Supreme Court New South Wales

• Medium Neutral Citation: In the matter of Pan Pharmaceuticals Ltd (in liq) - Brennan v McGrath [2011] NSWSC 561
• Hearing dates: 29 April 2011
• Decision date: 10 June 2011
• Jurisdiction: Equity Division - Corporations List
• Before: Ward J

Decision

Application for leave to extend time for appeal from rejection of proof of debt dismissed with costs.

• Catchwords: CORPORATIONS - application for an extension of time in which to file an appeal under s 1321 of the Corporations Act 2001 (Cth) against the rejection of a proof of debt - HELD - plaintiff's delay in filing appeal inordinate - substantial prejudice to defendants due to delay if leave granted - application dismissed
• Legislation Cited: Corporations Act 2001 (Cth); Corporations Regulations 2001 (Cth); Therapeutic Goods Act 1989 (Cth)
• Cases Cited: Agricultural & Rural Finance v Kirk [2011] NSWCA 54; Arthur Andersen Corporate Finance Ltd v Buzzle Operations Pty Ltd (in liq) [2009] NSWCA 104; Bank of Melbourne Ltd v HPM Pty Limited (in liq) (1997) 26 ACSR 110; BP Australia Ltd v Brown & ors [2003] NSWCA 216; Brisbane South Regional Health Authority v Taylor (1996) 186 CLR 541; Citicorp Australia Ltd v Official Trustee in Bankruptcy (1996) 141 ALR 667; Derwinto Pty Ltd (in liq) v Lewis (2002) 42 ACSR 645; Ex parte McGrath; Re Pan Pharmaceuticals Ltd (in liq) [2008] FCA 563; Hearne v Street (2008) 235 CLR 125; Itek Graphix Pty Ltd v Elliott (2002) 54 NSWLR 207; Jackamarra v Krakouer (1998) 195 CLR 516; Mine and Quarry Equipment International Ltd v Mcintosh [2005] QSC 059; New Cap Reinsurance v Reaseguros Alianza SA [2004] NSWSC 787; Pan Pharmaceuticals Ltd (in liq) v Selim [2008] FCA 416; Re Estate of Knight (a bankrupt); Rocom International Pty Ltd (in liq) v Prentice [2002] FCA 604
• Category: Principal judgment
• Parties: John Frederick Brennan (Plaintiff); Anthony Gregory McGrath; Christopher John Honey (Defendants)
• Representation: Counsel; A P Cheshire (Plaintiff); F Gleeson SC (Defendants); Solicitors; Anthony McMinn (Plaintiff); Blake Dawson (Defendants)
• File Number(s): 10/318088

Judgment

1 HER HONOUR: Before me for hearing on 29 April 2011 was an application brought by John Frederick Brennan, seeking an extension of time in which to file an appeal under s 1321 of the Corporations Act 2001 (Cth) against the rejection by the defendants (the liquidators of Pan Pharmaceuticals Ltd) of a proof of debt in the sum of $678,596.84 lodged by him in November 2004. The proof of debt was rejected by the liquidators on 20 December 2004. The amount claimed in the proof of debt is a claim for damages for alleged wrongful dismissal of Dr Brennan's employment as the then general manager of Pan Pharmaceuticals (and for reimbursement of some out of pocket expenses).

2 The liquidators' notice of rejection of the proof of debt prescribed a 14-day time limit for challenging that decision, thus expiring on or about 3 January 2005. The present application is brought under sub-regulations 5.6.54(2) and (3) of the Corporations Regulations 2001 (Cth), which provide, relevantly, that the court may extend the time for the filing of an appeal against the rejection of a formal proof of debt or claim beyond the time specified in the notice of the grounds of rejection and may do so even if the period specified in the notice has expired.

3 The present application was commenced almost six years after the liquidators' decision. The liquidators oppose the application on the basis of delay and prejudice. The winding up of Pan Pharmaceuticals commenced on 23 September 2003. Other than for this matter, the liquidation of the company has effectively been finalised. It is anticipated that (again but for this matter) there will be a final distribution in the order of one cent in the dollar for creditors whose claims have been admitted.

Legal Principles

4 It is common ground that the discretion to grant an extension of time for appeal against the rejection of a formal proof of debt or claim is broad and flexible. Though unfettered (in the sense that there is no legislative prescription on its exercise), it is a judicial discretion that (like the discretion to extend time for the service of a writ or to extend time to commence proceedings outside a statutory limitation period) is not at large. To adopt the words of Ipp JA in a somewhat similar context (though there his Honour was considering what was required for the exercise of a discretion to extend time for service of a writ in the context of an application to discharge an ex parte order for such an extension), the discretion is to be exercised in the context of and by reference to the statute by which it is conferred (and any other statute that is relevant to the legislative context) and in accordance with principles developed by judicial decisions ( Arthur Andersen Corporate Finance Ltd v Buzzle Operations Pty Ltd (in liq) [2009] NSWCA 104 at [28] ). In Buzzle , the relevant statutory context included ss 56-59 of the Civil Procedure Act 2005 (NSW).

5 In Re Estate of Knight (a bankrupt); Rocom International Pty Ltd (in liq) v Prentice [2002] FCA 604 Tamberlin J (at [4]), referred to the factors that had been assembled by Kirby J in Jackamarra v Krakouer (1998) 195 CLR 516 at [539] - [543] as relevant when considering the grant of an extension of time, listing them as follows:

• the discretion to grant an extension is broad and flexible;
• whether it is just in all the circumstances to grant an extension;
• whether the time limits are of a substantive or procedural nature;
• whether the case is arguable;
• respective prejudice to the parties;
• length of the delay;
• responsibility and reasons for the delay;
• whether the delay was intentional or the result of a bona fide mistake;
• whether the delay was caused by the litigant or legal advisers.

6 There, the delay was in the order of a little over a month from the date on or by which the liquidators' decision must have been made (there being some uncertainty as to the date of the relevant decision) and the applicant was found to have acted in a timely manner once notice of the rejection had been received. His Honour considered that the delay (part of which occurred over the Easter period when the court registry was closed) was fortuitous and that the case for an extension was a strong one (noting that, generally speaking, one could not reasonably expect an applicant to lodge an application for review of a decision before the required notice of the decision was brought to his or her attention although that was the result of the relevant rules). As to prejudice, his Honour noted that the extension might further delay the distribution of a dividend but that this was a consequence of the statutory provision for review and that no substantial prejudice had been shown as a direct consequence of the late filing of an application which was not the fault of either party.

7 In Derwinto Pty Ltd (in liq) v Lewis (2002) 42 ACSR 645 at [655], Austin J (citing Tamberlin J in Rocom ) was content to group the principal factors for consideration on an application for extension of time to appeal from rejection of a proof of debt as being: (i) delay (including the length and nature of the delay, and the responsibility and reasons for it); (ii) prejudice to the respective parties; and (iii) whether the claim is arguable. There, the delay was for 35 days after the expiration of the relevant time for appeal allowed by the applicable corporations rule and the delay was attributable principally to the lawyers' desire to prepare the appeal thoroughly. His Honour granted the extension.

8 Before turning to a consideration of these factors, I set out briefly the factual background to the present application.

Background

9 Pan Pharmaceuticals was a company licensed under the Therapeutic Goods Act 1989 (Cth) to manufacture therapeutic goods. Dr Brennan was employed as a general manager in 1992. On 30 June 2000, he signed an employment contract for a 5-year term.

10 Under the terms of its therapeutic goods licence, Pan Pharmaceuticals was required to comply with the 1990 Australian Code of Good Manufacturing Practice for Therapeutic Goods - Medicinal Products (the Code of Practice). In early 2003, the Therapeutic Goods Administration carried out a number of audits of Pan Pharmaceuticals (those being apparently unannounced and carried out in January, February and April 2003). (In subsequent proceedings the managing director of Pan Pharmaceuticals, Mr James Selim, now deceased, accused the Therapeutic Goods Administration of misleading Pan Pharmaceuticals as to the nature of the audit.)

11 On 5 February 2003, following the discovery of what were said to be critical deficiencies in compliance by Pan Pharmaceuticals with the said Code of Practice, a condition was placed on its licence, preventing Pan Pharmaceuticals from manufacturing certain products. A broader audit of its operations then followed.

