T-D JOINT VENTURE PTY LTD (IN LIQ) -v- SGH ENERGY CORPORATE PTY LTD [2016] WASC 102 (5 April 2016)

3 Appearing as attachment VAS11 to Mr Smith's affidavit is a chronology of key events and correspondence passing between the company and the defendant. It shows that on 3 June 2010 the defendant lodged a proof of debt with the plaintiff's liquidators. Thereafter the plaintiff and the defendant entered into lengthy negotiations about the defendant's proof of debt and the plaintiff's claim to be paid for the variations. It is unnecessary to go through the chronology in any detail. But two important points emerge. First, the defendant was well aware of the claims the plaintiff was making and had been aware of those claims since the second half of 2010. Second, the parties had been in active and real negotiations to resolve their differences. This was not a case where claims were sprung on an unsuspecting defendant at the last minute.

4 The power of a court to extend the validity of a stale writ is governed by the interplay between O 7 r 1 and O 2 r 1 of the Rules of the Supreme Court 1971 (WA). Order 7 r 1(1) is in the following terms:

For the purpose of service, a writ (other than a concurrent writ) is valid in the first instance for 12 months beginning with the date of its issue and a concurrent writ is valid in the first instance for the period of validity of the original writ which is unexpired at the date of issue of the concurrent writ.

5 Order 7 r 1(2) allows the court to extend the validity of the writ. It is well settled this can be done after the writ has become stale. Order 2 r 1 is in the following form:

Non compliance with rules

(1) Where in beginning or purporting to begin any proceedings or at any stage in the course of or in connection with any proceedings, there has, by reason of anything done or left undone, been a failure to comply with the requirements of these rules, whether in respect of time, place, manner, form or content or in any other respect, the failure shall be treated as an irregularity and shall not nullify the proceedings, any step taken in the proceedings, or any document, judgment or order therein.

(2) Subject to subrule (3) the Court may, on the ground that there has been such a failure as is mentioned in subrule (1), and on such terms as to costs or otherwise as it thinks just, set aside either wholly or in part the proceedings in which the failure occurred, any step taken in those proceedings, or any document, judgment or order therein or exercise its powers under these rules to allow such amendments (if any) to be made and to make such order (if any) dealing with the proceedings generally as it thinks fit.

(3) The Court shall not wholly set aside any proceedings or the writ or other originating process by which they were begun on the ground that the proceedings were required by any of these rules to be begun by an originating process other than the one employed.

6 In Brealey v Board of Management Royal Perth Hospital [1999] WASCA 158; (1999) 21 WAR 79, Ipp J set out the way the two rules work together in the following way:

The question whether O 7 is a compendious code, dealing with all matters concerning the duration, extension and renewal of writs, was debated in argument. Such a proposition was upheld in Bernstein v Jackson [1982] 1 WLR 1082, but this decision no longer represents the law in England: see Leal v Dunlop Bio-Processes International Ltd [1984] 1 WLR 874, Ward-Lee v Lineham [1993] 1 WLR 754 and Boocock v Hilton International Co [1993] 1 WLR 1065. The gravamen of the reasoning of the Court of Appeal in the latter three cases is that the failure to extend the validity of a writ is an irregularity that can be remedied under O 2 r 1 (the English equivalent of O 2 r 1). The persuasive authority of these cases is powerful. Taking into account, in addition, the general remedial nature of O 2 r 1 and the fact that a stale writ is not a nullity (Van Leer Australia Pty Ltd v Palace Shipping KK [1981] HCA 11; (1981) 180 CLR 337), I consider that O 2 r 1 gives the court jurisdiction to 'treat the failure to extend the writ as an irregularity and to waive it accordingly' (per Sir Thomas Bingham MR in Ward-Lee v Lineham at 762).

However, when O 2 r 1 is used to remedy an irregularity in connection with the extension, renewal or service of a writ, the broad discretion normally available under that sub-rule must be exercised with care and caution. That is because O 7 r 1 embodies a clear policy which should not be subverted by mechanical resort to O 2 r 1. The policy in question is apparent from the time restrictions laid down by O 7 r 1 in regard to the validity of unserved writs, the finite periods for which the validity of unserved writs may be extended, and the finite periods during which applications may be made for such extensions. The reasons for the policy are obvious. It is undesirable to allow a plaintiff to issue a writ before the expiry of a limitation period and then to delay service for an indefinite period. Lengthy delays cause difficulties in the ascertainment of the truth. It is unfair to require potential defendants to contemplate potential litigation indefinitely. The unfairness stems from the uncertainty and concomitant financial and other burdens that would be the consequence. As Young CJ (with whom Kaye and Southwell JJ agreed) said in Ramsay v Madgwicks [1989] VicRp 1; [1989] VR 1 at 5, 'it is not right that people should be left in ignorance of proceedings that have been taken against them if they are here to be served.' Finally, the proper administration of the court would be hampered if writs could be issued and then left to lie dormant for indefinite periods [44] [45].

