Gerace v Auzhair Supplies Pty Ltd

n 125 Cholmondely v Clinton (1821) 4 Bli 1 Cia de Seguros Imperio v Heath (REBX) Ltd [2001] 1 WLR 112 Cohen v Cohen [1929] HCA 15; 42 CLR 91 Coulthard v Disco Mix Club Ltd [2000] 1 WLR 707 Crawley v Short [2009] NSWCA 410 Denys v Shuckburgh (1840) 4 Y & C Ex 42 Deputy Commissioner of Taxation v Australian Securities Investment Commission [2011] FCA 524 Erlanger v The New Sombrero Phosphate Co (1878) 3 App Cas 1218 Gerard Cassegrain & Co Pty Ltd v Cassegrain [2011] NSWSC 1156 Gibbs v Guild (1882) 9 QBD 59 Grimaldi v Chameleon Mining NL (No 2) [2012] FCAFC 6; 200 FCR 296 Hewitt v Henderson [2006] WASCA 233 Hovenden v Lord Annesley (1806) 2 Sch & Lef 607 How v Earl Winterton (1896) 2 Ch 626 Hunter v Gibbons (1856) 1 H&N 459 Imperial Gas Light & Coke Co v London Gas Light Co (1854) 10 Ex 39 In re Baker (1881) 20 Ch D 230 In re Greaves (1881) 18 Ch D 551 In re Hampshire Land Company [1896] 2 Ch 743 In re Pauling's Settlement Trusts [1962] 1 WLR 86; on appeal [1964] 1 Ch 303 In re Robinson [1911] 1 Ch 502 In the matter of Auzhair Supplies Pty Ltd (a deregistered company) and Auzhair 1 Pty Ltd [2010] NSWSC 1339 JC Houghton & Co v Nothard, Lowe & Wills Ltd [1928] AC 1 King v Victor Parsons & Co [1973] 1 WLR 29 Kitchen v Royal Air Force Association [1958] 1 WLR 563 KM v HM (1993) 96 DLR (4th) 289 Knox v Gye (1872) 5 LR HL 656 Lindsay Petroleum Co v Hurd (1874) LR 5 PC 221 Lockey v Lockey (1719) Prec Ch 518 McLeod v The Queen [2003] HCA 24; 214 CLR 230 Metacel Pty Ltd v Ralph Symonds Ltd [1969] 2 NSWR 201 Motor Terms Co Pty Ltd v Liberty Insurance Ltd [1967] HCA 9; 116 CLR 177 Orr v Ford [1989] HCA 4; 167 CLR 316 P&O Nedlloyd BV v Arab Metals Co (No 2) [2007] 1 WLR 2288 Paragon Finance PLC v DB Thakerar & Co [1999] 1 All ER 400 Phillips-Higgins v Harper [1954] 1 QB 411 R v McNeil [1922] HCA 33; 31 CLR 76 Ramsden v Dyson (1866) LR 1 HL 129 Rochdale Canal Company v King (1851) 2 Sim (NS) 78 Rolfe v Gregory (1864) 4 De GJ&S 575 Savage v Lunn [1998] NSWCA 203 Savage v Lunn [1998] NSWCA 204 Seymour v Seymour (1996) 40 NSWLR 358 Sheldon v RHM Outhwaite Ltd [1996] 1 AC 102 Short v Crawley (No 30) [2007] NSWSC 1322 Smith v Clay (1767) 3 Bro CC 646; 29 ER 743 Sterndale v Hankinson (1827) 1 Sim 393 The Commonwealth v Cornwell [2007] HCA 16; 229 CLR 519 The Duke Group Ltd (In liq) v Alamain Investments Ltd [2003] SASC 415 The Metropolitan Bank v Heiron (1880) 5 LR Ex D 319 The Salvation Army (South Australia Property Trust) v Rundle [2008] NSWCA 347 Trotter v Maclean (1879) 13 Ch D 574 Williams v Central Bank of Nigeria [2014] UK SC 10 Williams v Minister, Aboriginal Land Rights Act 1983 (1994) 35 NSWLR 497 Young v Waterways Authority of NSW [2002] NSWSC 612 Texts Cited: JW Brunyate, Limitation of Actions in Equity, (1932, Stevens & Sons) W Grigsby, Story's Commentaries on Equity Jurisprudence, (First English Edition 1884, Stevens and Haynes) Halsbury's Laws of England, (3rd ed), vol 14 Halsbury's Laws of England, (4th ed), vol 16(2), reissue John M Lightwood, The Time Limit on Actions (1909, Butterworth & Co) R Meagher, D Heydon, M Leeming, Meagher Gummow & Lehane's Equity Doctrines and Remedies, (4th ed 2002, Butterworths LexisNexis Australia) I Spry, The Principles of Equitable Remedies, (5th ed 1997, LBC Information Services) I Spry, The Principles of Equitable Remedies, (9th ed 2014, Law Book Company) Category: Principal judgment Parties: Roy Gerace (First Appellant) Ilario Gerace (Second Appellant) Domenico Gerace (Third Appellant) Auzhair Supplies Pty Ltd (In liq) (First Respondent) Auzhair 1 Pty Ltd (Second Respondent) Representation: Counsel: D Ash, J Walker (Appellants) B A Coles QC, J Johnson (Respondents)