12 At around the time of the April audit, on a date variously put as 3 or 7 April 2003 in the respective chronologies, Dr Brennan went on sick leave. Although the initial medical certificates provided to his employer were singularly unenlightening (referring to an undisclosed "medical condition"), it seems that Dr Brennan was suffering from a depressive illness at that time. (A subsequent (preliminary) medical report provided by letter dated 5 May 2003 diagnosed major depression and Dr Brennan's first affidavit in these proceedings, sworn on 23 September 2010, deposes to a long medical history, including psychiatric illness and cardiac problems.)

13 During April 2003, requests by Pan Pharmaceuticals for assistance by Dr Brennan in relation to the audit were sent. An initial letter on 7 April 2003, asking Dr Brennan's wife if he was "up to" speaking with Mr Selim "as an urgent matter has arisen with regard to the TGA", was followed by a further request on 8 April 2003 (in which Mr Selim noted that the company was 'being inspected') and a formal request for provision of a medical certificate on 23 April 2003.

14 On 27 April 2003, the Therapeutic Goods Administration issued a formal report expressing its findings from the three audits which had taken place during 2003. That Audit Report made adverse findings as to what were described by Senior Counsel for the liquidators (Mr Gleeson SC) as "widespread and serious deficiencies and failures in Pan's manufacturing and quality control procedures, including the systematic and deliberate manipulation of quality control test data" and which it is said implicated Dr Brennan as being responsible for a number of the "critical deficiencies" outlined in the Audit Report. (The term "critical deficiency" was defined in the Report as a deficiency that has produced, or may result in significant risk of producing, a product that is harmful to the user.) In late April 2003, Pan Pharmaceuticals' therapeutic goods licence was suspended.

15 On 29 April 2003, Pan Pharmaceuticals forwarded to Dr Brennan (who was still on sick leave at the time) copies of correspondence from the Therapeutic Goods Administration and a copy of the Audit Report, requesting that he review the Report and provide a written response to the nine critical deficiencies identified in it by 5 May 2003. Dr Brennan's attention was specifically drawn to the fact that there were items in the report which it was said "on their face indicate that [he] may have caused or contributed to some of the critical deficiencies". Dr Brennan's written explanation was sought "pending the making of a decision by the company in reliance on the material in the Audit Report which could involve the suspension or termination of your employment". Dr Brennan was advised to seek his own legal advice.

16 Counsel for Dr Brennan, Mr Cheshire, points out that although comments were sought on 9 particular identified issues, Dr Brennan was in effect being asked to review the whole of a lengthy report and that, as he was not in the office at the time, Dr Brennan did not have ready access to documents for the purpose of that review. Mr Gleeson, in response, notes that the documents on which Dr Brennan's response was sought related largely to matters in which he was involved and of which might be considered to have had knowledge; and that there was no suggestion that the company would not have been prepared to provide access to whatever documents Dr Brennan needed in order to respond to the issues in the report.

17 Indeed, the letter to Dr Brennan noted that he might require access to company documents and invited him to contact the company secretary in that regard. The letter to Dr Brennan further noted that if the time frame for a response was too short to enable a complete response then Dr Brennan should let the company know as soon as possible.

18 Dr Brennan did seek further time to respond and the response from Pan Pharmaceuticals on 1 May 2003 was that only possible extension that could be granted was to 7 May 2003 as the company was under significant pressure to respond to the Audit Report. Again, Dr Brennan was advised that if access to company documents was required then he should contact the company secretary.

19 Dr Brennan did prepare some handwritten comments in respect of matters contained in the Audit Report at around that stage (the notes are dated 7 April 2003 but this seems unlikely as the report was not provided to Dr Brennan until 29 April and the notes appear to refer to items in the report). Those notes were not provided to Pan Pharmaceuticals (they being headed for solicitors' use only). As Mr Cheshire notes, Dr Brennan's handwritten comments were prepared without the benefit of access to the company's documentation.

20 Dr Brennan obviously heeded the advice to obtain his own legal advice since, by letter dated 7 May 2003, lawyers acting for Dr Brennan confirmed his receipt of the report and his intention to provide a response as soon as his doctor considered him fit to do so.

21 After further correspondence pressing for a response from Dr Brennan, the company by letter dated 8 May 2003 terminated Dr Brennan's employment with immediate effect, that termination being expressed to be pursuant to clause 11.2 of his contract of employment. The letter did not state any reason for the termination. (Clause 11.2 of Dr Brennan's employment contract set out a number of grounds of termination including for dishonesty, fraud, wilful disobedience, incompetence, neglect and mental incapacity).

22 On 22 May 2003, the defendants were appointed as the joint administrators of Pan Pharmaceuticals. They had not, therefore, been responsible for the decision to terminate Dr Brennan's employment and presumably were reliant on the company's officers as to the reason for that termination. (They were subsequently, on 23 September 2003, appointed liquidators of the company following a resolution of its creditors.)

23 The Pan Pharmaceutical business was sold later in 2003 after it partially regained its licence (for soft gel capsules).

24 Meanwhile, from 16 June 2003 Dr Brennan's then solicitors sought information as to the reasons for his dismissal (no response to which being provided until 30 August 2004 and that response was characterised, not unfairly, by Mr Cheshire as unsatisfactory). One might expect that the liquidators (who had not been appointed at the time of the termination of Dr Brennan's employment) would have needed to obtain information from the company's records and officers in order to be able to respond to the requests made by Dr Brennan's solicitors. However, that would not readily explain the lengthy delay in an articulation of the reasons for the termination of Dr Brennan's employment.

25 On 29 March 2004, Dr Brennan's lawyers wrote to the liquidators asserting that his termination was in breach of contract. Mr Gleeson points out that there was no suggestion at that stage that Dr Brennan was unable to ascertain, or to assess the strength of, his legal position by reason of a lack of access to documents. Rather, the letter asserted Dr Brennan's intention to bring a claim for breach of contract in relation to his dismissal from the company. In the event, however, Dr Brennan did not do so.

26 Mr Gleeson suggests that what happened was that a decision was made to pursue what might have been seen as the less expensive course of lodging a proof of debt in the liquidation rather than claiming damages for the alleged wrongful dismissal. Nothing, however, turns on the reason that this course was chosen other than that Mr Gleeson relies on the fact that Dr Brennan had, as long ago as March 2004, through his lawyers asserted a breach of contract and an intention to bring a claim as a relevant factor when considering his delay in bringing any appeal from the rejection of the subsequent proof of debt (and, in particular, the main reason ascribed for that delay - namely, lack of access to documents from which support for that claim might be found. In that regard, it might reasonably be assumed that Dr Brennan must have had (or his lawyers must have thought that he had) a reasonable basis on which to make such an assertion (even without the benefit of access to the documents that are said only recently to have become available to him).

27 In November 2004, Dr Brennan submitted a proof of debt (dated 8 November 2004) claiming the sum of $678,596.84, of which the bulk of the claim was for the loss of the benefit of his salary between 8 May 2003 and 31 July 2004 by reason of the alleged wrongful termination of his employment ($675,000) and the balance (of $3,596.84) was for reimbursement for claimed out of pocket expenses.

28 That proof of debt was rejected, notice of the rejection being given by letter dated 20 December 2004. (As to the claimed out of pocket expenses, it was said that the liquidators were unable to adjudicate on the claim in the absence of substantiating documentation.) Also on that date a letter was issued (denying Dr Brennan's claim for long service leave) in which the liquidators' solicitors noted that Dr Brennan's employment had been terminated for "serious misconduct". The letter rejecting the proof of debt notified Dr Brennan that any appeal from the rejection was to be made within 14 days. No such appeal was lodged.

