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[2014] WASC 481
General information, not legal advice.
Supreme Court of WA
2015-02-24
Allanson J
Original judgment source is linked above.
Practice and procedure - Extension of validity of writs - Whether order extending validity should be set aside - Order made ex parte - Whether material non-disclosure - Extension of time not granted
Civil Procedure Act 2005 (NSW), s 56, s 57, s 58, s 59
Rules of the Supreme Court 1971 (WA), O 1 r 4B(1), O 7, O 7 r 1, O 7 r 1(3), O 9 r 1(3), O 60A r 2, O 60A r 2(1)
Trade Practices Act 1974 (Cth)
Order extending the validity of the writ be set aside
Application by first defendant in CIV 2635 of 2012 dismissed
First Plaintiff : Mr M C J Hoffmann QC, Mr R W Douglas & Mr B Doyle
Second Plaintiffs : Mr M C J Hoffmann QC, Mr R W Douglas & Mr B Doyle
1 ALLANSON J: In September 2012, the liquidators of Great Southern Limited caused writs to be issued against seven of its former directors. In September 2013, the writs had not been served, and would soon no longer be valid for service without an order of the court. The liquidators obtained orders, ex parte, extending the validity of the writs until March 2014, and served the writs on three of the directors within that time.
2 Two of the named defendants filed conditional appearances; one filed an unconditional appearance. The plaintiffs and the defendants have brought competing applications in which the following issues arise:
3 These questions are in the context that, should the extension of the writs be set aside, the underlying causes of action are likely to have now expired.
4 Until 2009, the first plaintiff, Great Southern Limited (GSL), and its subsidiaries engaged in the promotion and conduct of agricultural managed investment schemes. The second plaintiffs are the liquidators of GSL and other entities in the Great Southern Group (the Group), including Great Southern Finance Pty Ltd (GSF) and Great Southern Managers Australia Limited (GSMAL).
5 Mr Young, Mr Rhodes and Mr Butlin were directors of GSL. PricewaterhouseCoopers (PwC) was the auditor of the Group until September 2006.
6 On 24 September 2012, the plaintiffs issued a writ in action CIV 2611 of 2012, claiming damages and other relief against PwC for conduct between July 2004 and September 2006. On 26 September 2012, the plaintiffs issued the writ in these proceedings against former directors of GSL. The plaintiffs commenced other proceedings at about the same time (CIV 2034 of 2012, and CIV 2036 of 2012). In each of these actions they have been represented by the firm of Lipman Karas.
7 The plaintiffs issued the writs to ensure that proceedings were commenced before the expiry of limitation periods. They made no attempt to serve the writ in this action, or that against PwC, within the first 12 months, but treated each writ as a holding mechanism to preserve the causes of action. The expression 'protective writ' was used in the affidavits filed on behalf of the plaintiffs.
8 For the purpose of service, a writ is valid in the first instance for 12 months. The court has power to extend the period within which the writ may be served: Rules of the Supreme Court 1971 (WA) O 7 r 1. A writ that has been extended must be marked with an official stamp showing the period for which the validity of the writ has been extended: O 7 r 1(3).
9 By chamber summons filed 19 September 2013, the plaintiffs applied for an order extending the validity of the writ in CIV 2611 of 2012 until 31 March 2014, on grounds that:
10 The court's jurisdiction under O 7 may be exercised by a case management registrar: O 60A r 2. On 23 September 2013, a registrar extended the validity of the writ for service until 31 March 2014. The registrar made the order ex parte on the papers, and gave no reasons for decision.
11 The liquidators filed two affidavits, sworn by Andrew John Saker, in the applications to the registrar. Mr Saker is one of four joint and several liquidators of GSL. The first affidavit, dated 18 September 2013, was relied on for both applications, and the second, dated 23 September 2013, in the claim against the directors only. The liquidators filed written submissions.
12 In this application, the plaintiffs relied upon affidavits of Fiona Steffensen, solicitor, sworn 2 May 2014 and 27 May 2014, the material before the registrar, and a third affidavit of Mr Saker sworn 27 May 2014. The defendants relied upon affidavits of John Trevor Mitchell, affirmed 16 May 2014 and 29 May 2014.
13 In CIV 2611 of 2012, the plaintiffs filed a further affidavit of Ms Steffensen, sworn 17 April 2014. PwC relied upon affidavits of Callum Strike, sworn 23 April 2014, 22 May 2014, and 27 May 2014.
14 I will refer to the affidavits by reference to the deponent, the date, and the relevant paragraph, or attachment, or page number.
15 On 4 September 2013, the plaintiffs had provided, for information only and not by way of service, copies of the writ in CIV 2634 and 2635 to the solicitors for Mr Rhodes and Mr Butlin (Arnold Bloch Leibler). The plaintiffs advised of their intention to apply for an extension of time for service of the writ 'through to 24 September 2014' to provide the liquidators with additional time in which to complete their investigations. They invited the solicitors for the defendants to notify them of any prejudice, other than the usual deterioration of recollections of relevant events, so that those matters may be brought to the attention of the court. This correspondence was included in the application to the registrar.
16 On 14 March 2014, the plaintiffs requested the solicitors for Mr Rhodes and Mr Butlin to confirm that they had instructions to accept service of the writ. On 19 March 2014, Arnold Bloch Leibler replied, 'We confirm we have instructions to accept service on behalf of Mr Rhodes and Mr Butlin'.
17 On 20 March 2014, the plaintiffs again wrote to Arnold Bloch Leibler, proposing an extension of the timetable for the service of proceedings in CIV 2635 to 30 September 2014 to enable 'some certainty as to the approach taken by PwC with respect to pleading its proportionate liability and any crossclaims that might be made' (Mitchell 16 May 2014, JTM27, 365). On 31 March 2014, the plaintiffs wrote again, enclosing the writ by way of service on Mr Rhodes and Mr Butlin. The copies of the writ provided were not stamped as required by O 7 r 1(3) of the Rules of the Supreme Court. Prescribed notices, as required by the Service and Execution of Process Act 1992 (Cth) s 16, were not attached.
18 On 24 April 2014, Arnold Bloch Leibler wrote regarding the service, referring to the irregularity in failure to comply with O 7 r 1(3). Further correspondence followed between the solicitors. On 30 April 2014, Arnold Bloch Leibler gave notice that Mr Rhodes and Mr Butlin would apply to set aside the order extending the validity of the writ.
19 On 1 May 2014, the plaintiffs brought an application to cure the irregularity or grant an extension of time for valid service to be effected.
20 On 2 May 2014, Mr Rhodes and Mr Butlin entered a conditional appearance.
21 Mr Young entered an unconditional appearance on 14 April 2014.
22 The plaintiffs have not served the writ on the four other directors named in it, and do not propose to.
23 In these reasons, I will refer to Mr Rhodes and Mr Butlin as the directors. The issues regarding Mr Young are different, and will be dealt with separately at the end of these reasons.
24 The directors now apply to set aside the ex parte orders extending the validity of the writ. They also challenge whether they have been properly served. A similar application was made by PwC in CIV 2611 of 2012.
25 There are common legal questions in the applications by the directors and PwC, and a substantial overlap in factual matters. All parties agreed that it was convenient for the applications to be managed and heard together. The applications were heard on 3 and 4 June 2014, with further written submissions received following the hearing.
27 There was also an application by PwC to strike out the indorsement of claim in whole or in part, and for the writ to be set aside for failure to comply with the rules.
28 Before considering the principles applicable to setting aside the decision of the registrar, and the decision to extend a writ, it is necessary to set out the factual background to what is a very complicated matter.