7 After considering the terms of O 3 and how that order gives some guide as to the proper approach to O 2 his Honour concluded:

In my view, in the same way, O 2 r 1 enables the Court to prevent manifest unfairness arising from the need to adhere rigidly to the time limits laid down by O 7 r 1(2). But before power under O 2 r 1 may be so exercised, it must be established that, without such remedial relief, injustice will occur. The application should only be granted when the justice of the case requires a departure from the policy underlying O 7 r 1 [50].

8 In Kleinwort Benson Ltd v Barbrak Ltd [1987] 1 AC 597, Lord Brandon speaking for the House of Lords noted that when the issue is the extension of the validity of a writ there are three main categories of cases. His Lordship said:

My Lords, there are three main categories of cases in which, on an application for extension of the validity of a writ, questions of limitation of action may arise, all being cases in which the writ has been issued before the relevant period of limitation, that is to say the period applicable to the cause of action on which the claim made by the writ is founded, has expired. Category (1) cases are where the application for extension is made at a time when the writ is still valid and before the relevant period of limitation has expired. Category (2) cases are where the application for extension is made at a time when the writ is still valid but the relevant period of limitation has expired. Category (3) cases are where the application for extension is made at a time when the writ has ceased to be valid and the relevant period of limitation has expired. In both category (1) cases and category (2) cases, it is still possible for the plaintiff (subject to any difficulties of service which there may be) to serve the writ before its validity expires, and, if he does so, the defendant will not be able to rely on a defence of limitation. In category (1) cases, but not category (2) cases, it is also possible for the plaintiff, before the original writ ceases to be valid, to issue a fresh writ which will remain valid for a further 12 months. In neither category (1) cases nor category (2) cases, therefore, can it properly be said that, at the time when the application for extension is made, a defendant who has not been served has an accrued right of limitation. In category (3) cases, however, it is not possible for the plaintiff to serve the writ effectively unless its validity is first retrospectively extended. In category (3) cases, therefore, it can properly be said that, at the time when the application for extension is made, a defendant on whom the writ has not been served has an accrued right of limitation.

It would not be right, however, to regard the question whether, at the time of the application for extension, a defendant on whom a writ has not been served has an accrued right of limitation as the only significant factor in relation to such extension. For, even in category (1) cases and category (2) cases, where there is no such accrued right, the effect of an extension may still enable a plaintiff to serve a writ, which was issued before the relevant period of limitation expired, more than 12 months after the expiry of that period. This necessarily involves a departure, in favour of a plaintiff, from the general rule on which a defendant is entitled to rely that a writ against him, if it is to be effective, must be issued before the relevant period of limitation has expired and must be served on him within 12 months of its issue (615 616).

9 At the commencement of his submissions counsel for the plaintiff submitted this was a category (1) case - that is to say, the plaintiff was of the view that the earliest its causes of action would become time barred was 18 April 2017. So if its application for the extension of the validity of the writ failed it could still pursue the defendant in other proceedings. In fact to protect its position the plaintiff issued fresh proceedings in October 2015. Those proceedings had not been served as to do so when this application was on foot would have amounted to an abuse of process. Counsel for the plaintiff was very careful to challenge counsel for the defendant to argue that the plaintiff's claims were statute barred. Shrewdly counsel for the defendant did not fall into the trap. He did not challenge the plaintiff's position. Accordingly, this matter must be approached on the basis that if the application fails the plaintiff can pursue its action without concern as to any claim being time barred.

10 When it comes to determining the application two broad principles are to be applied. First, the decision whether or not to grant an extension of the validity of the writ is discretionary. Of course the discretion must be exercised judicially and every case is dependent on its particular circumstances. Second, the extension will only be granted when it is in the interests of justice to do so. This second principle really feeds into the first. What best serves the interests of justice is dependent upon all the relevant circumstances.

11 Given that the relief is discretionary reliance on decided cases is often of little assistance. However, there is a decision of the Court of Appeal where the facts closely resemble the facts in this case. That is the decision of Chalmers and Partners v Kensit [2008] WASCA 122. The case concerned an application for an extension of the validity of a writ where the writ was served one day out of time. At first instance I granted the extension. The appeal against that decision was successful. There was only one ground of appeal. It was in the following terms:

The learned Master erred in law by exercising his discretion pursuant to order 7 rule 1(2) of the Rules of the Supreme Court to extend the validity of the writ issued by the respondents beyond 12 months after the date when it was issued, where:

(a) there was no adequate explanation for the respondents' failure to serve the writ within 12 months after it was issued, and the respondents' legal representative had taken no steps to further investigate the respondents' claim or to serve the writ within that period;

(b) the writ was so defective that it was impossible to tell whether any limitation period may have expired, save in respect of the respondents' contractual claim where the limitation period had expired [22].