Solicitors: Sachs Gerace Lawyers (Appellants) Carroll & O'Dea Lawyers (First Respondent) File Number(s): 2013/94955 Decision under appeal Court or tribunal: Supreme Court Citation: In the Matter of Auzhair Supplies Pty Ltd (In liq) [2013] NSWSC 1 Date of Decision: 25 January 2013 Before: Brereton J File Number(s): 2012/80701

[Note: The Uniform Civil Procedure Rules 2005 provide (Rule 36.11) that unless the Court otherwise orders, a judgment or order is taken to be entered when it is recorded in the Court's computerised court record system. Setting aside and variation of judgments or orders is dealt with by Rules 36.15, 36.16, 36.17 and 36.18. Parties should in particular note the time limit of fourteen days in Rule 36.16.]

[This headnote is not to be read as part of the judgment] The three appellants were the only shareholders and directors of the first respondent (Auzhair Supplies). Between July 2002 and July 2003 the Greenaways advanced $600,000 to Auzhair Supplies. In June 2003 the second respondent (Auzhair 1) was incorporated with the appellants, their wives and the Greenaways as shareholders. At some time before February 2005 it was agreed between the shareholders of both companies, including the Greenaways, that the assets and business undertaking of Auzhair Supplies be transferred to Auzhair 1. On 6 June 2005 Auzhair Supplies was deregistered on the application of the first appellant. When that application was made he declared and believed that Auzhair Supplies had no liabilities because those liabilities had been transferred to Auzhair 1. It was common ground in the proceedings below that this had not been achieved, at least in relation to the liability to repay the loans made to the Greenaways. The loan to the Greenaways was not repaid. They then commenced proceedings for the reinstatement and winding-up of Auzhair Supplies so that a claim might be made against Auzhair 1 and the three appellants. The action against the appellants was for breaches of their equitable duties as directors in transferring away Auzhair Supplies' assets and business undertaking. That transfer was not found to have been made to defeat the claims of creditors. Nor was it found that the appellants acted dishonestly in relation to the deregistration of Auzhair Supplies. The primary judge found that the Greenaways and the appellants agreed to the acquisition of Auzhair 1 to take over the existing business and that the appellants believed that the liability to the Greenaways had been transferred to Auzhair 1. In answer to the claims for breaches of their equitable duties as directors, the appellants relied on the application by analogy of the six year limitation period in s 1317K of the Corporations Act 2001 (Cth). The primary judge considered that the analogy between the statutory and equitable claims and remedies was "as close an analogy as one can conceive". However, he declined to apply the limitation period by analogy on the basis that in its exclusive jurisdiction, equity does so as part of the law of laches so that if delay for the period of limitation would not constitute laches equity will not apply the statute by analogy. The appellants contest that this is a correct statement of the principle by reference to which equity declines to apply a limitation statute by analogy. The issue in the appeal is whether, as contended by the appellants, when applying a limitation by analogy in its exclusive jurisdiction, equity does so unless there exists a ground, such as concealed fraud, which makes it unconscionable for the defendant to be permitted to rely upon the statute. The first respondent did not contend for such a ground. The Court held (per Meagher JA, Beazley P and Emmett JA agreeing) upholding the appeal: (1) In purely equitable proceedings, where there is a corresponding remedy at law in respect of the same matter and that remedy is subject to a statutory bar, equity will apply the bar by analogy unless there exists a ground that justifies its not doing so because reliance by the defendant on the statute would be unconscionable in the circumstances: [70]. Sterndale v Hankinson (1827) 1 Sim 393; Knox v Gye (1872) 5 LR HL 656; Bulli Coal Mining Company v Osborne [1899] AC 351; R v McNeil [1922] HCA 33; 31 CLR 76 applied; Dicta in KM v HM (1993) 96 DLR (4th) 289 and Williams v Minister, Aboriginal Land Rights Act 1983 (1994) 35 NSWLR 497 not followed; The Duke Group Ltd (In liq) v Alamain Investments Ltd [2003] SASC 415; Barker v Duke Group Ltd (In liq) (2005) 91 SASR 167 considered. (2) A description of the circumstances in which equity declines to permit a defendant to rely upon the statute by analogy as unconscionable leaves to be identified the principles according to which equity justifies that conclusion: [70]. Australian Broadcasting Corporation v Lenah Game Meats Pty Ltd [2001] HCA 63; 208 CLR 199; Australian Competition and Consumer Commission v CG Berbatis Holdings Pty Ltd [2003] HCA 18; 214 CLR 51 followed. (3) The grounds on which equity declines to permit a defendant to rely upon a limitation period by analogy include where there has been fraudulent concealment: [72]. Rolfe v Gregory (1864) 4 De GJ&S 575; Hovenden v Lord Annesley (1806) 2 Sch & Lef 607; The Metropolitan Bank v Heiron (1880) 5 LR Ex D 319; Bulli Coal Mining Company v Osborne [1899] AC 351; R v McNeil [1922] HCA 33; 31 CLR 76 applied.

