Fourth Issue: Extension of Time
51 The result of the above is that the amending power is to be found in Pt 20 of the Supreme Court Rules. The rule of practice in Weldon v Neal (1887) 19 QBD 394 was that except in very peculiar circumstances, an amendment would not be allowed to introduce a new cause of action which, at the time of the amendment, would be barred by a statute of limitations if commenced by fresh proceeding. Having regard to my conclusions on the first two issues, that rule of practice, and its modification or exclusion by Part 20, r 4, or by Part 20, r 1 and r 4, does not arise if the plaintiffs in any event could bring fresh proceedings on the new causes of action by obtaining an extension of time under s 588FF(3)(b) relying on paragraph 3 of the Originating Process.
52 In Green v Chiswell Furniture Pty Ltd (In Liq) [1999] NSWSC 608 Austin J summarised the principles upon which the Court's discretion under s 588FF(3)(b) should be exercised. Referring to the judgment of Finn J in Taylor v Woden Constructions Pty Ltd (Federal Court, 23/8/98, unreported), his Honour said:
" The following propositions, with which I respectfully agree, emerge from that case:
(a) ordinarily, the issues raised on an extension application are threefold:
(i) the explanation for the delay in bringing the proceedings;
(ii) a preliminary review of merits of the foreshadowed proceedings - that is, an investigation as to whether such proceedings would be so devoid of prospects that it would be unfair, by granting an extension, to expose the other party to the continuing prospect of suit;
(iii) whether the likely actual prejudice resulting form the grant of an extension is sufficiently substantial to outweigh the case for granting an extension;
(b) where the liquidator's purpose in seeking the extension of time is simply to put himself into a position where he can properly decide whether or not to bring proceedings, a preliminary inquiry into the merits of any consequent proceedings may not always be necessary."
53 The principles were also considered by the Court of Appeal in BP Australia Ltd v Brown (2003) 58 NSWLR 322 at 356-358. The Court of Appeal described the question as being what was fair and just in all of the circumstances having regard to factors which include the plaintiff's explanation for delay and whether the defendant would suffer prejudice as a result of the extension, other than the prejudice of being required to repay money if the proceedings succeed.
54 In assessing what is fair and just in all the circumstances, regard must be had to the reason for the imposition of the limitation period, both as applicable to limitation periods generally and those relevant to s 588FF(3)(b). In Brisbane South Regional Health Authority v Taylor (1996) 186 CLR 541, McHugh J at 552-553 identified four broad rationales for the enactment of limitation periods, namely:
" First, as time goes by, relevant evidence is likely to be lost. Second, it is oppressive, even 'cruel', to a defendant to allow an action to be brought long after the circumstances which gave rise to it have passed. Third, people should be able to arrange their affairs and utilise their resources on the basis that claims can no longer be made against them. Insurers, public institutions and businesses, particularly limited liability companies, have a significant interest in knowing that they have no liabilities beyond a definite period.
………..
The final rationale for limitation periods is that the public interest requires that disputes be settled as quickly as possible. "
(Citations omitted).
55 In Itek Graphix Pty Ltd v Elliott (2002) 54 NSWLR 207 at 224, Ipp AJA identified the issue of prejudice as being one which ordinarily should be of paramount importance. But the absence of prejudice is not itself decisive. It is rather a relevant factor to be taken into account in the exercise of the general discretion. (BP Australia Ltd v Brown at 358). There is an onus on the applicant to show why it is fair and just that the general rule established by s 588FF(3)(a) should not apply.
56 The three-year limitation period in s 588FF(3)(a) was a response to complaints of inordinate delays in the winding up of insolvent companies and in the commencement of proceedings against persons which had had dealings with those companies to seek to recover monies for the benefit of creditors. (Green v Chiswell [1999] NSWSC 608 at [14]). This legislative concern must be recognised. Nonetheless, Parliament's response was not to impose an absolute bar on the commencement of proceedings after three years, but to allow for extensions of time in appropriate cases, where applications for extension were made in that period.
