Agricultural and Rural Finance Pty Ltd v John Edward Atkinson & Ors [2010] NSWSC 42 (11 February 2010)

Last Updated: 12 February 2010

NEW SOUTH WALES SUPREME COURT

CITATION:
Agricultural and Rural Finance Pty Ltd v John Edward Atkinson & Ors [2010] NSWSC 42


JURISDICTION:
Equity Division
Commercial List


FILE NUMBER(S):
50063/03

HEARING DATE(S):
2/02/10, 3/02/10

JUDGMENT DATE:
11 February 2010

PARTIES:
Agricultural and Rural Finance Pty Limited (Plaintiff/Respondent)
Mr Jones (158th Defendant/Applicant)
Mr Kirk (167th Defendant/Applicant)


JUDGMENT OF:
Einstein J

LOWER COURT JURISDICTION:
Not Applicable

LOWER COURT FILE NUMBER(S):
Not Applicable

LOWER COURT JUDICIAL OFFICER:
Not Applicable



COUNSEL:
Mr B Katekar (Plaintiff/Respondent)
Mr Leopold SC, Mr N Bender (158th and 167th Defendants/Applicants)

SOLICITORS:
Evangelos Patakas & Associates (Plaintiff/Respondent)
Henry Davis York (158th and 167th Defendants/Applicants)


CATCHWORDS:
Proceedings represent aftermath of decision of the High Court of Australia in Agricultural and Rural Finance v Gardiner [2008] HCA 57
Failure by the plaintiff to serve the applicants until late 2008 being well after the hearings at first instance, in the Court of Appeal and the High Court
Applications for orders discharging extension orders
Consideration of the nature of the discretion
Consideration of the factors to be taken into account in the exercise of the discretion

LEGISLATION CITED:
ASIC Act 2001 (Cth)
Civil Procedure Act 2005 (NSW)
Corporations Act 2001 (Cth)
Trade Practices Act 1974 (Cth)
Uniform Civil Procedure Rules 2005 (NSW)

CATEGORY:
Procedural and other rulings

CASES CITED:
Agricultural and Rural Finance Pty Ltd v Gardiner [2008] HCA 57
Agricultural and Rural Finance Pty Ltd v Atkinson [2006] NSWSC 202
Aon Risk Services Australia Ltd v Australian National University [2009] HCA 27
Arthur Andersen Corporate Finance Pty Ltd v Buzzle Operations Pty Ltd (in liq) [2009] NSWCA 104
Battersby v Anglo American Oil Co Limited [1945] KB 23
Brealey v Board of Management Royal Perth Hospital [1999] WASCA 158; (1999) 21 WAR 79
Brisbane South Regional Health Authority v Taylor [1996] HCA 25; (1996) 186 CLR 541
CDJ v VAJ (No 1) [1998] HCA 67; (1998) 197 CLR 172
Chalmers & Partners v Kensit [2008] WASCA 122
Foxe v Brown [1984] HCA 69; (1984) 59 ALJR 186
Dagnell v JL Freedman & Co [1993] 1 WLR 388
Gardiner v Agricultural and Rural Finance Pty Ltd. [2007] NSWCA 235
IMB Group Pty Limited (in liq) v Australian Competition and Consumer Commission [2006] QCA 407; [2007] 1 Qld Rep 148
Klein v Domus Pty Limited [1963] HCA 54; (1963) 109 CLR 467
Kleinwort Benson Ltd v Barbrak Ltd [1987] AC 597
Regie National des Usines Renault SA v Zhang [2002] HCA 10; (2002) 210 CLR 491
Van Leer Australia Pty Limited v Palace Shipping KK [1981] HCA 11; (1981) 180 CLR 337
Victa Limited v Johnson (1975) 10 SASR 496

TEXTS CITED:


DECISION:
Applicants entitled to relief sought.



JUDGMENT:

IN THE SUPREME COURT
OF NEW SOUTH WALES
EQUITY DIVISION
COMMERCIAL LIST


Einstein J

Thursday 11 February 2010

50063/03 Agricultural and Rural Finance Pty Limited & Anor v John Edward Atkinson & Ors

JUDGMENT

The state of these proceedings

1 The applications presently before the Court represent only a part of the ongoing litigation following the decision of the High Court of Australia: in the test case Agricultural and Rural Finance Pty Ltd v Gardiner and another [2008] HCA 57.

2 Whilst test cases are obviously of utility in particular situations, the instant applications represent a salutary reminder of the very special care which needs to be exercised when a test case order comes to be made. Unfortunately from time to time matters which may not have been properly appreciated by the parties or the Court at the time of the making of orders may later come to haunt certain of the litigants.

3 In essence the current applications pursued by notices of motion brought by Mr Kirk and Mr Jones each seek the following orders:

i. orders discharging the order made by Bergin J. (as the Chief Judge then was) on 14 November 2008 (Extension Order) extending by 4 and a half years the time for service of the summons filed on 18 June 2003 from 17 June 2004 to 4 January 2009;

ii. consequential orders setting aside the service of the summons on each of the Applicants pursuant to Rule 12.11(1)(b) UCPR on the basis that the summons was served after the time for service had expired.

[The Applicants also seek the following ancillary orders, to the extent necessary:

orders pursuant to Rule 1.12 UCPR extending the time prescribed by Rule 12.11(2) for making this application;

orders pursuant to Rule 12.5 UCPR granting leave to them to withdraw their Notices of Appearance.]

A short summary of the background to the applications

4 It seems convenient to begin with a short summary of the background to the applications:

i. The defendants in these proceedings (including the Applicants) invested in 2 projects for the farming of tea trees known as the Port Macquarie Tea Tree Plantation Projects (respectively, Project 1 and Project 2).

ii. The structure and history of the Projects was summarised by Basten JA in Gardiner v. Agricultural and Rural Finance Pty. Ltd. [2007] NSWCA 235 at [143] to [193]. For present purposes, it is relevant that:

a) prospectuses relating to the Projects were filed with the ASC by Oceania Agriculture Ltd (OAL), which was the Manager of the Projects, with the first prospectus for Project 1 being filed on 28 April 1997;

b) the Projects were promoted by Gerard Cassegrain & Co Pty. Ltd. (GCC), of which OAL was a wholly owned subsidiary and the owner of the land was Endwise Holdings Pty. Ltd. (Endwise), which was half owned by GCC and half by Clause Cassegrain, who was the Managing Director of GCC;

c) the Projects were established for the stated purpose of establishing a commercial tea tree plantation and producing and selling tea tree oil;

d) investors acquired allotments (referred to as “farms”) by providing about one-third of their investment in cash and the remainder by way of finance from ARF, pursuant to Loan Agreements;

e) the Projects were anticipated to run for 17 years and the term of the loans to investors from ARF was for that period;

f) however, investors were required to make 2 interest payments in advance to ARF, payable in advance early in the life of the Projects;

g) most investors, including each of the Applicants, elected to pay $250 to enter into an Indemnity Agreement by which OAL indemnified the investors obligations to ARF and which also had the effect of limiting the investors liability to ARF to the extent that the indemnity was effective and enforceable; and

h) the Projects were terminated about 5 years after the commencement of Project 1, in early 2003 and ARF now asserts that the amounts that it lent to investors became due and payable at the date of termination.

iii. Both of the Applicants are individuals who invested in the Projects between 1997 and 1999. Mr Kirk is retired and was previously a partner of Coopers and Lybrand (now PwC). He invested in Project 1 in 1997 and in Project 2 in 1999. Mr Jones is a Financial Adviser. He invested in Project 2 in 1998.

iv. Both of the Applicants entered into a Loan Agreement with ARF and an Indemnity Agreement with OAL as those documents are described above. An example of each of the Loan Agreement and the Indemnity Agreement is at pp.1-10 and 11-15 of EP-39 respectively.

v. Clause 5.1 of the Loan Agreement provides that:

“[t]he parties agree that subject to Clause 7 below the whole of the Principal Sum remaining outstanding shall become immediately repayable at the option of the Lender on the happening of any one or more of the following events without the necessity of any notice or demand:

...