Judgment

1. BEAZLEY P: I have had the advantage of reading in draft the comprehensive reasons of Meagher JA. I agree with his Honour's reasons and his proposed orders. I also agree with the additional comments of Emmett JA.
2. MEAGHER JA: This appeal is concerned with the principles that govern the application by analogy of a limitation statute to a purely equitable claim. The claim in question was brought by a company in liquidation against its directors for breaches of their equitable duties in transferring away the company's assets and business undertaking. The primary judge (Brereton J) declined to apply the limitation period that applies to claims for breaches of the equivalent statutory duties: In the Matter of Auzhair Supplies Pty Ltd (In liq) [2013] NSWSC 1.
3. The first respondent (Auzhair Supplies) brought proceedings against the second respondent company to which those assets were transferred (Auzhair 1) and the three appellants, who were the directors of Auzhair Supplies. Those proceedings were brought more than six years after the breaches of duty occurred. The appellants relied on the application by analogy of s 1317K of the Corporations Act 2001 (Cth). That section provides that proceedings under s 1317H for compensation for contraventions of the statutory duties in ss 180 to 183, which are essentially the same as the equitable duties the appellant directors were found to have breached, must be commenced no later than six years after the contravention. There are no provisions in the Act that postpone the time from which that period commences to run in the face of fraudulent concealment or mistake. Nor are there provisions that suspend the operation of the statute in the event of disability because of age or incapacity: cf Limitation Act 1969 (NSW), ss 52, 55, 56.
4. The primary judge considered the analogy between the statutory and equitable claims and remedies to be "as close an analogy as one can conceive": [79]. That conclusion is not challenged in this appeal. His Honour held, however, that it would be "inequitable" to apply the limitation period. Following the transfer away of the company's undertaking, the directors remained in control until the company was voluntarily deregistered under s 601AA of the Corporations Act. The company then remained deregistered until a little more than a year before the six year period expired. Before it was deregistered, the company did not by its board of directors (either formally or informally) consider the circumstances of the breaches and whether it should take proceedings in respect of them. After it was deregistered, the company ceased to exist and accordingly it could not do so: [89].