29 Because there was an overlap of factual matters, the evidence in each matter was read in the other to the extent that it was relevant. Ultimately, the volume of documents relied on in the applications was extraordinary. It included the whole of the transcript (820 pages) of the examinations carried out under the Corporations Act and (among the hundreds of pages of exhibits attached to various affidavits) various source documents from the audits. The court was also taken to the pleadings, extracts from transcript, and large extracts from the submissions in the proceedings against GSMAL and others in the Supreme Court of Victoria.
30 Separate reasons will be published in the application in relation to PwC (CIV 2611 of 2012), although I will set out general principles and common background and findings in these reasons only.
31 The second plaintiffs were appointed as administrators to GSL, GSMAL and GSF, on 16 May 2009, and then as liquidators to GSL, GSMAL, GSF and other Group entities on 19 November 2009. On 18 May 2009, receivers were also appointed to Group entities, including GSL, GSMAL and GSF.
32 The winding up of the Group has been difficult and protracted. Many factors have contributed to this.
33 The Group was large and complex, with 34 subsidiaries. It controlled assets in all states and territories, primarily agricultural land which it either owned or leased. Some assets were held by Group entities in their own right, and others were held on behalf of scheme investors or other Group entities.
34 GSL has approximately 2,353 unsecured creditors with debts totalling approximately $617 million; GSF and GSMAL have fewer unsecured creditors, and combined debts over $200 million (Steffensen 17 April 2014 [29]). At the date of appointment of the administrators, the Group's consolidated liabilities, excluding potential claims from investor actions, were slightly more than $1 billion.
35 In the years the Group operated, it had raised over $2.2 billion in managed investment scheme sales, $260 million in equity from shareholders, $200 million in unsecured convertible notes, and $600 million in secured funding. GSMAL was the responsible entity for 30 managed investment schemes. There were more than 52,000 investors in the schemes.
36 The books and records of the company include more than 15 million electronic documents and 4,000 archive boxes of hard copy documents.
37 Claims for losses resulting from the managed investment schemes have resulted in litigation against Group entities and their officers in several States:
38 A liquidator is not liable to incur any expense in relation to the winding up of a company unless there is sufficient available property: Corporations Act s 545(1). The liquidators have been constrained by available funding.
39 On 24 May 2010, Colin Biggers & Paisley (CBP), the lawyers for the insurers of Great Southern, advised the liquidators that it would provide limited funding for defence costs in the class actions in Western Australia (Saker 27 May 2014, exhibit I, tab 6).
40 In December 2010, the liquidators entered into funding arrangements with Hillcrest Litigation Funders, but confined to the investigation of claims arising out of specific transactions (not the subject of the present writs) (Saker 27 May 2014 [11] [12]; Saker 18 September 2013 [45]). On 12 April 2012, Hillcrest declined to provide further funding and in July 2012 the funding arrangement with Hillcrest was terminated by mutual agreement (Saker 18 September 2013 [45] [46]).
41 The liquidators sought alternative funding with RiverRock Capital Ltd. On 27 July 2012, the Federal Court refused the liquidators' first application for approval of the funding arrangement with RiverRock (Saker 18 September 2013 [51]). On 17 September 2012, on a second application for approval, the Federal Court approved the liquidators entering into an agreement with RiverRock (Saker 18 September 2013 [55]).
42 On 19 September 2012, RiverRock and the liquidators entered into a funding agreement. The liquidators retained the firm Lipman Karas to conduct further investigations into potential claims, and Lipman Karas retained forensic accountants to investigate claims (Saker 18 September 2013 [55], [57], [64]).
43 On 6 May 2011, the liquidators examined Mr Rhodes and Mr Butlin under s 596A of the Corporations Act in relation to those transactions for which funding had been provided by Hillcrest (Saker 27 May 2014 [12] - [14]). On 7 July 2011, the liquidators interviewed Mr Rhodes and Mr Butlin under s 530A(2) of the Corporations Act in relation to the transactions which were the subject of the Project Transform actions in Western Australia (Saker 27 May 2014 [10]).
44 In 2012, the liquidators obtained orders for the issue of examination summonses under s 596A and s 596B of the Corporations Act, and a direction to PwC to produce certain documents (Saker 18 September 2013 [106] [107]).
45 On 30 June to 1 July 2012, the liquidators examined Mr Smith and Mr Dreyer of PwC under s 596B of the Corporations Act with respect to the audit of the Group for the year ended 30 June 2005. On 23 and 24 October 2012, Mr Rhodes and Mr Young were examined. Three other PwC employees were examined: Mr Williams and Mr Carroll on 3 and 4 April 2013, and Mr Seth on 5, 6, and 7 August 2013 (Saker 18 September 2013 [53], [67], [70] [71]).
46 PwC delivered documents in tranches in 2012 and up to September 2013. More than 15,000 documents were produced. There remain unresolved issues between the liquidators and PwC about whether all documents have been delivered.
47 The writ in CIV 2635 of 2012 was filed on 26 September 2012. The claims in the indorsement of claim are to the effect that:
(a) GSL and/or the Group had subsidised the returns paid to investors in managed investment schemes and planned to do so in the future;
(b) the recoverability of loans made by GSF to investors in managed investment schemes [8];
48 The writ claims damages or statutory compensation pursuant to s 1317H and s 1317HA of the Corporations Act, declarations of breach of statutory duty, damages pursuant to s 1041I of the Corporations Act and s 12GF of the ASIC Act, and declarations and orders pursuant to s 598(2) of the Corporations Act.
49 The writ in CIV 2611 of 2012 was filed on 24 September 2012. It is indorsed with a claim based on breaches of duty by PwC. Relevantly to the claim against the directors, it alleges:
50 The writ claims damages and equitable compensation for breach of contract, breach of duties of care owed in tort and contract, and breach of statutory duties, including:
(a) under s 1041I of the Corporations Act for contravention of s 1041E and s 1041H by false and misleading statements, or misleading or deceptive conduct in relation to a financial product or financial service;
(b) breach of statutory duties under 'Part 2M, division 3' of the Corporations Act (presumably, pt 2M.3, div 3);
(c) misleading or deceptive conduct contrary to the Trade Practices Act 1974 (Cth) (now the Australian Consumer Law), alternatively the Fair Trading Act 1987 (WA)).
51 The power under O 7 r 1 of the Rules of the Supreme Court to extend the validity of a writ for service is discretionary. The rule prescribes no criteria for the exercise of the discretion. The discretion is a broad one to be exercised by reference to the general justice of the case, and taking into account all the relevant circumstances: Brealey v Board of Management Royal Perth Hospital [1999] WASCA 158; (1999) 21 WAR 79.
These would include not only the provisions of any limitation statute applicable but also the relative hardships which a grant or refusal of renewal would impose upon the parties. Relevant factors include the length of the delay, whether the delay was caused by mistake and whether such mistake is excusable, the nature of attempts made at service, and the hardship or prejudice caused to the plaintiff by refusing the renewal or to the defendant by granting it [52]. (Ipp J)
See also Popovic v Panagoulias [2014] WASCA 86 [41]; Van Leer Australia Pty Ltd v Palace Shipping KK [1981] HCA 11; (1981) 180 CLR 337. In Van Leer, Stephen J identified a two part inquiry: whether reasonable efforts have been made to serve the defendant; if not, whether other good reasons exist for the renewal.
52 The liquidators had made no attempt to serve the writ before applying for an extension. There was no question of difficulty in effecting service. The sole question in this matter was, and is, whether other good reasons exist for the renewal.
53 More specific principles guiding the exercise of the discretion have been expressed in various cases: see, for example, Re APCH Ltd (in liquidation) [2014] VSC 190 [100]. The matters found relevant or determinative in other cases are useful in assisting the court to exercise discretions consistently, but do not detract from the broad discretion and the need to exercise it according to the justice of the case.