29 Dr Brennan received legal advice on 25 February 2005 as to the fact that he would (by then) need to seek an extension of time if he wished to institute proceedings to challenge the liquidators' decision to reject his proof of debt as the time for such an application had then expired. There is evidence that Dr Brennan at that time discussed with his solicitor the various difficulties likely to be faced in challenging the liquidators' decision (see paragraphs [15] and [16] of the affidavit sworn 23 December 2010 by Dr Brennan's then solicitor, Mr Michael Taylor.) (Mr Taylor deposes that he had earlier (in 2004) sought and obtained written and oral advice from another law firm in relation to the prospects of obtaining leave to institute proceedings (presumably for wrongful dismissal) against Pan Pharmaceuticals, it being a company in liquidation, on the instructions of Dr Brennan. In paragraph 16, he deposes to the February 2005 conversation with Dr Brennan and says that:

15. In discussing whether or not any application should be made seeking to challenge the liquidator's rejection of the proof of debt form, JB [Dr Brennan] and I discussed the statement that had been made by the liquidator (through BDW) that JB's employment had been terminated due to serious misconduct and/or serious and wilful misconduct. Although no specific particulars of the alleged serious misconduct or wilful misconduct had been provided to JB's satisfaction, we discussed:

15.1 the likelihood that the liquidator would rely upon the Therapeutic Goods Administration GMP audit report dated 27 April 2003 ("the TGA Report");

15.2 a statement by the solicitors acting on behalf of Mr Jim Selim, the Managing Director of Pan, that Jim Selim "had no idea about production and that was solely JB's domain": and the likelihood Mr Selim would not support JB's version of events;

15.3 the lack of available witnesses who were likely to assist JB in such proceedings in disputing the allegations made in the TGA Report against JB;

15.4 the cost of instituting such proceedings;

15.5 the preliminary instructions received by JB that unsecured creditors were unlikely to receive any significant monies from the liquidation of Pan;

15.6 JB's current poor health and the treatments he had been undertaking.

30 Mr Taylor deposes in paragraph [20] of his affidavit that he was instructed by Dr Brennan in March 2005 not to seek an extension of time for leave to appeal against the liquidators' decision but to seek particulars of the conduct alleged to have been serious misconduct. Mr Gleeson places weight on this as evidence that (just over 2 months from the rejection of the proof of debt) a deliberate decision was made (with the benefit of legal advice) by Dr Brennan not to pursue an appeal from the liquidators' decision.

31 On 4 March 2005, Dr Brennan's then solicitor (acting in accordance with the instructions he had been given) requested details of the alleged misconduct. By letter dated 18 March 2005, the liquidators' solicitors responded to that request by referring to "misconduct outlined in the Audit Report that is specifically attributable to Dr Brennan, including the following: approval of the use of raw materials which failed specification (including for metal contamination); approval of the use of raw materials without testing; fraudulent data manipulation regarding ingredients; fraudulent test result fabrication regarding ingredients; and passing of raw materials (which should have been quarantined) without testing. The letter stated that Dr Brennan was "the only former employee of Pan who is mentioned adversely in the TGA Audit Report".

32 In the witness box, Mr Honey, one of the two liquidators, confirmed that it was his understanding that the basis on which Dr Brennan's dismissal was, as at 18 March 2005, said by the liquidators to be justified was that Dr Brennan had caused the deficiencies outlined in the audit report that led to the suspension of Pan Pharmaceuticals' licence (T 11. 48).)

33 There followed correspondence during the period from March to August 2005 between the respective solicitors concerning this issue. Mr Cheshire submits that it will be Dr Brennan's case, if the matter is allowed to proceed, that he was not guilty of the matters that were alleged in the Audit Report and that the Audit Report was so fundamentally flawed that even if there were criticisms that could be made of Dr Brennan's conduct they would not have been so serious as to go to the heart of the employment contract and to have amounted to a breach of that contract entitling the company to terminate his appointment. Mr Gleeson submits that if Dr Brennan's conduct put the company at risk of losing its licence then that would justify termination. Be that as it may, there is clearly a dispute as to those issues. Dr Brennan also appears to maintain that his actions were within the scope of his authority, though Mr Cheshire frankly concedes that the evidence of the late Mr Selim in the proceedings brought by him in the name of the company is against his client's position.

34 On 20 June 2005, the liquidators' solicitors wrote to Dr Brennan's solicitors noting that the time to appeal the liquidators' decision, without leave from the Court, had expired. Mr Gleeson places emphasis on the fact that Dr Brennan took no step to seek an extension of time to challenge the liquidators' decision at that stage, nor did he request access to any documents or records referred to in the Audit Report in order to determine whether he had been wrongfully dismissed.

35 Proceedings were commenced by the liquidators against Mr Selim for breach of his contractual or directors' duties for failing to ensure that the company complied with its obligations. In those proceedings, Mr Selim cross-claimed against the Commonwealth alleging a breach of duties claimed to have been owed by the Therapeutic Goods Administration and the Commonwealth in the conduct of the audit. Mr Cheshire tendered a list of the 18 lay witnesses whose affidavits had been served in these proceedings by the liquidators (Exhibit D) and which it was said had explored in detail the relevant practices within Pan Pharmaceuticals (and, in cross-examination, Mr Honey was prepared to assume that those affidavits would have touched on Dr Brennan's behaviour during his employment).

36 The liquidators subsequently settled with Mr Selim and (for the payment of a sum of around $10 million) assigned to him the company's cause of action against the Commonwealth (resulting ultimately in a settlement in Mr Selim's favour between Mr Selim and the Commonwealth in a widely reported amount).

37 Mr Cheshire places some weight on the fact that a substantial sum was paid to Pan Pharmaceuticals for the assignment of that cause of action and that the assignment was approved by the Court (in circumstances where the liquidators had obtained legal advice as to the merits of the claim, which advice was before the Court when it approved the assignment) as indicating that Dr Brennan has an arguable case (that the Report was flawed and the criticisms of Dr Brennan were wrong).

38 It is clear, however, from the judgment approving the settlement that, as to any assessment of the merits of the claim, the Court simply concluded that it could not be said that the claim would have no reasonable prospects of success. In Ex parte McGrath; Re Pan Pharmaceuticals Ltd (in liq) [2008] FCA 563, Jacobson J, who approved the assignment, noted by way of background (and presumably on the basis of material put forward by the liquidators) that after the commencement of the administration the administrators had caused a "review to be taken of the circumstances which resulted in the notices given under the Therapeutic Goods Act", assisted by consultants specialising in the Code of Practice and that they had determined that the matters identified by the report "resulted from systemic failures at Pan and in particular the failure to have in place adequate systems to ensure compliance" with the Code of Practice (at [11]). His Honour noted that the liquidators had obtained the advice of Senior and Junior Counsel in relation to the proposed assignment.

39 At [39]-[42], his Honour considered the principle to be applied on determination of whether the assignment was justified and noted that there was no obligation on the Court (or the liquidator) to conduct an investigation of the likelihood of success of the proceedings and that it would be quite impractical to do so on an application of this nature; rather, the question was whether the assignment was frivolous or would lead to vexatious or improper litigation (applying Bank of Melbourne Ltd v HPM Pty Limited (in liq) (1997) 26 ACSR 110 and Citicorp Australia Ltd v Official Trustee in Bankruptcy (1996) 141 ALR 667).

40 Applying those principles, his Honour concluded that it was not clear and obvious that any proceeding in respect of the cause of action against the Commonwealth would have no reasonable prospects of success and that therefore there was no basis to conclude that the assignment would result in vexatious or improper litigation. His Honour considered that the liquidators were justified in assigning the causes of action principally because the proceedings would be lengthy and expensive (and there was a risk of exposing the insolvent estate of the company to a substantial costs order in the event that the claims against Mr Selim failed); the liquidators had determined that it was in the interests of unsecured creditors to obtain the financial outcome recorded in the Deed of Settlement; and that Mr Selim had agreed to indemnify the liquidators in respect of the costs order that might be made against them as a result of the failure of the claims against the Commonwealth.

41 Criminal proceedings were brought against Dr Brennan in late 2005. These were dismissed on 9 September 2008.

42 A class action was then commenced against the Commonwealth in the Federal Court in December 2008 in the name of Pharm-A-Care Laboratories (representing various pharmacies to whom Pan Pharmaceutical products were supplied and who suffered losses as a result of the recall of products). Between August 2009 and May 2010, Dr Brennan assisted solicitors acting for Pharm-A-Care in relation to the preparation of evidence for the purposes of that class action. Dr Brennan swore a lengthy affidavit in those proceedings on 5 August 2010. In the context of the preparation of that affidavit, Dr Brennan was provided with, or shown, copies of documents produced on subpoena in relation to the matters in issue in those proceedings. It is said that it was then that Dr Brennan became aware of documents in support of his contention that he had been wrongly dismissed and realised that the criticisms that had been made against him based on the Audit Report were fundamentally flawed. (If so, then it is not clear the basis on which Dr Brennan's lawyers felt able so confidently to assert in March 2004 that Dr Brennan had a claim for wrongful dismissal.)

