003] FCA 1352, [30]-[31] and Fletcher v Westpac [2012] WASCA 154, [27]. As discussed in Temsign (at ALR 88ff), there are fundamentally two grounds for this view. First, that the cause of action assigned might be caught as ‘after-acquired property’ of the bankrupt, and re-vest in the trustee in bankruptcy, rendering the assignment ineffective. Second, that s 60 of the Bankruptcy Act evinces a statutory intention that the general power of sale under s 134 of the Bankruptcy Act should be read down, so as to avoid an assignment of a cause of action otherwise subject to the regime under s 60 regulating proceedings issued prior to bankruptcy.
In light of the above, I accept that it is debatable, and not clear, that the trustees in bankruptcy in the present case have power to assign the cause of action prior to the discharge of the bankruptcy.
Save that it is accepted that the existence of the above power is debatable, [the Guarantors] otherwise maintain that, for the reasons submitted at the hearing on 30 June 2017, the proposed extension for serving the writ ought not be granted.
Section 134 of the Act sets out the powers of a bankruptcy trustee. These powers include being able to ‘sell all or any part of the property of the bankrupt’.[9] There is no specific mention of the ‘assignment’ of the bankrupt’s property. However, exercising the power of sale may involve an assignment of rights in respect of the property, for example, as this may be required in order to give effect to a sale. This provision does not, however, deal with the question of whether a chose in action can be assigned to an undischarged bankrupt.
[9]The Act, s 134(a).
Under s 58(1)(a) of the Act, property owned by the bankrupt at the commencement of the bankruptcy vests in the trustee. Therefore, this chose in action, being Mr Groll’s claims against the defendants, vested in the plaintiffs at the time of their appointment. Under s 58(1)(b) of the Act, property acquired by the bankrupt after the commencement of the bankruptcy and prior to its annulment/discharge vests in the trustee at the time of its acquisition or when it is devolved on the bankrupt. A cause of action which is assigned to the bankrupt may be considered to be ‘after-acquired property’, which then vests in the trustee. As noted by Mr Snyder, this would render any assignment of the chose in action to Mr Groll ineffective.
I have reviewed the cases referred to by Mr Snyder and considered the submission.
I note that s 60 of the Act concerns the effect of bankruptcy on legal proceedings involving the bankrupt and provides, in certain circumstances for a stay of proceedings to occur automatically upon the bankruptcy commencing or by order of the court. This section does not deal with proceedings commenced after the commencement of the bankruptcy, which is the case here. Therefore, the rationale for the proposition that the trustee cannot assign a chose in action to the undischarged bankrupt due to the regime established by s 60 of the Act requiring a reading down of the general power of sale under s 134 is not apposite in the circumstances of this case.
Nonetheless, in my view, there is some uncertainty as to whether the chose in action can be assigned by the trustee to the undischarged bankrupt. I see no reason under the Act why the assigned action would not be ‘after-acquired property’ that would vest in the trustee. While s 60 of the Act may not specifically apply here, since the proceeding was initiated after the commencement of the bankruptcy, that may be due to the operation of s 58: if the bankrupt’s property has vested in the trustee, then absent a specific provision in s 60 allowing the bankrupt to continue the action,[10] the action or its commencement is not within the bankrupt’s control.
[10]Noting that s 60 of the Act permits the bankrupt to continue certain types of actions that were initiated prior to the commencement of the bankruptcy.
I do not consider this application to be an appropriate forum for the issue of whether the trustee can assign a chose in action to the undischarged bankrupt to be decided. While I was assisted by counsel’s submissions, it seems to me that this issue should not be determined in an application to extend the validity of the Writ.
Consequently, I do not think it is appropriate to refuse the extension of the Writ on the grounds contended for by the Guarantors at the hearing in this respect, namely the submission described in paragraph 36 above.
I accept the plaintiffs’ submission that the Guardian’s direction and the delayed annulment of the bankruptcy constitutes ‘some other good reason’ for not having served the Writ within time and weighs in favour of extending the validity of the Writ. However, as noted above, that is not the end of it, as other factors such as prejudice need to be considered in the exercise of the discretion.
Prejudice – limitations defence
The plaintiffs submit that consistent with the authorities, there is no increase in the burden of proof for them regarding the extension of the validity of the Writ due to the operation of the statute of limitations. They acknowledge, however, that unfair prejudice to the defendants is relevant and that the operation of the statute of limitations is one factor in that regard.
The plaintiffs submit that any prejudice to the defendants needs to be balanced against the prejudice that they will suffer in terms of being shut out from their claims, which courts are reluctant to do.
The Guarantors submit that they would be deprived of a limitations defence in respect of some of the claims made by the plaintiffs if the Writ was extended, and that although this is not a determinative factor, it is a relevant factor. [11]
[11]See Howard v Power at [10(k)].
The Guarantors submit that if the Writ is not renewed, the whole of the plaintiffs’ claim will not be shut out, noting that there were some aspects of the claim that were subject to the limitations point even at the time the Writ was issued.
I do not regard the defendants being deprived of a partial limitations defence as a sufficient basis to refuse to extend the validity of the Writ. Not extending the Writ would merely reduce the quantum of the claim available in a future proceeding. It would not mean that the plaintiffs (or Mr Groll) would not be able to pursue a similar cause of action, albeit for a reduced monetary claim. Not extending the Writ may result in the defendants never having to face a future claim (if Mr Groll or the Guardian choose not to initiate proceedings after the annulment of the bankruptcy, for example), which may be regarded as a form of prejudice. However, I do not think that this justifies a refusal of the extension. Rather, I think this can be at least partially addressed by the conclusion I have reached, as set out below.