(c) if the Borrower ceases to carry on the Business.”

vi. Clause 7 of the Loan Agreement provides that:

“[t]he Lender acknowledges and agrees that the Borrower shall have no liability to repay any part of the Principal Sum outstanding or any interest thereon if the indemnity granted under the Indemnity Agreement as defined in the Project Deed is effective and enforceable in accordance with Clause 2 of the Indemnity Agreement.”

vii. Clauses 1 and 2 of the Indemnity Agreement provide that:

“1. Subject to the terms of this Agreement and in consideration of the payment on the date hereof of the Indemnity Fee as provided in clause 5 by the Borrower [ie, the investor in the Project] to the Indemnifier [ie, OAL], receipt of which payment is acknowledged by the Indemnifier, the Indemnifier agrees to indemnify and save harmless the Borrower against any demand by the Lender for repayment of any Principal Sum outstanding and any interest thereon under the Loan Agreement subject to the terms of this Agreement (“the Indemnity”).

2. The Indemnity referred to in Clause 1 shall be effective and enforceable if:

(a) the Borrower has punctually paid the interest payable pursuant to Clauses 3.2 and 3.3(a) of the Loan Agreement; and

(b) the Borrower has punctually paid the reductions of the Principal Sum set forth in Clause 4.1 of the Loan Agreement....”

viii. On 18 June 2003, the Plaintiff, by its summons filed on that date, commenced these proceedings against 159 Defendants, including the Applicants, seeking repayment of amounts asserted to be outstanding pursuant to the Loan Agreements. The Plaintiff asserts that on 4 January 2003 the Projects were terminated such that the amounts lent by ARF to the Defendants became immediately repayable pursuant to clause 5.1(c) of the Loan Agreements. Obviously, if the indemnity in clause 2 of the Indemnity Agreement were “effective and enforceable”, then the limitation of liability in clause 7 of the Loan Agreement would apply to extinguish ARF’s claim and, in addition, OAL would be liable indemnify the Defendants in relation to ARF’s demand for repayment.

ix. The Applicants were not served with the summons until:

a) in the case of Mr Kirk, on 4 December 2008; and

b) in the case of Mr Jones, on 29 December 2008.

x. At the time the summons was filed, Part 7 rule 7 SCR applied such that the summons was required to be served within 1 year before it went stale on 17 June 2004 (ie, some 4 and a half years before it was served). (Note that Part 7 rule 7 SCR has since been replaced by Rule 6.2(4)(a) UCPR, which provides for a 6 month time limit for service.)

xi. Accordingly, service on each of the Applicants was effected pursuant to the Extension Order made by Bergin J. on 14 November 2008.

The history of the proceedings prior to service on the Applicants

5 The following steps in these proceedings are significant to this application:

i. On 19 September 2003, the Court made Orders for requests by the Defendants for and responses by the Plaintiffs to further and better particulars of the summons and for the service by the Defendants of Defences.

ii. On 19 March 2004, the Court ordered that ARF’s claim against one of the Defendants, Bruce Gardiner, and Mr Gardiner’s cross-claim against ARF be determined as a separate question pursuant to Part 31 r ule 2 SCR.

iii. On 29 July 2005, the Court ordered that:

“subject to written undertakings by each of the Defendants for whom Clayton Utz acts to be bound on common questions by the findings of the ‘Gardiner Test Case’, that:

...

2. ... insofar as any question decided in the Gardiner Test Case extends to the roper construction of the Loan Agreements and/or the Indemnity Agreements sued on in the claim by Agricultural and Rural Finance Pty Limited against Bruce Gardiner, each of the Defendants is bound by the Court’s determination of that question, subject to the Defendant seeking to rely upon surrounding circumstances, upon which the agreement entered into by that Defendant is to be construed, being different to the surrounding circumstances relied upon by Bruce Gardiner.

3. The Court Further notes that this does not prelude [sic.] any Defendant from bringing a further Cross-Claim based upon any representations or statements made to that Defendant which induced them to invest in the Projects, subject to any available limitation point.

4. The Court Further Notes that the Defendants are not precluded from raising any contention based upon the particular circumstances of a Defendant in answer to any contention that a failure to strictly comply with clauses 3.2, 3.3(a) and 4.1 of the Loan Agreements denied the Defendant an entitlement to indemnity by reason of the operation of clauses 2(a) and 2(b) of the Indemnity Agreements. ”

iv. On 29 March 2006, Young CJ in Eq (as his Honour then was) delivered judgment in the Gardiner Test Case: Agricultural and Rural Finance Pty. Ltd. v. Atkinson [2006] NSWSC 202. In the hearing of the test case, ARF alleged the same contractual entitlement to money owing under the Loan Agreement as it now alleges against the Applicants.

v. Mr Gardiner cross claimed against ARF and OAL, claiming that:

a) OAL was obliged to indemnify him from ARF’s demand;

b) ARF was not contractually entitled to recover any amount under the Loan Agreement; and

c) ARF and OAL had contravened s.52 of the Trade Practices Act 1974 (Cth.), ss.995 and 996 or ss.1023B and 1024 of the Corporations Law and ss.12DA and 12DB of the ASIC Act 2001 (Cth.) and that Mr Gardiner was, in consequence, entitled to relief under those statutes that would avoid any liability to ARF.

6 The approach taken by the Court to some of the issues raised in the Gardiner Test Case is relevant to the present application. The following summary (and the summaries below of the decisions of the Court of Appeal and High Court) do not purport to be comprehensive.

i. The question of ARF’s contractual entitlement to the amount claimed and OAL’s obligation to indemnify Mr Gardiner largely turned on the construction of clause 2 of the Indemnity Agreement. At issue was the fact that Mr Gardiner had not always paid amounts due under the Loan Agreement at the time that they were due, even though in some cases his payments were only a day or two late. Young CJ in Eq (as his Honour then was) held that any degree of lateness meant that the payment had not been made punctually for the purposes of clause 2 of the Indemnity Agreement such that it and clause 7 of the Loan Agreement did not apply except where all repayments due had been made by the due date, regardless of whether or not ARF had accepted late payments.

ii. The Court also rejected Mr Gardiner’s submissions that there was an implied obligation of good faith in the Loan Agreement that precluded ARF from recovery and that ARF should not be permitted to profit from its own wrong in procuring the termination of the Projects thereby activating clause 5.2 of the Loan Agreement and rendering the Principal Sum outstanding payable.

iii. Accordingly, the Court held that ARF was contractually entitled to the entire amount of its claim.

iv. The Court dismissed Mr Gardiner’s Cross Claim in its entirety. Mr Gardiner’s claims that ARF and OAL engaged in misleading or deceptive conduct are of particular relevance for present purposes.

