Associate Justice Randall in Re Convector Grain Pty Ltd (In Liquidation) [2017] VSC 473 rejected an application for an extension of time on the service of originating process. In doing so his Honour undertook a very comprehensive review of the interaction of the Civil Procedure Rules with the Corporations Rules and section 1322 of the Corporations Act.

FACTS

The second and third plaintiffs, liquidators of the first plaintiff (‘Convector Grain’), sought relief under s 588FF(1) of the Corporations Act 2001 (Cth) (‘the Act’) that a preference in the sum of $337,928.27 be repaid to Convector Grain [1].

The liquidators were appointed as voluntary administrators in place of those originally appointed on 5 September 2013. By resolution made on 10 February 2014 they became liquidators of Convector Grain [14].

This proceeding is one of eight proceedings prosecuted by the plaintiffs, all of which were initially returnable on the same date, 16 September 2016 at 10:00am [15].

The relation-back day was 26 August 2013,  the date the liquidators were appointed. The originating process was filed on 25 August 2016, one day within the three-year time limit imposed by s 588FF(3)(a)(i). [3]

The proceedings were initially returnable on 16 September 2016.

Rule 2.7 of the Supreme Court (Corporations) Rules 2013 (Vic) (‘Corporations Rules’) requires service to be effected ‘[a]s soon as practicable after filing … and, in any case, at least 5 days before the date fixed for hearing’. That is, at least five days before 16 September 2016 [4].

Service was not effected by that time. Instead, the return date was amended on 14 September 2016 by the Prothonotary [5].

On 13 September 2016, the plaintiff’s solicitors emailed his Honour’s Associate and seeking to change the dates contained in the originating process in each of the  proceedings to a date in January 2017 [16].  The Associate responded on 14 September 2016 stating the adjournment would be made [18].  Later that day the Plaintiff’s solicitors emailed seeking to amend the date in the originating process in the proceedings listed  to 3 February 2017 [19]. The Associate confirmed that the originating process could be amended for all matters listed to 3 February 2017 [20].  On 4 October 2016, the Plaintiff’s solicitors emailed the Associate  relevantly stating that:

• Registry advised that it was necessary to obtain the Court’s  permission to have the first return date listed so far into the future for the second extension proceedings,
• the originating process had not been served on any of the defendants at this stage.
• the Court advised that the return date for the First Extended Proceedings has been changed to now be listed as returnable before the Court on 3 February 2017 instead of on 14 October 2016. …
• that the Second Extended Proceedings should remain returnable on 3 February 2017. [21]

On 4 October 2016 the Associate wrote to the Plaintiffs’ solicitors relevantly confirming that the First Extended Proceedings were returnable on 14 October and the Second Extended Proceedings are all returnable on 3 February 2017 [22].

The originating process and material in support was served on the defendant on 3 November 2016 with a hand-written amendment of the return date [23]

Both parties filed interlocutory applications being:

• by the Defendant on 17 November 2016 under rr 36.03(3), 2.01(2)(a) and 2.01(2)(b) for the amendment to the return date to be wholly disallowed and for the originating process to be set aside [24].
• by the Plaintiffs on 22 November 2016 seeking relief under s 1322(4) of the Act and r 2.01(2)(c) to allow for regularisation of irregularities in procedure and, in the latter case, to allow amendments. The plaintiffs sought leave, nunc pro tunc, to:

(a) make such orders as are necessary under s 1322(2) of the Act to regularise the originating process;

(b) amend the originating process by substituting a new hearing date for the first return date of the originating process; and/or

(c) extend the time for service of the originating process; and/or

(d) make such further or other order as the court considers appropriate.

 

DECISION

The Court noted that regarding the relation back day, determined by Section 588FF(3) an application:

…may only be made:(a) during the period beginning on the relation back day and ending:

(i) 3 years after the relation back day; or

(ii) 12 months after the first appointment of a liquidator in relation to the winding up of the company;

whichever is the later; or

(b) within such longer period as the Court orders on an application under this paragraph made by the liquidator during the paragraph (a) period.