57 In this case no submissions were made on the merits of the proposed claims. I can infer from the fact that the original claim is proceeding towards a hearing, that there is a triable issue in relation to that claim. The remaining claims are all of the same kind. That is, they allege that under specified reinsurance contracts, New Cap became liable to pay monies to the defendant and that it did so when it was insolvent, with the result that the defendant received an unfair preference. If the claim in the statement of claim and the defence to it raises a triable issue, I can assume in the absence of a contention to the contrary, that the proposed amendments also give rise to triable issues.
58 The defendant did not submit that it would face any specific identifiable prejudice if the amendments were allowed.
59 The focus of the defendant's submissions was on the explanation, or lack of it, for the delay. There are two relevant periods of delay to be considered. The first is the period up to 21 April 2002, or possibly 16 September 2002 (see BP Australia Ltd v Brown at 346-347, paras [123]-[128]), being the period of three years after the expiry of the "relevant date". The second is the period between 18 April 2002 when the proceedings were commenced and 26 February 2004 when the interlocutory application for leave to amend was made.
60 The reason the claims now sought to be made by amendment were not made in the Originating Process is that when it was filed the liquidator was ignorant of the payments which are the subject of the amendments. The liquidation of New Cap is complex. The liquidator's report to creditors dated 14 August, 2001 reveals that his estimate of the company's assets and liabilities as at 31 March, 2001 was that it had liabilities of US$586 million and assets of $259 million: a deficiency of US$327 million. The estimated assets included premium and reinsurance recoveries of US$108 million. New Cap wrote an "assumed portfolio" of more than 1,900 contracts with 427 cedants. There are many complex questions of set-off. The liquidator has commenced twenty unfair preference proceedings seeking the recovery of approximately US$60 million. In some of them the liquidator challenges drawings under letters of credit provided by New Cap or their provision. It seems in all of the cases the claims have been made against overseas parties, principally, but not exclusively, in the United States and the United Kingdom. There has been litigation in the US Bankruptcy Court as well as in this country. Applications have been made to the Supreme Court for directions in respect of the operation of s 116 of the Insurance Act and s 562A of the Corporations Act. Another company in what the liquidator called "the New Cap Re group", New Cap Reinsurance Corporation (Bermuda) Limited is also in liquidation in Bermuda. New Cap was said to be the largest creditor of that company.
61 The liquidator conducted examinations in 2000. Prior to then the liquidator's staff engaged in an exercise aimed at determining the date from which insolvency could be established, and then identifying payments made by New Cap during the period from the date of insolvency which might give rise to potential unfair preference actions which it would be worthwhile pursuing. As part of this exercise the liquidator caused the electronic cashbook of New Cap to be reviewed to identify payments of in excess of $500,000 for further review. Once those payments were identified the source documents and underwriting and claims records in relation to the payments were then considered to determine whether there were grounds for contending that the payments were unfair preferences. In all cases except one the creditors who had received the payments were based outside Australia.
62 Each of the payments, which is the subject of the proposed amended pleading is less than $500,000. The first "payment" which is the subject of the proposed amendment is alleged to be US$500,000, but of this only US$408,960.59 is alleged to be a transfer of funds. The balance is alleged to be the set-off of premiums payable by the defendant to New Cap against the debt owed by New Cap to the defendant under a reinsurance contract. It was because the liquidators gave priority to identifying the larger payments that the smaller payments to the defendant were not identified at the time the proceedings were commenced. In correspondence the solicitors for the liquidator contended that in each case in which voidable transaction proceedings were commenced, the Originating Process was drafted to include a claim for an order under s 588FF(3)(b) to deal with the possibility that the defendant had received additional payments which were not able to be identified at the time of the first review.
63 After the proceedings were filed there was a considerable delay before the defendant entered an appearance. Documents were translated into Spanish and service was effected through diplomatic channels. The defendant applied to set aside the Originating Process or service of it. That application was listed for hearing on 13 June 2003 but after the defendant was satisfied that the payment in question was made to it from a bank account of New Cap in Australia it did not proceed with that application. This led to the orders to which I have already referred being made for the filing of pleadings. The parties then agreed on proposed categories of documents for discovery. During October 2003 the solicitors for the parties discussed and ultimately agreed upon the categories of documents which each should discover. At the request of the solicitors for the defendant the plaintiffs agreed to give discovery of all contracts or treaties of insurance or reinsurance between New Cap and the defendant pursuant to which payments were made by New Cap to the defendant from April 1998 onwards. They agreed to give discovery of documents recording what monies were paid by New Cap to the defendant in the relevant period under any of those contracts or treaties. They also agreed to give discovery of documents concerning the knowledge or suspicion of the defendant including its brokers, agents or representatives of the financial position or cash flow or insolvency or pending insolvency of New Cap for the period from 21 October 1998 to 21 April 1999.
