Services

HG Alert: The days of litigating at leisure are over! - 22 Sep 2009

This bold statement, asserted by Her Honour Justice Atkinson, was demonstrated in her recent judgement of Multi Service Group Pty Ltd and Robert Eugene Murphy as Liquidator of Multi Service Group Pty Ltd -v- Graham John Osbourne & Ors [2009] QSC 286.

In this case, proceedings commenced by the liquidator of the Multi Service Group were deemed resolved, as a Request for Trial Date was not filed in accordance with caseflow management orders. The liquidator unsuccessfully applied to have the proceedings reactivated.

Caseflow management

The caseflow management system’s objective is to avoid undue delay and expense. Proceedings should progress efficiently in accordance with a litigant’s implied undertaking to the court. The aim is to resolve proceedings in a timely and cost-effective manner.

Central to caseflow management is the concept that proceedings should ordinarily be ready for trial within 180 days of the defendant’s Notice of Intention to Defend being filed. If no Request for Trial Date has been filed by that time, the caseflow manager will send the parties an intervention notice. Parties must then propose an acceptable plan, which generally must include filing a Request for Trial Date. If such a plan cannot be agreed, the matter will be referred to the caseflow management judge, who will give directions for the timely disposition of the proceeding.

Adoption of High Court authority

Atkinson J emphasises the importance of litigating efficiently, and cites the High Court’s recent decision in Aon Risk Services Australia Limited -v- Australian National University [2009] HCA 27 as overriding previous decisions, and elevating the importance of caseflow management considerations and questions of the proper use of court resources.

In the Aon Risk case, the plaintiff sought leave to amend its Statement of Claim on the third day of a four-week trial, to allege a substantially different case to that previously pleaded. The High Court did not allow the amendment for reasons that included, relevant to the Multi Service proceedings, case management principles.

The High Court also specifically overruled its earlier decision of Queensland -v- JL Holdings, which suggested a limited application for case management. The JL Holdings case was authority that “justice between the parties” was the paramount consideration.

The Aon Risk case provides that limits will be placed on litigants’ ability to change their pleadings, particularly if litigation is well underway. The court emphasised that parties are to have sufficient opportunity to identify the issues that they seek to address, but that case management considerations can impose limits.

Importantly, Chief Justice French emphasised the importance of compliance with court-ordered timetables. There is a greater emphasis on case management, and it is clear that an award of costs is no longer sufficient to compensate a party affected by another party’s delay.

Principles to be considered

Atkinson J states that the same principles apply when considering leave to amend, or where a party applies to reactivate a matter that has been deemed resolved. The party seeking reactivation must explain why the matter was deemed resolved. The Court has a wide discretion and will take into account all the relevant circumstances, including:

  • the conduct of the litigation before the orders, including how long ago the events the subject of the proceedings occurred, any delay in adding causes of action and previous delays in litigation;
  • the explanation of the failure to comply with orders, and whether that failure is attributable to the parties or their legal representatives;
  • any prejudice to the defendant through the failure to comply with directions, which may result in an inability to ensure a fair trial;
  • how far the litigation has progressed; and
  • what prospects of success the parties have in the action.

In the Multi Service proceedings, most of the timetable as not followed, and many orders were not complied with at all. Her Honour stated that both parties demonstrated a complete disregard for the orders.

The proceedings were not completely inactive, and there was communication between the parties’ solicitors, including settlement discussions. However, by the time the applications for reactivation were heard, pleadings had not closed.

While both parties failed to comply with the directions, Her Honour stated that litigation is supposed to be plaintiff driven, and if the plaintiff does not drive the litigation, they have more to lose when the matter is deemed resolved.

Atkinson J identified the main delaying factor as being the failure to complete a solvency report. The orders required that this report be completed almost one year before judgement. The liquidator explained that the delay was largely due to a difficult winding-up process, because:

  • Multi Service Group was part of a group of companies with intermingled records;
  • the voluminous financial records which had to be considered were incomplete and poorly kept. The process of gathering information was under-estimated; and
    there were also delays caused by public examinations.
  • The delay in completing the solvency report meant that mediation, disclosure and further expert reports, as contemplated by the orders, were not possible.

Three days before the matter was deemed resolved, the liquidator’s solicitors wrote to the defendants’ solicitors providing a proposed Consent Order to vary the timetable. The liquidator’s solicitors were aware the day before the proceedings were deemed resolved that the defendants’ solicitors had not yet received instructions.

Atkinson J stated that while the defendants were not forthcoming with their consent, the liquidator’s solicitors were responsible for preventing the matter from being deemed resolved. Her Honour went on to say that as soon as there is an expectation that either party may be unable to comply with the orders, the matter should be brought back before the court for further directions.

Importantly, the liquidator submitted that the proceedings were the only prospect of any return to the unsecured creditors and, if the matters were not reactivated, the claims would be statute barred. Her Honour was not sympathetic, stating that it was the liquidator’s failure to comply with the orders and to prosecute the matters efficiently that led to the situation.

Her Honour concluded that the proceedings were not prosecuted efficiently. Whatever the justification for that, it could not be sustained once orders were made, rather than complied with, and no variation was sought.

Implications

Liquidators will often have limited or uncertain funding to pursue available claims, and may also face pressing limitation periods. The Multi Service case is a timely reminder that courts will not tolerate delays in the prosecution of proceedings. Parties must refine their pleadings at an early stage and be in a position to run the matter to trial within 9 to 12 months of proceedings being filed.

The Multi Service case demonstrates the court’s emphasis on the efficient resolution of proceedings, even where a liquidator believes that those proceedings represent the only prospect of a return to unsecured creditors. Liquidators need to be aware that proceedings cannot be placed on the backburner once they have begun.

Obviously, it is best that a matter does not ever come on to the case management radar. However, where liquidators have limited funding, it is often inevitable that claims cannot be prosecuted as quickly as they probably should be.

In these circumstances, parties need to be vigilant in complying with any orders. If the parties cannot comply with orders, they should at the very least agree to a variation to the orders before the time for compliance has passed. Atkinson J seems to go further, saying that as soon as there is an expectation that either party may be unable to comply with the orders, the matter should be brought back before the court. Striking a balance between the prompt resolution of proceedings and the interests of justice is far from easy, and will be an ongoing issue.

For more information about these cases, please contact HopgoodGanim’s Insolvency specialists.