The transfer of assets to Auzhair 1 and deregistration of Auzhair Supplies

1. The three appellants, who are brothers, were the only shareholders and directors of Auzhair Supplies, whose business was the importation of hair colour products. Between July 2002 and July 2003 a Mr and Mrs Greenaway (the Greenaways) advanced $600,000 to Auzhair Supplies. In June 2003 Auzhair 1 was incorporated with the appellants, their wives and the Greenaways as shareholders. In July 2004 a written loan agreement to which Auzhair Supplies and the Greenaways were parties recorded that they had advanced $600,000 to Auzhair Supplies, which was to be repaid by 1 July 2007. In or before February 2005, the appellants, their wives and the Greenaways agreed to the transfer of the assets of Auzhair Supplies to Auzhair 1, including, it would seem, the goodwill of the business. After that date the Greenaways continued to receive interest payments on their loans. They received $30,000 on about 30 June 2005, $25,000 on about 5 July 2005 and payments totalling $87,000 between 3 July 2007 and 4 September 2009.
2. On 6 June 2005 Auzhair Supplies was deregistered on the application of the first appellant (Roy Gerace). The conditions which had to be satisfied for the making of that application included that all of the members of the company agree to the deregistration, that the company have no outstanding liabilities and that it not be a party to any legal proceedings: s 601AA(2)(a), (e), (f). When that application was made, Roy Gerace declared that Auzhair Supplies had no liabilities because at that time he believed that all of its liabilities, as well as its assets, had been transferred to Auzhair 1. Before the primary judge it was common ground that this had not been achieved, at least in relation to the liability to repay the loans made by the Greenaways.
3. Having not received repayment of their loan, the Greenaways brought proceedings for the reinstatement and winding-up of Auzhair Supplies. On 19 November 2010 Ward J (as her Honour then was) made an order that ASIC reinstate the registration of that company and that it be wound-up in insolvency: In the matter of Auzhair Supplies Pty Ltd (a deregistered company) and Auzhair 1 Pty Ltd [2010] NSWSC 1339; 80 ACSR 538.
4. Auzhair Supplies brought proceedings against Auzhair 1 and the appellants. That claim was made initially in the earlier reinstatement proceedings. It then was made by the current proceedings which the parties have agreed are taken to have been commenced in December 2011.

The reasoning of the primary judge

1. Having considered a number of authorities, the primary judge drew a distinction between the way equity applies limitation statutes in the exercise of its jurisdiction in aid of legal rights (which his Honour refers to as its auxiliary jurisdiction) and in its exclusive jurisdiction. In the former where "it is asked to give a superior remedy for a legal right, equity applies the legal limitation period: it obeys the law": [62]. In the latter his Honour held that it applies the limitation period as an aspect of the law of laches: [63].
2. His Honour continued: "Further, because, in this context, application of the analogous limitation period is an aspect of laches, it is also subject to exceptions where the greater equity outweighs it; thus it is relevant to consider the plaintiff's knowledge of the plaintiff's rights and in particular of the impact of fraud, as equity will not apply a time limit in a case of "concealed fraud". The relevant enquiry is therefore to consider, first, whether the equitable claim and the corresponding legal right are so similar that the time limit applicable to the latter should be applied to the former; and, secondly, where such a similarity exists, whether it would nevertheless be inequitable to apply the analogous limitation period."
3. The primary judge then addressed whether "the equitable claim and the corresponding legal right [in this case were] so similar that the time limit applicable to the latter should be applied to the former" and concluded that they were "practically indistinguishable": [63], [76], [78].
4. Finally, his Honour considered whether it would "nevertheless be inequitable to apply the analogous limitation period": [82]. His reasoning and conclusion concerning that question is at [83]-[90]: "[83] … the statute of limitation … serves as an analogy to inform equity's application of the doctrine of laches in the exclusive jurisdiction. [KM v HM (1993) 96 DLR (4th) 289, 330-333) (La Forest J, with whom a majority of the Court agreed); cited with approval in Williams v Minister, Aboriginal Land Rights Act 1983 (1994) 35 NSWLR 497, 509-510 (Kirby P, with whom Priestley JA agreed)]; this is why the judgment, whether despite the similarity of the causes of action, it would be unjust to enforce the analogy must be made 'in light of all the circumstances' [R v McNeil, 100; Spry, Equitable Remedies (5th Edition), 419-420; The Duke Group Ltd (In Liq) v Alamain Investments, [114]; Barker v Duke Group [84]]. Because the principles being applied are those of laches, consideration such as the plaintiff's knowledge of its rights, and its ability (or incapacity) to enforce them, remain relevant (though, apart for fraudulent concealment, they would not be relevant to a legal limitation period), as appears from the abovementioned passage from Brunyate [cited by La Forest J in KM v HM, 333] and from the observations referred to above of Doyle CJ [Duke Group, [135]-[138]], to the effect that a relevant consideration was when the liquidator first became aware of the facts giving rise to the claim, as in exercising the court's discretion to apply a statutory time limit by analogy, a court of equity takes account of the plaintiff's knowledge of the plaintiff's rights." "[84] The strength of the plaintiff's case in this respect is that the wrongdoers remained in control of the company from the time when the cause of action arose (in or before February 2005) until they procured it to be (wrongly) deregistered (in June 2005) by a false declaration that it had no liabilities - albeit that I am unconvinced that it was knowingly false. While deregistered, the plaintiff was for all practical purposes incapable of bringing proceedings to enforce its equitable rights, and it was only upon reinstatement (which was initially, though not ultimately, opposed by the defendants) and the consequent appointment of a liquidator (which was also opposed), in November 2010, that enforcement of those rights became possible. …" "[85] The essential elements of laches include knowledge of the facts and the rights to justify the commencement of proceedings … Here, the plaintiff is - correctly - not the liquidator, but the company in liquidation. It is not just the liquidator's knowledge and ability to act, but that of the company prior to liquidation, that is relevant. …" (emphasis in original) and "[90] In those circumstances, despite the close analogy with the statutory cause of action, I conclude that it would be inequitable to apply the analogous limitation period. That is because while that limitation period prima facie informs the application of the doctrine of laches, equity would not bar the proceedings on account of laches where the plaintiff was not able to enforce its rights, as from the time when the cause of action arose until the company was reinstated and a liquidator appointed, it was rendered unable to do so - initially because it remained under the control of the wrongdoers, and subsequently because it had been wrongly deregistered at their instance - and the present proceedings were instituted in December 2011, promptly after those conditions came to an end. That is all the more so in the absence of evidence of prejudice to the defendants from any delay."