 

The court described the process in fixing hearings as:

• under r 2.3 the Prothonotary must fix a date for hearing an originating process filed under s 588FF when he or she receives it [8].
• r 2.7 then requires the originating process to be served ‘as soon as practicable after filing … and, in any case, at least 5 days before the date fixed for hearing’ [8].
• the interaction between the Corporations Rules and Supreme Court (General Civil Procedure) Rules 2015 (Vic) (‘GCP Rules’) is primarily governed by Corporations Rules rr 1.3 and 1.10 [9]
• r 36.03(1) allows for amendment of a writ or other originating process where that originating process has not yet been served on the other party.
• r 36.03(1)(b) requires an affidavit in support of such an amendment, stating that service has not occurred.
• r 36.01 provides that amendments are to be made for the purpose of:

(a) determining the real question in controversy between the parties to any proceeding; or(b) correcting any defect or error in any proceeding; or

(c) avoiding multiplicity of proceedings…

 

• r 46.05.01 [12] provides :

(1) A summons which has not been served may, at the request of the party who filed it, be amended on or before the day for hearing named in the summons to name another day.(2) The summons may be amended—

(a) if the summons is to be heard by the Court constituted by a Judge of the Court, by the Prothonotary or a Judge’s Associate;(b) if the summons is to be heard by the Court constituted by an Associate Judge, by an Associate Judge’s Associate or the Prothonotary;

(c) if the summons is to be heard by the Court constituted by a judicial registrar, by a judicial registrar’s Associate or the Prothonotary.

(3) A summons shall not be amended under this Rule more than once.(4) This Rule does not limit the power of the Court under Rule 36.01.

The Court framed the operative question, at [6], as:

“..whether the statutory regime and rules of court provide any basis for that amendment. That is, whether the Court has power to make such an amendment to the originating process.”

The Defendant, per its  supporting affidavit, stated that:.

• the liquidators made a demand in December 2014 that the Defendant repay an unfair preference, followed by a denial of liability in January 2015 [28]. The Plaintiff’s solicitors wrote to the Defendant’s solicitors on 20 October 2015, and a response was provided on 28 October 2015 [29].
• there was no further correspondence until receipt of the originating process and supporting material under cover of a letter from the plaintiff’s solicitors dated 3 November 2016 [30].
•  the originating process was served more than 70 days after the expiration of the three-year limitation period set by s 588FF [31]. .
• the words ‘amended pursuant to Order 36’ were endorsed in manual script on the front page of the originating process in circumstances where the only substantive amendment was a change of hearing date [32].
• the amendment did not appear  to satisfy any of three purposes justifying amendment which are prescribed by r 36.01(1) [32]
• the originating process did not show the date on which it was amended, or that leave was granted by either the Prothonotary or the Court [32].
• it is not possible to determine whether the purported change to the hearing date had occurred after 16 September 2016 by which time  the originating process would have expired [32].
•  r 36.03(1) had not been mentioned in any communication and only r 46.05.1  had been relied upon and only after the authorisation to amend the return date [34].
• regarding r 36.03 there was no affidavit confirming that the originating process had not been served, as required by r 36.03(1)(b) [34].
• the Defendant’s solicitors wrote to the plaintiff’s solicitors on 9 November 2016 stating:

3. Your clients filed an originating process … with only one day remaining of the three year period allowed for such an application to be made.

4. The originating process was issued and made returnable on 16 September 2016 but not served before that date. In choosing not to serve, your clients ignored Corporations Rule 2.7(1) which required the originating process to be served ‘as soon as practicable after filing … and, in any case, at least five days before the date fixed for hearing’.

5. Before the expiry of the three year limitation period your client did not apply under s 588FF(3)(b) to extend the period within which to make their application.

• there was no evidence that the amendment took place before 16 September 2016, the originating process did not correspond to the filed originating process, it had not been amended and still bears only the original hearing date [37].

