Judd v Warwick

District Court of NSW|2007-08-27|Before: Windeyer J

Introduction

The plaintiff alleges that the defendants, solicitors retained by him in connection with the purchase of a restaurant business, were negligent. He sues them in tort and in contract. He applies by way of motion for an order extending the time for service of his Statement of Claim filed: r 1.12 of the UCPR.

Originating process filed in the District Court is only valid for service for one month after filing: r 6.2(4)(b)(i), and must be served personally: r 10.20(2)(a). Having filed the Statement of Claim on 7 September 2006, the solicitor for the plaintiff made no attempt to serve it within that one month because he was under a misapprehension that the Rules provided that a Statement of Claim was valid for service for 3 months after filing. (In the Supreme Court and Local Court originating process is valid for service for 6 months after filing.)

On 16 November 2006 the plaintiff's solicitor caused a letter addressed to the defendants to be placed in their DX box, enclosing and purporting to serve on them a sealed copy of the Statement of Claim.

The defendants contend firstly that the Statement of Claim was not then valid for service, and second, that was not personal service. They therefore seek a declaration that the Statement of Claim has not been duly served on them: r 12.11(c).

The defendants therefore oppose an extension of time for service of the Statement of Claim.

The principal issues for determination are: · Whether the causes of action pleaded have been extinguished. · The nature and extent of the power to extend time for service of originating process where the limitation period has expired. · Whether the defendants have suffered any prejudice. · Whether the time for service should be extended.

The pleading 8. The Statement of Claim alleges that between August 2000 and November 2000 the plaintiff and Moussa Ndiaye (now deceased) sought advice from and provided instructions to Mr Warwick, under the supervision of Mr Rendel, in respect of various matters in relation to the purchase of a restaurant business. The day-to-day management of the business was to be carried out by Ndiaye. The plaintiff was to contribute the capital required and work in the business one day a week. Mr Warwick gave advice and completed the legal work required to purchase and finance the business. This included a purchase contract, the incorporation of a company to run the business, a transfer of lease, and a partnership agreement entered into between the plaintiff and Ndiaye.

It was alleged that the partnership agreement was entered into some time before the end of September 2000. The plaintiff made capital contributions of some $141,000. After the restaurant business commenced, the relationship between the two partners deteriorated. It is alleged that by November 2000 Ndiaye was running the business down and that he had neglected to pay rent and other outgoings. The plaintiff sought further advice from the defendants. He was advised that he had no entitlement to enter into possession of the business to the exclusion of Ndiaye. Following negotiations, the plaintiff sold his share of the business to Ndiaye, part of the consideration for which Ndiaye was to pay by instalments. However, he only made two payments of $5,000, then committed suicide. The balance of the sale amount was never recovered.

The negligence particularised falls into two broad allegations:

10.1: Acting for both parties where there was a conflict of interest.

10.2: Failing to advise the plaintiff to secure his capital contribution by way of a Deed of Charge over the partnership assets, which deed should have included a sole right to re-enter, take possession, operate and dispose of the business assets.

Finally, it is alleged that by reason of the negligence the plaintiff lost the opportunity to enter into possession when Ndiaye began to run down the business and failed to pay the rent and other outgoings.

Has the cause of action been extinguished? 12. Counsel for the plaintiff submitted that the cause of action accrued only when the loss occurred, which did not occur until the business stopped trading profitably.

That, however, was not the loss. The loss was occasioned upon entry into the partnership agreement, when the plaintiff's legal position was altered to his immediate demonstrable economic disadvantage, because it did nothing to secure his capital contribution by way of charge or otherwise. The opportunity for a charge over the partnership assets, whatever its terms might have been, was lost forever. Time commenced to run in respect of the negligence alleged from that moment, because the cause of action pleaded and particularised was complete once he entered into the agreement, irrespective of the discoverability of its inadequacy at that time. This loss was not a contingent loss, dependent upon some subsequent event or condition. The defect in the agreement was there from the outset: Winnote Pty Ltd v Page [2006] NSWCA 287.

I find, therefore, that the limitation period for any cause of action relied on in the Statement of Claim expired on or before 30 September 2006. Thus, the Statement of Claim was not served before the expiry of the limitation period even though it was filed before the expiry of the limitation period. For the reasons that follow, however, I am not satisfied that the causes of action were thereby extinguished.

Can time for service be extended when the limitation period has expired? 15. It is not contended that the expiry of the limitation period after the commencement of proceedings invalidates the proceedings. Nor could it: s 63(2) of the Limitation Act 1969. The limitation period relates to the commencement of proceedings, not to their prosecution: Tolcher v Gordon [2005] NSWCA 135 at [3] and at [67]. A failure to serve originating process personally, and a failure to serve a Statement of Claim within the time prescribed, are failures to comply with the rules of court as to time and manner. Thus they are to be treated as procedural irregularities that do not invalidate the proceedings: Tolcher v Gordon [2005] NSWCA 135 at [73], and which may be cured: s 63 of the Civil Procedure Act 2005. Nor is it disputed that the court has a discretion to extend the time: see Franklin House Ltd v ANI Corporation Ltd (unreported, NSWSC, Windeyer J, 7 November 2004).

What is not so clear is the manner of exercise of that discretion, the principles to be applied and the factors that might be relevant. That involves a consideration of the nature and extent of the power conferred by r 1.12 of the UCPR. If there is a construction which avoids a subjection of substantive rights to procedural precision, it should be preferred: Humphreys v Mulco Tool & Engineering Pty Ltd [2006] NSWCA 355 at [134]. It is a remedial provision and as such should be given a beneficial interpretation, as wide as its language will permit: Holmes v Permanent Trustee Co of NSW Ltd [1932] HCA 1; Maamary v Pepsico Australia Pty Ltd [2001] NSWCA 375 at [51]ff.