54 In applying O 7, the court must also act so as best to ensure the attainment of the objects referred to in O 1 r 4B(1).
55 In considering authorities from other jurisdictions, it is necessary to allow for the differences in procedure (for example, where the statement of claim is, or is part of, the originating process) and in the legislation or rules of court under which particular decisions are made. The defendants relied, in particular, on authorities from New South Wales, where a judge exercising the equivalent discretion must have regard to the matters set out in s 56 to s 59 of the Civil Procedure Act 2005 (NSW). Those provisions go some way further than local case management rules.
56 I am not aware of any case under comparable rules where the merits of the claim are regarded as relevant, so that the moving party must put forward evidence going to whether its claims have sufficient likelihood of success to justify the extension of the writ. The balance of hardship or prejudice that would flow from extending or refusing to extend the writ, does not, in my opinion, call for an exploration of the likelihood of ultimate success. Further, this is not an occasion on which the court can make a reliable assessment of the strength or weakness of the claim, and thus decide whether a serious injustice would result if the claim were, or were not, allowed to proceed. The claims have not yet been pleaded. In proceedings in the Federal Court of Australia, Gilmour J approved the liquidators entering into a litigation funding agreement: see Jones, Saker, Weaver and Stewart (Liquidators), in the matter of Great Southern Limited (in liq) (Receivers and Managers Appointed) [2012] FCA 1072. Necessarily, his Honour was satisfied that there were causes of action available to the liquidators that appeared to have sufficient prospects of success for the court to be satisfied that the liquidators were acting in good faith and for proper purposes in entering into the funding agreement. I accept that the causes of action against the directors are potentially valuable assets available to GSL and thereby to its creditors. The position cannot, in my opinion, be put higher than that.
57 Because the application for an extension of the validity of the writ was determined ex parte, the order is provisional in the sense that it may be set aside other than on appeal: WEA Records Ltd v Visions Channel 4 Ltd [1983] 1 WLR 721, 727. There is currently some divergence in the authorities regarding when an ex parte order may be set aside: see the discussion in Popovic v Panagoulias [54] - [55]. While I believe that I am bound by the decision in Bell Group NV (In Liq) v Aspinall (1998) 19 WAR 561, I must also have regard to the comments of the Court of Appeal in Popovic v Panagoulias. As a result, I should consider three matters:
58 The plaintiffs were under a duty to make full disclosure of all relevant information in their possession, whether or not it assisted the application: see, for example, Savcor Pty Ltd v Cathodic Protection International APS [2005] VSCA 213; (2005) 12 VR 639 [24] [36]. Failure to meet that duty must result in the order of the registrar being set aside, although the court would still have power, in its discretion, to extend the time for filing the writs.
59 Whether information is relevant must be considered having regard to the nature of the application and the factors relevant to the exercise of the discretion. A fact is material where it is a 'matter of substance in the decision making process': Savcor [35] [36].
60 Counsel for the directors and for PwC submitted that, in the application for ex parte orders, the plaintiffs had not disclosed to the court that:
61 The plaintiffs do not dispute that they did not disclose those matters to the registrar. Whether those matters were material on an application to extend the writ for service is to be answered objectively.
62 The plaintiffs put forward as their primary reason for renewing the writ that more time was required to complete their investigations before they could decide whether to proceed with the action. The directors (and PwC) applied to crossexamine Mr Saker on whether the reason proffered was a sufficient and, perhaps more importantly, the only reason why the application was made. In effect, the directors' case was that the liquidators chose to proceed in the way they did in order to maintain for as long as possible the position they had taken in the proceedings in Victoria. This was said to confer, or to be intended to confer, some forensic advantage in the Victorian proceedings.
63 Accordingly, it is necessary to also consider whether any non-disclosure was deliberate, or was intended to mislead the court, or was for the purpose of obtaining a forensic advantage in other proceedings. The findings on this issue are relevant when deciding whether to extend the validity of the writ on a fresh exercise of the discretion: Savcor [31], [33].
64 The submissions made on behalf of the directors and PwC cannot be minimised. Indeed, counsel for PwC argued that there was a pattern of manipulating the service of process so as to obtain strategic advantage rather than to investigate claims service was delayed to maintain the position that had been adopted in Victoria. Counsel accepted that the allegation was of quite discreditable conduct on the part of the liquidator.
65 I permitted crossexamination by counsel for the directors and PwC. That evidence, subject to relevance, was evidence in each matter. The surfeit of documents made the cross examination a confusing exercise, particularly when the parties had all agreed to a tight schedule for bringing both matters on and for completing the hearing in two days. In an interlocutory hearing of this kind, the court is not in a good position to make findings that depend upon the credibility of witnesses. The crossexamination of Mr Saker demonstrated, as much as anything else, that material of that volume and complexity could not fairly be dealt with in the limited time available for this application.
66 The directors also submit that the failure of the registrar to give reasons for the decision to extend the writ is a sufficient reason to set aside the registrar's decision and exercise the discretion afresh. The power to extend a writ in O 7 is a power of the court, exercisable by a case management registrar: O 60A r 2(1). Normally, the reasons of a registrar will be brief and given orally after hearing an application or argument. These matters were decided on the papers, the affidavits of Mr Saker and written submissions in each case. Because of the nature of the power being exercised, and the fact that the application was determined ex parte, I believe that reasons should have been given for the decision. In my opinion, this is a sufficient reason for the court to consider the exercise of the discretion afresh.
67 Because of the importance of the allegations of deliberate nondisclosure, I will deal with them separately before turning to the other factors relevant to the court's discretion.
68 The directors submitted that claims raised in the writ against them were directly inconsistent with the position adopted in the Victorian proceedings in relation to three issues:
(b) the failure to disclose to investors that GSMAL and GSL had a business model that relied upon subsidising the returns to investors from the proceeds of investments in future schemes (the 'business model omission'); and
69 More generally, the directors submitted that, in the Victorian proceedings, GSMAL relied upon submissions that the Group was financially strong until 2008. It had, jointly with other defendants, adduced expert evidence and made submissions to that effect. In circumstances where the liquidators relied upon their diligent investigation of the claims in the writ in support of the application to extend it, it was relevant that they had been litigating the issue of financial strength and asserting a particular position in other proceedings.
70 The directors argue that the court should infer that the failure to disclose these matters to the registrar was not an oversight, but a deliberate strategy to enable GSMAL to maintain the inconsistent position it was forwarding in the Victorian proceedings until it could no longer do so.
71 Mr Saker denied the allegation of deliberate nondisclosure. Whether it may be inferred from the circumstances depends upon a more detailed examination of the Victorian proceedings.
72 The Victorian action was brought on behalf of persons (the Victorian plaintiffs) who invested in, or held an interest as a member in, two managed investment schemes (the 2005 and 2006 Plantation Schemes). GSMAL was the responsible entity for the schemes. GSF provided finance. Both were named as defendants.
73 On 2 September 2011, the Supreme Court of Victoria gave the Victorian plaintiffs leave pursuant to s 500(2) of the Corporations Act to proceed against GSF and GSMAL in liquidation. The insurers of GSF and GSMAL provided funding for the defence of the claims, with DLA Phillips Fox instructed to act for them in the action (Saker 27 May 2014 [31], [34] [36]). Neither GSL nor the liquidators were parties to the action, although Mr Saker certified the defence filed by GSMAL.