43 In passing I note that I raised in the course of oral submissions a concern that, in the context of the present application, if Dr Brennan were using material obtained under subpoena in other proceedings, without the leave of the Court, then there might well be an issue as to a breach of the implied undertaking not to use documents obtained under compulsion in one set of proceedings other than for the purposes of those proceedings. It was recognised in Hearne v Street (2008) 235 CLR 125 that the implied undertaking amounts to a substantive rule of law. No breach of the implied undertaking was conceded but it was noted that in due course it might be necessary for leave to be sought if, in the proposed proceedings, Dr Brennan were to seek to use any material that is subject to such an undertaking.

44 Mr Cheshire maintains that the existence of the various sets of proceedings is relevant in a number of respects. First, it is said that the fact that Dr Brennan was required to deal with the criminal proceedings against him goes to explaining his delay in commencing proceedings in relation to the rejection of the proof of debt. Second, it is said that the liquidators, through the proceedings commenced against Mr Selim have been able to garner a large amount of evidence relating to the matters the subject of the matters arising out of the Audit Report and, in particular, as to Mr Selim's role in relation to those problems; and that in the class action proceedings (to which the liquidators were not a party) further evidence was gathered which would (presumably subject to any necessary leave being granted for the collateral use of documents or statements obtained in those proceedings) be available in the proceedings Dr Brennan seeks to bring, such that the liquidators will not now be prejudiced by the delay in commencement of those proceedings. (It was further said that Mr Selim was cross-examined on his evidence in the case against the Commonwealth and in the class action proceedings, the transcript of which would be available for review.)

45 On 20 May 2010, Mr Selim died and (coincidentally or otherwise) on that date Dr Brennan's current legal advisers informed the liquidators' solicitors that they had been instructed by Dr Brennan to seek leave to appeal the liquidators' decision made on 20 December 2004. Notwithstanding this, no application to do so was filed until September 2004, some 4 months later - a delay that was largely unexplained except by reference to the time that had been spent by Dr Brennan assisting in the preparation of his affidavit sworn in the class action proceedings.

46 On 28 July 2010, the liquidators published their seventh (and anticipated to be final) annual report to creditors and members, advising that they intended to pay a final dividend to creditors by the end of September 2010.

47 Mr Honey gave evidence in these proceedings and was cross-examined by Mr Cheshire. He confirmed that the creditor pool base (of admitted claims) as at 28 July 2010 was $145.9 million (allowing a provision for any further claims then subject to adjudication) and that 50% in value had been fully adjudicated at that time (T 9.41). The total aggregate dividend paid to date has been 44 cents in the dollar (T10.26). As at the time Mr Honey was cross-examined there were funds of around $3m of which around $1m related to unpresented cheques (which, if still unpresented at the conclusion of the winding up will be passed across to ASIC as unclaimed monies at the end of the liquidation) (T 10.41-49). Of the balance of $2m, about half a million was anticipated to become payable to the ATO in respect of GST adjustments (T 11.3). Thus, leaving aside the impact of any proceedings Dr Brennan may now be given leave to bring) it is anticipated that the final distribution would be around 1 cent in the dollar.

48 On 24 September 2010, Dr Brennan commenced the present proceedings seeking an extension of time for filing an appeal.

49 Mr Cheshire submits that the delay from December 2004 to September 2010, on the part of Dr Brennan in lodging an appeal against the rejection of his proof of debt and in commencing any proceedings after the expiry of the notice period for leave to appeal from the proceedings, was due to three factors: the longstanding medical condition from which he had suffered; the fact that there were criminal proceedings on foot against him; and the fact that he did not have access to any of the documents until they were shown to him in the context of the preparation of his affidavit for the class action proceedings (and so, it is said, he was not aware of the material available to meet the criticisms that had been made against him in the Audit Report). Of those three factors, emphasis is placed on the last.

50 It is submitted by Mr Cheshire that any prejudice the liquidators might claim would be suffered if leave is granted is largely, if not wholly, illusory because all of the evidentiary matters have been addressed in other proceedings (so that it cannot be said that evidence has been lost by reason of the delay). It is further submitted that this has been a prolonged liquidation and that because any distribution still outstanding is minimal there will not be any significant disadvantage to creditors by reason of the delay in having the final distribution placed on hold while Dr Brennan's claim is resolved. (The risk that there might be a verdict against the company in liquidation that would diminish the amount of any final distribution to creditors would not, on the reasoning in Rocom , amount to relevant prejudice. That said, the costs of defending the proceedings at a time when the funds of the company in liquidation now seem to be in a relatively finite amount might well be a factor pointing to prejudice if there is a risk that Dr Brennan would not be in a position to make good any adverse costs order. However, the liquidators did not raise that by way of the prejudice they claim will be suffered if leave is granted.)

51 In opposing the application, Mr Gleeson submits, in summary, that there is a difference between the focus of the earlier proceedings brought by the liquidators against Mr Selim (and the cross-claim brought in those proceedings by Mr Selim against the Commonwealth) and that of the now contemplated proceedings by Dr Brennan (and thus that it cannot be assumed that the evidence garnered in relation to the former proceedings will suffice for the latter, and hence obviate the prejudice otherwise likely to be suffered by reason of the delay in relation to the actual loss of evidence or the presumptive prejudice from loss of memory).

52 Mr Gleeson also submits that the factual differences between Mr Selim and Dr Brennan as to the extent of Dr Brennan's authority under his employment contract (as exposed in the defence by Mr Selim to the claim against him, namely that Dr Brennan had acted outside his authority) indicates the prejudice that will be suffered by reason of the fact that Mr Selim is now deceased and thus not available to give evidence. At least one other critical witness is also unlikely to be able to give evidence - Mr Elia, a quality assurance manager who it is said would have been in a position to give evidence as to whether Dr Brennan had overridden particular directions in relation to quality assurance at Pan Pharmaceuticals, highlighting the prejudice of allowing what would otherwise be a stale claim to proceed.

53 Mr Gleeson also submits that because Dr Brennan made a deliberate decision not to proceed to appeal the liquidators' decision back in 2005, any prejudice now suffered as a result of the loss of his claim is self-inflicted.

54 With that background in mind, I consider the principal factors relevant on an application of this kind.

(i) Delay

55 What must be considered is not simply the length of the delay but the reason for it, whether it was intentional and who was responsible for it.

56 On any view, the delay in the present case was far more extensive than any of the cases considered above. Mr Gleeson submits, not unreasonably, that it could fairly be described as gross delay having regard to the 14-day time period allowed for the bringing of any appeal. Nearly six years elapsed from the liquidators' decision to reject the claim (and, though this is not the relevant measuring stick on the question of delay, these proceedings have been commenced after the time at which the claim the subject of the proof of debt would in the ordinary course have become statute barred - i.e., after the time at which the legislature has balanced the public policy considerations as to finality of claims).

57 As noted earlier, some 4 months elapsed from the time that Dr Brennan's lawyers notified the liquidators in May last year of his intention to commence these proceedings and the only explanation for the delay in this regard seems to be that Dr Brennan was working on an affidavit to be relied upon in the class action proceedings. A similar delay was considered to be fairly described as "extensive" in Mine and Quarry Equipment International Ltd v Mcintosh [2005] QSC 059.

58 In Mine and Quarry , McMurdo J considered a situation where there had been various proofs of debt lodged over a period of time and hence the delay in the application for an extension of time to appeal from their rejection varied (from 2 years, in the case of the oldest, to 1 years and then to about 4 months in the case of the most recent). Her Honour considered that even the smallest of the delays (4 months) could be fairly described as extensive in the context of a time limit of 14 days. Her Honour accepted that the main reason for the delay for at least some of that period was the unavailability of funds but said that this provided no explanation as to why the present application had not been filed at least four months earlier. The application for an extension was refused, it being noted that the proposed proceedings would further delay the completion of the winding up with a consequent effect on members.

59 Absent a reasonable explanation, the length of delay would of itself be a powerful factor against the grant of leave.

60 The explanation for the delay is put on three bases - Dr Brennan's medical condition; the fact that for a period he was the subject of a criminal prosecution; and the claim that at the time of the rejection of his proof of debt he was not in a position to challenge the allegations and findings in the Audit Report, which formed the basis of his dismissal and was not able to do so until he became privy to the information made available to him during the course of the preparation of his (lengthy) affidavit in the class action proceedings (which it is said took nearly a year to prepare).