v. Mr Gardiner argued that the prospectuses for the Projects contained a number of material non-disclosures in contravention of the Corporations Law. The substance of these arguments is not set out in the decision at first instance but is set out in some detail in the decision of the Court of Appeal (which is addressed below). Mr Gardiner made 2 arguments in relation to the prospectuses that are of particular relevance for present purposes.

a) First, he submitted that the prospectuses failed to disclose that the funds loaned to investors by ARF and invested by investors in OAL were then loaned by OAL back to ARF (as opposed to being used in the management of the scheme) who used those funds to finance further investors’ investments in an ongoing “round robin” arrangement. This arrangement was described in the Court of Appeal judgment as the “ARF funding arrangements”.

b) Secondly, Mr Gardiner submitted that the prospectuses failed to disclose an arrangement between OAL and GCC and Endwise (ie, the promoter of the scheme and the owner of the land, both being entities associated with Mr Cassegrain) that OAL would reimburse GCC and Endwise for their expenditures in the Projects. This was described in the Court of Appeal judgment as the “repayment understanding”.

vi. Mr Gardiner failed before Young CJ in Eq (as his Honour then was) in this respect because the Court held that he did not relevantly rely on the prospectuses in deciding to invest. Mr Gardiner’s credit was attacked and Young CJ in Eq (as his Honour then was) “was not particularly impressed by Mr Gardiner as a witness”.

vii. The Court also rejected Mr Gardiner’s argument that OAL had breached its fiduciary duties in the events leading up to the termination of the Projects.

viii. On 11 April 2006, in consequence of the decision of Young CJ in Eq (as his Honour then was), the Court:

a) entered a verdict for ARF against Mr Gardiner in the Gardiner Test Case and judgment in the sum of $317,019.96 plus a potential additional component for interest;

b) entered a verdict for the Cross-Defendants (ARF and Oceanic Agriculture Pty. Limited (OAL)) in relation to Mr Gardiner’s Cross-Claim and ordered that Mr Gardiner pay ARF and OAL’s costs of the Cross-Claim; and

c) ordered the Defendants in the proceedings other than the Applicants to serve a Defence by 13 June 2006 (later extended to 11 July 2006).

ix. It appears that the proceedings were then effectively held in abeyance pending the determination of the appeal from the decision of the Young CJ in Eq (as his Honour then was) in the Gardiner Test Case.

x. That decision was delivered on 6 September 2007: Gardiner v. Agricultural and Rural Finance Pty. Ltd. [2007] NSWCA 235.

xi. Relevantly for present purposes, a majority of the Court of Appeal (Basten JA and Handley AJA, Spigelman CJ dissenting) upheld the trial judge’s decision that Mr Gardiner lost the benefit of clause 2 of the Indemnity Agreement when he was late in repaying amounts due under the Loan Agreement late, regardless of whether the degree of lateness was trivial or that ARF had accepted the late payment without complaint. Spigelman CJ dissented in this respect and held that a payment was made punctually for the purposes of clause 2 of the Indemnity Agreement notwithstanding that it was made late, so long as ARF had accepted the actual payment as constituting punctual payment.

xii. Further, the Court of Appeal dismissed Mr Gardiner’s appeal in relation to his Cross Claim in its entirety.

xiii. It affirmed the trial judge’s decision that OAL had not breached its fiduciary duty in the course of the Projects termination.

xiv. In relation to Mr Gardiner’s claims arising from the failure of OAL to disclose the ARF funding arrangements in its prospectuses, a majority of the Court of Appeal held that the ARF funding arrangements were not disclosed at the time that Mr Gardiner made his investment in Project 1. Further, Basten JA held that “the fact that all but one of the investments were financed and that the moneys used for that purpose were recirculated, meant that the statements set out above in the prospectus were indeed false and misleading”. The other members of the Court of Appeal did not decide whether the non-disclosures were misleading because they held that Mr Gardiner had not established that he would have acted differently had the ARF funding arrangements been disclosed. Significantly, it appears that nowhere in his evidence did Mr Gardiner assert this to be the case.

xv. In relation to Mr Gardiner’s claim arising from the failure of OAL to disclose the repayment understanding between OAL, GCC and Endwise (ie, the entities associated with Mr Cassegrain), the Court of Appeal accepted that the repayment understanding was not disclosed in the prospectuses but held that Mr Gardiner had not adequately proved that payments were made by OAL to the Cassegrain-related entities.

xvi. On 12 December 2007, following the decision of the Court of Appeal, the Court directed ARF and the Defendants to correspond about whether each Defendant resisted ARF’s claim notwithstanding the result of the Gardiner Test Case and whether they accepted that they did not make all repayments under the Loan Agreement punctually. Further directions in relation to this issue were made on 28 March 2008 and 2 May 2008.

xvii. On 21 May 2008, the Court ordered the parties to give discovery of all documents relevant to the question of whether the Defendants made all repayments punctually and made orders for the Defendants to file and serve Amended Defences and Cross Claims.

xviii. The Applicants were served between 4 (Mr Kirk) and 29 (Mr Jones) December 2008.

xix. On 11 December 2008, the High Court delivered its judgment in the appeal from the decision of the Court of Appeal: Agricultural and Rural Finance Pty. Limited v. Gardiner [2008] HCA 57. Relevantly for present purposes, a majority of the High Court (Gummow, Hayne and Kiefel JJ) held that any repayment under the Loan Agreement after the due date was not punctual for the purposes of clause 2 of the Indemnity Agreement and therefore disentitled the investor to the protection afforded by that clause and by clause 7 of the Loan Agreement. In doing so, it rejected the construction, preferred by Spigelman CJ, that punctual payment was made if a late payment was accepted by ARF.

General matters

7 As I understand the position there have been a number of settlements between the plaintiff and nominate defendants over approximately the past year and perhaps even earlier. Back in November 2008 Mr Patakas (the solicitor generally having carriage of the matter on behalf of the plaintiff) was able to depose that of the 216 defendants, the plaintiff was unable to serve 15 of those in the course of 2003 when all other defendants were served.

8 As has already been made plain only the present Applicants seek the orders outlined above.

9 The parties further assisted the Court by agreeing upon a two-volume Court book which was marked as exhibit PX.

Some further matters for consideration

10 It seems convenient at this early stage in these reasons to emphasise the following matters:

i. The only defendant in the test case was Mr Gardiner;

ii. As appears in the overview section of the High Court decision, of the 216 persons sued, 179 agreed to be bound by the findings made on the separate determination.

iii. Perhaps to be more precise the group of defendants fell into the following categories:

a) the first was Mr Gardiner;

b) the second was a group of defendants who were part of the Clayton Utz Team who funded the Gardiner test case and who signed a declaration saying that they agreed to be bound by its result;

c) the third category were the defendants who had been served but did not sign that undertaking-apparently in the order of perhaps 30 persons.

iv. It follows that strictly speaking the category of persons who albeit having been served were not prepared to sign an undertaking to be bound by the results of the test case, could not be regarded as so bound, although of course, as a matter of the usual litigious circumstances following a test case, absent the most extraordinary of circumstances, the High Court decision would stand and they would effectively as a matter of the real world be bound.

The nature of the discretion

11 In the relatively recent decision of the New South Wales Court of Appeal Arthur Andersen Corporate Finance Pty Ltd v Buzzle Operations Pty Ltd (in liq) [2009] NSWCA 104, Ipp JA [with whose reasons Tobias and McColl JJA agreed] in dealing with UCPR r 1.2 explained the nature of the relevant discretion, inter alia observing as follows:

28 The rule requires the exercise of a judicial discretion, not fettered by inflexible prescriptions: Bray CJ in Victa Limited v Johnson (1975) 10 SASR 496 at 503, approved by Stephen J, sitting alone, in Van Leer Australia Pty Limited v Palace Shipping KK [1981] HCA 11; (1981) 180 CLR 337 at 343 - 344, and Mason J, sitting alone, in Foxe v Brown [1984] HCA 69; (1984) 59 ALJR 186 at [189]. But this does not mean that the discretion is at large. The discretion is to be exercised in the context of and by reference to the statute by which it is conferred (and any other statute that is relevant to the legislative context) and in accordance with principles developed by judicial decisions.

29 In CDJ v VAJ No. 1 [1998] HCA 67; (1998) 197 CLR 172 Gaudron J (at [53] - [54], 185) observed that, where a general and unconfined discretion is conferred on a Court, it is governed by the requirement that it be exercised judicially and consistently with the judicial process.

30 The point is illustrated by the approach of McHugh J in Brisbane South Regional Health Authority v Taylor [1996] HCA 25; (1996) 186 CLR 541. His Honour (at 551) emphasised that the discretion to extend time was to be exercised in the context of the rationales for the existence of limitation periods. His Honour applied the object of the limitation statute under consideration in that case (in terms of which the relevant discretion had to be exercised) in giving content to the criteria applicable to the discretion. He stated (at 554):

“The object of the discretion, to use the words of Dixon CJ in [Klein v Domus Pty Limited [1963] HCA 54; (1963) 109 CLR 467 at 473], ‘is to leave scope for the judicial or other officer who is investigating the facts and considering the general purpose of the enactment to give effect to his view of the justice of the case’. In determining what the justice of the case requires, the judge is entitled to look at every relevant fact and circumstance that does not travel beyond the scope and purpose of the enactment authorising an extension of the limitation period.”

31 Kirby J, in the same case, expressed like views. His Honour stated (at 564 - 565), that the “discretion” must be exercised to achieve the purposes for which Parliament provided it. This requires the identification of its intended operation” (see also at 570).

32 The IMB Group Pty Limited (in liq) v Australian Competition and Consumer Commission [2006] QCA 407; [2007] 1 Qld Rep 148 illustrates how the content of a discretion of the kind provided for by UCPR r 1.12 may be confined or affected by the statutory regime that confers the discretion. In that case the Queensland Court of Appeal was concerned with the renewal of a statement of claim where there had been considerable (and deliberate) delay in service. The discretion to renew was contained in the Queensland Uniform Civil Procedure Rules r 24(2). Keane JA (with whom McMurdo P and Cullinane J agreed) said (at [27], 153):

“Importantly for the present case, it must be borne in mind that the discretion conferred by r 24(2) of the UCPR falls to be exercised in a context which includes r 5 which states the philosophy of the UCPR. Rule 5 of the UCPR provides:

(1) The purpose of these rules is to facilitate the just and expeditious resolution of the real issues in civil proceedings at a minimum of expense.

(2) Accordingly, these rules are to be applied by the courts with the objective of avoiding undue delay, expense and technicality and facilitating the purpose of these rules.

(3) In a proceeding in a Court, a party impliedly undertakes to the Court and to the other parties to proceed in an expeditious way.”

33 Keane JA, after pointing out that that the plaintiffs had deliberately decided to refrain from serving their statement of claim, proceeded (at [54], 160]:

“Whatever the position may have been ... in the absence of a provision such as r 5(3) of the UCPR, the presence of r 5(3) means that the approach pursued by the plaintiffs in the present case should not be vindicated by the Court.”

And (at [57], 161) he said:

“What the plaintiffs were plainly not entitled to do was unilaterally to arrogate to themselves the benefit of a stay of proceedings in the Supreme Court in defiance of r 5(3) of the UCPR.”

34 This case demonstrates that a statute that confers what, on its face, appears to be a broad and general discretion, may require criteria to be applied to its exercise that significantly limit its effect. Such criteria, in recent times, are frequently found in connection with discretionary powers to cure irregularities, amend pleadings or add parties with retrospective effect. Other examples of this phenomenon can be seen in the reasons of the Western Australian Full Court in Brealey v Board of Management Royal Perth Hospital [1999] WASCA 158; (1999) 21 WAR 79 and in Chalmers & Partners v Kensit [2008] WASCA 122 (which followed Brealey).

12 After drawing attention to parameters of sections 56, 57, 58 and 59 of the Civil Procedure Act 2005 (NSW) which require a judge, exercising a discretion under UCPR r 1.12, to have regard to whether a party, seeking the exercise of the discretion in its favour, has:

(a) diligently pursued the object of disposing of the proceedings in a timely way;

(b) used, or could reasonably have used, available opportunities under the rules or otherwise, to avoid delay; and

(c) reasonably implemented the practice and procedure of the Court with the object of eliminating any lapse of time between the commencement of the proceedings and their final determination

his Honour drew attention to another source of criteria to which the Court required to have regard when exercising a judicial discretion. His Honour was here referring to the comments to be found in Regie National des Usines Renault SA v Zhang [2002] HCA 10; (2002) 210 CLR 491 by Gleeson CJ, Gaudron, McHugh, Gummow and Hayne JJ. Their Honours said (at [22], 503):

“[A judicial discretion is] to be exercised in accordance with principle. The principles to be applied are encompassed within the doctrine developed by judicial decision. They are not extraneous to it.”

13 Importantly Ipp JA observed that the Court should consider, when exercising a discretion such as that under UCPR r 1.12, the attempts that have been made at service, the length of the delay, the reasons for the delay, whether the delay was deliberate, whether notice was given to the defendant, the conduct of the parties generally, and the hardship or prejudice caused to the plaintiff by refusing the renewal or to the defendant by granting it.

14 Finally it is noteworthy that Ipp JA at 81- 82 [ dealing essentially with matters concerning delays by litigation funders] made the following points:

“In Battersby v Anglo American Oil Co Limited [1945] KB 23 (at 32) Lord Goddard said: “It is for the Court and not for one of the litigants to decide whether there should be a stay”. This statement was made in the passage cited with approval in Kleinwort Benson Ltd v Barbrak Ltd [1987] AC 597 and by Lord Browne-Wilkinson in Dagnell v JL Freedman & Co [1993] 1 WLR 388.

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 non-parties 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.”

15 The approach taken in the present reasons accept each of the above matters has obviously informing the proper approach to the material discretion.

The plaintiff’s submissions

16 Whilst a number of submissions were put on behalf of the plaintiff it is fair to say that [as was acknowledged by counsel appearing for the plaintiff at [transcript 63.45]], the kernel of the plaintiff’s position was that following the cross examination of the Applicants no prejudice had been shown by either of them to have arisen from the delay in serving the summons.

17 The proposition put in relation to Mr Kirk was that the outcome in terms of the late service upon him was effectively a windfall because a significant proportion of the claim against him had fallen away by reason of the test case findings and the plaintiff was presently only pursuing him in relation to one from three loans.