74 In their statement of claim, the Victorian plaintiffs pleaded that a product disclosure statement issued in 2005 contained representations that were untrue and misleading and deceptive ([35] [38]). Relevantly, they pleaded representations regarding forecast yields; that the schemes had the potential to provide sound returns and a high level of security to investors; and that the financial strength of GSMAL would ensure the successful completion of the schemes. The statement of claim pleaded those representations were false or misleading, that aspects of the business plan were unsustainable, and, as a fact to be inferred from the flaws in the business plan, that GSMAL's financial strength was not sufficient to ensure the successful completion of the schemes ([36] [37]) (see Mitchell 16 May 2014, JTM45, 429 519).
75 On 5 September 2012, GSMAL filed its defence (Mitchell 16 May 2014, JTM46, 520 561). GSMAL pleaded no positive case regarding its financial strength or the financial position of GSMAL, GSL or the Group. It also pleaded, as an alternative, that certain parts of the claims against it, including the claims for misleading conduct under the Corporations Act, were apportionable, and GSF and the directors were concurrent wrongdoers (defence [113]; Mitchell 16 May 2014, JTM46, 556).
76 Potential inconsistency between the defence in Victoria and proceedings commenced in Western Australia, in particular CIV 2636 of 2012, was raised almost immediately. The writs were filed in this court in September 2012. In October 2012, the solicitors for the Victorian plaintiffs asked the defendants to explain the inconsistency between the liquidators' defence in the Victorian proceedings, and claims in the writ in CIV 2636 of 2012 that product disclosure statements for the schemes were defective and did not comply with pt 7.9 of the Corporations Act (Mitchell 16 May 2014, JTM46).
77 At a hearing on 19 October 2012, counsel for the Victorian plaintiffs referred to the expert evidence that had been exchanged in the action, and the fact that the defendants' expert had been instructed to assume the audited books and records could be relied upon. Counsel submitted: 'This revelation may well cause the foundation for that assumption to be cast in doubt' (Mitchell 16 May 2014, JTM50, 589).
78 In response, GSMAL advised the court that the proceedings in CIV 2636 of 2012 were to be discontinued that day. Counsel for GSMAL further argued that issues relating to GSMAL's financial reports, and whether or not they complied with accounting standards, were distinct from the issues relating to the product disclosure statements (Mitchell 16 May 2014, JTM50).
79 GSMAL maintained its position that any attack on the consolidated financial statements of the Group was 'outside the four corners of the plaintiffs' pleaded case', which centred on the meaning of the words 'financially strong' in the product disclosure statements, and did not allege that the consolidated financial statements themselves were misleading because they were inaccurate or understated liabilities (see submissions in response to the plaintiffs' opening, 29 October 2012; Mitchell 16 May 2014, JTM51). The Victorian plaintiffs contended that their case was that GSMAL misrepresented its financial strength to investors in the product disclosure statements, and that it was not their case, or an integral part of their case, that the financial statements were misleading (Mitchell 16 May 2014, JTM52).
80 In a written submission, dated 14 November 2012, GSMAL expressed specific concern that the plaintiffs, in opening, had submitted that GSMAL or GSL's financial statements were materially misstated because of under provisioning for their 'HPE liability' ('HPE' was used in the pleadings to describe an additional area of land inevitably to be required for production of timber to top up the yield of timber estimated to be produced). GSMAL submitted that it had serious concerns about the prejudice it would suffer if the plaintiffs were permitted to advance a case to the effect that the consolidated financial statements were materially misstated. Relevantly to the present issues, GSMAL submitted that it had not had the opportunity to adduce evidence about the preparation of its financial statements and whether those financial statements were prepared in accordance with relevant accounting standards, and had not had the opportunity to consider issuing contribution proceedings against persons involved in the preparation and publication of the financial statements (Mitchell 16 May 2014, JTM53).
81 The Victorian proceedings were heard over 90 days. The application to the registrar was made before the hearing had ended.
82 On 3 October 2013, the defendants filed a joint final written submission. While it was a joint submission, it provided for the parties to state where a particular submission was to be attributed only to one or more of the defendant parties. The submission ran for over 1,000 pages and over 3,000 paragraphs (Mitchell 16 May 2014, JTM54). With regard to some aspects of the plaintiffs' case, the defendants presented alternative arguments.
83 Relevantly, GSMAL and the other defendants submitted that the representation alleged by the plaintiffs regarding financial strength was not made expressly, and cannot be implied. The defendants also submitted, however, that GSMAL's balance sheet was strong at all relevant times in that it had a substantial surplus of assets over liabilities. And they made detailed submissions regarding the expert evidence in the case (Mitchell 16 May 2014, JTM-54).
84 The written submissions on the evidence of the defendants' expert, Mr Samuel, are to the effect that he had concluded that the Group (including GSMAL) was financially strong at all relevant times before 23 May 2008 or possibly June 2008. Mr Samuel had based his conclusions upon the Group's audited financial statements and half-year accounts, including the strong net asset position, strong working capital position, the level of profitability and cash flow, and that 'the auditors had signed an unqualified opinion to the relevant dates' (Mitchell 16 May 2014, JTM-54, [836] [837])
85 The financial position of the Group was also referred to in oral closing by counsel for GSMAL, who drew attention to
the tension between the plaintiffs' disavowal of any allegation that the financial statements of Great Southern were inaccurate or prepared otherwise than in accordance with the relevant accounting standards on the one hand and the allegation on the other hand that Great Southern was not in a strong financial position because its business model involving the use of HPE reserve plans was financially unsustainable, because inherent in the allegation that the plaintiffs make that the top-ups and HPE reserve plans was financially unsustainable was that Great Southern was not a going concern because it couldn't pay its debts as and when they fell due over the life of the schemes because it was headed to collapse (Mitchell 27 May 2014, JTM56, 742).
86 The hearing in Victoria concluded on 24 October 2013.
87 On 2 May 2014 the solicitors for GSMAL, on instructions from Mr Saker, wrote to the associate to the presiding judge withdrawing its reliance upon part of the joint submissions. Relevantly, GSMAL withdrew reliance on the submission that the court should accept the evidence of Mr Samuel as to the Group's financial strength. Mr Saker says he gave those instructions when the liquidators had determined to proceed on the claim against the directors, because of his concern that the submissions proceeded on the basis that the consolidated financial statements were free from material errors, as evidenced by unqualified audit opinions (Mitchell 27 May 2014, JTM-57; Saker 27 May 2014 [88]).
88 The directors sought to make a point from the fact that no explanation was given to the court when the submissions were withdrawn. In my opinion, however, it would not have been appropriate to then advance an explanation. Submissions in the case were closed. The trial judge could take whatever steps he believed to be necessary or appropriate if he thought an explanation was needed.
89 The directors submitted that GSMAL's position, and in particular the submission made in the Victorian proceedings, was inconsistent with the claims made by the liquidators in the writ. That much I accept. They alleged that the liquidators minimised the consequences of that inconsistency by declining to serve the writ when its period of validity had almost expired. This, they alleged, was a deliberate non-disclosure for the purpose of obtaining a forensic advantage in the Victorian proceedings. I am not satisfied that this further and more serious allegation has been proved.
90 First, Mr Saker was crossexamined at length on this question. I believe that he was attempting honestly to answer the questions put to him. Mr Saker denied that the liquidators were attempting to delay service to obtain some procedural advantage in the Victorian proceedings.
91 Second, the Victorian plaintiffs were aware of the claims made in Western Australia, and had brought them to the attention of the trial judge. The directors have not shown what forensic advantage was to be obtained by not serving the writ, while maintaining it as a valid writ for the purpose of service.