61 As to Dr Brennan's medical problems, I accept that this is a relevant factor to take into account. However, there is nothing to suggest that despite his psychiatric problems Dr Brennan was incapable of understanding and giving instructions to his solicitors at the time he elected not to proceed with the appeal, or for leave to do so, at an earlier time. Indeed, if Dr Brennan's then lawyers had considered that to be the case then I would have considered it incumbent upon them to have raised those concerns with Dr Brennan and given him appropriate advice as to the assistance he would require in that regard. There is no suggestion that they did so and there is no suggestion in the correspondence with the liquidators (in which the existence of a claim for wrongful dismissal and an intention to pursue it was expressly raised) that Dr Brennan's lawyers considered him to be incapable of giving the instructions necessary to do so.

62 As to the criminal proceedings, it would be understandable for Dr Brennan and his advisers to have placed focus on those. However, that does not explain the delay before the prosecution was commenced or after the proceedings were dismissed.

63 The principal explanation for the delay is said to be the fact that Dr Brennan did not have the information available to him to support his claim. However, it cannot be said that Dr Brennan did not know what kinds of records the company would have (and on which he would wish to rely in order to meet the criticisms made of him) and there is no suggestion that access to those records had been denied. Dr Brennan was sufficiently aware of the facts relating to his claim to have been able to prepare initial notes in response to the Audit Response and to instruct his solicitors in relation to the alleged wrongful dismissal claim as early as 2003/4.

64 Further, Mr Gleeson submits that, on a close review of the documents, it cannot be said that their existence was not known to Dr Brennan before August 2009 or that he was not in a position to bring his appeal prior to this time. In that regard, I was referred to the 52 documents identified by Dr Brennan (and exhibited at tabs 114 to 166 of his affidavit in the class action proceedings) of which it is said that: the first four (exhibited at tabs 114 to 118) are all documents which Dr Brennan must have had in his possession when the liquidators rejected his proof of debt (two of them being his own personal records); 43 of the 52 are Pan Pharmaceutical records which were created prior to the termination of Dr Brennan's employment and are of a kind with which he should have been familiar by reason of his employment of Pan Pharmaceuticals (and a number of which are expressly referenced in the Audit Report); and the remaining five, though documents created by the Therapeutic Goods Administration, do not on their face provide any material assistance to Dr Brennan's claim. With respect, that analysis seems to me to be correct.

65 Finally, in relation to the question of delay, Mr Gleeson places weight on the fact that it was intentional, in the sense of being the product of a deliberate decision and not one based on a misunderstanding of the relevant time within which an appeal was required to be brought or as to the basis on which an appeal might be brought. There was no question of oversight or mishap. The responsibility for the delay in that sense would appear to lie squarely with Dr Brennan, who gave instructions to his solicitors in March 2005 not to seek an extension of time to appeal the liquidators' decision (after having had legal advice and a discussion as to the matters that might impact on that decision).

66 Mr Gleeson submits, and I agree, that a deliberate decision not to appeal the liquidators' decision and not to seek an extension of time for an appeal (after the time for appeal had expired) is a powerful factor against the grant of the extension of time now sought. Any prejudice suffered by Dr Brennan, were an extension of time not now granted, is said in the circumstances to be self-inflicted (in the sense considered by Ipp JA in Buzzle) .

67 In relation to a deliberate decision of the liquidator to delay proceedings, Ipp JA (in an earlier decision to which his Honour referred in Buzzle) , had said in Itek Graphix Pty Ltd v Elliott (2002) 54 NSWLR 207, (at ([91]):

A deliberate decision to allow a statutory limitation period to expire would be a powerful factor against the grant of leave. Where a deliberate decision to allow the period to expire has been made, ordinarily it would be difficult to provide an explanation for that decision sufficiently cogent to warrant the grant of leave.

68 Mr Cheshire emphasises, and I accept, that the deliberate or otherwise nature of the relevant decision (here a decision, made about 3 months after the rejection of the proof of debt, not to pursue an application to seek an extension of time for an appeal against the liquidators' decision) is not by itself the determining factor (though he concedes it is a relevant factor).

69 In relation to that issue, Mr Cheshire submitted that the appropriate analogy is not an analogy to be drawn with cases where what is being considered is an extension of time for service of a writ (as was the case in Buzzle and in Agricultural & Rural Finance v Kirk [2011] NSWCA 54), since in those cases there is already a proceeding on foot though the writ has been allowed to become stale, but rather that the more appropriate analogy is with cases where there is an application to extend the time to institute proceedings after the expiry of a limitation period. However, even if so, this seems rather a moot point since the cases relating to an extension of time (or seeking to set aside an extension of time) for the service of a writ themselves apply principles derived from cases that on Mr Cheshire's submission would be analogous to the present, having regard (when considering the delay) to matters such as "the length of the delay, the reasons for the delay, whether the delay was deliberate, whether notice was given to the defendant, the conduct of the parties generally, and the hardship or prejudice caused to the plaintiff by refusing the renewal or to the defendant by granting it" ( Buzzle , (at [43]), confirmed by the Court of Appeal in Agricultural & Rural Finance ).

70 Relevantly, on the question of delay, in Brisbane South Regional Health Authority v Taylor (1996) 186 CLR 541 at [552] -[523], McHugh J explained the rationales underlying the existence of limitation periods (as considered and adopted by Spigelman CJ in BP Australia Ltd v Brown & ors [2003] NSWCA 216 and by White J in New Cap Reinsurance v Reaseguros Alianza SA [2004] NSWSC 787and elsewhere) in the following passage:

... For nearly 400 years, the policy of the law has been to fix definite time limits (usually six but often three years) for prosecuting civil claims. The enactment of time limitations has been driven by the general perception that "[w]here there is delay the whole quality of justice deteriorates". Sometimes the deterioration in quality is palpable, as in the case where a crucial witness is dead or an important document has been destroyed. But sometimes, perhaps more often than we realise, the deterioration in quality is not recognisable even by the parties. Prejudice may exist without the parties or anybody else realising that it exists . As the United States Supreme Court pointed out in Barker v Wingo , "what has been forgotten can rarely be shown". So, it must often happen that important, perhaps decisive, evidence has disappeared without anybody now "knowing" that it ever existed. Similarly, it must often happen that time will diminish the significance of a known fact or circumstance because its relationship to the cause of action is no longer as apparent as it was when the cause of action arose. A verdict may appear well based on the evidence given in the proceedings, but, if the tribunal of fact had all the evidence concerning the matter, an opposite result may have ensued. The longer the delay in commencing proceedings, the more likely it is that the case will be decided on less evidence than was available to the parties at the time that the cause of action arose.

...

The effect of delay on the quality of justice is no doubt one of the most important influences motivating a legislature to enact limitation periods for commencing actions. But it is not the only one. Courts and commentators have perceived four broad rationales for the enactment of limitation periods. First, as time goes by, relevant evidence is likely to be lost . Second, it is oppressive, even "cruel", to a defendant to allow an action to be brought long after the circumstances which gave rise to it have passed . Third, people should be able to arrange their affairs and utilise their resources on the basis that claims can no longer be made against them . Insurers, public institutions and businesses, particularly limited liability companies, have a significant interest in knowing that they have no liabilities beyond a definite period. As the New South Wales Law Reform Commission has pointed out:

"The potential defendant is thus able to make the most productive use of his or her resources and the disruptive effect of unsettled claims on commercial intercourse is thereby avoided. To that extent the public interest is also served."