12 There was no doubt the indorsement of claim on the writ was defective - it was not possible to ascertain when the causes of action were said to accrue. At first instance I was prepared to assume the plaintiff's claims would statute barred if the writ was not renewed. Buss JA (with whom Murray AJA agreed) concluded that was an error. His Honour was of the view it was for the plaintiff to establish the claims would be statute barred and, when it was not possible to ascertain from the defective indorsement whether this was the case or not, the proper approach was to assume fresh proceedings could be issued and would not be time barred. In other words his Honour approached the case on the basis it was a category (1) case.

13 Buss JA set out the factors for and against the extension of the validity of the writ. His Honour said:

The factors which are in favour of an extension of the validity of the writ are these:

(a) The statutory limitation period applicable to one or, perhaps, more of the alleged causes of action which the respondents wish to litigate against the appellants may have expired as at the date when the writ became stale.

(b) By the letter dated 17 April 2003, the appellants were given some particulars of the respondents' claim.

(c) The purported service of the writ was effected only one day after it became stale.

(d) The respondents applied promptly for an extension of the validity of the writ.

The factors which are against an extension of the validity of the writ are as follows:

(a) No statutory limitation period applies to the alleged causes of action for breach of fiduciary duty or breach of duty of trust and confidence, and equity would not apply a limitation period by analogy in respect of those alleged causes of action.

(b) Neither the indorsement of claim (which is plainly defective), nor the affidavit material filed by the respondents, enables this court to assess reliably whether the statutory limitation period which is applicable to the alleged causes of action for negligence, breach of statutory duty and breach of contract had expired as at the date on which the writ became stale. A minute of amended or substituted indorsement of claim was not produced to the learned master or this court. The respondents are therefore responsible for the uncertainty which attends this important issue.

(c) The respondents, in deciding not to serve the writ until the last moment, chose to live by technicalities, and therefore must be taken to have accepted the risk of dying by them if they failed to observe the time limits imposed by O 7 r 1(2).

(d) The respondents, having decided not to serve the writ until the last moment for the purpose of enabling them to investigate whether they had reasonable causes of action against the appellants, did not make productive use of the 12 month period for that purpose. Rather, as the learned master found, the respondents' solicitor 'took little or no steps in the 12 months after the issue of the writ to advance the [respondents'] claim' [10].

(e) As the learned master concluded, there was no satisfactory explanation for the respondents' delay in serving the writ. Mr Lindsay's apparent belief that 26 May 2006 (and not 25 May 2006) was the last day on which the writ was valid may be an explanation but it is not, in the circumstances, satisfactory.

(f) Any prejudice suffered by the respondents if the validity of the writ were not to be extended would be self-inflicted.

(g) Although the appellants are able to point only to general, as distinct from particular, prejudice, this may well be attributable, in part, to the respondents' failure properly to draw their claim. The letter dated 17 April 2003 provides some particulars in relation to the respondents' alleged cause of action against the first appellant in negligence, but it does not mention the second appellant. Nor does it mention any claim for breach of statutory duty, breach of contract, breach of fiduciary duty or breach of duty of trust and confidence against the first appellant [32] [33].

14 Applying a similar analysis to this case there are a number of factors in favour of the extension of the validity of the writ. First, the defendant has been given detailed particulars of the plaintiff's claims. Appearing as attachment VAS10 to Mr Smith's affidavit is a report from Evans & Peck dated 17 April 2012. This is an expert report prepared to examine the plaintiff's claims for variation. It is a highly technical complex document which goes into great detail to justify the plaintiff's position. The defendant could have had no doubts as to the basis upon which the plaintiff was making its claim. The service of the writ was effected only one day after it became stale and the plaintiff applied promptly for an extension of the validity of the writ. As no limitation question arises the plaintiff is unable to point to any prejudice if the application is not granted.

15 Against the extension being granted is the 'live by the sword die by the sword' approach referred to by his Honour in Chalmers. Perhaps most importantly in this case it was said on behalf of the defendant there was no satisfactory explanation from the plaintiff as to why the writ was not served well before the date upon which it became stale. The explanation provided by the plaintiff is found in par 46 of Mr Smith's affidavit. It is in the following term:

On or about 2 September 2014, on my instructions Sophie Frodsham, an employee of Ernst and Young, instructed by solicitors to file, but not serve, the Writ. My decision not to serve the Writ was based on the following:

(a) NEL was still subject to the conditional DOCA;

(b) The Company had insufficient assets to fund the Company pursuing the Company's claims;

(c) The Liquidators did not wish to expose the Company to any adverse costs orders; and

(d) the Liquidators could not obtain litigation funding to pursue the Company's Claims or to meet adverse costs orders while the defendant had no assets that would be available to its unsecured creditors.

