Did the primary judge take into account an irrelevant consideration?
79 The basis of the clamaints' contentions with respect to this issue was that the primary judge considered that he should approach their application keeping in mind the public policy considerations referred to by Spigelman CJ in BP Australia to the effect that the time limit imposed by s 588FF(3)(a) provided for a reasonable period for the taking of action by a liquidator under the voidable transaction provisions of the Act so that at the end of that period those persons who had received the benefit of such a transaction will know whether he or she remained at risk.
80 On one view, the primary judge's reference to the policy considerations behind the imposition of the three-year limitation period in s 588FF(3)(a) overlaps with, and assists in explaining his Honour's adoption of, the principle stated by Megaw J in Heaven. However, the claimants submitted that those policy considerations were entirely irrelevant in the present case as the SLC had been filed within the three-year limitation period as a consequence whereof those considerations had been satisfied.
81 An allied ground of complaint was a submission by the claimants that the primary judge took into account an irrelevant consideration when he held that the liquidator's failure to make an application for an extension of time under s 588FF(3)(b) of the Act amounted to "dilatory conduct". The opponent submitted before his Honour that the liquidator could have made such an application had he so wished at any time before the three-year limitation period expired. However, as the primary judge observed, the liquidator chose to commence the action within the limitation period but without taking any immediate steps to serve the opponent until he had obtained litigation funding to enable the action to be prosecuted. In his conclusions, his Honour relied upon the "dilatory conduct" of the claimants generally in prosecuting the proceedings including the failure to make an application under s 588FF(3)(b) to extend time for the commencement of the action until litigation funding was in place.
82 I note in passing that it was not until this Court handed down its decision in BP Australia on 8 August 2003 that it became authoritatively settled that s 588FF(3)(b) covered the field with respect to extensions of time to commence an application to set aside voidable transactions under s 588FF(1) to the exclusion of the general power of extension of time in s 1322(4)(d). Accordingly, any application under the former section had to be made within the three year limitation period. In so holding, this Court reversed the decision of Austin J in Brown v DML Resources Pty Limited (No 6) (2002) 166 FLR 393 which was to the opposite effect although there were a number of single judge decisions to the contrary of that decision. By the time this Court delivered its judgment in BP Australia, the three-year limitation period in the present case had expired.
83 In my respectful opinion it would be unfair to categorise the liquidator's choice in commencing the action within the limitation period (albeit by only three days) as "dilatory conduct", the implicit suggestion being that the proper conduct required him to make an application pursuant to s 588FF(3)(b) to extend time for the action to be commenced. It is obvious that the liquidator and his solicitor, Mr Pignone, were conscious of the fact that the limitation period was about to expire and that on 8 April 2003 the creditor who had been prepared to fund the proceedings, was no longer willing to do so. Although it was not until on or about 5 May 2003 that Mr Pignone received a letter from LLS confirming that it would fund the proceedings, he nevertheless took steps to commence the action on 3 May, no doubt upon the reasonable assumption that he would receive that confirmation.
84 I would also infer that at that time both the liquidator and Mr Pignone had reason to believe that, firstly, a litigation funding agreement would be entered into within a reasonable time of the filing of the SLC and, secondly and more importantly, that there would be no particular difficulty in serving process upon the opponent. Although unaware of Part 18 rule 9 of the Rules, subject to obtaining an extension of the time for service pursuant to Part 5 rule 5(1)(c) which Mr Pignone had successfully achieved on 1 August 2003, the claimants had until 1 December 2003 within which to serve the opponent and ensure that a defence was filed or otherwise default judgment entered.
85 A further factor taken into account by the primary judge but asserted by the claimants to be irrelevant was the fact that a period of nearly two years expired from the time the Gordons were examined to the commencement of the action. His Honour considered that that was one factor that must be weighed in assessing the prejudice likely to be suffered by the claimants in the event of the application failing. As I understand it, the prejudice referred to was that if the claimants' application was declined, it would be too late for fresh proceedings to be instituted as the limitation period had expired. The other side of this coin is that that was a problem of the liquidator's own making (as the opponent submitted) and, therefore, should not weigh in favour of the exercise of the discretion in the claimants' favour given that such an exercise would work to the prejudice of the opponent who then had the benefit of a limitation defence to any such fresh proceedings.
86 The claimants thus submitted that the primary judge had taken this factor into account as exacerbating their "default" in the filing of the SLC only three days before the expiry of the limitation period rather than at some earlier date. They further submitted that the timing of the commencement of the action was irrelevant to the default that actually occurred which was the failure of the claimants' solicitor to seek an extension of time prior to 1 December 2003 for service of the SLC and, if necessary, for the operation of Part 18 rule 9.