In enacting limitation periods, legislatures have regard to all these rationales. A limitation period should not be seen therefore as an arbitrary cut off point unrelated to the demands of justice or the general welfare of society. It represents the legislature's judgment that the welfare of society is best served by causes of action being litigated within the limitation period, notwithstanding that the enactment of that period may often result in a good cause of action being defeated. Against this background, I do not see any warrant for treating provisions that provide for an extension of time for commencing an action as having a standing equal to or greater than those provisions that enact limitation periods. A limitation provision is the general rule; an extension provision is the exception to it. The extension provision is a legislative recognition that general conceptions of what justice requires in particular categories of cases may sometimes be overridden by the facts of an individual case. The purpose of a provision such as s 31 is "to eliminate the injustice a prospective plaintiff might suffer by reason of the imposition of a rigid time limit within which an action was to be commenced." But whether injustice has occurred must be evaluated by reference to the rationales of the limitation period that has barred the action. The discretion to extend should therefore be seen as requiring the applicant to show that his or her case is a justifiable exception to the rule that the welfare of the State is best served by the limitation period in question. Accordingly, when an applicant seeks an extension of time to commence an action after a limitation period has expired, he or she has the positive burden of demonstrating that the justice of the case requires that extension . (my emphasis)

71 In Itek Graphix, Ipp AJA noted (at [224]) that:

... where a broad discretion is conferred to grant leave to sue after expiry of a limitation period, the general question that has to be asked is what is fair and just (per Gleeson CJ in Salido ). Or what does the justice of the case require (per McHugh J in Brisbane South Regional Health Authority ).

72 In the present case, the delay is extensive and the explanation for that delay is troubling in that it is apparent that there was a deliberate decision made not to seek an extension of time for appeal (that decision being made with the benefit of legal advice albeit at a period when Dr Brennan was suffering from depression) and what has now occurred is that, with the benefit of hindsight and a close attention to document the existence or likely existence of the bulk of which ought already to have been known to Dr Brennan, there is now a change of mind.

(ii) Prejudice

73 The prejudice that it is said will flow to Dr Brennan if the leave is not granted is the loss of his claim. That is self-evident. I consider below the submissions as to whether that is an arguable claim. As to the assertion that it is a valuable claim, the quantum is of course not insubstantial for an individual; whether the claim would be valued at that amount prior to its determination depends on the prospects one would ascribe to the claim and I am not in a position to comment on that issue. Suffice it to note that if successful at the conclusion of any contested litigation Dr Brennan would presumably rank as an unsecured creditor amongst others for that judgment debt in the insolvent estate of the company and thus his claim for practical purposes would not be likely to result in a complete payment of any verdict in his favour.

74 As to the prejudice to the company in liquidation (and its creditors) if leave were to be granted, it is submitted by Mr Cheshire that the issues raised in the Audit Report (that would form the basis of the dispute between the parties) are not new to the liquidators and have been the subject of extensive examination already, such that there will not be the prejudice one might ordinarily expect from a lengthy delay in commencement of proceedings (a submission put squarely into contention by Mr Gleeson).

75 Mr Gleeson points to two kinds of prejudice: first, the delay in the finalisation of the liquidation of Pan Pharmaceuticals with the consequence that creditors will be kept out of their money for much longer (noting that in Mine and Quarry there was a recognition of the prejudice caused by delay in finalisation of the winding up), and, secondly, the significant substantive prejudice that it is said that Pan Pharmaceuticals will suffer in seeking to defend the liquidators' decision so many years after the event.

76 As to the first, from a practical point of view there may be little real prejudice in further delay in the winding up (since there is only a small distribution now outstanding), though there must be a public interest in the finality of the winding up of insolvent companies. However, on any view, the second aspect of prejudice which the liquidators assert will be suffered is less easily answered in the present case.

77 Reliance was placed on the observation by the High Court in Jackamarra at [526], that "delay will almost always impede the proper disposition of any case that does not come to trial promptly" as memories fade and records may be lost. I have referred above to similar concerns raised in other cases as to the effect of delay on the conduct of a trial.

78 In New Cap Reinsurance , White J (considering an application to extend the time period under s 588FF(3)(b)) said that in assessing what is fair and just in all the circumstances, regard must be had to the reason for the imposition of the limitation period, both as applicable to limitation periods generally and those relevant to s 588FF(3)(b) and referred to the four rationales for the enactment of limitation periods to which McHugh J had referred in Brisbane Health . His Honour went on to say, at [55]:

In Itek Graphix Pty Ltd v Elliott (2002) 54 NSWLR 207 at 224, Ipp AJA identified the issue of prejudice as being one which ordinarily should be of paramount importance. But the absence of prejudice is not itself decisive. It is rather a relevant factor to be taken into account in the exercise of the general discretion. ( BP Australia Ltd v Brown at 358). There is an onus on the applicant to show why it is fair and just that the general rule established by s 588FF(3)(a) should not apply. (my emphasis)

79 Here, the case is not one where there is an inability to point to any particular prejudice arising from the delay. The prejudice from an evidentiary perspective in the present case goes beyond what has sometimes been described as the 'presumptive' prejudice of deterioration in the memory of witnesses (as described by McHugh J in the passage from the Brisbane Health case extracted above) since there are at least two instances of actual prejudice (and forensic disadvantage) in the loss of the ability to obtain instructions and adduce evidence from critical witnesses due to their death/ill health respectively.

80 Mr Gleeson points to the specific prejudice arising from the fact that at least two significant witnesses - Mr Selim (who died last year) and Mr Elia (whose cognitive ability has been affected to such an extent that his treating psychologist says that he would be an unreliable witness) - will be unable to give evidence in any proceeding now permitted to be brought by Dr Brennan. Mr Honey has also deposed to a concern that another significant witness may be unavailable (Mr Dhumal) and a general concern that witnesses may be uncooperative.

81 I accept Mr Honey's evidence to the effect that he considers (and I infer that this is following his consideration of legal advice) that it will be necessary, if the findings made in the Audit Report are to be reopened, for the liquidators and their staff to re-familiarise themselves with the matter, to revisit and review previous records and documents, to engage experts as to the Audit Report findings and to seek depositions from former employees including Mr Elia and Mr Dhumal (who were the quality assurance managers at the Pan Pharmaceuticals' facility).

82 Mr Cheshire submits that there is already evidence (in the form of affidavits or statements) from each of those individuals (and from Mr Selim) on which reliance could be placed in lieu of their oral testimony if that be unavailable. However, the prejudice is not simply that those persons cannot be tested in cross-examination, it is that they will not be able to provide evidence as to matters not already addressed in the documents signed by them to date that might be of relevance during the proceedings. This is exacerbated by the fact that at least Mr Selim and Mr Elia would seem to be critical witnesses in relation to the matters about which complaint as to Dr Brennan's conduct is made (and which would be likely to form the basis of any defence to a wrongful dismissal claim).

83 It is submitted by Mr Gleeson that Mr Selim is particularly significant for a number of reasons. First, it is said that one of the adverse findings made against Dr Brennan in the Audit Report was that he usurped the authority of Pan Pharmaceuticals' Quality Assurance Manager (Mr Elia) and, in so doing, caused Pan Pharmaceuticals to be in breach of a condition of its therapeutic goods manufacturing licence. (There would be an argument presumably that conduct putting at risk such a licence, whether or not otherwise a breach of the employment contract warranting termination, might do so.) Mr Gleeson notes that Dr Brennan's explanation is that this finding was a reference to one of the Standard Operating Procedures in place at Pan Pharmaceuticals (SOP 80, which invested him with ultimate discretion to reject or accept a material which was out of specification). Mr Gleeson submits that Mr Selim could have been expected to give contrary evidence to the effect that SOP 80 expressly stated that use of materials outside specification must be authorised by the said Quality Assurance Manager and hence that to the extent that Dr Brennan exercised final responsibility and authority to approve or reject out of specification raw materials, he did so in breach of SOP 80.

84 Mr Gleeson also submits that Mr Selim could have been expected to give evidence as to the issue whether it was an express or implied term of Dr Brennan's employment contract that he procure Pan Pharmaceuticals' compliance with the conditions of its manufacturing licence (and that, given his executive role at Pan and his relationship with Dr Brennan, Mr Selim would have been the only witness qualified to testify about the terms of Dr Brennan's employment contract with Pan Pharmaceuticals. It is further said that Mr Selim could have also been expected to give evidence that any deficiencies properly identified in the Audit Report would have been discovered and redressed by Pan Pharmaceuticals prior to April 2003 but for the failure of Dr Brennan to perform his obligations under his employment contract.

85 Whether that is the tenor of the evidence that might ultimately have been able to be adduced from Mr Selim, it is clearly relevant and his unavailability must give rise to substantive prejudice in the conduct of the liquidators' defence of Dr Brennan's claims.

86 As to Mr Elia, he apparently gave a statement to the liquidators of some 48 pages in the proceedings against Mr Selim. It appears that no sworn affidavit was obtained (perhaps due to the medical problems that beset Mr Elia in 2007). Mr Elia's availability to give evidence in any future proceedings is unlikely. Mr Honey has deposed to the earlier inability of Mr Elia to assist in the Selim proceedings during 2008 because he had suffered brain damage following major heart surgery which had resulted in memory loss and an inability to concentrate, among other things.