16 On behalf of the defendant it was submitted this explanation was no explanation at all. The evidence shows the deed of company arrangement (DOCA) became unconditional in December 2014. That meant the only explanation for the plaintiff's delay in serving the writ was because the liquidators were waiting to see whether or not they could attract the interest of a litigation funder. This it was said was not a permissible reason for not serving the writ. Counsel placed particular reliance on what was said by Ipp JA (with whom Tobias & McColl JJA agreed) in Arthur Andersen Corporate Finance Pty Ltd v Buzzle Operations Pty Ltd (in liq) [2009] NSWCA 104. His Honour said:

In my view it would be inappropriate to allow an extension of time for the service of a writ or statement of claim where a significant cause of the delay has been the willingness of the plaintiff to do nothing about service while awaiting a decision from a litigation funder as to whether or not to provide the necessary funds. Were that to be regarded as a good reason to extend time, the court would be allowing plaintiffs to arrogate to nonparties the right to decide the period by which the time for service of a writ should be extended. That would be fundamentally in conflict with the court's duty to exercise, alone, the discretion conferred upon it [82].

17 This decision had been followed in a number of other cases including by Judd J in Re Australian Property Custodian Holdings Ltd (in liq) [2015] VSC 745 [51] [52], [99]. Further, counsel pointed out that when the attempt was made to serve the writ no litigation funding had been obtained. Why, counsel asked, if it was appropriate to serve the writ then was it not appropriate to serve it well in advance of the date upon which it became stale.

18 It is worth noting that the Arthur Andersen decision was a category (3) case. That, in the submission of counsel for the plaintiff, distinguished it from the present case. For my part I have some difficulty seeing why delaying service of a writ while the question of litigation funding is being settled should not be regarded as a proper explanation for delay in service of proceedings. Once a writ it served and an appearance is entered, in this State at least, the case enters the case management regime. It will either come before a registrar for directions or, in a case such as this, will end up in the Commercial & Managed Cases (CMC) List. In either case there is likely to be an order for the delivery of a statement of claim. The drawing of a statement of claim in this case would be a significant and costly undertaking. If a liquidator does not have funds to pursue the action through to its ultimate conclusion, bearing in mind he will be asked to provide security for costs at an early stage, it is unreasonable to expect him to serve a writ until he has to do so. Of course care must be taken to ensure what has happened in this case does not happen. But it seems to me reasonable for a liquidator to wait as long as possible to see whether he has funding before actually serving proceedings.

19 The defendant did claim that in this case it would suffer real prejudice because a number of persons who had worked for the defendant and were involved in the contract were no longer associated with the company. With respect the defendant knew from 2010 there was likely to be an argument over the plaintiff's claims for variations and prudence suggests statements should have been obtained from the relevant witnesses. In my view it is a hollow suggestion to claim specific prejudice. But I accept there is what is often referred to as a the general prejudice associated with delay.

20 There is one further point I should make about the extension of time which can perhaps be related to case management principles. In FAI General Insurance Co Ltd v Southern Cross Exploration NL [1988] HCA 13; (1988) 165 CLR 268, the High Court was dealing with an extension of time to comply with a springing order where the time for compliance had passed. Clearly the case was vastly different to this one. But in the course of delivering the reasons of the court Gaudron J made the following observation:

Where an order for dismissal does no more than effect a situation in which fresh proceedings may be brought (involving additional expense and duplication of court time if, as here, there has been a hearing as to the issues in dispute or some of them) then it seems to me that the administration of law and justice may be well served by a power to reinstate proceedings (288).

21 Returning then to the Chalmers decision after weighing the arguments for and against the grant of the extension Buss JA concluded:

After assessing the factors which are in favour of an extension of the validity of the writ and those factors which are against the extension, I have concluded that the respondents' application should be dismissed. The factors militating against an extension decisively outweigh the factors militating in favour of it. The interests of justice, including the 'balance of hardship' between the parties, do not require the exercise of the court's remedial discretion. The respondents cannot reasonably complain of any unfairness resulting from the refusal of an extension [34].

22 In the end I can see no significant difference between the relevant facts in Chalmers and the relevant facts in this case. Perhaps the plaintiff is marginally ahead here because there has been detailed discussions as to the nature of the plaintiff's claim. But it does not seem to me this pushes the plaintiff over the line. After all in Chalmers his Honour found the factors against the extension were 'decisive'. It must be accepted that the consequence of this decision, taken together with the decision in Chalmers, means it is difficult to imagine a circumstance in a category (1) case in which the validity of a writ would be extended. But that I think is the state of the law as it stands at the moment.

23 The plaintiff's application will be dismissed. The plaintiff should pay the defendant's costs of the application including the reserved costs.