The issues in the appeal

1. The appellants contest that this correctly states the principles by reference to which equity applies a limitation statute by analogy to proceedings involving a purely equitable claim. They argue that, in its exclusive jurisdiction, equity applies the limitation statute applicable to a corresponding legal remedy unless there is an equitable ground, such as concealed fraud, which makes it unconscionable for the respondent to be permitted to rely on the running of that statute as a bar. They contend that in the face of that "greater equity" the practice which equity otherwise adopts, which is to follow the law, is modified. The appellants submit that in applying the analysis proposed by Brunyate, accepted by La Forest J in KM v HM, the primary judge erred.
2. The respondent supports the primary judge's reasoning and conclusion that its claim was not barred in the circumstances of this case. The essence of that reasoning is that, when applying a statute by analogy in its exclusive jurisdiction, equity has regard to any circumstances that, applying its doctrine of laches, would be taken into account in determining whether the delay constitutes laches. If in those circumstances the delay during the period of limitation would not constitute laches, equity exercises its "residual discretion" not to apply the statutory bar: [83]. Those circumstances are said to include the plaintiff's knowledge of the facts giving rise to the claim for relief. The respondent does not seek to uphold his Honour's decision on the basis that there was concealed fraud or some other equitable ground which made it unconscionable for the appellants to rely on the limitation period, either at all, or without postponing the time from which it commenced to run.