Initial attempts at Service

Mr Kirk

18 During the giving of his evidence, Mr Kirk stated that his current address was 135 Oak Lane, Shallow Bay formerly known as 696 Shallow Bay Road, Wallingat, and before that, Coomba Park. Mr Kirk stated that the change from 696 Shallow Bay Road to the current address had occurred in November 2009. During cross-examination Mr Kirk confirmed that in 2003 he was spending his time between three places: a farm he had at Bulahdelah, the premises at Shallow Bay, and a guesthouse he half-owned in Jindabyne. Mr Kirk said he managed the guesthouse over winter, which was essentially a full time job. He did not have somebody operating the farm at Bulahdelah.

19 Counsel for the Applicants emphasised the fact that no attempt was ever made to serve Mr Kirk at the Shallow Bay address during the period in which the Summons was valid for service. This was notwithstanding the fact that when Mr Kirk corresponded with both OAL and ARF in the period leading up to the filing of the Summons he did so on letterhead bearing that address. Moreover, the letterhead used by Mr Kirk on these occasions also bore his telephone, fax and mobile numbers and his email address. In his response, to the formal Notice of Demand sent by ARF on 6 January 2003, on 29 January 2003 on the Shallow Bay letterhead, Mr Kirk stated:

“[a]s I am not sure what my movements are over the next few weeks it would be best to contact me by email at [e-mail] [ie, the email address on the letterhead]. Alternatively, I am usually connectable [sic.] on my mobile phone

20 Counsel for the Applicants submitted that ARF took no steps at any time to contact Mr Kirk through any of the means set out in the letterhead of his response. The details on the letterhead remained current until beyond the time he was actually served in 2008, and OAL wrote to Mr Kirk at this address.

21 In relation to Mr Kirk, ARF acknowledged that Mr Kirk responded to the letters of demand on letterhead indicating his address was 696 Shallow Bay Road, Coomba Park, NSW. ARF argued that for reasons not in evidence, said to be attributable to human error, attempts were made to serve Mr Kirk at 169 Shallow Bay Road, Coomba Park, on 25 June 2003. While the writ was still current, service had been attempted at two addresses Mr Kirk had nominated on his application forms: 15 Roebuck Key, Forster, and 23 Violet Hill Road, Bulahdelah. In September 2003, ARF’s then solicitors, Piper Alderman, had instructed process servers to seek to serve Mr Kirk in Jindabyne. However, ARF conceded that there is no affidavit of service to that end.

Mr Jones

22 There was agreement that ARF had attempted to serve Mr Jones at 61/29 The Crescent, Manly, where Mr Jones had lived until 2001, on 28 June 2003. ARF also attempted to serve Mr Jones at two other addresses at which Mr Jones said he had never lived.

23 Counsel for the Applicants drew on the fact that ARF’s solicitor located Mr Jones in December 2008 when he “came across a mobile phone number of Mr Jones in one of the files of ARF.” Mr Jones had maintained this mobile phone number to date since prior to the date of his investment in the Project. He had notified this number to OAL and ARF in his application form at the time of his original investment. ARF had not reviewed its files in 2003, and, particularly in light of the complaints made by ARF’s solicitor about the Applicants’ failure to notify ARF of their whereabouts at all times, it seems to me to have been unacceptable that ARF did not take the obvious step of checking Mr Jones’ application form for contact details until December 2008.

24 Counsel for ARF noted that there was no record, from either Mr Jones, ARF or OAL, of Mr Jones having informed ARF of his change of address since leaving the Manly address in 2001. Mr Jones’ name is a common one, and finding him was difficult. Mr Jones’ evidence was that from about March 2003 to November 2003, he did not have an address in Australia. He was backpacking. There was no way ARF could have served him until he returned from overseas. By the time that happened, the direction that a test case be held had already been made (in August 2003).

General arguments regarding initial attempts at service

25 Counsel for the Applicants submitted that in the case of Messrs Kirk and Jones, the failure of ARF to serve them before the writ went stale in June 2004 was really caused by incompetence on the part of ARF in the form of their failure properly to investigate obvious internal records (being, in Mr Kirk’s case, the letters that he had sent on his letterhead, including suggested means of contacting him by email and, in Mr Jones’ case, his application form). I accept that had either of these obvious steps been taken, the Applicants would have avoided the prejudice they have suffered by reason of the late service upon them.

26 ARF submitted that in 2003, it made appropriate and genuine attempts to serve the Summons on Mr Kirk and Mr Jones. ARF acknowledged that it was able to locate each of Mr Kirk and Mr Jones within a few months in late 2008, but submitted that in exercising its discretion in this matter, the Court should take into account that in 2003, ARF was attempting to serve 206 defendants. It was successful in serving almost all of the 206 defendants and the fact that not all of the defendants were successfully served was said to be understandable.

The cross-examination of Mr Kirk

27 Mr Kirk had made three affidavits each of which was attended by a number of exhibits. The affidavits were identified in the index to Exhibit PX.

28 In his affidavit of 16 October 2009 he had deposed inter alia as follows :

i. that the three aspects of the prejudice which he contended he suffered by being joined to the proceeding so late were constituted by the following:

a) his having lost the opportunity to participate in the test case;

b) his having lost opportunities to pursue cross claims;

c) his having lost or diminished the opportunity to effectively participate in the remainder of the proceedings.

ii. The first of these aspects were said to relate in part to his experience and expertise as a forensic accountant, including experience in relation to commercial litigation. In this regard certainly there was no challenge to these qualifications, he having been for approximately 18 years a partner in the audit division of Price Waterhouse Cooper's, and his experience having included for example in the early 1980s having been nominated by his partners to act as an independent accounting and auditing expert in the landmark Cambridge Credit case against its auditors, in which regard he had given intermittent evidence over a period spanning over two years before Justice Rogers;

iii. His evidence included that by mid-September 2003 he was considering separate representation because he considered that failure to serve him meant that it was not worth while for him to fund Clayton Utz retainer in the proceedings on behalf of the defendants who had been served, in circumstances where he had not been impressed with that firm’s handling of the matter;

iv. He had deposed that had he been served with a summons in 2003, or at any time prior to the hearing of a test case, he would have been in attendance at all times through the hearings of the test case and did not attend nor participate in the preparation of that case because he had not been served with the summons. Had he been served on time, he contended that he would have brought to bear his experience in commercial litigation, as an independent accounting expert, by providing guidance and instructions on the complex accounting issues of the case, either to Clayton Utz or, had he chosen to be separately represented, to his own lawyers;

v. He also claimed to have lost the opportunity to participate in the preparation of Mr Gardiner's cross claims;

vi. In paragraphs 20-27 of his affidavit made on 16 October 2009 he deposed as follows:

20. The claim that I am and would then have been most interested in pursuing was what was described in the Court of Appeal judgment dated 6 September 2007 as "the ARF funding arrangements". In relation to that claim, the Court of Appeal held that the prospectuses filed by OAL with ASIC in respect of the Projects were false and misleading and that ARF was a knowing party to that contravening conduct. These findings appear in paragraphs 300 - 305, 308 - 309 and 343 of the Court of Appeal's judgment.