64 The documents whose discovery was sought were potentially relevant to a defence under s 588FG, namely, as to whether the defendant had no reasonable grounds for suspecting that New Cap was insolvent on 15 January 1999 when it received the payment of US$922,160.25, and whether a reasonable person in its circumstances would have had no such grounds for so suspecting.
65 The defendant's solicitor deposed that in requesting that the plaintiffs give discovery of these categories of documents, he was aware that the statutory time limit for proceedings to be commenced to recover preference payments had expired. He was of the view that the evidence discovered by the plaintiffs of further payments to the defendant would assist the defendant in establishing its defence. He was unaware that the liquidator had restricted his review of potentially voidable transactions to transactions over $500,000.
66 On 21 July 2003 the solicitor for the defendant told the plaintiffs' solicitors that he intended to travel to Mexico to visit his client to look at relevant documents and, he hoped, also to take draft statements from relevant persons in Mexico. He made that visit in the beginning of September 2003. On 18 August 2003 he wrote to Messrs Henry Davis York and said that whilst in Mexico with access to all of his clients' documents it would be convenient for him to have notice of the categories of documents which the plaintiffs might wish the defendants to discover. This would assist him in assuring that all relevant documents which might be required for discovery were identified and brought back to Australia. Despite that request, the plaintiffs' solicitors did not advise what categories of documents might be required for discovery. It is true that at this stage the defence was not filed, but it was clear that a defence under s 588FG would be pleaded.
67 It was not until about October 2003 that the solicitors for the plaintiffs became aware that there were additional treaties between New Cap and the defendant pursuant to which New Cap had made payments to the defendant in the relevant period. It seems that because of the way the company had maintained files prior to the appointment of the second plaintiff as administrator, the additional payments made on 8 January, 20 January and 6 April 1999 were not disclosed in the files. In the course of either agreeing on the categories of documents for discovery or in obtaining documents for discovery, a consultant employed by the liquidator identified the additional payments in question.
68 The proposed amendments were foreshadowed on 13 November 2003. On 14 November 2003 the defendant's solicitors complained that if the plaintiffs were permitted to amend the statement of claim there would be considerable further documents which they would have to consider and investigate.
69 The explanation for the delay in foreshadowing and seeking leave to make the amendments does not wholly excuse the delay. Once the decision was made to institute proceedings against the defendant I would have expected the liquidator to have investigated the other payments made from the date the liquidator considered he could establish insolvency. Granted that the other payments were not disclosed in the files which were examined, one would still expect the cashbook to have been examined to identify any such other payments.
70 The complexity of the liquidation and the many tasks which the liquidator faced is a mitigating factor. The delays attendant upon the defendant submitting to the jurisdiction of the court is also a contributing factor to the delay in the amendment being raised in that it delayed the subsequent interlocutory steps.
71 Whether there is an adequate explanation for the delay is only one factor to be taken into account in considering where the interests of justice lie. The absence of any specific prejudice to the defendant is of more weight, although I take into account that prejudice may exist without its being able to be identified because facts which were once known may now be forgotten, or their significance may not now be appreciated (Brisbane South Regional Health Authority v Taylor at 551). No evidence was led by the defendant as to its course of business, or change of personnel, or record keeping, which might bear on the probability of there being prejudice of that kind.
72 It is probable that the litigation of the existing claim will require investigation of the circumstances surrounding the other payments which are the subject of the proposed amendment. They may well be relevant to whether the defendant knew or had reason to suspect that New Cap was insolvent. Where the defendant does not point to the delay causing any identified prejudice, it would be somewhat incongruous if the circumstances relating to the other payments, which might themselves be unfair preferences, were investigated, perhaps minutely, to assess a defence to the claim, yet the liquidator was precluded from claiming relief in respect of them.