Discussion

1. Questions as to the application of limitation statutes in the exercise of equity's jurisdiction arise in different ways. First, the statute might apply to an equitable claim for relief. A very early example is s 24 of the Real Property Limitation Act 1833 (UK), which provided that a claim in equity to land or rent had to be made within the same limitation period as applied to the equivalent claim that might be brought if the plaintiff was entitled at law to the same estate or interest. A modern equivalent is s 36 of the Limitation Act 1969 (NSW). Secondly, the statute might apply to a claim made at law that before the Supreme Court of Judicature Act 1873 (UK) also could have been made in equity. For example, the action at law for an account was by s 3 of the Limitation Act 1623 (UK) subject to a six-year limitation period. A claim for an account also could have been brought in equity, either to take advantage of its discovery procedure or because the right to the account was exclusively equitable: How v Earl Winterton (1896) 2 Ch 626 at 639 (per Lindley LJ); Paragon Finance PLC v DB Thakerar & Co [1999] 1 All ER 400 at 415 (per Millett LJ). Thirdly, the statute might apply to the existence or enforceability of legal rights that fall to be determined in suits to enforce equitable titles to real property and equitable personal claims; see, for example, Hovenden v Lord Annesley (1806) 2 Sch & Lef 607 (claims to possession of lands based on equitable titles); Archbold v Scully (1861) 9 HL Cas 360 (a claim to enforce a reversionary interest in land and to rents); In re Baker (1881) 20 Ch D 230 (a devastavit claim in respect of an unpaid specialty debt). Finally, as in this case, the statute might apply to a right or remedy at law that corresponds with a purely equitable right or remedy in respect of the same subject matter. These claims, other than those involving purely equitable rights and remedies, arise in equity's concurrent or auxiliary jurisdictions.
2. The most often cited statement concerning equity's treatment of limitation statutes is that of Lord Westbury in Knox v Gye (1872) 5 LR HL 656 at 674. A bill filed by Mr Knox, the executor of a deceased partner's estate, included a claim for the taking of partnership accounts against a surviving partner more than six years after dissolution of the partnership. The surviving partner, Mr Gye, relied upon the six year limitation in the Limitation Act 1623 as amended by the Mercantile Law Amendment Act 1856 (UK). Lord Westbury referred to Lord Macclesfield's decision in Lockey v Lockey (1719) Prec Ch 518 (a claim to an account that was brought in equity by the person entitled at law to the account so as to take advantage of its discovery process) as holding that "where a Court of Equity assumes a concurrent jurisdiction with Courts of Law no account will be given after the legal limit of six years, if the statute be pleaded". Lord Westbury then continued at 674: "If it could be doubted whether the executor of a deceased partner can, at Common Law, have an action of account against the surviving partner, the result will still be the same, because a Court of Equity, in affording such a remedy and giving such an account, would act by analogy to the Statute of Limitations. For where the remedy in Equity is correspondent to the remedy at Law, and the latter is subject to a limit in point of time by the Statute of Limitations, a Court of Equity acts by analogy to the statute, and imposes on the remedy it affords the same limitation. This is the meaning of the common phrase, that a Court of Equity acts by analogy to the Statute of Limitations, the meaning being, that where the suit in Equity corresponds with an action at Law which is included in the words of the statute, a Court of Equity adopts the enactment of the statute as its own rule of procedure. But if any proceeding in Equity be included within the words of the statute, there a Court of Equity, like a Court of Law, acts in obedience to the statute." (emphasis added)

Decision

1. The authorities referred to above, and in particular R v McNeil, show that in purely equitable proceedings, where there is a corresponding remedy at law in respect of the same matter and that remedy is the subject of a statutory bar, equity will apply the bar by analogy unless there exists a ground which justifies its not doing so because reliance by the defendant on the statute would in the circumstances be unconscionable. They do not support the proposition that equity retains any broader discretion whether to apply the bar. The description of such a ground, or the conduct giving rise to or constituting it, as unconscionable or unconscientious leaves to be identified the principles according to which equity justifies that conclusion: Australian Broadcasting Corporation v Lenah Game Meats Pty Ltd [2001] HCA 63; 208 CLR 199 at [45] (Gleeson CJ) and Australian Competition and Consumer Commission v CG Berbatis Holdings Pty Ltd [2003] HCA 18; 214 CLR 51 at [41]-[42] (Gummow and Hayne JJ).
2. In applying the statute by analogy, equity gives effect to the maxim that it follows the law and acts on the basis that "laches is presumable in cases where it is positively declared at law": Story's Commentaries on Equity Jurisprudence, First English Edition (1884) at [64a]. In doing so, it must be taken also to be giving effect to the legislature's judgment in fixing the relevant limitation period and in allowing for any exceptions to its application. The considerations likely to inform that judgment are referred to by McHugh J in Brisbane South Regional Health Authority v Taylor [1996] HCA 25; 186 CLR 541 at 552-554.
3. The distinction, referred to by Isaacs J in R v McNeil, between equity applying its own doctrine of laches and adopting, in analogous cases, the measure of time fixed by statute unless there is a "greater equity", is one of substance. The circumstances in which such an equity arises include where fraudulent conduct of the defendant has denied the plaintiff the opportunity to sue within the statutory period. That equity is satisfied by preventing the defendant from taking advantage of the plaintiff's omission to do so.
4. The doctrine of laches is directed to a broader and different question. That question is whether, as between the parties, it would be practically unjust to give relief which otherwise would be just. In answering that question, account is taken of the length of any delay, the nature of acts done during the period of that delay, whether the plaintiff had sufficient knowledge to justify the commencement of proceedings, whether there has been prejudice to the defendant or others and the nature of the relief claimed: see Lindsay Petroleum Co v Hurd at 239-240. That doctrine does not focus on circumstances that would justify not permitting the statute to be relied on because there has been fraud or mistake or misrepresentation or other conduct or circumstances against the consequences of which equity relieves.