Prejudice – lapse of time
The plaintiffs submit that this is not a case where memories as to the discussions between the parties are relevant. They say that the claim against the Guarantors is in relation to a guarantee, which has to be in writing, and the claim is for rent for use of premises. The plaintiffs accept that there is a degree of lapse of time prejudice, but contend that it is not significant prejudice.
The plaintiffs submit that prior notice of intention to litigate mitigates that prejudice. The plaintiffs refer to paragraph 5.12.35 of Williams on Civil Procedure:
Prejudice to the defendant by reason of delay in the service of the writ is a factor relevant to the exercise of the discretion of the court to extend the period of validity of a writ for service. Prior notice of the plaintiff’s intention to litigate may operate to diminish the impact of prejudice as a ground for refusing to make an order.[12]
[12]Lexis Nexis, Civil Procedure Victoria, [I 5.12.35] Expiry of limitation period, citing Van Leer Australia Pty Ltd v Palace Shipping KK (1981) 180 CLR 337, 350; Savcor Pty Ltd v Cathodic Protection Int [2002] VSC 201 (14 June 2002) [25]; Slaveski v Victoria [2011] VSC 201 (19 May 2011).
The plaintiffs rely on notice having been given to the defendants, including the Guarantors, of an intention to litigate. In this regard, the plaintiffs rely on the Jowett Affidavit. Ms Jowett is a solicitor employed by the plaintiffs’ solicitors. At paragraph 5 of her affidavit, Ms Jowett deposes to having searched the solicitors’ file in respect of this proceeding and exhibits correspondence between the plaintiffs’ solicitors and the former lawyers for the first defendant as well as with the first defendant and the Guarantors between 12 September 2014 and 21 May 2015. A perusal of this correspondence reveals that the defendants were on notice that if the plaintiffs’ demands for payment were not met, proceedings would be issued. The correspondence includes a letter dated 21 May 2015 sent by solicitors acting on behalf of the Guarantors, refuting the plaintiffs’ claim. The plaintiffs submit that the Guarantors must have sought legal advice in order for that response to have been given by their solicitors, which would mean that they had refreshed and crystallised their memories when giving instructions to their solicitors.
The Guarantors submit that the lapse of time generally is to be regarded as prejudicial to the defendant and that this is to be measured from the time when the cause of action arose.[13] The Guarantors argue that even though putting them on notice that litigation may ensue can mitigate that prejudice to some extent, there is still significant prejudice facing the Guarantors here. They submit that the claims relate from as early as 2007 but the factual material dates back to 1997 when the lease was first entered into. The Guarantors argue that important factual issues as to the arrangements between the parties will be raised which may require evidence from the defendants, such as whether there was a renewal of the lease in 2007 or an overholding. Two of the Guarantors are aged in their late sixties. The Guarantors submitted that if further time is extended here the more difficult it will be for them to give evidence. This is submitted to be a significant form of prejudice.
[13]See Howard v Power, [10(m)].
In reply, the plaintiffs submit that if the Writ is not extended and a new proceeding has to be commenced, the arrangements between the parties would still have to be part of the factual matrix in respect of that new claim. They say that the prejudice to the Guarantors arising from an extension is only whether the claim they must face is for a larger monetary amount, or a smaller amount for the defaults arising within the new limitations period.
I accept this submission. In my view, while there is some prejudice to the Guarantors arising from the extension of the Writ in terms of the passage of time, most of the factual matters which are the subject of this proceeding would have to be confronted in any new proceeding. Further, the Guarantors were on notice that the plaintiffs may initiate proceedings once they had not met the demand for payment, so that by 2015 they knew that they were at risk of that occurring. While they have now had a period of almost two years without knowing of the commencement of the litigation, apart from the matters I have raised above, I was not taken to any evidence or submissions as to the prejudice which that may have caused.
Conclusion
I am therefore satisfied that it is appropriate to extend the validity of the Writ. The reasons that the Writ has not been served, namely the directions of the Guardian and delayed annulment, in addition to uncertainty surrounding the capacity of the plaintiffs to assign the claim, constitute ‘some other good reasons’ to extend the validity of the Writ. The prejudice relied upon by the Guarantors does not, for the reasons identified above, warrant a refusal of the application.
However, I will not extend the Writ for the 12 months sought by the plaintiffs. In my view, given the lapse of time thus far, it is preferable that the defendants know, within a shorter space of time than that period, whether they will have to defend this proceeding. The Writ should be extended for a period long enough to enable either the annulment to occur (recognising that there is no absolute certainty as to when that will happen, given the Appeal) or the plaintiffs to have reached a decision as to the future of this proceeding and to have taken any steps necessary to give effect to that, which may include a change in the directions about this proceeding made by the Guardian, or coming to some arrangement with the Guardian, or assigning the chose in action.
For these reasons, I will extend the validity of the Writ to 11 February 2018. This is a period of 6 months from today (i.e. just over 8 months from the date the Writ would have expired). In my view, this is a sufficient period to enable the matters referred to above to have occurred. There will be liberty to apply, in the event that circumstances change so as to warrant a further application being made.
I will hear the parties as to the appropriate form of orders and as to costs.
SCHEDULE OF PARTIES
| S CI 2015 2907 | |
| BETWEEN: | |
| ANDREW REGINALD YEO (IN HIS CAPACITY AS TRUSTEE OF THE BANKRUPT ESTATE OF HARRY SAMUEL GROLL) | First Plaintiff |
| GESS MICHAEL RAMBALDI (IN HIS CAPACITY AS TRUSTEE OF THE BANKRUPT ESTATE OF HARRY SAMUEL GROLL) | Second Plaintiff |
| - v - | |
| DANNYSAM PTY LTD | First Defendant |
| DANIEL MARCUS ADES | Second Defendant |
| SAMUEL NASH | Third Defendant |
| MARGOT FRANCES NASH | Fourth Defendant |
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