21. If my review of the relevant documents confirmed my suspicion that the ARF funding arrangements in fact constituted what accountants call a "round robin", I would have explained the financial implications of this construct to the lawyers and any experts retained by them. Simply put for present purposes, the round robin process in such circumstances, describes the simultaneous or contiguous exchange and banking of cheques, or merely by way of effecting journal entries, as [sic] process which in no way added to the pool of funds available to OAL to fulfil its obligations under the Licence and Management agreement, particularly as represented in the cash forecast table set out in the Table in Section 8.9 of the prospectuses. I should add that the alleged use of the funds to attract further investors should take into account the additional obligations to establish and maintain an additional number of farms that went hand in glove with the introduction of such further investors. It should further be added that the use of the loan funds seemingly borrowed from ARF by OAL lending them back to ARF is a clear breach of Project Deed as it is referred to in Section 8.1 of the prospectuses.

22. I would also have been eager to investigate Mr Gardiner's cross claim based on the fact that money invested by farmers from their own pockets (i.e. as distinct from the illusory loans from ARF) was used, not in the establishment, maintenance and management of farms, but for the discharge of undisclosed pre-existing financial commitments owed to Mr Cassegrain and interests connected to him (described by the Court of Appeal as the "repayment understanding"). Further, I understood at the time I made my investments that the Projects were in effect underwritten by the Cassegrain family business. Had I been involved in the preparation of the test case, triggered by the revelation of the ARF funding arrangements and the repayment understanding, I would have investigated the financial position of Mr Cassegrain's interests to establish the full extent to which funds invested by farmers was being utilised to assist the Cassegrain parties in any financial strain they may have been experiencing in counter-distinction to the financial support I believed those interest were providing to the Projects.

23. At a commercial level, my concerns about the ARF funding arrangements and the repayment understanding is that funds subscribed by investors to OAL were not used in the establishment, maintenance and management of farms but were rather returned to ARF, purportedly to fund new investors' participation (in a round robin arrangement) or otherwise used to discharge loans or otherwise to divert monies to Cassegrain interests. These are matters that I take very seriously.

24. Had I been involved in the preparation of the test case litigation, I could fully have explored the potential existence of a round robin transaction and undisclosed aspects of Mr Cassegrain's involvement. I would have liked to have been involved in discussions with lawyers and experts about the effects of those factors on the overall financial viability of the scheme for investors and, therefore, the consequences of inadequate disclosure on the investors' decisions to invest.

25. In this regard, I note that the Court found against Mr Gardiner in relation to whether he relied on misrepresentations or non-disclosures by OAL and/or ARF in his decisions to invest in the Projects.

26. Had I been served with the summons before the hearing of the test case, I would have sought to review Mr Gardiner's draft affidavits and speak to lawyers about his proposed evidence. I would have wanted to make them aware of the consequences for the viability of the investment in the context of the round robin transactions and also of my concerns about the Cassegrain involvement. I would have wanted to do this in order that effective instructions could have been sought from Mr Gardiner as to his thought processes in investing in the Projects and, significantly, what he would have done had the matters that concerned me been properly disclosed. I would have been particularly interested to ensure that Mr Gardiner understood the concerns I had about the commercial effect of non-disclosures or misrepresentations by OAL or ARF and to ensure that he presented evidence of what he would have done had he been made aware of those factors.

27. Specifically, where I had concerns that Mr Gardiner might have further helpful evidence in this regard, I would have suggested that instructions be sought in that regard in the preparation of his affidavits or, where matters were raised in cross examination, I would have suggested questions for re-examination

29 In the main his evidence was unexceptional traversing matters such as:

i. His having become aware of the proceedings having been commenced through his membership of the action group and the fact that as at August 2003, he was aware that he appeared on a list of defendants, but he had not then been served;

ii. the fact that he had given a draft statement to Clayton Utz relatively early in the piece;

iii. He was challenged having been asked a hypothetical question: namely to assume that he had been served with the summons in about August 2003 and as to what his options would have been;

iv. He accepted that one of those options was to continue to contribute to the Farmers Action Group by contributing to the funds of Clayton Utz, or not to have done so. His proposition was that one of these options would have been to fund his own legal team to defend the proceedings, although he said that he had become disenchanted with the Clayton Utz because he was concerned about conflicts of interest within that firm;

v. His evidence was that he had, in terms of the hypothetical situation, lost the opportunity of joining the Clayton Utz team.

30 Naturally over this length of time he could not be expected to recall the exact minutia of what he knew many years ago or would have done in terms of the hypothetical put to him. To the extent that his credit may be in issue I formed the view that he had carried out his best endeavours to fairly answer the questions put to him.

The cross-examination of Mr Jones

31 Mr Jones had also made a number of affidavits, some of which were attended with exhibits : those affidavits had been made on 28 September 2009, 15 October 2009 and 28 January 2010

32 He was also cross-examined as to the early period when having returned from overseas in about September or October 2003, he had received an e-mail from Clayton Utz stating that the summons had been served and that he was one of the persons who were named in the summons that had not been served. He also had been a member of the Farmers Action Group until about the end of November 2003, and indeed in November 2003, he recalled signing a document to the effect that he would agree to be bound by the findings regarding the test case subject to his being served.

33 Parameters of his present financial situation were cross-examined on and he made the point that back in 2003 it may have been the case that he would have brought a claim on his own, because his father had given him approximately $100,000, providing him with more financial resources to make a choice.

Some of the defendants’ submissions and the plaintiff’s attempted rebuttal

34 It is presently convenient to deal with the following propositions which inter alia were pressed by the defendants.

35 These submissions included the following:

i. that Messrs Kirk and Jones could have involved themselves in the test case process and possibly been put in a different category;

ii. Mr Kirk could have assisted with the expert accounting evidence;

iii. that ARF took away from Messrs Kirk and Jones the opportunity to be heard on those matters, and might not have wished to stay in limbo;

iv. That such loss of opportunity is a prejudice in itself.

36 In attempting to rebut these submissions, the plaintiff submitted as follows:

i. It is suggested that Messrs Kirk and Jones were in a different category from Mr Gardner because of their different reliance. This is not sufficient to put them in a different category. Reliance is, of necessity, an individual matter, peculiar to every investor. This is expressly catered for by Order 3 made by Young CJ in Eq on 29 July 2005.

ii. Mr Kirk suggests that Mr Cassegrain (and possibly others) made oral representations to him. This is not sufficient to put him in a separate category either. Order 2 made by Young CJ in Eq on 29 July 2005 deals with that.