92 Third, the submissions assume that the liquidators had already made that decision to pursue the proceedings against the directors in September 2013, and were concerned only to delay serving the writ. The directors' case is not simply that the liquidators were not sufficiently diligent in advancing their investigations and should have been in a position to decide, but that they had decided to proceed but wished to maintain the inconsistent position for as long as possible. In his evidence, Mr Saker said that he had not made a decision he could not say whether the writ would have been served had the court refused the extension (ts 105). In this, and in his denial of deliberate nondisclosure, I believed his evidence.
93 Fourth, the level of detail in the submissions made in this application shows the scope for genuine dispute about what should have been disclosed. I remain unsure, after carefully considering the oral and written submissions made in the hearing before me, about the extent of the disclosure which the directors contend the liquidators should have made, or, more pertinently on the case they put forward, chose not to make. One could not, for example, adequately disclose the position that was taken in the final submissions filed in the Victorian proceedings without dealing with the way in which issues had been pleaded; the evidence that had been led regarding the financial position of GSMAL, both by GSMAL and by Mr Rhodes and Mr Butlin; the way in which the case had been conducted, including the filing of joint submissions; the basis on which the expert witness had been instructed; and the submissions based on that evidence.
94 That has created real difficulties in deciding this application. I cannot consider everything that was presented in the Victorian action: the trial proceeded over 90 sitting days. Even with extensive material put before me, and the opportunity to consider it after the hearing, I feel I have only part of the story.
95 Where the liquidators' primary reason for an extension was the need for further investigation, the extent to which the issues in the two proceedings overlapped, and accordingly the extent to which the liquidators had investigated the accounts, was potentially relevant. The directors submit that the liquidators had been required to 'grapple closely' with the question of the accuracy of the accounts. It is not helpful to make a finding on so general a proposition. I am satisfied that the liquidators had been required to consider the available evidence regarding whether the business model used by the Group in the investment schemes managed by GSMAL was sustainable. The manner in which GSMAL conducted the Victorian proceedings on issues that were at least closely related, if not identical to that issue, is relevant. But that is only one of the matters found in the indorsement of claim. The fact that some issues have been the subject of consideration does not determine whether it was justifiable to defer service of the writs while making further investigations on the whole of the claim.
96 The second alleged non-disclosure is that, while submitting that they required more time to investigate and determine whether there was a claim which should be brought against the directors, the liquidators did not disclose that, by 28 September 2012, they were sufficiently confident of the merits of their case to assert the charge over the proceeds of insurance policies. In written submissions, the directors submitted that '[t]here was no reservation on the basis that the claims were still being investigated or that the Liquidators were anything less than entirely confident in GSL's entitlement to the statutory charge' [25].
97 Section 6 of the Law Reform (Miscellaneous Provisions) Act 1946 (NSW) provides, in effect, that where a person is indemnified against liability to pay damages or compensation under a contract of insurance, the amount of that person's liability is a charge on insurance moneys that are or may become payable in respect of that liability. The charge arises on the happening of the event that gives rise to the claim for damages. It has priority over other charges affecting the insurance moneys, and, between themselves, charges under s 6 have priority in the order of the dates of the events out of which the liability arose. The charge is enforceable by way of an action against the insurer.
98 On 3 September 2012, the solicitors for the plaintiffs in Western Australian proceedings (regarding Project Transform) asserted charges in their favour by the operation of s 6. On 17 September 2012, the solicitors for the plaintiffs in the Victorian proceedings made similar claims. Both claimed priority over legal expenses incurred by the Great Southern defendants in defending the various proceedings.
99 In a letter dated 20 September 2012, the directors' insurers advised the liquidators that charges pursuant to s 6 had been asserted, and that the insurers would shortly be commencing proceedings in the Supreme Court of New South Wales seeking declaratory relief. They continued:
Insurers consider that it is imperative to the future management of the various proceedings that have been commenced against the various Insureds ... that all known assertions of a charge pursuant to section 6 of the Act be addressed in the Declaratory Proceeding. (Saker, 27 May 2014, exhibit I, tab 25)
100 The insurers invited the liquidators to consider whether they asserted a charge in favour of any of the companies in the Group and the basis on which they asserted the existence of a charge. The insurers further advised that if the charge was not asserted, they would regard themselves as not being on notice, and, in the light of the relief sought in the declaratory proceedings, the liquidators may be estopped from asserting any charge in the future (Saker 27 May 2014 [89], exhibit I, tab 25, 333).
101 On 28 September 2012, the liquidators confirmed that they did assert a charge under s 6 with respect to claims regarding the approval of loans, and also with respect to a claim for damages or compensation from the directors, 'concerning their failure to ensure the financial statements of the GSL Group for the financial years on and from 30 June 2006 were true and fair and complied with Part 2M.3 of the Corporations Act 2001'. The value of the claims was estimated as 'in the order of $123 million in respect of dividends together with $63 million in respect of overpaid tax'. They continued,
As you know, our clients are continuing to investigate claims as they are required to do so in compliance with their statutory duties ... Our clients reject your assertion that they may be estopped from asserting such charges in the future. Please accept this letter as an appropriate assertion of a charge pursuant to section 6 of the LRMP Act with respect to all claims for damages or compensation presently identified or which may be identified in the future (Mitchell 16 May 2014, 331 332).
102 This letter must be read in the context of a second letter between the solicitors for the liquidators and the insurers, also dated 28 September 2012, and marked confidential. It described in some detail the investigations undertaken by the liquidators into the potential claims, and enclosed copies of five writs filed in 2011 and 2012 (including the present matter). The writs were described as 'filed so as to protect against the expiry of limitation periods'. It concluded:
Until recently, our clients have very limited funds available to investigate potential Claims against the GSL Group directors. As a consequence of an investigation and a litigation funding agreement recently entered into by our clients, our clients are now in a position to investigate the Claims the subject of the enclosed protective writs. Our clients will continue to comply with the notification obligations pursuant to the [policy] and expect to be in a position to provide further information in the coming months as a consequence of the further investigations to be undertaken. (Saker, 23 September 2013, exhibit H).
103 On 21 September 2012, the insurers commenced the declaratory proceedings they had foreshadowed in the Supreme Court of New South Wales. Those proceedings were moved to the Court of Appeal for the determination of specific questions. The Court of Appeal delivered judgment in July 2013: Chubb Insurance Company of Australia Limited v Moore [2013] NSWCA 212; (2013) 302 ALR 101. The court held that s 6 does not apply to a claim brought in a court that is not a court of New South Wales: Chubb [204]. It would not be available to the liquidators in the proceedings commenced in Western Australia.
104 The purpose of giving notice of the charge is because any payment by the insurer 'without actual notice of the existence of any such charge shall ... be a valid discharge to the extent of that payment': Law Reform (Miscellaneous Provisions) Act s 6(6). The fact that the liquidators gave notice to the insurer, so as to prevent any charge that had arisen being defeated by dissipation of the insurance moneys, is not inconsistent with their position in September 2013 that they had not then determined whether to proceed with the writ against the directors. The insurers were advised, at the same time, that the writs filed in prosecution of those claims were 'protective writs', and that the liquidators had only recently obtained funds to enable them to investigate the claims.
105 By September 2013, the New South Wales Court of Appeal had decided that the charge was not available. I do not need to consider whether, had the court held the charge was available, the existence of the charge may have been material.
106 In those circumstances, I am not satisfied that the notice to the insurers particularly as qualified by the second letter sent the same day is material to whether the validity of the writ should be extended, or the liquidators given further time to serve the directors. In exercising the discretion afresh, it would not affect my decision.
107 If it is necessary to make such a finding, I am satisfied that there was no deliberate non-disclosure for forensic or other advantage.