87 Mr Nicholas Coffey, a solicitor acting for the liquidators, has affirmed an affidavit on 20 April 2011 deposing as to a recent telephone conversation with Mr Elia in which Mr Elia (referring to a medical report as to his condition) said that he was suffering from severe current depression, heart disease and cerebral vascular disease. A copy of a report from his treating psychologist (Dr Liam Guilfoyle) was admitted as Exhibit 2 and confirmed that Mr Elia suffers from a depressive condition for which he has been prescribed a number of medications that have affected his cognitive abilities. Dr Guilfoyle's opinion is that Mr Elia's cognitive ability has been affected to the extent that he would be an unreliable witness. Mr Elia's wife expressed concern to Mr Coffey that the pressure of a court attendance would adversely affect her husband's condition and might make him suicidal.

88 The unavailability of Mr Elia is said by Mr Gleeson to be significant because he could be expected to have given evidence that notwithstanding the express terms of SOP 80 (which required that "all results outside specification must be authorised by QA/QC managers"), this was not the procedure that was followed at Pan Pharmaceuticals and that Dr Brennan had in fact exercised the final say over rejection or acceptance of out of specification raw materials (as is suggested by the contemporaneous records to which reference was made in the Audit Report).

89 As to other potential witnesses, Mr Cheshire challenged the generalised comment that Mr Honey recalled that there were employees at time of action against Mr Selim who had expressed concerns as to the giving of evidence (T 18.41). Of those, Mr Dhumal (who was also a quality assurance manager is likely to be the most significant). In cross-examination Mr Honey accepted that he had not made any attempt to contact Dhumal (T18.36), though he suggested that his solicitors might have done. Mr Honey also accepted that had he sought to do so he could have applied for the issue of an examination summons to procure evidence from uncooperative employees under s 596 at the relevant time (this evidence perhaps being elicited to support a suggestion that there cannot have been a perception at the time that there were uncooperative witnesses whose evidence was considered important to obtain) (T 18.49).

90 I accept that the evidence as to whether Mr Dhumal would be available to give evidence in any subsequent proceedings is inconclusive. (In saying this I note that it seems to me that any contact to ascertain his willingness or availability now to give evidence would be more likely to have been at this stage by the liquidators' solicitors rather than Mr Honey himself, and I think no criticism can be made of Mr Honey not personally having sought to contact Mr Dhumal in advance of the present hearing.) In any event, even assuming Mr Dhumal is available and prepared to give evidence, it does not meet the difficulty that Mr Selim and Mr Elia are clearly not.

91 Mr Honey's belief is that because the particular statements in the report in respect of the actions of Mr Brennan were not referred to within the statement provided by Mr Elia, it would be necessary to approach him on the specific report issues (T 19.7) (but Mr Honey accepts that he based that on general recollection of advice from his solicitors that there were no statements that related specifically to that particular report (T 19.23)). It does not seem to me that this is an unreasonable opinion to hold in light of the issues likely to be raised in the proceedings Dr Brennan seeks to bring.

92 The existence of affidavits (or in Mr Elia's case a statement) as to aspects of the procedure followed at Pan Pharmaceuticals does not necessarily address that concern, particularly given that it appears that the evidence gathered by the liquidators at the time of the proceedings against Mr Selim was focussed on a broader enquiry (and though it may have 'touched upon' Dr Brennan's performance was not specifically addressed to that issue).

93 Mr Gleeson submits that it is not the case that the matters raised by Dr Brennan's claim are precisely those that were raised in the proceedings against Mr Selim because the latter exclusively concerned alleged breaches by Mr Selim of his duties as a director of Pan Pharmaceuticals. Mr Gleeson submits that Pan Pharmaceuticals had primarily relied on matters anterior to the findings of the Audit Report to substantiate its allegations against Mr Selim (those matters being Mr Selim's knowledge of problems with product quality and quality assurance procedures at Pan Pharmaceuticals prior to March 2000, as well as in the period from March 2000 to April 2003, and the internal audits of Pan Pharmaceuticals conducted during the period from March 2000 to April 2003).

94 He notes that the cross-claims brought by Mr Selim against the Commonwealth were, in substance, that the Administration had misled Pan Pharmaceuticals about the scope of the investigations; and had breached various duties to Pan Pharmaceuticals in its regulatory action against Pan Pharmaceuticals taken in response to the Audit Report. In relation to the cross-claims against the various Administration officials, the claims were, in substance, said to be that the relevant officials were guilty of misfeasance in public office in their actions taken in response to the Audit Report.

95 Mr Gleeson notes that the liquidators were joined as defendants to the cross-claims simply as necessary parties (as Mr Selim was claiming that Pan Pharmaceuticals had a claim for damages against the Administration and through it the Commonwealth) and did not file a defence or participate in the proceedings in any way. (The liquidators were not parties to either the Commonwealth or the class action proceedings. It is said that they had no involvement in their preparation, nor is there reason to think that they would have had any such involvement.)

96 Mr Honey said, in the witness box, that he had not investigated the findings of the Audit Report "per se" (T 12.3) but that the report had been used to implement changes at the company in line with the findings to ensure compliance with the requirements so that the company could regain its licence. He said at (T 12.24):

...what we haven't done is or what we did not do is undertake a detailed analysis of the TGA report. We relied on the TGA report as a report written by the government and, as I said, used it as the basis to change practices at Pan for it to regain its licence. That's how we used the report.

97 Again, at T 13 Mr Honey said that, as part of the conduct of the case against Mr Selim, there had been a review of some specific instances of Mr Selim's conduct prior to 2000 and of his conduct in the period from 2000 to 2003, but that what had not been done was "a detailed analysis of the TGA report to determine whether the criticisms in that report, those specific criticisms were correct", stating that "We took that report as read". Mr Honey's understanding was that the claim against Mr Selim had focussed on a number of alleged derelictions of duty by Mr Selim but that the case had settled before the stage at which there was to be a detailed analysis of the report.

98 Therefore, while I accept that the liquidators have the benefit of the evidence gathered in preparation and prosecution (until assignment of the claim to Mr Selim) of the proceedings against Mr Selim, I consider that there is force in the submission that the evidence so gathered will not necessarily address the matters that would now be required to be addressed (having regard to the different focus that Mr Honey has said was given to the review of the Audit Report at the relevant time and the different ambit of the representative proceedings).

99 The ambit of the liquidators' claim against Mr Selim was outlined by Emmett J in Pan Pharmaceuticals Ltd (in liq) v Selim [2008] FCA 416 at [10]- [17] and, as Mr Gleeson submits, appears to encompass a claim for breach of directors' duties based on an awareness of serious problems with product quality, compliance with the Code, quality assurance and quality control procedures from 1999 onwards and knowledge of conduct by Dr Brennan (authorising the release of products that had failed specification or before completion of all the required testing or the like) from no later than May 2002. The span of time over which it seems the allegations of breach of duty extended supports the likelihood that Mr Honey's recollection as to the focus of the investigation and evidence at that earlier time was correct and that it went to a broader range of issues than the Audit Report itself or the specific criticisms of Dr Brennan's conduct. I see no reason not to accept Mr Honey's evidence that the liquidators did not test the conclusions in the report as such, but focussed instead on an investigation of the work practices and the systems in place to ensure compliance with the Code of Practice (or the lack of those systems).

100 Mr Honey, in his affidavit of 10 December 2010, has deposed to the steps that he believes would now need to be taken in order to defend proceedings of the kind sought to be brought, including revisiting and reviewing voluminous records of Pan Pharmaceuticals; engaging expert witnesses and seeking depositions from former employees of Pan Pharmaceuticals. It does not seem to me that this is an unreasonable assessment of what would need to be done in the circumstances.

101 It is said by Mr Gleeson that the explanations proffered by Dr Brennan (in his affidavit in the class action proceedings) respect of the criticisms of his conduct in the Audit Report are based on matters all known to Dr Brennan at the time of rejection of his proof of debt and that they raise significant and complex factual and technical inquiries on matters where critical witnesses have now either died (Mr Selim), or are unavailable (Mr Elia), or may be uncooperative, or may no longer be able to assist the liquidators in view of the passage of time (which may not have been the case had the claim been brought within a reasonable time). (It is further submitted that to meet these contentions the liquidators will need to seek the opinion of an appropriately qualified expert to consider some of the explanations now proffered by Dr Brennan for his conduct, and thus that further expense will be incurred.)