iii. In any event the Court of Appeal found that the “repayment understanding” claims were not made out and, by majority, that the ARF Funding Arrangement claims were not a misleading aspect of the relevant prospectus. Basten JA found that there was no causal link between these alleged misleading aspects of the prospectus and the claimed loss. The Corporations Act claims which Messrs Kirk and Jones say they would have brought would therefore have failed;

iv. The Court will infer that all of the remaining defendants acknowledge this, as the Trade Practices Act and Corporations Act claims have since been removed from all of their cross claims. Messrs Kirk and Jones are better off for knowing that now without having to have incurred the costs, and the liability for ARF’s costs, associated with the Gardner Test Case (or their own case “run in parallel”);

v. Mr Gardner was an employee of Clayton Utz, and many of the defendants were Clayton Utz partners. The Court will infer that it was unlikely in the extreme that the Clayton Utz defendants would have agreed to either Mr Kirk or Mr Jones replacing Mr Gardner, or running their own test case in tandem. Even if the Clayton Utz defendants had agreed to Mr Kirk or Mr Jones running a separate test case in tandem, neither of them had the funds or the intention to do that;

vi. Mr Gardner did not bring any claims against any of the third parties identified by Mr Kirk. The Court will infer that was done deliberately, after careful consideration by the well-resourced and able legal team. Mr Kirk’s evidence is that the cost of running those cases himself was “prohibitive”. To suggest that he lost the opportunity of bringing those claims should not be accepted because, first, he could have brought them had he wished to and, second, even if the summons had been served, he would not have brought them on his own;

vii. Mr Jones’ evidence as to his financial circumstances suggests that he would not have run them either; he was prepared to be part of the Clayton Utz defendants’ group, and the Court will infer that that is what he would have done. Mr Jones has had the benefit of the outcome of the Gardner Test Case but has not incurred any of the cost;

viii. There was nothing stopping Mr Kirk or Mr Jones taking steps to become involved in the test case process had they wished. They knew it was happening but wanted to stay out of it. Notice of the proceedings is one of the relevant factors identified in Buzzle [2009] NSWCA 104. They could have brought any claim under the Corporations Act or Trade Practices Act had they chosen to do so. They forsook those opportunities voluntarily;

ix. Mr Kirk did not identify how he might have made any difference to the findings resting on the expert accounting evidence. The suggestion that he could have is purely speculative. It is by no means a “real possibility” The Court of Appeal found that there was no underlying evidence that payments were made at the relevant time to support the “repayment understanding” claims. No criticism was made of Mr Humphreys in this regard.

x. There is no material prejudice arising from the alleged “loss of opportunity” sufficient to inform the exercise of the Court’s discretion. Rather, as it happens, Messrs Kirk and Jones are significantly better off by not having been involved since 2003. Their cases would not have been determined any earlier even if they had been served in 2004, the claim now made against Mr Kirk is substantially less than originally brought, and they have not been exposed to the costs of the Gardner Test case.

Dealing with the case

37 It is clear that the Court must exercise its discretion which, in turn is informed by the various factors identified in Buzzle. Relevantly, the Court must consider the “hardship or prejudice” caused by the grant of the renewal of the summons. Any loss of opportunity must be such as to have caused some material prejudice; some material possibility that the position of Messrs Kirk or Jones would have been better had the summons been served earlier.

38 The defendants have established that in effect the plaintiff in all of the circumstances is seen to have unilaterally abrogated to itself the equivalent of a stay of proceedings in this Court.

Examining some of the evidence given by Mr Patakas

39 Mr Patakas [the current solicitor for the plaintiff in these proceedings] readily accepted that he did not have any direct knowledge of events in relation to these proceedings prior to May 2006 when he was first retained

i. his evidence was that he first became aware that not all defendants had been served in around mid-to late 2007. It was at about that time that he became aware that not all defendants had by that stage been served When he came to realise that there were underserved defendants, he realised that as against them the summons was stale;

ii. the following questions and answers were given by him under cross-examination [at transcript 103- 104]:

Q. So did you initiate some discussion with ARF at around that time to try and exhaust all available efforts to serve the unserved defendants promptly and to seek a companionate extension order to permit that to happen?

A. I engaged in discussions with my client about serving those people and the timing of it, and at that time we were awaiting the decision of the Court of Appeal, and the reason it was raised as I said, it was in the context of some offers that went out plus also an anticipation of that decision, and as a result, it was intended I understood that when the Court of Appeal decision came out, then the rest of the proceedings would sort of all catch up with the Gardiner test case and we would then proceed to serve them. But what occurred was that in - because of the result of the Court of Appeal, we then appealed to the High Court and the issue of serving these defendants then again took a secondary position to running the Gardiner test case because when we came out of the Court of Appeal, her Honour Bergin J, I remember we went on I think it was about the ninth or 12th of December asking for orders regarding the overall conduct of the proceedings and her Honour simply declined to make them in December because she said there was the High Court decision pending.

The only order made by her Honour at that time and I’m only telling you this because it’s relevant to what we were deciding vis a vis these defendants, was that those defendants to claimed to have been punctual would write a letter to us via their solicitor to tell us they’ve been punctual. There was no other order made in relation to the proceedings generally, so it was then just adjourned pending the High Court decision, and that having occurred, we - you know I was informed, look, we’ll wait to serve them after the High Court--

Q. But the question of what orders Bergin J would or wouldn’t make in December 2007 doesn’t alter the need to serve unserved defendants promptly, does it?

A. Look, it was an unusual situation where we had a test case, and on every occasion where we’d go to the Court, effectively the matter was constantly just being adjourned, so the way - it was just being adjourned until a decision would come out. Prior to the Court of Appeal decision coming out, we’d just, it just kept getting adjourned, no orders could be made or would be made by the Court even if we - when we did ask for them, her Honour declined to make any orders. She just said well, we’d wait till the High Court, the Court of Appeal. And then after the Court of Appeal pretty much the same thing happened except that her Honour was interested in just pinpointing after the Court of Appeal decision on punctuality came out, she did want to know who was claimed to be punctual and who claimed were unpunctual, or who admitted were unpunctual. And then of course pretty well everybody came back and said we’re punctual

Q. Was it ARF’s intention so far as you understand it, never to make further attempts to serve these unserved defendants if the High Court decision was unfavourable to ARF?

A. If the High Court decision on punctuality was such that it determined that being precisely - I mean the indemnities were held to apply because it was a force majeure event. So we’re not in the threshold--

Q. I’m just asking if ARF--..

Q. --had ended up losing the proceedings?

..

Q. Is it your understanding that ARF would have taken the view that the unserved defendants should never be served?

A. Well if we had lost the High Court and the High Court determined the punctuality was not relevant for the indemnities applying, and the indemnities applied come what may, there would have been no point in serving those people because we would not have been able to sue for the money that ARF is claiming for.

HIS HONOUR

Q. Is the answer yes to Mr--

A. I’m sorry, yes.

iii. He was cross-examined along the lines that it was his understanding that the plaintiff made no substantial efforts of any kind after about September 2003 to serve either Mr Kirk or Mr Jones. His answer was that having sought such information as he could in relation to the attempts to serve these persons he knew of no attempt of any substance taken between September 2003 and September 2007. [Transcript 107 -108]

iv. He also conceded that the instruction which he received in October 2008 to press ahead with service came up in a discussion which he had with Mr Anthony Sarks at that time of what Mr Patakas perceived to be the imminent expiration of the limitations period, his evidence including:

Q. And you said something like, “We can’t wait any longer, if we’re going to serve them we have to serve them now because the limitations period probably expires in early January”. Correct?

A. Yes.

Q. And Mr Anthony Sarks agreed with that proposition and gave you instructions accordingly. Right?

A. Correct.

Q. And there’s no doubt in your mind that in doing so and proceeding at that time to take further steps to serve the unserved defendants before the High Court had delivered its decision--

...

Q. --that ARF was seeking to protect its interests, its own interests, correct, in respect of the limitation period?

A. Yes, partly.

Q. It was predominantly, wasn’t it?

A. Yes.

[transcript 112-113]

40 Apropos parameters of the evidence given above is the observation by Lord Goddard in Battersby v Anglo American Oil Company (1945) KB 23 [at 32-33]:

Ordinarily it is not a good reason that the plaintiff desires to hold up the proceedings while some other case is tried or to await some future development.