Proposed orders

1. The orders I propose are: 1. Grant leave to the appellants under s 471B of the Corporations Act to proceed against the first respondent in liquidation. 2. Appeal allowed. 3. Orders 4, 5 and 8 made on 4 March 2013 be set aside. 4. The first respondent pay the appellants' costs of the appeal. 5. The first respondent pay the appellants' costs incurred since 19 November 2010 in proceedings 2010/17300 except in so far as any remaining costs order provides otherwise. 6. The first respondent pay the appellants' costs incurred in proceedings 2012/80701.
2. EMMETT JA: This appeal is concerned with whether s 1317K of the Corporations Act 2001 (Cth) has the effect of barring an action by a company in liquidation for recovery of equitable compensation against its former directors. Section 1317K is contained in Pt 9.4B of the Corporations Act, which deals with the civil consequences of contravening certain provisions of that Act.
3. Part 9.4B authorises a Court:

• to make a declaration of contravention of certain provisions of the Corporations Act (declaration of contravention) (see s 1317E);
• to order a person to pay a pecuniary penalty if such a declaration has been made and certain other prerequisites are satisfied (pecuniary penalty order) (see s 1317G); and
• to order a person to compensate a corporation for damage suffered by the corporation if the person has contravened one of certain provisions of the Corporations Act and the damage resulted from the contravention (compensation order) (see s 1317H). The relevant provisions of the Corporations Act for the purposes of the exercise of those powers include ss 180, 181, 182 and 183, which deal with the duties of officers of companies. Section 1317K provides that proceedings for a declaration of contravention, a pecuniary penalty order or a compensation order may be started no later than six years after the contravention.

1. The appellants, Roy, Ilario and Domenico Gerace, are brothers. At the relevant times they were the only directors and shareholders of the first respondent, Auzhair Supplies Pty Ltd (Auzhair Supplies). Between July 2002 and July 2003, Mr Warren Greenaway and Mrs Elizabeth Greenway advanced $600,000 to Auzhair Supplies. On 1 July 2004, a written loan agreement between Auzhair Supplies and Mr and Mrs Greenaway recorded that the latter had advanced $600,000 to Auzhair Supplies, which was repayable on 1 July 2007. While payments of interest were made in respect of the advances, the principal of the advances has not been repaid by Auzhair Supplies.

The Reasons of the Primary Judge

1. The questions before the primary judge, as formulated by his Honour, were whether the equitable claim against the Gerace brothers, and the corresponding legal right under the Corporations Act, are so similar that the time limit applicable to the latter should be applied to the former, and whether it would nevertheless be inequitable to apply that time limit. His Honour concluded that the equitable claim and the corresponding statutory right are so similar that the time limit applicable to the latter should be applied to the former. According to his Honour, that then left the question as to whether it would nevertheless be inequitable to apply the analogous limitation period. His Honour concluded that, despite the close analogy with the statutory cause of action, it would be inequitable to apply the statutory limitation period to the equitable claim against the Gerace brothers.
2. The primary judge began by observing that, in the present context, s 1317K would not be applied directly, but would serve as an analogy to inform Equity's application of the doctrine of laches in its exclusive jurisdiction. His Honour said that a judgment as to whether, despite the similarity of the causes of action, it would be unjust to enforce the analogy must be made in the light of all the circumstances and that the principles to be applied are those of laches. Accordingly, his Honour held, considerations such as the knowledge of Auzhair Supplies of its rights and its ability, or incapacity, to enforce them, were relevant. His Honour said that a relevant consideration was the time when the liquidator of Auzhair Supplies first became aware of the facts giving rise to the equitable claim. That is because, his Honour said, in exercising the Court's discretion to apply a statutory time limit by analogy, a court of Equity takes account of the plaintiff's knowledge of the plaintiff's rights.
3. The primary judge considered that the strength of Auzhair Supplies' case was that the Gerace brothers remained in control of Auzhair Supplies from the time when the cause of action arose, in or before February 2005, until the Gerace brothers wrongly procured deregistration of Auzhair Supplies in June 2005, by a false declaration that it had no liabilities, albeit a declaration that was not knowingly false. His Honour found that Roy Gerace honestly believed that the liability of Auzhair Supplies to Mr and Mrs Greenaway was extinguished by being transferred to Auzhair 1.

