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Focus: One Tel – the danger of 'hastening slowly'

18 May 2011

In brief: The NSW Supreme Court has handed down a decision setting aside service of the statement of claim brought by the special purpose liquidator of One.Tel Limited (in liq) and dismissing the proceedings in their entirety. Partner Malcolm Stephens (view CV) and Senior Associate Chris Prestwich report.*

How does it affect you?

  • The decision highlights the dangers for plaintiffs who delay serving proceedings. The reasoning of the court is particularly relevant to liquidators who may delay the service of proceedings while they attempt to obtain litigation funding.

How it unfolded

On 29 May 2001, the board of One.Tel passed resolutions abandoning a renounceable rights issue and, immediately afterwards, appointing voluntary administrators. In 2003, a special purpose liquidator (the SPL) was appointed to investigate the events leading up to those resolutions.

In May 2007, the SPL filed claims in the Supreme Court of NSW against various professional advisers of One.Tel and against individuals and entities associated with PBL and the News Group. Those claims were not served within six months (as required by the court rules). Instead, the SPL obtained from the court six separate extensions of time for service of the claims. The proceedings were finally served against some of the defendants in August 2010.

As the extensions of time to serve proceedings were obtained 'ex parte' (that is, without the defendants being heard on the applications), the served defendants were entitled to apply to have the extensions of time for service set aside. They did so, and, on 13 May 2011, Justice Ward in the Supreme Court of NSW set aside the final two extensions of time for service and dismissed the proceedings. The result is that, subject to any successful appeal, the pleaded claims asserted by the SPL are statute barred and can no longer be pursued.

In relation to each of the six extensions of time, the court weighed up a number of factors, including the length of, and the reasons for, the delay, whether notice was given to the defendants, the conduct of the parties and the prejudice to the parties. Weighing up all of those factors, Justice Ward held that while, on balance, the first four extensions of time for service were upheld, the final two extensions of time for service (granted in November 2009 and May 2010) were set aside.

Of particular note in the court's analysis was that:

  • the extension in November 2009 was largely due to a potential litigation funder wanting to wait on the outcome of the judgment in ASIC v Rich and the decision of the SPL not to pursue an alternative funding option which did not depend on that outcome; and
  • the extension in May 2010 was largely due to the SPL deciding – apparently at the behest of a litigation funder – to appoint new lawyers to undertake a wholesale review of the pleading.

The court held that granting extensions of time in these circumstance would have the undesirable effect of allowing the SPL to give the litigation funder the power to decide when the proceedings would be served.

Conclusion

The case highlights the risk for a plaintiff in seeking extensions of time to serve a claim. To avoid the risk of extensions of time subsequently being set aside, a prudent course for plaintiffs who wish to delay proceedings may be to serve the claim and then to apply for a stay of the proceedings.

* Allens Arthur Robinson acted for the News Group defendants.

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