In support of the Plaintiffs’ application to regularise the amendment to the extent necessary the  affidavit material stated that:

• the neglect of service was due to a partner’s unrelated work commitments, preparation for a trial as well as her part-time employment which meant that she did not review and sign off letters of service by 2 September 2016, the last date which would have ordinarily ensured that service be effected at least five days before the return date [39].
• the partner instructed her personal assistant to attend the registry on 12 September 2016 to extend the time for the return date specified in each originating process [40].

Unfortunately for the Plaintiff the Court found the affidavit material was either unhelpful or did not  assist in providing an explanation as to why the originating process was not served as soon as practicable other than to say there was pressure of other work [43].  The court specifically noted that it was clear “..that after the email correspondence with my chambers referred to above, another practitioner ..attended to the file [43].  There is no need for much reading between the lines with that sort of comment.  The Court was unimpressed with the quality of the material, especially when there were likely to be other deponents who could have filed material.  A reluctance to file material of a person who clearly has first hand knowledge and could assist is a recurrent concern by judges.  It can lead to adverse inferences.

The court noted that the Court of Appeal decision in Horne v Retirement Guide Management Pty Ltd (‘Horne’)  overturned much of Re Australian Property Custodian Holdings Ltd (in liq) (‘Re APCH’) the previous authority on applications under section 588FF [45].

His Honour stated, and quoted Horne, to the effect that:

• the Court of Appeal found that r 3.02 is one to which r 1.10 of the Corporations Rules applies [54]
• r 3.02 was available in a proceeding such as this, because the Corporations Rules do not ‘otherwise provide’ [54]
• Rule 2.7 of the Corporations Rules, requiring service as soon as practicable and five days prior to the return date
  • is a standard rule fixing a time for the doing of an act or thing [54] and
  • does not expressly state that the time for service cannot be altered’ [54]
• r 2.7  does not state that service “may only” be effected’ within the specified time-frame[54]
• the content of a time requirement of ‘forthwith’ or ‘as soon as practicable’ varies depending on the facts of each case, but there is nevertheless a fixing of time not by direct specification of dates but by reference to facts which will establish what the time limit is [55].
• the words ‘at least 5 days before the date fixed for hearing’ in r 2.7 set the outer limit of the ‘as soon as practicable after filing’ time requirement [55].
• if a party effects service well after it became practicable to do so, the party being served may attempt to set aside service by establishing that in the circumstances of the case, it had become practicable to serve well before service was effected [55].
• the reference to ‘at least 5 days before the date for hearing’ fixes a time [55].
• r 3.02 in allowing extensions of time meets the description of local rules which r 1.10 of the Corporations Rules imports to operate over corporations matters unless, relevantly, those rules ‘otherwise provide’ [56].
• the Corporations Rules do not ‘otherwise provide’ such that r 1.10 would preclude reliance on r 3.02 [56].
• r 2.7 fixes a time to which r 3.02 can apply [56].
• r 3.02 of the General Civil Procedure Rules empowered the Court to extend or abridge the time for service set out in r 2.7 of the Corporations Rules [56].
• a court relying on r 3.02 to extend the time for service specified in r 2.7 may do so by:
  • extending the second element of r 2.7 so that service may be effected less than five days before the date for hearing, but leave the first element of r 2.7 in place
  • granting an extension that disposes of both elements of r 2.7 and specifies a particular date by which service must be effected [57]

The liquidators submitted that:

• they seek leave to add r 3.02:
  • as a possible ground for regularisation of the process, by way of leave nunc pro tunc.
  • such leave became possible only after the decision in Horne.
•  r 3.02 provided the Court with sufficient discretion to amend the originating process.
• at [60], discretion should be exercised in their favour or, if it has already been exercised, ought not be disturbed because

(a) the contention that a relatively small delay in service should invalidate the entire proceeding has little intrinsic merit;(b) the plaintiffs have proceeded on the basis that the steps taken by registry staff to alter the return date on the originating process were valid;

(c) the reasons for delay, while falling short of demonstrating service “as soon as possible” is excusable;

(d) a refusal to make orders (if required) will have a detrimental effect on creditors who would stand to benefit from a recovery;

(e) there is no evidence of any specific prejudice to the defendant; and

(f) while “presumptive prejudice” is a relevant consideration, here it is outweighed by other consideration[s].

• the refusal to grant an extension in Horne is distinguishable, because the delay in that case was around twelve months, whereas the delay in this case is around ten weeks [61].
• any irregularity here is a procedural irregularity and falls under s 1322(2) of the Act and does not invalidate the proceeding unless the Court declares so, which can only happen where ‘the Court is of the opinion that the irregularity has caused or may cause substantial injustice that cannot be remedied by any order of the Court’ [62].
• any presumptive prejudice here does not rise to the level of ‘substantial injustice’ [62].
• in the alternative the Court should make a positive order under s 1322(4) of the Act to (in effect) regularise the originating process [63].

The defendant’s, robust, response was that:

• there was no amendment to the return date and, that date having passed, service was ineffective as the amended Originating process differed from that on the Court file and Originating processes in related proceedings and that it is unclear:
  • who made the changes,
  • when they were made and
  • on what authority those changes were made [64].
• if there was an amendment, it was improper because rule 36.03 allows amendment of an originating process only where an affidavit is provided stating that service has not yet occurred and there was no such affidavit in this matter [65].
• r 36.01 is not  applicable, because that rule is limited to amendment of documents for certain purposes, none of which prevail here.
• none of the emails referred to Rule 36.01 [66].
• there ‘is no objective and admissible evidence that leave was granted by either the Prothonotary’ or by his Honour [68]
• doubts  that the Registry:would not have insisted on compliance with the Rules or would have relied on different rules in the other proceedings [68].
• the amendments are improper and ought to be disallowed [68].
• there was non compliance with the service obligations, and the application should be considered in light of the policy of the Act that members of the business community have certainty in their dealings, particularly when the proceeding was initiated only one day before the expiry of the three-year limitation period [69].
•  s 1322(2) is not available as this is not a ‘procedural’ irregularity but a simple failure to comply with the rules of service.
• s 1322(2) concerns the validity of a proceeding, not of an originating process.
• s 1322(4) is unavailable because:
  • the liquidators are seeking an extension of a time fixed by the Rules, not the Act.
  • the conditions in s 1322(6) are not met as there is no good reason why service was not effected [71].
• the liquidators did not base their application on r 3.02 but in any event no extension ought to be granted under that rule.
• it is not necessary to show prejudice, as the delay in time is itself generally prejudicial and here it would amount to real prejudice because the defendant will be deprived of a defence to the action
• the relevant events in this matter occurred some three years and eight months prior to service, which is a considerable length of time.
• the liquidators made their application for an extension of time only after the defendant’s application to disallow the amendment
• it is not a good reason for granting an extension where the claim is that a partner was simply too busy and wished to stagger the proceedings in this liquidation for her own convenience
• as the failure to serve was deliberate, any harm suffered by the liquidator is self-inflicted [72]
• there is no evidence that denial of an extension would have an adverse impact on creditors [73]

 

His Honour stated, at [79] in the liquidator demonstrating that there is a good reason for an extension the applicable principles were:

(i) it is the duty of the plaintiff to serve the writ promptly.

(ii) there must be a good reason for the grant of an extension and if the application is made after the period has expired the reason must be one of substance.

(iii) as a general proposition difficulties serving the writ within the 12 months’ period will usually establish a good reason. By way of example where the defendant is evading service, his whereabouts are unknown or some other difficulty is experienced in serving the defendant.

(iv)  in the past poor reasons have included that:

• negotiations are continuing between the parties, or
• legal aid has not been granted and the plaintiff is waiting for the grant (with some controversy)
• there are difficulty tracing witnesses or obtaining evidence.

 

The court found that:

• the liquidators’ solicitors evidence regarding delay, going no further than reliance on the pressures of other work, was not a good reason of ‘substance’ [80].
• service was capable of being effected by mail and there was no difficulty in locating the defendant [80].
• another partner of the firm would be capable of signing off on a letter of service, even if he or she had little familiarity with the matter [80].
• the Defendant had failed to demonstrate that there is no prejudice to the other party as required under Horne [81]
• citing recognition in  Horne that there is presumptive prejudice by virtue of the effluxion of time the court noted that payments the subject to the liquidators’ claims occurred between February and August 2013, from at least three years and three months to up to  three years and eight months, prior to the date of service [82].
• Horne noted that it was a relevant consideration that the Court was approached to extend time only after expiration of the time for service.  In this case the amendment to the return date was first sought on 13 September 2016, only three days prior to the initial return date of 16 September 2016, after the ‘outer limit’ for service set by r 2.7 and five days before the return date [83]
• while the length of delay was relatively small there was no good reason of substance given for that delay [85].
• while the plaintiffs may have relied on the validity of the actions of registry staff, it only requested that registry staff act only after the expiration of the time for service [85].
• the submission that there would be a potentially adverse impact on creditors assumed both that there will be a recovery and that this will have an effect on creditors’ dividends, each of which was far from certain [86].

While His Honour:

• granted leave to the liquidators to amend to rely upon r 3.02 as  such an amendment was appropriate  after the decision in Horne [76]
• stated that r 3.02 would permits amending the return date, the effect of which is to extend the time  for the return of the Originating process and, by extension, the outer limit for service of that Originating process [78].

he found, at [78], there was no good reason for the delay in service and the discretion to extend time should:

• not have been exercised under r 3.02 at the time of the amendment to the originating process,
• not be exercised now.

Regarding the liquidators’ application “such orders as are necessary” under s 1322(2) or 1322(4) of the Act the court stated:

• as the only order available under s 1322(2) is an order that a proceeding is invalid that is unhelpful to the liquidator [89]
•  s 1322(2) maintains a presumption of validity unless there is some other reason for a finding of invalidity [90].
• s 1322(4)(a) cannot assist the liquidators because it only to acts done in ‘contravention of a provision of this Act or a provision of the constitution of a corporation’ [92] and this does not appear to encompass a contravention of the Corporations Rules [93]
• while 1322(4)(d) allows an order to be made extending the time [94] those periods are not set by the Act. They are set by the Prothonotary under the Corporations Rules.
• it is proper to apply s 1322(4)(d) to the Corporations Rules and the time fixed by the Corporations Rules to be a time to which s 1322(4)(d) applies [98].

The Court declined to make an order under s 1322(4)(d) for the same reasons that an order would not be made extending time under r 3.02 and stated that it would be anomalous if the discretion were exercised one way under r 3.02 and in the opposite manner under s 1322(4)(d). [100]  and while the content of the discretion in s 1322(4)(d) differs in that is also conditioned on a finding that there is no substantial injustice to any person in making an order that criterion is in addition to the general discretion granted by s 1322(4)(d) and does not exhaustively define that discretion [101]

While the court acknowledged it had powers available to the Court to extend the return date and, as a corollary, the time for service it would not exercised those powers here because they ought to be used in accordance with the rule that a good reason must be given for the delay in service. And that did not happen here [104] . Nor did it regard this was a proper case in which compliance with the rules should be waived because that would  amount to the extension of time which would be improper here [105].

The court also noted that it was also unclear whether r 2.04 could be used to waive compliance with the Corporations Rules [105]

ISSUE

The liquidators paid a very high price for poor document management.  Liquidators do often run close to the 3 year limitation period before issuing and serving Originating Process.  That makes it all the more necessary to ensure the paperwork is pristine.  The Plaintiffs’ application was severely flawed and the affidavit material found to be wanting.  As the court made particularly clear the court retained a discretion the exercise of which necessarily had to consider the principles set down in Horne.