87 In my opinion, delaying the institution of the action until three days before the expiry of the limitation period cannot be a relevant consideration in the context of an application to set aside the dismissal of the action under Part 18 rule 9, a rule which is, to a limited degree only, akin to dismissal for want of prosecution rule. Certainly it is not a limitation provision; rather, it is a case management rule. Thus in Birkett v James [1978] AC 297 (a want of prosecution case) Lord Diplock (at 320) makes the point that in such a case,
"time elapsed before issue of the writ which does not extend beyond the limitation period cannot be treated as inordinate delay; the statute itself permits it."
88 His Lordship made the same point at 322 in a passage adopted by Murray J, with whom Kennedy and White JJ agreed, in Lewandowski v Lovell (1994) 11 WAR 124 at 134. This was notwithstanding an observation by Bray CJ in Ulowski v Miller [1968] SASR 277 at 281, that he thought it appropriate to consider the lapse of time, not only after the issue of the writ, but also between the accrual of the cause of action and the issue of the writ.
89 However, the position appears to be different in cases involving an application to extend a limitation period. Thus in the leading case of Brisbane South Regional Health Authority, it was held by Toohey and Gummow JJ (at 548) and by McHugh J (at 554) that in addressing the question of prejudice to the defendant by reason of the delay in instituting proceedings, it was not the correct approach to ask whether an order extending time would place the defendant in any worse position than he or she would have been in if the action had been commenced within, but towards the end of, the limitation period. This suggests that, at least in cases involving an extension of the limitation period, it is not merely the lapse of time from the expiry of the limitation period that is relevant: the lapse of time from the accrual of the cause of action is also relevant.
90 The question is whether there is some difference in principle between limitation period cases and want of prosecution cases that warrants this apparent distinction with respect to the particular period of delay that is relevant. In my opinion there is. A crucial difference between the two types of cases lies in the particular moment from which time begins to run.
91 In limitation period cases, the relevant time limit begins to run from the accrual of the cause of action. In want of prosecution cases, on the other hand, the relevant time period begins to run from the time proceedings are instituted. This difference reflects the period of delay that is relevant to the exercise of the court's discretion in each case. In the case of the former, the court is being asked to exercise its discretion to extend the time within which a plaintiff is entitled to initiate proceedings. Thus, it is the delay in instituting the proceedings that is relevant. Such delay is to be measured from the time at which the plaintiff could first have instituted proceedings (that is, the time of the accrual of the cause of action). In the case of the latter, by contrast, the court is being asked to exercise its discretion to strike out proceedings on the grounds of inaction in prosecuting proceedings already commenced within the limitation period. Thus it is the delay in prosecuting the proceedings that is relevant. This delay is to be measured from the time at which the action was instituted (that is, the time of the filing of the statement of claim).
92 McHugh J particularly recognised this distinction in Brisbane South Regional Health Authority. His Honour had earlier in his judgment (at 552) set out the four rationales of limitation periods (see [33] above). The second, third and fourth rationales reflect the fact that the defendant's potential liability expired at the end of the limitation period so that (at 555)
"to extend the period may result in the imposition of a new legal liability on the defendant."
93 However, as his Honour then observed,
"[i]f the action had been brought within time, it would have been irrelevant that, by reason of the delay in commencing the action, Dr Chang [a witness for the defendant] might have had little independent recollection of his conversation with the applicant and that the defendant might have had difficulty in fairly defending itself."
94 In other words, the law permits proceedings to be instituted at any time within the limitation period. If at that time the delay between the time the cause of action arose and the filing of the initiating process makes it difficult for the defendant to obtain a fair trial, then that is irrelevant. This is because that difficulty is a product of the defendant having a potential liability until the limitation period expires in respect of which it may, if it sees fit, take precautions such as seeking out evidence when the possibility of a claim becomes known.
95 On the other hand, once the limitation period expires without proceedings being instituted, the defendant becomes freed of that potential liability. It then becomes, as it were, a whole new ball game. If a new potential liability is to be imposed upon the defendant by an extension of time in which to commence proceedings, the central issue revolves around the capacity of the defendant then to obtain a fair trial. The answer to this question logically requires a consideration of the effect of the delay from the time the cause of action arose. As McHugh J points out at 554-5, to refer in such a case to only the marginal prejudice created by the delay would downplay and overlook the second, third and fourth rationales for the imposition of a rigid time limit in the first place. But those rationales are satisfied once the proceedings are commenced within the relevant time limit.