108 The directors (and PwC) also relied on the failure to disclose a claim against Ernst & Young, auditors to the Group in later years. A writ, described again as a 'protective writ', was filed in December 2013. Again the claim had not yet been investigated. Mr Saker said that he could not remember whether, in September, when he applied for the extension of the writ, Ernst & Young were 'on the radar' (ts 166). He disagreed with the proposition that the possibility of a claim against that firm was something he chose not to disclose.
109 I do not accept that there was deliberate non-disclosure.
110 The factual material put before the court on this application, although expansive, does not permit a finding about how the claims against the successive auditors fit together. As I understood the submission, the claim against Ernst & Young is said to be material because the liquidators relied on the factor that, if the writs were not extended, the claims based on the 2006 financial statements would be time barred. Those claims included, for example, a substantial amount of overpaid tax, some of which - perhaps a substantial part might be claimed against Ernst & Young as the auditor in later years.
111 The relevance, in my opinion, is remote. The relevant factor is that a potentially valuable claim might be lost to the estate. The fact that the company may be able to pursue other claims (or part of the claim) against other parties does not alter whether a valuable claim is lost and the creditors will be prejudiced in the liquidation.
112 In these circumstances, I am not satisfied that the writ later filed against Ernst & Young should affect whether to extend the writ.
113 It is now necessary to consider how I would exercise the discretion to extend the writ, on the material now before me.
The investigations carried out by the liquidators
114 The affidavits in support of the application were criticised by counsel for the directors as vague and lacking in particularity. I am not sure that is a reasonable criticism when the affidavit is, necessarily, summarising what has been done by a team of people over a period of about 12 months. The affidavits, in some respects, had the flavour of a submission.
115 The plaintiffs relied on the following (all references are to the affidavit of Saker, sworn 23 September 2013):
116 The crux of the application is that the liquidators say they needed the benefit of independent expert advice on technical accounting issues beyond their expertise. They had retained an expert, David Boymal, to advise and prepare a report on restated financial statements. They were yet to receive the report which was 'imminently due', but would not be finalised before the expiry of the writ [56]. The liquidators also considered that they should have the benefit of expert advice from a taxation expert as to the proper treatment of the Group's income tax position on the restated financial statements [58]. A properly qualified expert, willing to be engaged for that purpose had (in September 2013) not yet been identified despite efforts being made [59].
117 Mr Saker deposed that in his view it would be in the interests of justice for the writ not to be served until the liquidators had the benefit of the independent advice, including the advice of a taxation expert, and the restated financial statements of GSL and the Group for the periods ended 30 June 2006, 30 June 2007, and 30 September 2008.
118 The affidavits filed in support of the application in CIV 2611 of 2012 (the proceedings against PwC), and included in the application in this action, set out in some greater detail the investigations which had been conducted regarding the conduct of the auditors, including the examination of PwC personnel. There is necessarily some generality in summarising such matters in an affidavit. What appears to be of particular importance, is that the examinations of other PwC employees identified Mr Seth as the person who completed much of the underlying audit work. Mr Seth was no longer employed by PwC and no longer resident in Australia. There were delays in having him available for examination. The examination was eventually conducted in August of 2013.
119 Mr Saker referred to the proceedings in Victoria in relation to alleged misleading and deceptive conduct in the product disclosure statements issued to investors by the Group, although primarily in the context of identifying the time and resources that had been expended in attending to those and other proceedings.
Consideration of the liquidators' case to extend the writ
120 The weight to be given to any circumstance depends not only upon its own intrinsic persuasiveness but upon the impact of the other circumstances which have to be weighed: PS Chellaram & Co Ltd v China Ocean Shipping Co [1991] HCA 36; (1991) 65 ALJR 642, 643 (McHugh J, in an application for security for costs, but the comments are of general application where the court exercises a power having regard to a range of circumstances). Some relevant matters are not contentious:
121 There are other matters, some of which may be contentious, but which, in my opinion, are established. They should be taken into account:
122 On the basis of those matters, I regard the following as the determining considerations.
123 The first is the imminent expiry of relevant limitation periods when the writ was issued. The liquidators' position is that the limitation period commenced on the date upon which financial statements and associated directors' declarations were published. On that basis, they say causes of action were statute barred on 28 September 2012 (for those statements published on 28 September 2006) and 30 December 2012 (for those published 30 December 2006). I am not sure that the date of publication is necessarily the date when loss first occurred and each cause of action accrued: see Wardley Australia Ltd v Western Australia [1992] HCA 55; (1992) 175 CLR 514, 530 531. But the question was not argued before me. The parties appear to accept that the relevant limitation periods had expired between when the writs were filed and when the extensions were granted, so that the claims relating to the financial statements for the year ending 30 June 2006 were statute barred by September 2013.
124 This factor has implications for both parties. Should the extension be refused, the creditors of GSL lose potentially valuable causes of action. The converse is that, should time to serve be extended, the directors remain exposed to claims that might otherwise be barred by the expiry of limitation period.
125 The directors have adduced evidence of prejudice from the passage of time. While it is likely that relevant documents have been preserved, the trial would still be about events which happened more than eight years ago. To the extent that oral evidence of members of the GSL audit committee may be necessary, two of them are now 67 years old, one is 70, and one 76.
126 The directors rely upon statements made in recent cases which emphasise the important public policy aspects of limitation periods. In Tolcher v Gordon [2005] NSWCA 153; (2005) 53 ACSR 442 [3], Hodgson JA said:
Although the threeyear 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.
See also Pell v Hodges [2007] NSWCA 234 [44]; Arthur Andersen Corporate Finance Pty Ltd v Buzzle Operations Pty Ltd (in liq) [2009] NSWCA 104. With respect, I agree with the remarks of Hodgson JA.
127 The liquidators submit that this case falls squarely within the comments of the Full Court in Bell Group NV (In Liq) v Aspinall (33):
As at 5 December 1996, the appellant had issued proceedings within the limitation period and no limitation right had accrued in favour of the respondents. The appellant sought and obtained an order which the Rules contemplate and which was regular on its face. Had it not obtained the order, the appellant could have taken other steps in an effort to preserve its rights against the respondents. It did not need to do so because it was protected by the order it had obtained ...
It might well be said that a more appropriate course would have been for the appellant to serve the writ and to seek a stay of further proceedings pending resolution of the uncertainties as to its status. To this extent the appellant's difficulties are self-inflicted. But what was self[-]inflicted was the need to have the writ extended, not the effective loss of the cause of action by reason of the ex parte orders being set aside. In any event, this does not cover the full range of factors that must be taken into account. The issue is not whether, given there were at least two options, the failure to follow one of them is fatal to the appellant's claim. Rather, it is whether the discretion to renew the writ miscarried. To decide that issue, the Court must go beyond the explanation for failing to serve and look at the balance of hardship. In these circumstances, it seems to us that the balance of hardship favoured the appellant.
128 In my opinion, the balance of hardship in the present case favours the defendants. I also believe that, by September 2013, the liquidators should have been in a position to decide whether to proceed. That brings me to the second factor.
129 The second factor is the steps the liquidators had taken to advance the claims, and the delays which had occurred. Mr Saker explained the delay in making a decision whether to proceed in this way:
[M]y understanding is that once the fact gathering had completed, it was going to take Mr Morris three to four months to finalise his advice in relation to all of those facts, and form a view on the accounting issues. And then it was my intention to take those to an independent expert on audit aspects to then get him to confirm the preliminary indications (ts 145-146).
130 Fact gathering had continued up to August 2013, with the examination of Mr Seth. Mr Saker referred also to the need for Mr Morris to prepare restated financial statements.
