A recent decision of the Queensland Supreme Court in Baskerville v Baskerville & Ors [2021] QSC 292 has clarified the exercise of judicial discretion to extend the limitation period for voidable transaction proceedings and examined the limitations of ‘without prejudice’ privilege.
Background
A liquidator was seeking an extension of time to commence proceedings pursuant to section 588FF(3)(b) of the Corporations Act 2001 (the Act). The relevant company went into liquidation on 11 July 2018 and two liquidators were appointed. By 23 April 2020, both these liquidators had resigned and were replaced with a new liquidator (the Applicant). The time limit for commencing voidable transaction proceeding was to expire on 11 July 2021. The application to extend was filed two days before that limitation period expired.
There are no criteria within the Act for considering an extension, and thus the court had to decide whether it was just and fair to extend the limitation period. The onus was on the Applicant to show why the time limitation should not apply.
‘Without privilege’ correspondence
An important preliminary issue in this decision was whether to admit email correspondence that occurred on 31 May 2021 between the solicitor for the applicant and the second respondent that had been marked ‘without prejudice’. The exchange concerned a section 530B notice that the second respondent failed to comply with. The solicitor for the applicant ended an email by stating that if he provides the necessary information then they can look at avoiding litigation but that otherwise they have a barrister briefed and a claim should be ready to file against them well before 30 June 2021.
The classic rule of without prejudice comes from Field v Commissioner for Railways (NSW).[1] The rule states that negotiations to settle litigation should be excluded from evidence to allow parties to freely communicate without the pressure of the liabilities the correspondence could impose on them. However, there are exceptions to this rule.
The relevant exception for this case was a rule from Pitts v Adney,[2] which stated that the without privilege rule cannot be permitted to put a party into the position of being able to cause a court to be deceived as to the facts, by shutting out evidence which would rebut inferences upon which that party seeks to rely.
A critical part of the applicant’s case was that the applicant was not in a position to proceed. However, the email clearly stated that they were ready to file a claim before 30 June 2021. Therefore, the emails were held to be admissible.
Was it just and fair to extend the limitation period?
For the court to exercise its discretion to extend the limitation period, the Applicant had to show valid reasons for the delay and that the actual prejudice caused does not outweigh the case for granting an extension.
The Court looked at affidavits relied upon by the Applicant to identify relevant matters regarding the Respondents. The Applicant pointed to the fact that the liquidation was unfunded and that he had not been able to identify a reason for a nearly six-million-dollar transaction, meaning there could be an unreasonable director transaction claim.
The Respondent submitted that there had already been correspondence from the Second Respondent and that he had no further documents to provide. It was also argued that the Applicant’s case was vague in its details for what would be done in the intervening period.
The Court accepted the respondents’ submissions and specifically pointed to the periods between February 2019 – April 2020 and April 2020 – March 2021 where little work was done and there was no satisfactory explanation as to why that was so. The Court also held that the fact that the liquidation was unfunded was of little importance as section 588FF(3)(b) does not distinguish between funded and unfunded liquidations. Finally, the Applicant’s submission that they had sufficient material to commence proceedings prior to 30 June 2021 was a contradiction in the applicant’s position of not being ready to bring proceedings.
Therefore, the Court found that that the Applicant had not provided a satisfactory explanation for the delay and it was not fair and just in all the circumstances for the limitation period to be extended.
Lesson to be learned
Liquidators looking to pursue claims under Part 5.7B of the Corporations Act ought to heed the case law that makes it very difficult to convince a Court to extend the limitation period (often 3 years), even if the liquidation is unfunded.
[1] (1959) 99 CLR 285.
[2] [1961] NSWR 535.
