There are a number of reasons why liquidators might want to slow things down when it comes to commencing or prosecuting proceedings. A liquidator might want more time to fully investigate certain claims or secure appropriate funding before incurring substantial costs or adverse costs exposure. While there are options available to liquidators looking to delay either the commencement or service of a particular proceeding, each comes with its own risks.
The recent decision in the liquidation of Australian Property Custodian Holdings, Horne v Retirement Guide Management Pty Ltd (APCH),1 is a useful demonstration of the relevant principles, and a timely reminder of the relevant risks, particularly in respect of ex parte applications for extension orders. The decision also continues a growing trend within the Courts against making extension orders sought by liquidators.
The decision in APCH
In APCH, the company’s liquidators prudently filed proceedings against several defendants in the Supreme Court of Victoria prior to the expiry of the limitations period, and immediately made an application for an extension of time within which to serve proceedings. The reasons for the extension were to give the liquidators time to complete negotiations with potential funders, explore other options for funding the litigation, and to resolve complications caused by similar proceedings being contemplated by the concurrently appointed receivers.
The application was made ex parte (i.e. without notice to the defendants). The liquidators were successful in the first instance and were granted a 12 month extension of time within which to serve the relevant writ. However, once served, the defendants made an application to have the orders extending time set aside. If successful, this means that the liquidators claim would be set aside for failure to properly serve.
The defendants’ application to have the extension set aside was initially heard by an Associate Justice and rejected. The extension orders were found to have been appropriate and were upheld.
The defendants appealed against that decision to a Judge of the Supreme Court and were successful. Justice Judd held that the Court did not have the power to make orders extending time to serve proceedings under the Corporations Rules and that, in any event, the circumstances did not warrant an extension being granted.
The liquidators then appealed the decision of Judd J to the Court of Appeal, which unanimously held that the Court did have the power to extend time to serve proceedings under the Corporations Rules. However, the Court agreed that the circumstances did not justify the Associate Justice exercising the discretion to extend the time for service and upheld Justice Judd’s orders setting aside the extension.
In the result, the liquidators’ writ was dismissed with no apparent avenue to recover the costs that had been incurred in the proceeding to date.
Whilst the extension granted to the liquidators was ultimately set aside, the decision in APCH is a very recent example of how the Court will approach an application to extend time to serve proceedings.
In considering applications to extend time, the Court will typically focus on four main factors:
- the length of the delay – typically, the longer the delay that will be caused by proposed extension, the less likely the Court is to grant an extension;
- the reason for the delay – the Court must be satisfied there is good reason why the extension should be granted (such as the need to complete investigations into potential claims), although what is good reason will depend on the circumstances of the case and what is good reason in one case may not be good reason in another;
- the prejudice that will be caused if the extension is granted or refused – the Court will weigh up the harm that the applicant will suffer if the extension is refused (in many cases, being barred from pursuing the claim due to limitation issues) against the potential harm to defendants if it is granted (most commonly increased difficulty in mounting a defence where claims are brought a long time after the relevant events); and
- any notice given to the defendants of the proceeding – where the defendants have notice of the claim, any prejudice caused to the defendants by the extension will be lessened.
Of particular note, in APCH the Court of Appeal held that the need to complete funding negotiations was not sufficient reason to warrant an extension of time to serve the relevant claim. Similarly, complications caused by potential overlap with a claim being pursued by the concurrently appointed receivers was not sufficient to justify the delay. The Court of Appeal also noted that, even if there is no proven harm to the defendants by the granting of an extension, the Court will assume that such prejudice will be caused. In those circumstances, it is for the applicant to positively prove that there is no prejudice, or that the prejudice caused to them would far outweigh any prejudice to the defendants.
The decision in APCH is also a reminder that, as a starting point, it should be remembered that litigants in Australian courts will have obligations to conduct litigation in as efficient and cost-effective manner as possible. Courts are also increasingly focusing on these obligations in deciding issues such as extension applications and will often start from the default position that proceedings should be commenced and served within the periods allowed. Any party applying for an extension will bear the burden of establishing that the extension should be granted.
The decision also highlights the risk to liquidators if an extension application is made ex parte, rather than being made with formal notice to the relevant defendants or other potentially affected parties (known as an inter partes application). In those circumstances, once served with the orders, a defendant or other affected party can apply to have those orders set aside on the basis that the liquidator failed to be full and frank with the Court when making their application. If they are successful, the proceedings will be dismissed. Depending on the circumstances of the case, the liquidator (as in APCH) may be in a position where significant costs have been expended but fresh proceedings cannot be commenced given the expiry of the relevant limitation periods.
Whilst the APCH decision addressed only an extension of time to serve proceedings, similar principles will typically apply to applications to extend time to commence proceedings.
Some Practical Tips
As demonstrated above, there can be substantial risks in making an application to extend time to commence or serve proceedings. We have set out below a few practical tips on how to minimise that risk.
First, the best way to avoid falling foul of a limitation period is to start investigations early and commence proceedings well before the end of the applicable period. At a minimum, you should always plan to file at least 1-2 days before the expiry of the limitation period.
Secondly, if you do need more time before you serve, consider whether you can file in a court that will give you a longer period for service – for example, can it be filed by writ in Victoria where there is a longer service period for new actions.
Thirdly, if you think you might need to make an application to extend time (either to commence or serve proceedings), think about it early and try to file the application as early before the expiry of the relevant time period as is practical. This is particularly important in voidable transaction claims, where an extension application cannot be made after the expiry of the limitation period.
Finally, if you do need to file an application to extend time, consider whether you can make that application with notice to the defendants or any other affected parties. If they are given proper notice, they cannot later apply to have the orders set aside.