The perils of delay when serving a claim - a 'good reason' not to wait

Parties that withhold from serving a Statement of Claim and then seek an extension of time to do so, without a 'good reason' for an extension being granted, run the risk of the claim not being renewed and being dismissed in its entirety.

This is a lesson learned the hard way by a liquidator in three recent concurrent, interrelated proceedings in the Supreme Court of Queensland.

Background to the claims

Edis Service Logistics Pty Ltd, Kleenmaid Customer Solutions Pty Ltd and Kleenmaid Corporate Pty Limited, were three companies that were part of a group known as the "Kleenmaid Group" (together the Plaintiffs).

In 2008, PKF East Coast Practice (A Partnership) (PKF) carried out an audit of each company, before they were separately placed into liquidation in May 2009.

In 2014, shortly before the expiry of the limitation period, the companies commenced separate but interrelated proceedings against PKF, its partners, and the partner in charge of the audits. Each Plaintiff alleged that the audits by PKF in 2008 were performed negligently and in breach of s 52 of the Trade Practices Act 1974 (Cth).

Although the claims were commenced just prior to the expiry of the limitation period in 2014, the Plaintiffs made no attempt to serve the defendants until August 2017, approximately three years after the claims were filed. The Plaintiffs twice (successfully) applied ex parte to the registrar for renewals of the claims pursuant to rule 24 of the Uniform Civil Procedure Rules 1999 (QLD) (UCPR).

Acting on behalf of the defendants, Lander & Rogers applied to the Supreme Court seeking orders setting aside the most recent of the renewals.

Applicable principles and legislation

A renewal to a claim may be granted at the discretion of the court if, under rule 24 of the UCPR, the claim has not been served on a defendant and the registrar is satisfied that reasonable efforts have been made to serve the defendant or that there is another good reason to renew the claim.¹ Similar provisions exist in the Supreme Court rules in each Australian jurisdiction.²

The discretion conferred by rule 24 of the UCPR must be exercised in a context that includes rule 5, which seeks to facilitate the just and expeditious resolution of the real issues in civil proceedings at a minimum of expense.

Whilst the question of what constitutes a 'good reason' will be decided upon on a case-by-case basis, in short, conduct by a party which entails unexplained or inexcusable delay is unlikely to be vindicated by a court exercising the discretion granted in rule 24(2).

The arguments in court

The Plaintiffs accepted that where a claimant deliberately chooses to defer service, it will rarely be able to establish a good reason to warrant renewal of a claim.
The Plaintiffs argued, however, that the case was to be distinguished from other cases, in that there was an 'unusual series of circumstances', which in combination amounted to a good reason for renewing the claims pursuant to rule 24 of the UCPR, namely:

• The liquidators were busy in the first four years of the liquidation attending to other matters arising in the liquidation;
• The liquidators were bound by undertakings which prevented them reviewing documents produced during the ASIC investigations and criminal investigations of the Plaintiffs' former directors;
• The inability to advance proceedings, if served, due to the outcome of the criminal proceedings involving the former directors not yet being finalised;
• The lack of litigation funding; and
• The impact on creditors if the claims were not allowed to proceed.

In response, the defendants argued that the Plaintiffs could not discharge their burden of proving that there was a good reason to renew the claims because, amongst other things:

• The liquidators of the Plaintiff companies deliberately delayed service of the claims on the defendants for almost three years, having filed the proceedings very shortly before the expiry of the limitation period. There is a substantial body of authority, including IMB³ and Muirhead⁴, to the effect that a Plaintiff who deliberately chooses to defer service of its claim will rarely be able to show a good reason for the claim to be renewed.
• The only real reason for the delay in serving the claim was the inability to secure litigation funding, and the instructions of funders to cease work. That was not a 'good reason', in a proper legal sense, for delaying service.
• If there was any legitimate reason why the Plaintiffs believed that the progress of the proceedings needed to be delayed, the proper course was to serve the defendants and then seek a stay from the Court, thereby bringing the proceedings under the supervision and management of the Court.
• By delaying service, the Plaintiffs arrogated from the Court, to themselves or to a third party, the right to decide how long the time for service should be extended.
• The Plaintiffs provided no notice at all to the defendants of the claim until May 2017, some three years after the claims were filed and nine years after the causes of action arose.
• The loss of a Plaintiff's cause of action is not a good reason to renew a claim.

The Supreme Court's decision

Whilst the court is yet to deliver written reasons, the judge rejected the Plaintiffs' arguments and made orders setting aside the most recent renewal orders, with the effect that the Plaintiffs' claims were dismissed.

Key lessons for litigants

The decision serves as a reminder of the importance of:

• Promptly commencing proceedings, rather than doing so on the cusp of a limitation period expiring, to ensure not only that a cause of action is preserved but also to maximise the prospect of obtaining orders renewing a claim if necessary.
• Weighing up the pros and cons of serving a claim even if there are concerns that pleadings are not fully compliant with the relevant court rules and amending the claim after it has been served.
• Most importantly, not withholding service of a Statement of Claim unless there is a 'good reason' for doing so in accordance with the relevant statutory rules and the principles enunciated in the case law.

Whilst the Court undoubtedly has a wide discretion to renew a claim, litigants must bear in mind that the discretion is not at large and must be exercised in the context of and by reference to the legislative framework in which it appears, with emphasis upon the underlying objective of proceeding expeditiously with a claim and avoiding undue delay.

Therefore, even where there is a 'good reason' for withholding from serving a Statement of Claim, it may be prudent to serve the claim (or at the very least attempt to do so) and seek a stay of the action rather than facing the risk of having an action fail altogether.

¹ Uniform Civil Procedure Rules 1999 (NSW) r. 24: In Queensland, the registrar may renew the claim for further periods, of not more than 1 year at a time, starting the day the claim would otherwise end.

² For the equivalents to r. 24 in other jurisdictions, see Uniform Civil Procedure Rules 2005 (NSW) r. 1.12; Supreme Court (General Civil Procedure) Rules 2015 (Vic) r. 3.02; Supreme Court Rules 2018 (NT) r. 88.75; Supreme Court Rules 2000 (Tas) r. 52; Rules of the Supreme Court 1971 (WA) r.3.5.

³ The IMB Group Pty Ltd (in liq) v Australian Competition and Consumer Commission [2007] 1 Qd R 148.

⁴ Muirhead v Uniting Church in Australia Property Trust (Qld) [1999] QCA 513.