Keeping it within the “mothership”

This week’s TGIF considers the decision in the matter of Bias Boating Pty Ltd [2017] NSWSC 1524 which deals with leave to join already named defendants to a “mothership” proceeding after expiration of the limitation period

Background

The first plaintiff was appointed administrator of the second plaintiff (the relevant company) on 25 August 2014 and became its liquidator on 29 September 2014.

On 22 August 2017, three days prior to the expiration of the three year limitation period, the plaintiffs filed an originating process under s 588FF of the Corporations Act 2001 (Cth) claiming relief against 23 named defendants.

Later and after the expiration of the limitation period, the plaintiffs sought leave under rule 6.19 of the Uniform Civil Procedure Rules (UCPR) to join all 23 defendants to the proceeding.

Defendants’ arguments

Six of the 23 defendants opposed the application arguing that because leave was not granted prior to the expiration of the relevant limitation period, the plaintiffs were out of time.

Further, if leave was to be granted, it should have effect from the date of the order (rather than the date of filing) in accordance with rule 6.28, which would again have made it out of time. Rule 6.28 provides that where a party is joined following the commencement of proceedings, the date of joinder is the date of the court order.

Decision

Brereton J granted the plaintiff leave to join the 23 defendants. His Honour held that where multiple defendants are joined in an originating process before leave is granted, the proceedings are irregular (but not invalid) unless and until leave is granted.

In rejecting the opposing defendants’ propositions, Brereton J made the following comments in respect of rule 6.19:

(a) it is concerned with joinder in the originating process (as distinct from the addition of a party subsequently);

(b) it “plainly contemplates” that leave may be granted before or after the originating process is filed;

(c) the purpose of the rule is to control the constitution of proceedings, not to impose a precondition to their institution.

In finding that the defendants were joined from the date the proceedings were filed, his Honour contrasted rule 6.19 with rule 6.28. His Honour found that concerns surrounding the application of rule 6.28, including the circumvention of the statutes of limitations, were not applicable to joinder under rule 6.19 as in that case, the defendant had already been named in the originating process.

Brereton J also referred to recent Corporations court policy and the efficiencies, for both liquidators and courts, created from bringing proceedings of this kind under the umbrella of a “mothership proceeding”.

Comment

This decision, together with that of Kenneth Martin J in Martin Bruce Jones as Liquidator of Forge Group Ltd (recrs & mgrs. apptd) (in liq) v Sun Engineering (Qld) Pty Ltd [2017] WASC 195 confirms the Court’s general preference for “mothership” proceedings of this kind. While the reasons for this position are valid, they also ignore the increase in costs for the individual defendants.

These decisions have prompted consideration by the Council of Chief Justices of Australia and New Zealand and ARITA as to whether this issue should be the subject of possible reform to Court rules applicable to liquidator proceedings against multiple defendants under Division 2 of Part 5.7B of the Corporations Act. We will watch this with interest.