131 The liquidators had, however, identified the relevant transactions and events on which the writ was based, and the particular technical accounting issues that needed to be considered, by December 2012. They had by then obtained preliminary advice from an expert, Mr Morris (ts 145). Mr Morris had prepared restated accounts for the period relevant to these claims before September 2013 (ts 151). Mr Saker accepted that the examination of Mr Seth was not necessary in order to resolve the technical accounting issues that had been identified (ts 145). Mr Saker also accepted that, in September 2006, the restatement of accounts had already been done for the period ending 30 June 2006 (ts 150). That is the relevant period for the current claim against the directors, as well as the claim against PwC.
132 Apart from the expert advice of Mr Morris, the liquidators intended to obtain a report of a further expert (Mr Boymal) on accounting issues, and further advice from an independent expert on taxation matters (ts 147). Mr Saker said that it was a difficult exercise identifying a suitable expert on the taxation issues (ts 152). But that is not the sole reason for the delay. Mr Saker said that he did not simply want to obtain advice, but wanted it in the form of a report 'which would comply with the expert witness code of conduct so that it could be used in proceedings' (ts 147). Mr Saker said he wanted to ensure someone was prepared to appear as a witness in delivering that report to the court.
133 The decision to proceed is a significant one, and one can understand the liquidators' desire to have a sufficient level of comfort that the proceedings had merit. But this must be viewed in the context of proceedings that were only commenced immediately before the limitation period expired, or may have expired, and where the writ was required to be served within 12 months.
134 Mr Saker offered the further reason for the liquidators conservative approach that the decision to proceed involved significant expenditure. He accepted, however, that if the case went badly, the funder would pay the costs (ts 149). His explanation for delay was unpersuasive. It was particularly so when there is no evidence that further advice had been obtained, or the position of the plaintiffs had altered, between September 2013 and March 2014 when the writ was ultimately served.
135 There is another aspect to the relevance of the investigations carried out during 2013. Those investigations were, at least primarily, directed to the conduct of PwC. The liquidators submitted that claims arising out of the truth and fairness of the financial statements of GSL or the Group were likely to be apportionable claims. On that basis, detailed investigation in relation to the PwC proceedings was 'essential to the liquidators' ability to make an informed assessment as to the viability of the potential claims that might be brought against the directors'.
136 Counsel for the directors challenged the liquidators' reliance on apportionment on several bases, arguing that no question of apportionment arises, at least on the claims under the Corporations Act and the ASIC Act. Whether the relevant provisions of the Corporations Act defining apportionable claims are confined to the particular statutory cause of action or pick up other causes of action based on the same facts is, on the present authorities, uncertain: compare ABN Amro Bank NV v Bathurst Regional Council [2014] FCAFC 65 and Wealthsure Pty Ltd v Selig [2014] FCAFC 64 (special leave granted on 14 November 2014).
137 In my opinion, however, it is possible to put too much weight on the apportionment issue. Even if the liquidators were wrong about whether the claims are apportionable, the claims against the directors and the auditors are factually interconnected. The claims against the directors include that GSL's financial reports did not comply with pt 2M.3 of the Corporations Act or with accounting standards, and that its financial statements and notes did not give a true and fair view of the financial position and performance of GSL. Quite independently of the question whether the claims are apportionable, the liquidators needed to investigate the conduct of PwC with regard to those matters before they could make an informed assessment of the viability of the potential action against the directors.
138 The third factor is that the liquidators made their application before each writ became stale. They then attempted to serve the writ within the additional time allowed by the court.
139 The directors argue that it would be inappropriate to allow an extension of time for the service of a writ where a significant cause of the delay has been the willingness of the plaintiff to do nothing about service, while awaiting evidence and a decision about the claim that should be brought against PwC. They submit that the liquidators should not be permitted to arrogate to themselves the power to decide whether the proceedings should be stayed, when the exercise of that power is for the court: see Battersby v Anglo-American Oil Co Ltd [1945] KB 23, 32; Kleinwort Benson Ltd v Barbrak Ltd [1987] AC 597.
140 The directors' submission would have more force had the liquidators simply allowed the time limit to expire, and sought retrospective validation of service. But the liquidators approached the court before the writ expired. The power was exercised by a registrar who had some familiarity with the case, having presided over the examinations under s 596B.
141 Fourth, the liquidators had given notice to the defendants of the claims against them. It appears that the directors, or the relevant insurers, knew of the claims as early as September or October 2012: at that time, the liquidators gave notice that they claimed a charge on insurance proceeds under s 6 of the Law Reform (Miscellaneous Provisions) Act. In October 2012, the fact of these claims was raised by the plaintiffs in proceedings in Victoria in which Mr Rhodes and Mr Butlin were parties.
142 On 4 September 2013, the liquidators also provided, for information only, copies of the writs in CIV 2634 and 2635 of 2012. The liquidators advised the directors of their intention to apply for an extension of time for service of the writs 'through to 24 September 2014' and invited the solicitors for the directors to notify them of any prejudice, other than the usual deterioration of recollections of relevant events, so that those matters may be brought to the attention of the court. The directors had not responded with any claim of particular prejudice.
143 On the other hand, one cannot deny the prejudice that arises from a claim being brought close to the end of the limitation period and then not served. It is not simply the additional six months from September 2013 that should be taken into account, but the whole of the period that had passed from when the cause of action arose. Even with the order extending time for service, it would not have been until March 2014, when the liquidators asked the solicitors for the directors to confirm that they had instructions to accept service, that it was certain the matter would proceed.
144 I have found the balancing of these competing considerations to be a particularly difficult exercise. I am acutely aware that a failure to renew the writ will result in the loss of those causes of action which are now subject to limitation provisions. But my view overall is that the plaintiffs have not shown sufficient reason why the further period should be allowed. Two particular matters are, for me, decisive. First, the action having been commenced shortly before the expiry of the causes of action, diligence was required to ensure that it was served, if possible, within the initial period of validity of the writ. Second, the approach of awaiting further expert evidence, in the form of a report, was unduly conservative when preliminary expert advice had been obtained, and the issues had been identified, before the close of 2012.
145 Had I been satisfied that the decision of the registrar to extend the validity of the writ should be confirmed, I would have made such orders as were necessary to either regularise service or permit the writ to be re-served in compliance with the Service and Execution of Process Act. I was surprised that such points were taken when the solicitors for the directors had confirmed they would accept service. They were not pressed at the hearing before me.
146 Mr Young also applied for an order setting aside the order made by the registrar, extending the validity of the writ. He did not appear at the hearing of the application, and relied on the evidence and submissions made on behalf of Mr Rhodes. The only evidence filed on his application was a brief affidavit of his solicitor, adopting the evidence filed on behalf of Mr Rhodes.
147 Mr Young's case, however, is different. Any irregularity in service, even service of a stale writ, is waived by the entry of an unconditional appearance: Caltex Oil (Australia) Pty Ltd v The Dredge Willemstad [1976] HCA 65; (1976) 136 CLR 529, 539; Rules of the Supreme Court O 9 r 1(3). The question is whether he should be given leave to withdraw the appearance. It does not follow from my decision regarding Mr Rhodes and Mr Butlin that leave should be given. There is no suggestion that Mr Young entered an appearance under any relevant mistake.
149 The order extending the validity of the writ for service should be set aside in relation to the service on Mr Rhodes and Mr Butlin.