The proper starting point for any discussion is a consideration of the Guiding Principles in Division 1 of Part 6 of the Civil Procedure Act 2005. Sections 56 to 60 set out the overriding purpose of the Act and the UCPR in their application to proceedings, and the obligation to seek to act in accordance with the dictates of justice in deciding whether to make an order of a procedural nature.

That requires me to have regard, amongst other objects, to the just determination of proceedings: s 57(1). I may also have regard to the degree of injustice that would be suffered by the respective parties as a consequence of the order: s 58(2)(b)(vi).

The correct approach for the exercise the discretion to allow "renewal" of originating process after the period allowed for service has expired where, if allowed, "renewal" would have the effect of depriving the defendant of the benefit of an expired limitation period, was discussed by the Court of Appeal in Tolcher v Gordon [2005] NSWCA 135. (There was a limited appeal to the High Court but on another issue). It is not necessary for the plaintiff to demonstrate "exceptional circumstances", and it is sufficient that there is "other good reason": at [53] and [71]. The discretion is unfettered: at [78]. What is required is a consideration of where the justice of the case ultimately reposes: at [60], and what is just and fair in the circumstances: at [129]. That involves balancing the relevant considerations on either side of the equation: at [125].

Before turning to the relevant considerations that are to be balanced, I should make some preliminary observations. The first preliminary observation is that the only relevant period for consideration is the period following institution of the proceedings, and delay in the institution of the proceedings is irrelevant: Tolcher v Gordon at [90] - [96]. The second preliminary observation is that a proper and sufficient explanation for the delay is required: Franklin House Ltd v ANI Corporation Ltd (unreported, NSWSC, Windeyer J, 7 November 2004). Third, there must have been no undue prejudice or injustice to the defendant: Tolcher v Gordon at [53].

The considerations regarded as relevant by the Court of Appeal in Tolcher v Gordon are discussed at [125] to [127]. Not all of them are apposite in the context of this case. The most significant prejudice in that case was the deprivation of the benefit of the limitation period, and it was "that element of prejudice…which must be weighed against the considerations which favour the exercise of the discretion" to extend time: at [127]. The same may be said of this case.

Should the time for service be extended? 22. The defendants submitted that the explanation proffered for the delay in serving the Statement of Claim was neither proper nor sufficient, because the default was the solicitor's ignorance of the rules. That proposition, however, is not consistent with the principles stated in Tolcher v Gordon that the defaults of the solicitor are not to be visited upon the plaintiff: at [6], [112], [125(g)] and [127]. Nor was there any default on the part of the plaintiff personally. This argument fails.

In the present case no actual prejudice was pointed to, apart from that of losing the benefit of the limitation period. No procedural prejudice has been shown. Any presumptive prejudice is of very little weight in balancing the equation, having regard to the short period of time between issue of the Statement of Claim on 7 September 2006, and the sending of the Statement of Claim to the defendants by DX on 16 November 2006. Indeed, if proceedings had been commenced in the Supreme Court, the application would not even have been necessary. There was also correspondence that preceded the issue of the Statement of Claim, in January 2005, pursuant to which the files were handed over to the current solicitor.

No other relevant considerations favouring the defendants were advanced, and I am unable to think of any. There was nothing of relevance in the behaviour of the plaintiff or his solicitor, such as delay for the purpose of obtaining some tactical advantage. It is clear that the solicitor was only waiting for counsel's advice before proceeding to serve the Statement of Claim, and he did so (or attempted to do so) as soon as that advice was received. There is no evidence of any witnesses disappearing or documentary evidence being lost or destroyed. A delay of what was in effect just over a month after expiry of the time for service was insignificant in the circumstances of this case.

On the other hand, the considerations favouring the plaintiff are compelling, not the least of which would be the loss of their cause of action. The fact that the plaintiff, if unsuccessful in this application, might have a good cause of action against his present solicitor is, in my view, of insufficient weight to tip the balance back in favour of the defendants. There are obvious disadvantages in prosecuting a secondary action in negligence against the current solicitor, as opposed to the direct action against the defendants. There is also the delay and cost that would be occasioned.

In my view the preponderance of the considerations relevant to the exercise of the discretion weighs heavily in favour of the plaintiff, such that it would be just and fair in the circumstances of this case to extend the time for service of the originating process so as to allow the plaintiff to prosecute his claim against these defendants.

In the circumstances, it seems to me unnecessary to deal with the consequences of the failure to personally serve the Statement of Claim. The defendants have undoubtedly been aware of it since at least 18 November 2006.

The plaintiff's motion succeeds, and the defendants' motion should be dismissed.

Disposition 29. For these reasons I order that the time for service of the Statement of Claim is extended to 18 November 2006, and that service is deemed to have been validly effected upon the defendants on that date.

I will hear argument as to the appropriate order for costs.

DISCLAIMER - Every effort has been made to comply with suppression orders or statutory provisions prohibiting publication that may apply to this judgment or decision. The onus remains on any person using material in the judgment or decision to ensure that the intended use of that material does not breach any such order or provision. Further enquiries may be directed to the Registry of the Court or Tribunal in which it was generated.

Franklin House Ltd v ANI Corporation Ltd (unreported, NSWSC, Windeyer J, 7 November 2004) Holmes v Permanent Trustee Co of NSW Ltd [1932] HCA 1 CASES CITED: Humphreys v Mulco Tool & Engineering Pty Ltd [2006] NSWCA 355 Maamary v Pepsico Australia Pty Ltd [2001] NSWCA 375 Tolcher v Gordon [2005] NSWCA 135 Winnote Pty Ltd v Page [2006] NSWCA 287

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