The Appeal

1. The question raised by the appeal is whether the primary judge applied a wrong principle, insofar as his Honour applied the doctrine of laches. His Honour concluded that there was a close correspondence between the statutory claims that Auzhair Supplies would have under s 1317H against the Gerace brothers, on the one hand, and the equitable claims for breach of fiduciary duty against them, on the other hand. There is no dispute about that conclusion. His Honour appears to have accepted that s 1317K should be applied by analogy to the equitable claims only if the defence of laches was available to the Gerace brothers. That approach, however, ignores the well-established principle that, when the legislature fixes a limitation at law, it would be "preposterous" for equity to countenance laches beyond the period that the legislature had fixed. In all cases where the legal right has been barred by Parliament, the equitable right to the same thing is concluded by the same bar (Smith v Clay (1767) 29 ER 743 at 744).
2. The Gerace brothers accept that, notwithstanding the principle just formulated, a statutory bar could not be invoked by analogy in the case of fraudulent concealment. The question is whether something short of fraudulent concealment would operate to displace the application of the statutory bar by analogy in circumstances where the claim, in law or under statute, corresponds precisely with the equitable claim as in the present case. The primary judge did not formulate any such principles. Rather, his Honour applied the doctrine of laches. To do so, however, makes nought of the principle just formulated. That is to say, if a defendant must demonstrate that the doctrine of laches applies in order to attract a statutory bar by analogy, the statutory bar would never have application. A defendant would always be required to establish laches. If he did, he would have a defence. If he did not, he would have no defence, notwithstanding the analogy of the statutory bar.
3. The question is whether or not the circumstances of the present case can be shown to fall within an exception, other than fraudulent concealment, to the application of the statutory bar by analogy. If it can be said that Auzhair Supplies had knowledge of the breach of duty by the Gerace brothers, at the time when the breach occurred, there could be no basis upon which it would be unconscionable or inequitable for the Gerace brothers to rely on the limitation provisions. In a sense, the deregistration of Auzhair Supplies would be irrelevant. If Auzhair Supplies had such knowledge prior to its deregistration, that knowledge must be taken to have continued during the period of its deregistration. Upon reinstatement, Auzhair Supplies is taken by s 601AH(5) of the Corporations Act to have continued in existence as if it had not been deregistered. However, it is unnecessary to consider further the time when Auzhair Supplies first became aware of its right to sue its directors for breaches of duty, because it was not argued before either the primary judge or this Court that there was fraudulent concealment or other conduct that made the appellants' reliance on the statutory bar unconscionable.

Amendments 30 April 2015 - Paragraph [4] - reference to [90] changed to [89] Paragraph [10] - reference to [85] changed to [84] and reference to [17] should be to [16] Paragraph [14] - in quoted [84] 'about February' changed to 'before February' Paragraph [18] - 'delay constitute laches' changed to 'delay constitutes laches' Paragraph [19] - 'Judicature Act 1873 (UK)' changed to 'Supreme Court of Judicature Act 1873 (UK)'. Paragraph [20] - 'Lockey v Lockey (1799)' changed to 'Lockey v Lockey (1719)' Paragraph [24] - 'Waller LJ (Pill and May JJ)…' changed to 'Waller LJ (Clarke LJ and Sir Christopher Staughton…) Paragraph [26] - In the quoted text, the sentence beginning 'But, secondly..', changed to 'Secondly...' Paragraph [28] - The beginning of the last sentence changed to 'The Court, however, suggested that there....' Paragraph [37] -'Lord Warrington' changed to 'Earl of Warrington'. Paragraph [44] - reference to '68' changed to '68-9' Paragraphs [46], [56] and [74] - references to 'Trotter v McLean' changed to 'Trotter v Maclean' Paragraph [68] - reference to 'Candibon Pty Ltd v Madden' changed to Candibon Pty Ltd v Minister for Planning' Paragraph [74] - reference to 'Bulli Coal Company' changed to 'Bulli Coal Mining Company' Paragraph [76] - reference to 'Bartlett v Barclays Bank Trust Co Ltd (No 1)' changed to 'Bartlett v Barclays Bank Trust Co Ltd (Nos 1 and 2). Paragraph [78] - reference to 'JC Houghton & Co v Northard, Lowe & Wills Ltd' should appear as 'JC Houghton & Co v Nothard, Lowe & Wills Ltd. DISCLAIMER - Every effort has been made to comply with suppression orders or statutory provisions prohibiting publication that may apply to this judgment or decision. The onus remains on any person using material in the judgment or decision to ensure that the intended use of that material does not breach any such order or provision. Further enquiries may be directed to the Registry of the Court or Tribunal in which it was generated. Decision last updated: 30 April 2015