[cited by Ipp JA in Buzzle at 90]

41 The central problem for the plaintiff in relation to the instant issues centres around the enormous difficulty facing the Applicants who are expected to be able, many many years after the period of time when they should have been served, to now, with precision, demonstrate what precisely they would have done had they been served prior to the promulgation of the test case. Litigation is not a game. And it does not seem to me be permissible for the plaintiff at this very late stage to blithely challenge the evidence put forward by the Applicants as specious or ludicrous in the circumstances. A plea by the Applicants that had they been served in time they would have become involved in parameters of the test case cannot be wiped out as specious after the expiry of such a lengthy period of time.

42 It is in order to assess the justice of the case that the Court looks at every relevant fact and circumstance including the length of the delay in the plaintiff having the affected service.

The limitations point

43 In the search for hardship or prejudice caused by the grant of the renewal of the summons, a further important matter in the Applicants favour is to be discerned in what was referred to during the hearing as ‘the limitations point’.

44 The clearest and most fundamental prejudice suffered by both Applicants is the likely expiry of the time bar in relation to cross-claims pursuant to the Trade Practices Act (and Fair Trading Act) and Corporations Law. ARF now appears to concede, as it must, that these are not saved by s.74 of the Limitations Act.

45 Both Mr Jones and Mr Kirk have given evidence of claims that they would wish to make against parties other than OAL and ARF. These claims include claims arising from the defects in the prospectus against the directors of the entities (as persons knowingly concerned in the contraventions) and, particularly, against the investigating accountant of the Projects. The failure of the Applicants to assert these claims while unserved is immaterial to the relevant prejudice. As outlined below, it is entirely unrealistic to expect Mr Kirk and Mr Jones to have voluntarily joined the litigation by filing those cross-claims despite not having been served with the summons in these proceedings.

46 The right of these third parties to raise limitations defences is a further clear and highly material prejudice to the Applicants arising from the delay in service of the summons.

47 I accept that the prejudice to the Applicants arising from any limitations defence available to ARF and/or OAL in relation to the Applicants’ claims against them may well not be cured by representations in correspondence from solicitors or from the Bar table, of questionable effect in light of the decision of the High Court, on the time when a “waiver” can occur [(2008) [2008] HCA 57; 238 CLR 570 at [56]], in the Gardiner Test Case.

The Applicants’ loss of the opportunity to influence the conduct of the test case

48 Additionally I cannot accept the plaintiff's contention that it would have been irrelevant to the test case process that Messrs Kirk and Jones have available to them different or more meritorious cross-claims than those available to Mr Gardiner.

49 ARF and the served defendants agreed, after the selection process contemplated by the orders made by Bergin J. on 29 August 2003, on a test case process that included determination of Mr Gardiner’s cross-claims (as opposed to the process being limited to the questions of contractual construction raised in ARF’s claim, as it could have been). Mr Gardiner was wholly unsuccessful in his cross-claims.

50 It is elementary that the defendants would have sought to have the defendant with the best possible prospects both in his or her defence and cross-claim put forward as a test case litigant and, if appropriate, to have multiple test case defendants put forward to maximise their position.

51 For this reason, the fact that Clayton Utz decided not to raise in the Gardiner Test Cases, cross-claims that Mr Kirk and Mr Jones may have against third parties demonstrates the very prejudice that they have suffered by reason of their exclusion from the process. It certainly says nothing about the prospects of their cross-claims. Nor does their failure to bring them before now.

52 It is entirely unrealistic to expect Mr Kirk and Mr Jones to have voluntarily joined the litigation by filing those cross-claims despite not having been served with the summons in these proceedings (especially in light of the fact that any claims based on the prospectus or other pre-contractual misrepresentations would have been quantified in large part by reference to the amount of ARF’s claim against them). Had the Applicants been served promptly, they would have been advised about these claims and thereby had the opportunity to deploy them to offset their exposure to ARF’s claim.

53 In particular, had they sought that advice, it is likely, on the evidence of Mr Kirk, that a cross-claim against the investigating accountant would have been propounded. Had it been propounded, there was a real possibility that it would have fallen within the orders relating to cross-claims referred to in p.1A (ie, the page immediately after p.1) of Ex EP-32. A likely consequence is that that cross-claim would have been included in the test case regime and would have resulted in a much earlier resolution of that aspect of the issues in which Messrs Kirk and Jones are interested.

54 Their case on reliance certainly does not stand or fall with that of Mr Gardiner. The implication in the plaintiff’s further submissions that the Clayton Utz defendants would somehow have to “agree” to Mr Kirk or Mr Jones replacing Mr Gardiner or running their own test case in tandem points up the very prejudice which Messrs Kirk and Jones have suffered, ie, having been shut out of the process by ARF’s failure to serve them.

55 Returning to the appropriate analysis of the Court of Appeal’s judgment in the Gardiner decision it is important to bear in mind that a majority of the Court of Appeal held the ARF funding arrangements not to have been disclosed in the prospectus or the supplementary prospectus for Project 1. Spigelman CJ and Handley AJA held that the cross-claim based on the ARF funding arrangements failed due to a failure to establish reliance [Handley AJA at [442], Spigelman CJ at [138]].

56 On no view could the finding at [468] of Handley AJA’s judgment, which was concerned entirely with disclosures in the prospectus for Project 2 (as it appears that the accounts his Honour refers to were not included in Project 1), affect the majority finding that the ARF funding arrangements were not disclosed in the prospectus for Project 1.

57 In relation to the repayment understanding claim, the position is simply that a majority of the Court of Appeal (Handley AJA at [440] and Spigelman CJ agreeing at [137]) held that Mr Gardiner’s expert evidence did not prove the falsity of the representation. Basten JA held that it did (at [297]).

58 It is of course open for Mr Kirk and Mr Jones, subject to any limitations defence, now to press same claim with different and better evidence. To dismiss the possibility that the injection of the enormous forensic accounting expertise of the highly-credentialed Mr Kirk could not have resulted in a different outcome is to fail to recognise the very prejudice worked upon Messrs Kirk and Jones by conducting and concluding the test case in their absence and now submitting that they should simply treat themselves as bound by the outcome and abandon all hope in their cross-claims . This denial of any opportunity to achieve a different outcome is a fundamental denial of principles of natural justice and a recognition of the very sort of prejudice which it appropriate to the service being set aside.

59 Notably and as the Applicants have observed, there is thus an inherent inconsistency in ARF’s submission in this regard. In other words, the prejudice arising from their exclusion from the process is clearly evident in that ARF now seeks to use its success in the test case to argue that Mr Kirk and Mr Jones could not conceivably have succeeded in their cross-claims, which are probably now (arising from the failure to serve them) statute-barred.

A focus on the timing circumstances

60 Submissions were also addressed by the Applicants pointing out the particular problems for them should their application be denied, which arise from the proximity of the final hearing date fixed in April for the Court to deal with all remaining matters concerning the parties. This also is a parameter appropriate to be taken into account. Many parties would be affected if those hearing dates required to be vacated and to do so would be contrary to the approaches to litigation laid down by the recent decision of the High Court in Aon Risk Services Australia Ltd v Australian National University [2009] HCA 27.

Conclusion

61 For those reasons the orders sought by the Applicants will be made. The Applicants are directed to bring in short minutes of order.

62 The parties will be given an opportunity to address on costs.

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LAST UPDATED:
11 February 2010