102 It is submitted by Mr Gleeson that the claim which Dr Brennan now seeks to bring would involve Pan Pharmaceuticals in lengthy, complex and costly litigation directed to a collateral attack on the findings in the Audit Report which implicated Dr Brennan in the conduct leading to the loss of Pan Pharmaceuticals' licence. I see no reason to doubt that conclusion. In circumstances where the allegations in the respective proceedings do not appear to be on fours with each other, I am unable to conclude that the proposed proceedings will be other than complex and costly (since it seems inevitable that they will require a review not only of Dr Brennan's express and implied authority under his employment contract but of the conduct in which he in fact engaged and whether that was such as to expose the company to a real risk of adverse audit findings (let alone whether that was in fact the result of that conduct).

103 I find that the liquidators have established that there is actual prejudice caused by reason of the delay, having regard to the death in the intervening period of Mr Selim and the serious medical condition afflicting Mr Elia (and that there would in any event be a serious concern as to the effect of delay on the quality of the evidence overall, of the kind considered by McHugh J in Brisbane Health ).

(iii) An arguable claim

104 I accept that the court is not required on this application to consider the merits beyond the question whether Dr Brennan's claim is arguable ( Rocom at [13] per Tamberlin J; Jackamarra at [539] - [543] per Kirby J; Derwinto at [655] per Austin J.)

105 Mr Cheshire submits that Dr Brennan's affidavit sworn in the class action proceedings sets out a detailed response to the criticisms in the Audit Report and therefore a detailed justification for his claim that he was dismissed in breach of his contract of employment (and also relies, as I understand it, on the settlement of the earlier proceedings as indicating that there is an arguable case in relation to criticisms of the Audit Report).

106 Mr Gleeson submits that those matters do not support such a conclusion. As to the earlier proceedings, he points out that both the proceedings and the were settled before any judicial finding was reached and thus they can say nothing about the merits of Dr Brennan's appeal against the liquidators' rejection of his proof of debt (noting that the liquidators were not parties to the consent judgment).

107 As to the matters raised by Dr Brennan in his affidavit in the class action proceedings, Mr Gleeson submits that what that affidavit (a copy of which was in evidence before me) reveals is Dr Brennan admits to engaging in much of the conduct the subject of criticism in the Audit Report. (In this regard Mr Gleeson identifies by reference to the following paragraphs in that affidavit: as to Ground 1 of the Audit Report - fabrication of results -paras [390(i)], [392 ] and [393] and tab 120; as to Ground 2 - releasing raw materials into production without prior testing -paras [402]-[409]; as to Ground 3 - releasing raw materials into production which failed specification requirements paras [414]-[425]; as to Ground 4 - overriding decisions of Pan Pharmaceuticals' Quality Assurance Manager - paras [439]-[440]; and as to Ground 5 - inadequate investigations and remedial action - para [498].)

108 Mr Gleeson notes that the affidavit goes on to contend that the conduct admitted by Dr Brennan either was in part (implicitly) authorised by Dr Wall of the Therapeutic Goods Administration in a conversation in 2001 or 2002 (para [390(g)]), which approval was allegedly confirmed in writing by the Administration, although no such document is provided by Dr Brennan ([para 390(h)]); or did not create a safety issue and therefore was not a critical deficiency (referring by way of example to paras [392]-[394], [408], [415], [417], [418], [419], [420], [423] and [424]); or was not a breach of the Code of Practice (para [408]); or that the Standard Operating Procedures were essential for Pan Pharmaceuticals notwithstanding breach of the terms of the licence (para [440]).

109 That said, I consider that there is at least an arguable case that could have been brought by Dr Brennan for wrongful dismissal.

Conclusion

110 In considering the principal factors relevant on an application of this kind, it seems to me that the delay to date and the prejudice that will be suffered in defending the case if leave were to be granted point overwhelmingly to the refusal of the application for leave.

111 The delay is inordinate, particularly having regard to the time period within which an appeal should have been brought.

112 I accept that Dr Brennan's decision not to proceed with an appeal from the rejection of the proof of debt back in 2004 may have been influenced by his medical condition at the time (and, indeed, his medical condition was noted by his then solicitor as one of the matters discussed at the time in the context of advising as to whether proceedings should be commenced). However, the context in which Dr Brennan's medical condition was discussed as one of a number of factors to be taken into consideration (including a view as to the prospects of obtaining evidence in support of his case from other witnesses, the cost of the proceedings and the then perceived unlikelihood of a significant return to creditors) does not suggest that Dr Brennan's medical condition was the predominant reason for the delay nor does it suggest that his solicitor had any concerns as to the ability of Dr Brennan to understand the advice given and to give lucid instructions as to the course he then wished to follow.

113 Dr Brennan had the benefit of independent legal advice at the time and it appears that he made his decision not to proceed, taking into account matters including the difficulties of proof that he considered were then available to him. There was no reference, however, to a concern that the company had not made available the documentary material from which he could assess his prospects of a claim.

114 The bulk of the documentary material that has subsequently come to light (in the preparation of the class action proceedings) is material the existence of much of which should already have been known to Dr Brennan (and his knowledge of matters relating to the work procedures back in 2003 must presumably have informed the assertions that Dr Brennan instructed his solicitors to make as to his claim for wrongful dismissal). The fact that Dr Brennan was for some time involved in defending criminal proceedings brought against him does not explain the delay before or after those proceedings.

115 The explanation for the delay now proffered (at least in part) seems to bear the hallmarks of a change of mind (now having come to a different view as to the prospects of the case or perhaps as to the possibility of some recovery at the end of the day).

116 The fact that there was a deliberate decision not to proceed at an earlier stage is a factor that weighs heavily against leave being granted (particularly in light of the rationales underlying the existence of limitation periods in general and the short limitation period provided in relation to the institution of appeals against rejection by the liquidator of a proof of debt). It is also inconsistent with the statutory framework within which claims are to be prosecuted diligently in this Court.

117 Even if the explanation for the delay had been reasonable (and I do not think it is in light of the length of the delay and the fact that even after May 2010 there was a continuing period of delay of a further 4 months in commencing these proceedings, apparently explicable only by the time taken by Dr Brennan to prepare an affidavit in other proceedings), what leads me firmly to the conclusion that leave should not be granted is that I consider that this is a case where there is clear prejudice to the proposed defendants as a result of the passage of time by reason of the unavailability of two critical witnesses (Mr Selim and Mr Elia) and the likely deterioration of the quality of the memory of other witnesses. I do not accept that this is sufficiently ameliorated by the fact that there was evidence gathered at an earlier time (in a different but not unrelated context) in respect of matters that may touch on issues now sought to be raised by Dr Brennan but are not precisely the same.

118 I accept that a further delay in the distribution of the what is likely to be a very small amount (one cent in the dollar) would not of itself seem to be a matter of serious prejudice (particularly in a long standing winding up) to creditors although I note that in Mine & Quarry the public policy in the finalisation of a company winding up was recognised.

119 (A further factor to note, although it is not by any means decisive in the balancing exercise I have carried out, is that the costs of defending any appeal seem likely to be disproportionate to the amount of Dr Brennan's claim, and may well exceed the amount of any dividend payable by Pan Pharmaceuticals to Dr Brennan if the claim were to be successful (that being calculated by Mr Gleeson at approximately $298,582, based on an estimated dividend payable in the liquidation of 44 cents).

120 I accept for the purposes of this application that Dr Brennan has an arguable claim and that the effect of this judgment is to preclude him from bringing that claim. However, that prejudice is outweighed by the prejudice to the company in liquidation of now having to defend the claim (without the benefit of the evidence that would have been available to it had the proceedings been commenced within a reasonable time) after such a long period. Unfortunate as it is for Dr Brennan, I consider that he made an informed election quite some time ago not to pursue this claim and he must live with the consequences of that decision.

121 When the question is posed as to what the fairness and justice of the case requires, the answer to me is clear. The application for leave to extend the time for appeal from the rejection of Dr Brennan's debt is dismissed with costs.

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Decision last updated: 10 June 2011