96 Of course, the present case is neither a limitation period case nor a want of prosecution case, but a case involving a service of process rule and a case management rule. What then is the position in such a case? In my view, the position is the same as that in want of prosecution matters. In the case of both Part 5 rule 5(1)(c) and Part 18 rule 9, time begins to run from the filing of the statement of claim. The court in the present case is being asked to extend these time limits in order that the action, already commenced within the relevant limitation period, may be prosecuted. Thus, as in the case of want of prosecution matters, it is only the delay in prosecuting the action that is relevant to the exercise of the court's discretion. That delay is to be measured from the time the action was commenced.
97 In light of the foregoing, if, as the claimants submitted, his Honour did take into account the delay in the institution of the proceedings until three days before the expiry of the limitation period, then this would have been an irrelevant consideration in the circumstances. However, the opponent submitted that there was no express finding by the primary judge to the effect that the late institution of the action exacerbated the liquidator's default. In my view, there is substance in that submission. His Honour did hold that the delays which had occurred lay at the feet of the liquidator due, in particular, to his "commercial decision" not to prosecute the action until litigation funding was available and, in his conclusion (see [46] above), his Honour referred to the "dilatory conduct" of the claimants in prosecuting the action. However, it seems that this was more a reference to delay in the prosecution of the action after it had been commenced (something which, in light of the foregoing, was certainly a relevant consideration) rather than delay in the commencement of the proceedings. Therefore, I am not prepared to make a positive finding that delay in the institution of proceedings was a consideration that his Honour took into account against the interests of the claimants. I would thus not accede to the claimants' submissions with respect thereto.
98 However, I do consider that it was irrelevant for the primary judge to take into consideration the public policy behind the three-year limitation period imposed by s 588FF(3)(a) and the failure of the liquidator to seek an extension of time pursuant to s 588FF(3)(b).
99 As to the latter, there was no legal requirement to make such an application as the identity of the party against whom the action was to be instituted and the facts necessary to support the relevant causes of the action were known, so that there was no impediment to the commencement of the action within the three years: cf BP Australia at 346 [118] and [120]. The prudent course in the circumstances was to institute the action within the limitation period as in fact occurred: cf Re McGrath; HIH Insurance Limited (2004) 205 ALR 643 where, applying what Spigelman CJ said in BP Australia, Barrett J granted an extension in general terms without notice or reference to any particular or identified defendant or to any particular s 588FF(1) transaction. See also Tolcher v Capital Finance Australia Limited (2005) 52 ACSR at 333 [328].
100 With respect to the public policy considerations, they do no more than require action to be instituted within the three years on the basis that that is a reasonable period within which a person who has taken the benefit of the impugned transaction may be at risk but no longer. There is no requirement in s 588FF(3)(a) that the nominated defendant be served with process within the three years. Thus, in McGrath v National Indemnity Company (2004) 49 ACSR 403, Barrett J, after citing from Spigelman CJ's judgment in BP Australia including [115] and [118] thereof, observed (at 410 [17]) that clearly implicit in the Chief Justice's statement was
"a construction [of s 588FF(3)(b)] requiring no more than that the application be initiated within the three year period."
101 Although this case related to the making of an application for an extension of time under s 588FF(3)(b), the point made by Barrett J was that the policy which underpinned the provision was satisfied if the application for an extension was made (by the filing of the appropriate initiating process) within the three-year limit, not that it was served or otherwise determined within that period. Thus his Honour observed (at 410 [18]):
"Much more consonant with reality is a legislative intention of requiring the liquidator to initiate proceedings within the specified time …, with those proceedings then taking their ordinary course within the court system."
102 In my opinion, this reasoning with respect to s 588FF(3)(b) is equally applicable to s 588FF(3)(a). What is required to satisfy the public policy in question is that the application under s 588FF(1) be made (by filing the appropriate initiating process) within the three-year limitation period. If it is, no question of the proceedings being statute barred can arise. The proceedings then take their ordinary course within the relevant court system in accordance with the rules of that system.
103 It was thus irrelevant for the primary judge to take into account the public policy considerations (such as McHugh J's four rationales) underpinning the limitation period in s 588FF(3)(b) where the action had been instituted within that period. It would also have been irrelevant for the primary judge to take into account any delay prior to 2 May 2003 including for the purpose of supporting a finding of "dilatory conduct" on the part of the claimants and, in particular, the liquidator. However, as I said in [97] above, I am not prepared to make a finding that his Honour did take such delay into account.