151 The applications by the plaintiff fall away with the setting aside of the order extending the validity of the writ.
CITATION : GREAT SOUTHERN LTD (IN LIQ) (RECEIVERS & MANAGERS APPOINTED) -v- YOUNG [2014] WASC 481 (S)
BETWEEN : GREAT SOUTHERN LTD (IN LIQ) (RECEIVERS & MANAGERS APPOINTED)
MARTIN BRUCE JONES, ANDREW JOHN SAKER, DARREN GORDON WEAVER AND JAMES HENRY STEWART IN THEIR CAPACITIES AS JOINT AND SEVERAL LIQUIDATORS OF GREAT SOUTHERN LTD (IN LIQ) (RECEIVERS AND MANAGERS APPOINTED)
Costs - Whether apportionment of costs - Turns on own facts
Rules of the Supreme Court 1971 (WA), O 7, O 7 r 1(1), O 7 r 1(3), O 58 r 23, O 59 r 7, O 66 r 1(1), O 66 r 1(3)
1 ALLANSON J: On 1 May 2014, the plaintiffs filed a chamber summons seeking three orders:
2 On 16 May 2014, the second and third defendants, Cameron Rhodes and Phillip Butlin filed a competing summons seeking orders that:
3 The competing applications were heard over two days in June 2014, and on 17 December 2014 the court delivered reasons to the effect that:
4 I did, however, express the view that, had I been satisfied that the decision of the registrar to extend the validity of the writ should be confirmed, I would have made such orders as were necessary to either regularise service or permit the writ to be re-served in compliance with the Service and Execution of Process Act 1992 (Cth). There was no dispute that the copies served were not indorsed as required by O 7 r 1(3) of the Rules of the Supreme Court 1971 (WA) (Rules) (the copy served had not been marked with the official stamp showing an extension of its validity); and that the plaintiffs failed to comply with the Service and Execution of Process Act in not attaching prescribed notices. This was, however, in circumstances where the plaintiffs' solicitors had written to the defendants' solicitors asking that they confirm that they had instructions to accept service of the writ on behalf of the defendants. The defendants are residents of Western Australia. The solicitors (Arnold Bloch Leibler) were not. On 19 March 2014, Arnold Bloch Leibler replied, 'We confirm we have instructions to accept service on behalf of Mr Rhodes and Mr Butlin'. In those circumstances, I was surprised that the objection under the Service and Execution of Process Act was taken when service was effected by sending the writs to their solicitors. Neither of the defendants' objections was pressed at the hearing
5 At the same hearing, I considered an application on behalf of another director, John Carlton Young, the first defendant in the proceedings, for orders setting aside the service of the writ on him. Mr Young's case was, in my opinion, quite different as he had entered an unconditional appearance. Even setting aside the decision of the registrar would not have any practical effect.
6 Because the matter has been unusually complicated, and the reasons were comparatively long, I published my reasons and invited the parties to bring in orders reflecting the findings. Perhaps it should have been anticipated, but the parties have not agreed what orders follow from my reasons. The plaintiffs and the second and third defendants (Mr Rhodes and Mr Butlin) have filed submissions on the proposed orders, which I will deal with on the papers.
7 Because Mr Rhodes and Mr Butlin are the only defendants relevant in these reasons, I will refer to them collectively as the defendants. The orders regarding Mr Young are a separate matter and are not part of these reasons.
8 The plaintiffs very helpfully compiled a minute of proposed orders which shows the areas of agreement and disagreement. Some of the proposed orders are agreed. On the defendants' chamber summons, it is agreed that I should order:
9 The areas of dispute on the defendants' chamber summons are: first, whether the chamber summons should be otherwise dismissed; second, (in broad terms) whether and to what extent there should be an apportionment of the costs of the chamber summons by reference to particular paragraphs of the chamber summons. The defendants seek an order that the plaintiffs pay the costs of the chamber summons to be taxed unless agreed or fixed by the court. The plaintiffs propose that a costs order against them should relate only to par 1 of the summons.
10 The defendants do not press for an order dismissing the proceedings against them. They assert that relief remains available to them but do not press it so as to avoid cost of argument when that relief is unnecessary.
11 Similar areas of dispute arise on the plaintiffs' chamber summons: the defendants propose that the summons be dismissed in so far as it seeks orders against them and that the plaintiffs pay the costs on the summons; the plaintiffs do not agree with the order dismissing the summons and propose that there be no order as to costs.
12 The defendants submit that, as a matter of substance, they were wholly successful in the result of the application. Their success in respect of the orders setting aside the decision of the registrar rendered the balance of the relief they claimed otiose. It is, in my opinion, appropriate to dismiss the balance of the defendants' chamber summons, on that basis.
13 The plaintiffs submit that this summons should not be dismissed on the basis that, in my judgment, I simply said that their applications 'fall away'. They submit that I did not dismiss, and indeed did not determine, their application. The plaintiffs' application, however, was to regularise the service of the writ where the defendants had filed conditional appearances challenging the ex parte decision to extend the writ. The finding that the plaintiffs had not justified the delay in service during its period of validity, and the decision to extend it should be set aside, is the reason why orders were not made on the plaintiffs' summons. Orders correcting an irregularity in service, or extending the time for service, could be of no effect.
14 The order should be that the plaintiffs' summons is dismissed to the extent that it seeks orders in respect of these defendants.
15 The defendants seek orders that the plaintiffs pay the cost of both summonses. The plaintiffs seek orders that costs be limited to par 1 of the defendants' summons, and that otherwise there be no order as to costs. For these reasons I am satisfied that the defendants should have the costs of the applications.
16 The principles relevant to these questions are not controversial:
17 The copies of the writ which the plaintiffs attempted to serve on 31 March 2014 were not stamped as required by O 7 r 1(3). The prescribed notices required by the Service and Execution of Process Act were not attached. At least as regards the noncompliance with O 7, the plaintiffs were seeking an order curing an irregularity of their own making.
18 On 24 April 2014, Arnold Bloch Leibler wrote regarding the service, referring to the irregularity in failure to comply with O 7 r 1(3) of the Rules. Further correspondence followed between the solicitors. On 30 April 2014, Arnold Bloch Leibler gave notice that the defendants would apply to set aside the order extending the validity of the writ. On 1 May 2014, the plaintiffs brought an application to cure the irregularity or grant an extension of time for valid service to be effected. On 2 May 2014, the defendants each entered a conditional appearance.
19 By O 12 r 6 (2), having entered a conditional appearance, each defendant was required to apply forthwith to have the question raised by the conditional appearance decided. Had he not done so within 14 days, the conditional appearance would, unless otherwise ordered, become and operate as an unconditional appearance.
20 Once the competing summonses were before the court, the critical issue was the application to set aside the ex parte decision of the registrar. That was not how the plaintiffs wished the matter to proceed; they clearly regarded it as a much more limited exercise. But having regard to the decision in Bell Group NV (In Liq) v Aspinall (1998) 19 WAR 561, and the discussion in Popovic v Panagoulias [2014] WASCA 86 [54] [55], it was necessary to consider the factors relevant to setting aside the ex parte decision. The complicated factual background, including the proceedings in Victoria and the application heard at the same time regarding the proceedings instituted against PricewaterhouseCoopers, resulted in a long and complicated hearing for an interlocutory application. But that was not the result of any unreasonable conduct on the part of the defendants.
21 Further, it was not unreasonable for the defendants to not concede the plaintiffs' application while the decision to extend the validity of the writ was under challenge. It would have been pointless for them to do so.
22 I also accept the submission made on behalf of the defendants that the issues they raised regarding defects in service were purely legal issues and did not add substantively to the hearing time. I cannot say anything about the preparation.
23 No argument has been put to me for apportionment of the costs of the hearing on any other basis.
24 Accordingly, I will make the following orders. On the defendants' chamber summons filed on 16 May 2014:
25 On the plaintiffs' chamber summons filed on 1 May 2014:
(1999) 21 WAR 79
(1981) 180 CLR 337
(1998) 19 WAR 561
(1998) 193 CLR 72
(2013) 302 ALR 101
(1992) 175 CLR 514
(1976) 136 CLR 529
(2005) 12 VR 639
(1991) 65 ALJR 642