73 I do not consider that it is a relevant discretionary factor that it was the defendant who asked for discovery of the documents in relation to the other payments and that the defendant might not have done so if its solicitor had been aware that the liquidator had confined his review to payments over $500,000. The discovery request was a proper forensic decision. However, the question whether the interests of justice require the amendment to be allowed does not depend upon what considerations affected the parties' tactics in an adversarial contest. If, contrary to my view, this is a relevant consideration, then it is also relevant that the Originating Process put the defendant on notice that the plaintiff might seek an extension of time to make further claims.
74 It is unfortunate that the amendment was not raised before the defendant's solicitor visited his client's offices in Mexico. It is probable that the defendant will incur costs additional to those which it would have incurred if relief had been sought in the Originating Process or even if the claims had been raised at the time of the original pleading. However to the extent that such costs have been thrown away, they will be compensated for by a costs order.
75 In my view, it is the absence of identified prejudice which is the paramount consideration in the circumstances of the present case. If the liquidator were to seek to institute fresh proceedings on the new causes of action, the interests of justice would require that he be granted an extension of time under s 588FF(3)(b) to do so. The application to amend is therefore not to be approached on the basis that the limitation period for the new causes of action has expired.
76 Once that point is reached there are no separate considerations which would lead to a refusal of leave to amend pursuant to SCR pt 20 r 1. In McGee v Yeomans [1977] 1 NSWLR 273, Glass JA described the discretionary considerations as follows (at 280):
"The Court, hearing the application will necessarily have regard to the hardship of the plaintiff, if the amendment is refused, and the prejudice to the defendant, if it is granted. It must also consider all other relevant circumstances, such as the fault of the plaintiff or his advisers, the period of time since the limitation has expired, and the defendant's knowledge of the new cause of action or the new capacity. "
77 The hardship to the first plaintiff and its creditors if the amendment is refused could be substantial. No specific prejudice to the defendant has been identified. The other considerations are those which I have considered in above. The only additional matter is the defendant's knowledge of the new cause of action. There was no evidence that the defendant had no knowledge of the new causes of action alleged in the amendments. I think it likely from the matter referred to in paragraph 66 that it was aware of the potential for such causes of action to be brought by the liquidator subject to such arguments that it might have in relation to whether the period of limitations had expired.
78 For these reasons the application for leave to amend should not be approached on the basis that the period of limitation has expired. The discretion to grant leave should be exercised in the plaintiffs' favour.
79 Although the application is to amend the Statement of Claim, the proceedings were commenced by Originating Process. Part 20 rule 1 applies to the amendment of that document. The Originating Process should also be amended to add the additional claims for relief sought in the amended Statement of Claim. Paragraph 10A(b) of the proposed pleading contains a typographical error by omission which should be corrected.
80 These reasons are sufficient to dispose of the application. In case however I am wrong on either of my conclusions on the first two points I will explain why I would in any event have come to the same conclusion if I had found that the new causes of action were statute barred. I have already dealt with and rejected the submission that s 588FF(3) precludes the amendment.
Fifth Issue: Part 20 Sub-rule 4(5)
81 If the amendment raised new causes of action which are statute barred, the first question would have been whether the amendment came within Part 20 rule 4(5). No issue was raised that the amendment powers in Pt 20 could not be relied upon in the face of s 588FF(3), other than the argument addressed under the third issue above. (See Airlink Pty Ltd v Patterson (2003) 58NSWLR 388). No argument was directed to the question of whether Part 20 rule 4 is applicable to the amendment of the Originating Process, it being neither a statement of claim nor a summons. I will therefore assume that the effect of the Supreme Court (Corporations) Rules, Rule 1.3(2) is to make the whole of Part 20, including rule 4, applicable to the amendment of the Originating Process, even though in terms Rule 4 is confined in its operation to a statement of claim or summons (and by Part 6 Rule 6(2), applies also to cross-claims).
82 The proposed amendments allege three new causes of action for the avoidance of payments made on 8 January 1999, 20 January 1999 and 6 April 1999. The payments were made under separate reinsurance contracts. The causes of action do not arise from the same facts as those out of which the existing claim for relief is made. The defendant denied that the proposed new causes of action arise out of substantially the same facts.
83 The facts alleged to give rise to the cause of action alleged in the existing pleading are: