Gerace v Auzhair Supplies Pty Ltd

Court of Appeal (NSW)|2013-11-14|Before: Beazley P, Meagher JA, Emmett JA

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

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.
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.
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.
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

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.
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.
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.
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 appellants did not contest that the assets and business undertaking of Auzhair Supplies were transferred to Auzhair 1 for little or no consideration and that this involved breaches of duty on their part. The second and third appellants maintained that they left the management of the company and business to their brother Roy who admitted that in authorising the transfer, which was discussed and agreed between the three of them and the Greenaways, he acted wrongfully and mistakenly.
It was not alleged or held that the appellants had acted dishonestly or fraudulently in relation to that transfer or the deregistration of the company. The primary judge found that there was no intention, in transferring the assets and undertaking, to defeat the claims of the creditors of Auzhair Supplies, who included the Greenaways. Specifically he found that the Greenways, as well as each of the appellants, agreed to a transaction that essentially involved the establishment of a "new company, in which they all had a share, to take over the business". The primary judge did not find that Roy Gerace knowingly made a false declaration at the time Auzhair Supplies was deregistered: [84]. His Honour found that Roy Gerace believed that the liability to the Greenaways had been assigned along with the assets and business undertaking: [16]. These findings are not challenged on appeal and it is not contended that the arrangements made at the time of the transfer had the effect in law of satisfying or extinguishing Auzhair Supplies' liability to the Greenaways, by the substitution for that liability of an equivalent liability of Auzhair 1.

The reasoning of the primary judge

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].
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."
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].
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 reference in [83] is to JW Brunyate, the author of Limitation of Actions in Equity, (1932, Stevens & Sons), and editor of the revised edition of Maitland's Equity published in 1936. In the passage from that treatise cited by La Forest J in KM v HM (1993) 96 DLR (4th) 289 at 332-333, Brunyate ventures at 17 that where equity is applying a limitation statute by analogy it does so as part of the law of laches and "may reasonably allow any exceptions that are allowed in the law of laches" (17). Brunyate continues: "Again, since delay by a plaintiff who has been ignorant of his right of action will not amount to laches, we should expect that, where the Court is acting by analogy to the statute, time will not run until the plaintiff is aware of his right of action. Where, on the other hand, the Court of Equity is acting in obedience to the statute, it is applying the statute as a peremptory limitation and, although it will refuse to apply the statute in a case of fraud on the ground that it would be inequitable to do so, there is no reason why it should not apply it in any other case, even though by accident or mistake the plaintiff has been ignorant of his right of action. We should therefore expect that where the Courts act in obedience to the statute only fraud will suspend it from operating, but that where the Courts act by analogy to it, it will also be suspended by the plaintiff's ignorance of his rights, and this is probably a correct statement of the law." (emphasis added)
As Brunyate acknowledges at 16, the application of these principles in equity's exclusive jurisdiction would have the consequence that an omission to sue before the analogous limitation period has elapsed will not be a bar if that omission "cannot under the circumstances be regarded as laches".

The issues in the appeal

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.
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

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.
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)
In referring to there being a distinction between equity acting in obedience or by analogy to a statute, Lord Westbury adopts terms that Lord Redesdale, the Lord Chancellor of Ireland, used in Hovenden v Lord Annesley (1806) 2 Sch & Lef 607 at 630-632 and in Cholmondely v Clinton (1821) 4 Bli 1 at 118-120. However, as is noted in Spry, The Principles of Equitable Remedies, (9th ed 2014, Law Book Company) at 432-433 and shown by the discussion in Brunyate's treatise at 18-22, these terms were used in differing senses. Lord Westbury in Knox v Gye at 674-675 did not use them in the same sense as Lord Redesdale. Lord Westbury drew a distinction between equitable remedies to which the statute applied directly and remedies to which it did not. In the former case equity acted in obedience to the statute. In the latter case it acted by analogy if the remedy at law corresponded with that in equity. As Knox v Gye illustrates, that category included claims to remedies in equity that extended corresponding remedies at law to parties who did not have an action at law.
In R v McNeil [1922] HCA 33; 31 CLR 76 at 100, Isaacs J drew a slightly different distinction. His Honour described the circumstances where equity acted in obedience to the statute as being those in which the statute applied in terms to the equitable right or to the legal right for which the court of equity was asked to give a better remedy than was given at law. Where no statute directly barred the equitable right, equity then applied the limitation period for the corresponding legal right in analogous cases. .
The respondent's claim in the present case is not one in which an equitable remedy is sought in aid of a legal right or one that involves issues as to the existence or enforceability of legal rights. The claims that the respondent makes are claims for breaches of purely equitable duties for which there is no statute that extinguishes the equitable right or bars the equitable remedy. Those claims arise in equity's exclusive jurisdiction. Two recent English Court of Appeal decisions have considered the application of limitation statutes by analogy to such claims. In one it was argued that equity only applied statutes by analogy where the equitable remedy was sought in aid of a legal right or where the equitable jurisdiction involved was the concurrent jurisdiction.
The first of these English decisions in point of time is Cia de Seguros Imperio v Heath (REBX) Ltd [2001] 1 WLR 112. It concerned a claim for damages for dishonest breaches of fiduciary duty by an underwriting agent (Heath) when writing reinsurance on behalf of a pool of insurers which included Cia de Seguros Imperio. Waller LJ (Clarke LJ and Sir Christopher Staughton) and May JJ relevantly agreeing) identified at 120 the critical question as being, because of the language of s 36 of The Limitation Act 1980 (UK), whether a court of equity would have applied limitation by analogy to the claim for equitable compensation for dishonest breaches of fiduciary duty. The passage in Knox v Gye and a statement in the 5th edition of Spry, The Principles of Equitable Remedies, (1997, LBC Information Services) at 419-420, which also is extracted by the primary judge at [46], were said to summarise the relevant principles. (A statement to the same effect is in the 9th edition of Spry at 434-435). The statement from Spry includes the following: "… the principles that govern cases [where the limitation period is applied by analogy] are that if there is a sufficiently close similarity between the exclusive equitable right in question and legal rights to which the statutory provision applies a Court of Equity will ordinarily act upon it by analogy but that it will so act only if there is nothing in the particular circumstances of the case that renders it unjust to do so. What is regarded by Courts of Equity as a sufficiently close similarity for this purpose involves a question of degree, and reference must be made to the relevant authority. The basis of these principles is that, in the absence of special circumstances rendering this position unjust, the relevant equitable rules should accord with comparable legal rules." (emphasis added)
In Heath (REBX), the Court of Appeal rejected at 121-122 the argument that equity does not apply limitation statutes by analogy to claims brought in its exclusive jurisdiction. It was contrary to the recent decision in Paragon Finance PLC. There Millett LJ, as he then was, said at 415 that the law on this subject had been "settled for more than a hundred years" and that Knox v Gye established that where the liability on which the equitable claim was based was "exclusively equitable, the court acted by analogy with the statute".
The Court in Heath (REBX) also expressed agreement with the following statements of Mr Jules Sher QC, sitting as a deputy judge of the Chancery Division, in Coulthard v Disco Mix Club Ltd [2000] 1 WLR 707. The application in that case was to strike out claims for breaches of contract and breaches of fiduciary duty as barred, directly or by analogy. After referring to the statement of Lord Westbury in Knox v Gye at 674-675, the deputy judge continued at 730: "Two things emerge from these passages. First, where the court of equity was simply exercising a concurrent jurisdiction giving the same relief as was available in a court of law the statute of limitation would be applied. Secondly, even if the relief afforded by the court of equity was wider than that available at law the court of equity would apply the statute by analogy where there was 'correspondence' between the remedies available at law or in equity. … Mr Bate argues that the court of equity will apply the statute by analogy only where the equitable remedy is being sought in support of a legal right or the court of equity is being asked to decide a purely legal right …. I have no doubt that the principles of application by analogy to the statute (or, in obedience to the statute, as the Lord Chancellor preferred to describe it in its application to the facts of Hovenden's case), are quite apposite in the situations envisaged by Mr Bate. But, in my judgment, they have a much wider scope than that: one could scarcely imagine a more correspondent set of remedies as damages for fraudulent breach of contract and equitable compensation for breach of fiduciary duty in relation to the same factual situation …. It would have been a blot on our jurisprudence if those selfsame facts gave rise to a time bar in the common law courts but none in the court of equity."
The second English decision is P&O Nedlloyd BV v Arab Metals Co (No 2) [2007] 1 WLR 2288. P&O sought specific performance of a contract. That claim was summarily dismissed. On appeal there was an issue as to whether the six year limitation period applicable to an action founded on simple contract should be applied by analogy to the claim for specific performance. The Court of Appeal (Moore-Bick LJ, Buxton and Parker LJJ agreeing) described the general principle as being that if "the limitation period does not apply because the claim is for an exclusively equitable remedy, the court will none the less apply it by analogy if the remedy in equity is 'correspondent to the remedy at law'", and in doing so adopt "the statutory rule as its own rule of procedure": [38].
The court concluded that P&O's claim for specific performance was not subject, by analogy, to any limitation period: [52], [53]. That made it unnecessary to decide whether, as P&O argued, the existence of a limitation statute, applicable directly or by analogy, meant that the doctrine of laches could have no application, at least in cases where there had been mere delay, as distinct from delay having adverse consequences for the defendant or a third party. The Court nevertheless addressed that question. Referring to dicta in cases that included Archbold v Scully and In re Pauling's Settlement Trusts [1962] 1 WLR 86, it accepted that a mere lapse of time could not provide a laches defence before the expiration of the limitation period for the corresponding action at law: [57]. The Court, however, suggested that there was no reason in principle why "unjustified delay coupled with an adverse effect of some kind on the defendant or a third party should not be capable of providing a defence in the form of laches even before the expiration of the limitation period": [61].
This last observation may not take sufficient account of the distinction between laches and acquiescence - the latter used in the Ramsden v Dyson (1866) LR 1 HL 129 sense of standing by when one's rights are being violated. In the first of the early authorities referred to, Rochdale Canal Company v King (1851) 2 Sim (NS) 78, there was acquiescence in this sense (see 87-89). In the second, Archbold v Scully, Lord Wensleydale said at 383 that so "far as laches is a defence, the objection of simple laches does not apply until the expiration of the time allowed by the statute. But acquiescence is a different thing; it means more than laches… but the fact, of simply neglecting to enforce a claim for the period during which the law permits him to delay, without losing this right, I conceive cannot be any equitable bar".
These two decisions were cited in Halsbury's Laws of England, (3rd ed), vol 14 at [1181] fn (q) for the proposition that the "defence of laches, however, is only allowed where there is no statutory bar. If there is a statutory bar, operating either expressly or by way of analogy, the plaintiff is entitled to the full statutory period before his claim becomes unenforceable". A narrower proposition, limited to "where there is an express statutory provision", was approved and applied by Wilberforce J in In re Pauling's Settlement Trusts (at 115) and on appeal [1964] 1 Ch 303. Whether the broader statement, which is repeated in Halsbury's Laws of England, (4th ed), vol 16(2), reissue, at [910] remains correct does not need to be decided in this appeal.
It is necessary to consider further the principles by reference to which equity declines to apply the statutory rule as its own rule of procedure or postpones the time from which the limitation period, applicable by analogy, is taken to commence.
Spry, in the passage from the 5th edition, which is extracted above, states that equity will apply the statute by analogy "in the absence of special circumstances rendering [that] position unjust". In Halsbury's Laws of England, (4th ed), vol 16(2), reissue, at [919], the contributing author, PH Pettit, describes the general principle in similar terms and as being that where "the equitable proceedings correspond to a remedy at law in respect of the same matter which is subject to a statutory bar, a court of equity, in the absence of fraud or other special circumstances, adopts, by way of analogy, the same limitation for the equitable claim" (emphasis added).
A modern statement of the principle according to which equity will decline to apply a statute by analogy, or will postpone the time from when it commences to run, is that of Lord Bingham (then Master of the Rolls) in his judgment in the Court of Appeal in Sheldon v RHM Outhwaite Ltd [1996] 1 AC 102 at 115. There his Lordship observed: "The equitable exception to the old and unqualified statutory limitation rule rested on the principle that a defendant whose unconscionable conduct has denied the plaintiff the opportunity to sue in time should not in conscience be permitted to plead the statute to defeat the plaintiff's claim provided the claim were brought timeously once the plaintiff learned or should have learned of it."
According to these statements, equity applies by analogy a limitation statute for a corresponding remedy at law in the absence of an equitable ground, such as concealed fraud, which makes it unconscionable to permit the defendant to rely on the statute. None of these formulations suggests that whether a statute is to be applied by analogy depends on the answer to a larger question, namely whether in the absence of the analogy, there would not be a defence of laches.
Two classes of case in which courts of equity declined to apply limitation periods by analogy were claims by a beneficiary against a trustee for breaches of trust and claims involving fraud or fraudulent concealment. The first class of case (as to which see Hovenden v Lord Annesley at 632-633; Cohen v Cohen [1929] HCA 15; 42 CLR 91 at 100 (Dixon J as he then was); Paragon Finance PLC at 408-410 and Williams v Central Bank of Nigeria [2014] UK SC 10 at [12]-[15], [44] and [133]) is not directly relevant in this appeal. An early statement of the general principle in relation to the second, is that of Lord Westbury in Rolfe v Gregory (1864) 4 De GJ&S 575 at 579: "As the remedy is given on the ground of fraud, it is governed by this important principle, that the right of the party defrauded is not affected by lapse of time, or, generally speaking, by anything done or omitted to be done, so long as he remains, without any fault of his own, in ignorance of the fraud that has been committed.
In Sterndale v Hankinson (1827) 1 Sim 393 the Vice Chancellor, Sir John Leach, said at 398: "But, as Courts of Equity will not entertain stale demands, they have thought proper to adopt the limit of six years, in analogy to the Statute; and Pleas of the Statute are admitted in these Courts by analogy only. Where the circumstances of a Case are such as to make it against conscience to apply the rule founded upon this analogy, the Court will not enforce it." This general statement was referred to with approval by Jessel MR in In re Greaves (1881) 18 Ch D 551 at 553 and by Kitto J in Motor Terms Co Pty Ltd v Liberty Insurance Ltd [1967] HCA 9; 116 CLR 177 at 184.
In Hovenden v Lord Annesley, Lord Redesdale (at 634), referring to the earlier and unsatisfactorily reported decision of the House of Lords in Booth v Earl of Warrington (1714) 4 Bro PC 163, explained the effect of fraudulent concealment on the running of time: "… for, pending the concealment of the fraud, the statute of limitations ought not in conscience to run; the conscience of the party being so affected, that he ought not be allowed to avail himself of the length of time: but after the discovery of the fact, imputed as fraud, the party has a right to avail himself of the statute."
In Brooksbank v Smith (1836) 2 Y & C Ex 58 at 60, after referring to this principle, Alderson B said "Mistake is, I think, within the same rule as fraud". That case concerned a claim by a trustee for the re-transfer of share stock in the hands of the defendant beneficiary. The trustee had transferred that stock to him under a mistaken belief as to the defendant's entitlement. Alderson B applied the same principle in Denys v Shuckburgh (1840) 4 Y & C Ex 42. A tenant in common sought to recover a share of the rents and profits from a mine that had been paid and received between the parties "under a misapprehension of their respective rights" (at 52).
In re Robinson [1911] 1 Ch 502 involved a claim for recovery by one beneficiary from another of money distributed by the trustee by mistake. Warrington J distinguished Brooksbank v Smith as concerned with a claim by a trustee for recovery of trust funds held by the beneficiary. There has been little subsequent consideration of these cases, no doubt because they have been overtaken by statutory provisions, such as s 26(c) of the Limitation Act 1939 (UK), which extended the tolling provision in cases of concealed fraud to actions for "relief from the consequences of a mistake": see Phillips-Higgins v Harper [1954] 1 QB 411.
The decision of the Court of Appeal in The Metropolitan Bank v Heiron (1880) 5 LR Ex D 319 (not disapproved in this respect in Attorney- General for Hong Kong v Reid [1994] 1 AC 324) is an example of the application of the doctrine of fraudulent concealment. The company and its liquidator sought to recover a bribe paid to a director of the bank in return for his assistance in procuring the settlement of a claim of the bank against a third party. The bank's claim was founded on the fraudulent breach of fiduciary duty of its director, who relied on the six year limitation for an action in debt. The bank argued that as its claim was based on a breach of trust, the statute was no bar. The court did not adopt that characterisation of the bank's claim but accepted that it was one involving "an equitable debt" (per James LJ at 323) or as founded on a fraud or breach of duty (per Brett LJ at 324 and Cotton LJ at 325). James LJ said of that claim: "… Courts of Equity have always followed by analogy the provisions of the Statute of Limitations, in cases in which there is the same reason for making the length of time a bar as in the case of ordinary legal demands. In the case of a bribe received, or other profit made by a person in a fiduciary position, there is no doubt that the cestui que trust who is wronged is not barred by any length of time, so long as that wrong is concealed from him by the wrongdoer. But when the cestui que trust knows of the fact, or knows that the fact is charged, and investigates the case, it is for him to make up his mind whether he will bring proceedings, just as any other creditor has to make up his mind whether he will issue a writ or not, …" (emphasis added)
As the director's fraud was communicated to a properly constituted meeting of directors of the company more than six years before the action was instituted, the claim was treated as barred on the basis that, applying the statute by analogy, time commenced to run from when that communication to the company occurred. Betjemann v Betjemann [1895] 2 Ch 474 is an example of the application of this doctrine to a claim for a partnership account, brought in equity's concurrent jurisdiction. That was a case of concealed fraud. The innocent partner did not know of the fraudulent drawings and was entitled to rely on the good faith of his co-partner. For that reason, the circumstances were not such as to give rise to a suspicion on his part as to the true position and the running of the statute was postponed.
John M Lightwood, in his treatise, The Time Limit on Actions (1909, Butterworth & Co), having referred to the effect of fraud on claims in equity where there is no statute, then addressed the position where a statute is applied by analogy. He said, at 299: "The effect of fraud is the same in cases where the equitable claim is subject to a statutory bar by way of analogy, except that since the bar depends not on laches, but upon the statute, the plaintiff is entitled to the statutory period from the date of discovery of the fraud".
The doctrine of concealed fraud is not an answer to the application of a limitation statute to a claim at law. That was the position both before and after the Common Law Procedure Act 1854 (UK) which permitted the pleading of defences on equitable grounds to claims at law: Imperial Gas Light & Coke Co v London Gas Light Co (1854) 10 Ex 39; Hunter v Gibbons (1856) 1 H&N 459. Those decisions are cited with approval by Isaacs J in R v McNeil at 100 and applied by this Court (Herron CJ, Sugerman and Asprey JJA) in Metacel Pty Ltd v Ralph Symonds Ltd [1969] 2 NSWR 201 at 203. See also The Commonwealth v Cornwell [2007] HCA 16; 229 CLR 519 at [9].
In Gibbs v Guild (1882) 9 QBD 59, the Court of Appeal (Lord Coleridge CJ and Brett LJ, Holker LJ dissenting) held that the equitable doctrine could be relied upon to postpone the running of the limitation statute in relation to a claim which, before the Judicature Act 1873, could have been maintained in equity's concurrent jurisdiction. The significance of this decision in the present context lies not in dicta calling into question the correctness of cases such as Hunter v Gibbons, but in Brett LJ's explanation at 68-9 (in a passage cited with apparent approval by Knox CJ and Starke J in R v McNeil at 97) of the basis upon which equity modifies its practice of applying a statute by analogy in the face of concealed fraud. His Lordship stated: "In cases in which the only remedy was in the Court of Equity, but where the transaction was such as was within the meaning of the Statute of Limitations, it is admitted and cannot be denied that the Courts of Equity, whether by analogy, or whether they considered themselves bound by the statute … did recognise the binding authority of the Statute of Limitations, and if there were nothing else but the cause of action, and the cause of action had arisen more that six years before the commencement of the suit, the Courts of Equity interpreted the Statute of Limitations precisely in the same way as the Courts of Law did. But assuming that the Statute of Limitations would be binding, the Courts of Equity, on doctrines of their own, sometimes applied, if other circumstances arose, a particular kind of equity. They did not construe the statute so as to give an equity, they adopted an equity which was quite independent of the statute, but which no doubt had an effect on the transaction notwithstanding the statute, that is to say, they said if the existence of the cause of action given by the defendant was fraudulently concealed by the defendant from the plaintiff until a period beyond six years, then they would not allow the defendant to prevent the plaintiff from supporting his right to his remedy on the ground that the statute was a bar. It seems to me that there is some little confusion in the expressions used in some cases as to the origin of the cause of action being a fraud. That is not the fraud which raised the equity; but if there was a cause of action, and if its existence was fraudulently concealed from the plaintiff by the defendant who had given that cause of action, it was then that the plaintiff's equity arose notwithstanding that his cause of action had arisen more than six years before." (emphasis added)
In Bulli Coal Mining Company v Osborne [1899] AC 351, the respondents brought proceedings in equity in the liquidation of the appellant company to pursue a disputed claim for an account of the value of underground coal removed by the appellants from their land. That underground taking of coal was committed wilfully. The respondents were ignorant of that wrongful working and had no reason to suspect that it had occurred (at 360). The appellants argued that the six year limitation applicable to an action of trespass applied by analogy and that the equitable doctrine of concealed fraud did not apply because they had not engaged in active measures to prevent the detection of their taking of coal. That argument was rejected. After referring to Lord Hardwicke's observation in Chesterfield v Jansen (1750) 2 Ves Sen 125 that a court of equity had undoubted jurisdiction "to relieve against every species of fraud", and to Lord Camden's judgment in Smith v Clay (1767) 3 Bro CC 646 concerning equity's application of limitation statutes by analogy, Lord James of Hereford delivering the judgment of the Judicial Committee of the Privy Council continued at 363: "The contention on behalf of the appellants that the statute is a bar unless the wrongdoer is proved to have taken active measures in order to prevent detection is opposed to commonsense as well as to the principles of equity. Two men, acting independently, steal a neighbour's coal. One is so clumsy in his operations, or so incautious, that he has to do something more in order to conceal his fraud. The other chooses his opportunity so wisely, and acts so warily, that he can safely calculate on not being found out for many a long day. Why is the one to go scot-free at the end of a limited period rather than the other? It would be something of a mockery for courts of equity to denounce fraud as 'a secret thing', and to profess to punish it sooner or later, and then to hold out a reward for the cunning that makes detection difficult or remote."
In concluding that the statute could not be set up as a bar, Lord James referred to the remarks of Fry J in Trotter v Maclean (1879) 13 Ch D 574, another case concerning the alleged wilful taking of underground coal from an adjoining mine. There the issue was whether, after a particular point in time, the wrongful working of the mine was to be treated as inadvertent, so that time then commenced to run under the statute to be applied by analogy. It was held that there was no equitable circumstance that repelled the application of the statute. In the passage referred to by Lord James at 365, Fry J said (13 Ch D at 584): "…although the present proceeding is a proceeding in a court of conscience, it is undoubtedly in respect of a trespass, and it appears to me that the period of limitation imposed by the statute of James ought to apply to proceedings in this Court in respect of a trespass, unless there be some equitable ground for repelling the application of the statute. Such an equitable ground has in many cases been found in fraud. When fraud or any other equitable circumstance exists, undoubtedly the statute will not apply." (emphasis added)
In R v McNeil, to which reference has already been made, the respondent brought an action against the Crown to recover excess charges made for the treating and realising of ore delivered to smelting works operated by the Crown. Section 33 in Part III of the Crown Suits Act 1898 (WA) provided that no claim or demand should be made against the Crown under that Part unless founded upon or arising out of, relevantly, a cause of action for breach of contract. By its defence, the Crown relied upon s 37 of that Act as providing that a condition of the statutory right to institute proceedings given by s 33 was that they be commenced within 12 months after the claim or demand had arisen. In reply the respondents alleged that the relevant officers of the Crown had made fraudulent statements in relation to the realization charges and had concealed that fraud from them until within 12 months of the commencement of action. It was argued, relying on Gibbs v Guild, that because the case involved concealed fraud, the cause of action in contract only accrued on the date of the discovery of the fraud or the date when the fraud, with reasonable diligence, might have been discovered.
Knox CJ and Starke J at 96-97 rejected that argument. Gibbs v Guild was not authority for that proposition. Their Honours referred with apparent approval to the statements of Brett LJ in Gibbs v Guild and Fry J in Trotter v Maclean. Those statements emphasise the distinction between the underlying cause of action, to which the limitation statute applies, and the "equitable ground for repelling the application of the statute", which their Honours observed, "has in many cases been found in fraud".
Isaacs J rejected the respondents' argument as resting on two fallacies. The first fallacy was that the equitable doctrine of concealed fraud did not apply to an action at law (in that case, the action for breach of contract). His Honour said at 100: "One is as to the cases in which equity, in the presence of fraud, disregards the Statute of Limitations. This branch of the matter is so fully dealt with by cases of high authority - two of them of supreme authority for us - that I do little more than mention them. They show conclusively that, even if sec. 37 could be regarded as an ordinary section of limitations, the equity doctrine referred to would be inapplicable in this case. The most notable cases establishing this are Bulli Coal Mining Co v Osborne; John v Dodwell & Co; Imperial Gaslight & Coke Co v London Gaslight Co; Hunter v Gibbons; Osgood v Sunderland, and the cases there cited. The position may be shortly stated. Where a Court of equity finds that a legal right, for which it is asked to give a better remedy than is given at law, is barred by an Act of Parliament, it has no more power to remove or lower that bar than has a Court of law. But where equity has created a new right founded on its own doctrines exclusively, and no Act bars that specific right, then equity is free. It usually applies, from a sense of fitness, its own equitable doctrine of laches and adopts the measure of time which Parliament has indicated in analogous cases, but, when a greater equity caused by fraud arises, it modifies the practice it has itself created and gives play to the greater equity. The present case is entirely outside the ambit of that doctrine." (emphasis in original)
The second fallacy Isaacs J identified, not presently relevant, was that s 37 did not operate, as a limitation statute would, to bar a claim in respect of an existing right. Rather, that provision described one of a number of conditions that had to be satisfied before the right, which enabled the respondent to bring a proceeding against the Crown, arose.
None of the authorities to which reference has been made so far suggest, as Brunyate does, that where there is a limitation statute and closely analogous remedy at law, equity applies the statute as part of the law of laches and allows, as exceptions to the application of the statute, "any exceptions that are allowed in the law of laches" (Brunyate at 16-17). Brunyate's analysis fixes upon Lord Redesdale's distinction between equity acting in obedience to the statute and it acting by analogy. This analysis suggests that when equity was acting in obedience to the statute, its application of the bar was "peremptory". In such a case only fraudulent concealment would suspend the statute from operating. Whereas, when equity was acting by analogy it applied the statute as part of the law of laches so that the running of time would be suspended by the plaintiff's ignorance of his rights, and without the need to establish fraudulent concealment or some other equitable ground. As Spry notes in the 5th edition of his work (at 418, fn 5, 6), Brunyate's analysis treated as correct Lord Redesdale's distinction, which has not generally or consistently been adopted, between equity acting in obedience and acting by analogy. More significantly, that analysis does not accord with Isaac J's statement in R v McNeil that equity applies the statute unless a greater equity operates to prevent the defendant from relying upon it. Lord Bingham's formulation in Sheldon v RHM Outhwaite Ltd is to the same effect.
In support of the proposition that equity applies a statute by analogy as part of the law of laches, and retains this "residual discretion" to decline to do so, the primary judge relied upon the Canadian Supreme Court decision in KM v HM. That decision was referred to with approval by Kirby P in Williams v Minister, Aboriginal Land Rights Act 1983 (1994) 35 NSWLR 497.
In KM v HM, the appellant, a victim of incest, brought proceedings for damages for assault and battery and breach of fiduciary duty against her father. One issue was whether the statutory period applicable to the tortious assault applied by analogy to bar the equitable claim for breach of fiduciary duty. The determination of that question in favour of the respondent was not fatal to the appellant's case because the limitation statute had a tolling provision, which it was held (at 315, 330) would apply in the event of the application of the statute by analogy. La Forest J (the other members of the Court relevantly agreeing) held that in the circumstances equity would not apply the limitation statute by analogy for three reasons. They were that "equity has rarely limited a claim by analogy when a case falls within its exclusive jurisdiction"; that if it was appropriate "to analogise from the common law, the analogy will be governed by the parameters of the equitable doctrine of laches"; and that any analogy would be "nullified by the doctrine of fraudulent concealment": at 330.
Only the second of these reasons is relevant in the present context. In support of that reason, La Forest J accepted as correct at 332-333 the propositions advanced by Brunyate that where equity applies "the statute as part of the law of laches it may reasonably allow any exceptions that are allowed in the law of laches" and that "where the Court is acting by analogy to the statute, time will not run until the plaintiff is aware of his right of action." La Forest J also accepted that Knox v Gye, was a case in equity's concurrent jurisdiction, in which the limitation statute was applied by analogy. His Honour considered at 332 that in such a case equity was "not bound to follow the law and that its residual discretion [could] be employed through the doctrine of laches." La Forest J also suggested at 333 that the reasoning leading to Brunyate's conclusion that where equity is acting by analogy "time will not run until the plaintiff is aware of his right of action" would appear to be "the basis of the judgment in Metropolitan Bank v Heiron". That case, it will be recalled, involved an equitable claim and the application of the doctrine of concealed fraud.
In its judgments in Savage v Lunn [1998] NSWCA 203 and [1998] NSWCA 204, this Court (Handley, Sheller JJA and Sheppard AJA), citing the statements of Lord Selborne in Lindsay Petroleum Co v Hurd (1874) LR 5 PC 221 at 241, Lord Blackburn in Erlanger v The New Sombrero Phosphate Co (1878) 3 App Cas 1218 at 1279 and Deane J in Orr v Ford [1989] HCA 4; 167 CLR 316 at 343, confirmed that one matter of which proof is "ordinarily" required to make out a defence of laches is that the plaintiff had "sufficient knowledge of the facts and his rights to justify the commencement of proceedings" at a point in time earlier than in fact occurred: [1998] NSWCA 203 at p 28. See also Crawley v Short [2009] NSWCA 410 at [163]-[170] (Young JA, Allsop P and Macfarlan JA agreeing).
Trotter v Maclean was, like Knox v Gye, a claim brought in equity's concurrent jurisdiction. If equity, when acting by analogy, also applies exceptions which are allowed by the doctrine of laches (such as lack of both knowledge and means of knowledge), it would not have been necessary in Trotter v Maclean and Bulli Coal Mining Co v Osborne to consider whether the underground trespass was fraudulent, so as to engage the doctrine of concealed fraud. Nor would it have been necessary in The Metropolitan Bank v Heiron for the company to rely on concealed fraud if its lack of knowledge of its right of action, without more, would have postponed the running of time under the statute.
La Forest J cites no other authorities or writings in support of the proposition that time does not commence to run when equity is applying a statute by analogy until the plaintiff is aware of his right of action. Nor is any other authority cited for the proposition that equity retains a residual discretion to decline to apply a statute by analogy if in all the circumstances a defence of laches would not arise, notwithstanding that there is no fraud or other special circumstance that makes it unconscionable for the defendant to rely upon the statute.
The remarks of La Forest J at 330-333 were cited with approval by Kirby P in Williams v The Minister. In that case a woman of aboriginal descent brought proceedings against the Minister as a result of her removal from the care of her mother shortly after her birth. An application was made under s 60G of the Limitation Act 1969 (NSW) to extend the limitation period within which the appellant could bring those proceedings. Studdert J rejected that application. On appeal, it was held (Kirby P, Priestley JA agreeing in a qualified and general way, and Powell JA dissenting) that the pleaded claims included not only claims for negligence and wrongful imprisonment but also claims for breaches of fiduciary duty owed to the appellant as a child under the protection of the Aborigines Welfare Board. The judge at first instance did not read the pleading as containing such an allegation and refused an extension of time in respect of the actions for negligence and wrongful imprisonment that were pleaded. By majority, the Court allowed the appeal principally upon the basis that the trial judge had erred in applying the provisions of s 60G to a claim for breach of fiduciary duty and in failing to take into account, when determining whether it was "just and reasonable" to allow the other claims to go forward, that the equitable claim had been made and would proceed to trial.
Kirby P described the applicant's claim for breach of fiduciary duty as one to which the Act did not apply in its terms so that it was not to be dealt with under s 60G. His Honour observed at 509, relying in part upon the "principles" referred to in the judgment of La Forest J, that: "[The equitable claim] raises separate and different questions. Nor can the application of the Act 'by analogy' lead to the automatic application of s 60G to such a claim. Analogous application of the statute does not necessarily mean exact application of its terms. The considerations that may be relevant to a defence of laches will be different from (or not exactly the same as) the considerations relevant to the application of the Act."
His Honour's statement that analogous application of the statute does not necessarily mean exact application of its terms is not the subject of elaboration. If it is understood as referring to the operation of the doctrine of fraudulent concealment in postponing the running of time, it is not controversial. If something further is referred to, that is not explained or supported other than by the reference to KM v HM.
To the extent that these observations, and his Honour's general agreement with the statements of La Forest J, could be said to support the existence of a broader residual discretion when applying a limitation statute by analogy, their correctness has been questioned: see the judgments of Powell JA and Heydon JA in Cassis v Kalfus [2001] NSWCA 460 at [3]-[5] and [9] and R Meagher, D Heydon, M Leeming, Meagher Gummow & Lehane's Equity Doctrines & Remedies, (4th ed 2002, Butterworths LexisNexis Australia), at [34-075].
For present purposes it is sufficient to note that Williams v The Minister involved an appeal from an interlocutory and discretionary decision. As Priestley JA's agreement with Kirby P makes clear, the conclusions were only as to the arguability of several matters. No question as to the application of any relevant statutory limitation by analogy was determined finally. Nor does the decision say anything about the circumstances in which equity will not apply a closely analogous time limitation, other than to note (at 510) that those circumstances might include "acts of concealment".
Kirby P's obiter dicta observations were considered by Doyle CJ sitting at first instance in The Duke Group Ltd (In liq) v Alamain Investments Ltd [2003] SASC 415. The plaintiff claimed equitable compensation for alleged dishonest breaches of fiduciary duty by the defendant directors. The defendants sought an order dismissing that action on the basis, among other things, that it must fail because it was statute barred, including by the application by analogy of the relevant limitation provisions. Doyle CJ dismissed the application for summary judgment. There was no limitation period at law and, on the evidence in the interlocutory application before him, he could not be satisfied that the equitable claim was barred by analogy. After referring at [112]-[115] to the judgments of Lord Westbury in Knox v Gye and Isaacs J in R v McNeil as well as to the extract from Spry referred to earlier and the decisions in KM v HM and Williams v The Minister, Doyle CJ observed at [116]: "As I understand it, Kirby P was intending to approve these statements of principle. That is, that a claim for compensation for breach of fiduciary duty will rarely be subject to a statutory time limit by analogy, and the doctrine of laches accommodates any and all of the factors that would fall to be considered in deciding whether or not a statutory limit should be applied by analogy. That is not to say that equity will never, in such a case, apply a statutory time limit by analogy."
Doyle CJ said at [135] that "before applying the statutory time limit by analogy, I must be satisfied that in all the circumstances it is just to do so". His Honour then referred to the decision of Burchett AJ in Young v Waterways Authority of NSW [2002] NSWSC 612, which proceeded on the basis that the relevant principles were as stated by Isaacs J in R v McNeil at 100. Doyle CJ then observed at [136]: "… 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 and in particular of the impact of fraud. It is said that Equity will not apply a time limit in a case of 'concealed fraud'."
Only the second of the propositions that Doyle CJ considered that Kirby P was intending to approve in Williams v The Minister is relevant in the present context. It is stated in very general terms and does not provide support for his Honour's reference to the "Court's discretion to apply a statutory time limit by analogy", which might otherwise be understood as referring to a discretion to be exercised in accordance with the principle as stated by Isaacs J. There is some indirect support for a broader proposition in the obiter dicta statement of La Forest J in KM v HM at 332 that "equity in this instance is not bound to follow the law, and its residual discretion may be employed through the doctrine of laches".
An appeal from Doyle CJ's judgment was dismissed by the Full Court: Barker v Duke Group Ltd (In liq) (2005) 91 SASR 167. Perry J (with whom Duggan and White JJ agreed) noted at [84] that "a court of equity will not apply a statutory period of limitation by analogy, if in the circumstances of the case it would be unjust to do so". Perry J's later observation at [114] makes clear that this formulation of the relevant principle is not intended to differ in substance from that in the 5th edition of Spry at 419-420 that "in the absence of special circumstances rendering this position unjust, the relevant equitable rules should accord with comparable legal rules." Perry J agreed at [105] with Doyle CJ's conclusion that when considering whether to apply the limitation period by analogy the Court had to take account of the circumstances in which the plaintiff became aware of its rights and, in particular, the impact of any fraud. That question necessarily involved issues of fact and Perry J agreed with Doyle CJ's holding that those issues could not be dealt with on an interlocutory basis: at [117].
In Hewitt v Henderson [2006] WASCA 233, the Court of Appeal of the Supreme Court of Western Australia referred to, but did not have to determine, the question that arises in this appeal. That was an application for leave to appeal from an interlocutory order permitting leave to the second respondent to amend its claim to include allegations of breach of fiduciary duty. Those additional claims were said to be barred by the application of limitation periods by analogy. The Court (Buss JA, Steytler P and Pullin JA agreeing) dismissed that application on the basis that the question whether equity would apply the relevant statutes by analogy was arguable and should be left to trial. After reviewing a number of decisions, including KM v HM, Williams v The Minister and Barker v Duke Group Ltd, Buss JA said at [25]: "In my opinion, the authorities which I have reviewed support the proposition that equity will not apply a limitation period by analogy where there are circumstances which make the application of the statute unconscionable. The learned Judge was therefore correct in deciding not to disallow the amendments on the basis asserted by the appellant. It is inappropriate, in these proceedings, to determine whether equity retains a broader discretion as to whether the statute should apply; for example, by reference to any exceptions that are allowed in the law of laches, as La Forest J held in KM, at 332-333, and with whom Kirby P, in Williams, appears to have agreed."
There have been many decisions in this country since Williams v The Minister and Barker v Duke Group Ltd in which reference is made to the circumstances in which equity, when acting by analogy, will not apply the limitation period for a corresponding remedy at law. It has been said in some cases, relying upon statements in Williams v The Minister that equity retains a discretion not to do so: see Brightwell v RFB Holdings Pty Ltd [2003] NSWSC 7; 44 ACSR 186 at [63] (Austin J). In others the principle is said to be that equity will not apply the statute by analogy where the circumstances make its application unconscionable or unjust: see, for instance, Deputy Commissioner of Taxation v Australian Securities Investment Commission [2011] FCA 524 at [19] (Gordon J); Agricultural Land Management Ltd v Jackson (No 2) [2014] WASC 102 at [212] (Edelman J). In Short v Crawley (No 30) [2007] NSWSC 1322 at [583], White J described the principle as being that before equity applies a statutory time limit by analogy it must be satisfied "that it is just to do so". In these last three cases, the authorities cited in support of the statements of principle include Barker v Duke Group at [84] and/or Hewitt v Henderson at [25]. In Candibon Pty Ltd v Minister for Planning [2011] VSC 415; 183 LGERA 10, Emerton J accepted as correct the two statements of principle that Doyle CJ in Duke Group Ltd (In liq) considered Kirby P was intending to approve in Williams v The Minister. He then addressed whether it would be unjust to apply the statutory time limit. This was done by asking if there had been fraud or fraudulent concealment: [377], [381]. Finally, the obiter observations of McColl JA in The Salvation Army (South Australia Property Trust) v Rundle [2008] NSWCA 347 at [81]-[92] do not address the issue in this appeal.
Following the conclusion of oral argument, this Court (Beazley P, Basten and Macfarlan JJA) delivered its decision in Cassegrain v Gerard Cassegrain & Co Pty Ltd [2013] NSWCA 454. One issue in that case was whether a statutory derivative action brought on behalf of a company against its director for dishonest breaches of fiduciary duty was barred, either directly or by analogy. Two members of the court (Basten JA and Macfarlan JA) considered that s 47 of the Limitation Act applied directly or by analogy. Beazley P considered that the six year limitation period for an action in tort for deceit or conspiracy to defraud should be applied by analogy. When considering these questions the Court was not asked to address the basis upon which the statute is applied by analogy and whether, in the absence of concealed fraud or other special circumstances, equity retains a residual discretion to refuse to do so.

Decision

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).
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.
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.
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.
If equity retains a residual discretion not to apply a limitation statute by analogy in circumstances where there would not be a defence of laches, it would not truly be acting by analogy and following the law. Equity would only apply the relevant statute where there had been mere delay during the limitation period. In all other cases it would be necessary to undertake the exercise described by Lord Selborne in Lindsay Petroleum Co v Hurd. Doing so would leave little scope or need for the operation of the doctrine of fraudulent concealment in this context because, as Brunyate acknowledged, the statute would not be applied if the plaintiff was ignorant of his rights. If that were the position, the analyses undertaken in Trotter v Maclean and Bulli Coal Mining Company v Osborne, to justify the application of the fraud exception in those cases, would not have been necessary. The argument that equity does not apply limitation statutes by analogy to claims brought in its exclusive jurisdiction was rejected by the English Court of Appeal in Heath (REBX) at 121, 122 relying, in part, on the judgment of Millett LJ in Paragon Finance PLC.
The grounds on which equity declines to permit a defendant to rely upon a statutory bar by analogy include where there has been fraudulent concealment, which requires either fraudulent conduct as an element of the right of action or conduct consisting of active concealment of a right of action that does not include fraud as an element: Meagher Gummow & Lehane's Equity Doctrines and Remedies at [34-085]. The more recent cases which discuss this doctrine do so when applying the modern statutory equivalents of s 26 of the Real Property Limitation Act 1833 (UK). The references to "fraud", "concealment" and "fraudulent concealment" in those statutes have been understood in the same sense as they are in the equitable doctrine on which those provisions were based. The equitable doctrine is not confined to common law fraud or deceit and requires a consciousness on the part of the defendant that what is being done is wrong or that to take advantage of a particular situation involves wrongdoing: see Beaman v A.R.T.S. Ltd [1949] 1 KB 550 at 559-560 (per Lord Greene MR); Kitchen v Royal Air Force Association [1958] 1 WLR 563 at 572-573 (per Lord Evershed MR); Applegate v Moss [1971] 1 QB 406 at 413 (per Lord Denning MR); King v Victor Parsons & Co [1973] 1 WLR 29 at 33-34 (per Lord Denning MR).
In Bartlett v Barclays Bank Trust Co Ltd (Nos 1 and 2) [1980] Ch 515 Brightman J held that there was no such conduct by a defaulting trustee bank in failing to make proper inquiries of the board of a property investment company in which, as trustee, it held 98.5% of the shares because it "had no inkling that it was acting in breach of trust" (at 537). In Seymour v Seymour (1996) 40 NSWLR 358, this Court construed the equivalent provisions of s 55(1)(b) in the Limitation Act 1969 in the same way. Mahoney ACJ (Meagher JA and Abadee AJA agreeing) said at 372: "In my opinion, there must be in what is involved a consciousness that what is being done is wrong or that to take advantage of the relevant situation involves wrong doing. At least, this is so in the generality of cases. (There is in this as in many things, the problem of dealing with the person who "closes his eyes to wrong" or is so lacking in conscience that he is not conscious of his own lack of proper standards.)"
The primary judge did not find that any of the appellants was conscious that what occurred when the assets and undertaking were transferred to Auzhair 1 involved wrongdoing. Roy Gerace had the carriage of the transaction for them and believed, wrongly as it turned out, that the liability to the Greenaways had been transferred along with the assets and undertaking. The primary judge also found that the appellants had no intention, in transferring the assets and undertaking, to defeat the claims of creditors of Auzhair Supplies, who included the Greenaways. In the circumstances, the appellant directors, like the bank in Bartlett, did not know that they were acting or had acted in breach of duty.
It was not argued before the primary judge or this Court that there was concealed fraud or some other equitable ground which made it unconscionable for the appellants to rely on the statutory bar. Had such an argument been made it would have been necessary to consider when Auzhair Supplies was first to be taken to have acquired knowledge of the facts giving rise to a right to sue its directors for breaches of duty. Because a company's rights, interests and duties differ from those of its directors and shareholders, their conduct and states of mind are not always to be attributed to it: McLeod v The Queen [2003] HCA 24; 214 CLR 230 at [30] (per Gleeson CJ, Gummow and Hayne JJ). The relevant principles were considered by the Full Court of the Federal Court in Grimaldi v Chameleon Mining NL (No 2) [2012] FCAFC 6; 200 FCR 296 at [282]-[284]. The fraud exception to the rule as to the attribution to a company of knowledge of a director was recognised in In re Hampshire Land Company [1896] 2 Ch 743 and applied in JC Houghton & Co v Nothard, Lowe & Wills Ltd [1928] AC 1. Ordinarily, a director's knowledge of conduct will be imputed to the company if the conduct is not totally in fraud of the company. That will be the case if, by design or result, the fraud partly benefits the company. In the present case the primary judge did not make such a finding, though he did consider that the relevant transaction was of no apparent benefit to the company.
Because the first respondent does not seek to uphold his Honour's conclusion on the basis of such conduct, it is not necessary to take this analysis further. There was a claim at law to which a six year limitation period applied. That claim was "practically indistinguishable" from the claim in equity's exclusive jurisdiction. In the absence of the respondent contending for the existence of a greater equity, its claim was barred by analogy and should have been dismissed. The appeal should be allowed with costs.

Proposed orders

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.
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.
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.

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.
On 17 June 2003, Auzhair 1 Pty Ltd (Auzhair 1) was incorporated. The directors were Roy and Ilario Gerace. The shareholders were the three Gerace brothers and their spouses and Mr and Mrs Greenaway, each holding one of eight issued shares. Thereafter, in circumstances that are not entirely clear, at some time prior to 6 June 2005, Auzhair Supplies transferred its assets and undertaking to Auzhair 1 for no consideration. The only evidence explaining that transaction was from Mr Roy Gerace, who said: We decided to establish a new company. We all discussed it, and decided to transfer everything to the new company.
On 6 June 2005, Auzhair Supplies was deregistered under s 601AA of the Corporations Act. Under s 601AA, an application to deregister a company may be lodged with the Australian Securities and Investments Commission (the Commission) by a company, a director or member of a company, or a liquidator of a company. A person may apply only if:

all the members of the company agree to the deregistration;
the company is not carrying on business;
the company's assets are worth less than $1,000;
the company has paid all fees and penalties payable under the Corporations Act;
the company has no outstanding liabilities; and
the company is not a party to any legal proceedings.

If the Commission decides to deregister the company and is not aware of any failure to comply with the above requirements, the Commission must publish notice of the proposed deregistration. When two months have passed since the publication of the notice, the Commission may deregister the company. Under s 601AD, a company ceases to exist on deregistration.
However, under s 601AH, the Commission may reinstate the registration of a company if the Commission is satisfied that the company should not have been deregistered. In addition, under that section, the Court may make an order that the Commission reinstate the registration of a company if an application for reinstatement is made to the Court, relevantly, by a person aggrieved by the deregistration and the Court is satisfied that it is just that the company's registration be reinstated. If a company is reinstated, the company is taken to have continued in existence as if it had not been deregistered. A person who was a director immediately before deregistration becomes a director again as from the time when the Commission or the Court reinstates the company.
On 19 November 2010, on the application of Mr and Mrs Greenaway, the Supreme Court made an order that the Commission reinstate Auzhair Supplies and that Auzhair Supplies be wound up in insolvency. The basis for those orders appears to be that Auzhair Supplies ought not to have been deregistered, since it still had an outstanding liability to Mr and Mrs Greenaway in respect of the advances evidenced by the loan agreement of 1 July 2004.
Subsequently, Auzhair Supplies, through its liquidator, commenced proceedings for relief against the Gerace brothers and Auzhair 1 in respect of the transfer of the assets and undertaking of Auzhair Supplies to Auzhair 1. The proceedings were commenced irregularly on 21 December 2011, by way of notice of motion in other proceedings. On 13 March 2012, the Supreme Court made orders to the effect that, relevantly, the proceedings commenced on that day. However, the Gerace brothers and Auzhair 1 gave an undertaking on that day that, in relation to any limitation defence, the proceedings were agreed to have been commenced on 21 December 2011.
In their defence, Auzhair 1 and the Gerace brothers admitted that Auzhair 1 held the assets and undertaking received from Auzhair Supplies upon trust for Auzhair Supplies, subject to any just allowance for expenses incurred in the period of that trusteeship. However, the Gerace brothers asserted that the claim against them was time barred because 21 December 2011 was more than six years after the date of deregistration and the consequent cessation of their directorships. A fortiori, of course, that date was more than six years after the transfer of the assets and undertaking of Auzhair Supplies to Auzhair 1. That defence depended upon the application of s 1317K of the Corporations Act.
It appears to be common ground that, in procuring and authorising the transfer of the assets and undertaking of Auzhair Supplies to Auzhair 1, the Gerace brothers were in breach of their duties to exercise their powers and discharge their duties in good faith and in the best interests of Auzhair Supplies and with the degree of care and diligence that a reasonable person would exercise as a director in the circumstances. Thus, they contravened ss 180, 181, 182 and 183 of the Corporations Act.

The Reasons of the Primary Judge

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.
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.
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 primary judge considered that, while deregistered, Auzhair Supplies was, for all practical purposes, incapable of bringing proceedings to enforce its equitable rights against the Gerace brothers. It was only upon its reinstatement and the consequent appointment of a liquidator in November 2010 that the enforcement of those rights became possible. There was no evidence before his Honour of prejudice to the Gerace brothers from any delay.
The primary judge then stated that the essential elements of laches include knowledge of the facts and rights that would justify the commencement of proceedings. His Honour observed that the plaintiff was Auzhair Supplies, not its liquidator, and accepted that it was not only the liquidator's knowledge and ability to act, but that of Auzhair Supplies prior to liquidation, that was relevant. As the present proceedings were in substance in the interests of Mr and Mrs Greenaway, as the creditors of Auzhair Supplies, his Honour considered that their knowledge could also be relevant to that enquiry. However, Mr and Mrs Greenaway were creditors, not shareholders, and while they might have had standing to bring an application to set aside a disposition that defeated creditors, they would not have had standing to complain of a breach of directors' duties.
The primary judge accepted that, in considering the whole of the facts and circumstances of the case, it was relevant to consider whether proceedings for reinstatement and winding up could and should have been brought earlier. Had the commencement of such proceedings been shown to have been warranted earlier, the argument that it would not be inequitable to apply the analogous limitation period would be strengthened. His Honour found that the trigger for the reinstatement and winding up proceedings was the non-repayment to Mr and Mrs Greenaway of the amount of the advances, which, under the agreement of 1 July 2004, were repayable on 1 July 2007. His Honour found that Mr and Mrs Greenaway agreed to the transaction that is now said to constitute a breach of the directors' duties. Both the Gerace brothers and Mr and Mrs Greenaway agreed to both the establishment of Auzhair 1, in which they were to have a shareholding, and the transfer to Auzhair 1 of the assets and undertaking of Auzhair Supplies.
However, the primary judge did not consider that that amounted to knowledge by Mr and Mrs Greenaway of their rights for the purposes of the law of laches, since they themselves had no right to commence proceedings against the directors. His Honour found that, even if it might be said that Mr and Mrs Greenaway knew the facts that are now said to amount to a breach of the directors' duties, they did not know, and did not have the means to know, that they had rights to complain of any such breach, because they themselves had no such rights. His Honour found that they could not reasonably have been expected to commence the antecedent proceedings for reinstatement and winding up until they learned that Auzhair Supplies had been deregistered and had ceased to make payments in respect of its indebtedness to them.
The primary judge found that Mr and Mrs Greenaway could not themselves have commenced proceedings against the Gerace brothers for breach of their duties and his Honour did not accept that it had been shown that Mr and Mrs Greenaway had the requisite knowledge to warrant the commencement of the antecedent proceedings for reinstatement and winding up before interest payments ceased in September 2009. His Honour found that there were no means by which Auzhair Supplies could have brought proceedings against the Gerace brothers until those steps had occurred: it could not have done so while it remained under their control and it could not have done so while deregistered. Thus, his Honour concluded, the control and acts of the Gerace brothers rendered it practically impossible for Auzhair Supplies to enforce its equitable claim against them, until it was reinstated and a liquidator was appointed. In those circumstances, his Honour reached the conclusion that it would be inequitable to apply the analogous limitation period of s 1317K.

The Appeal

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).
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.
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.
I have had the advantage of reading in draft form the proposed reasons of Meagher JA. I agree with the orders proposed by Meagher JA for the reasons proposed by his Honour.

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

(UK) Corporations Act 2001(Cth)

Crown Suits Act 1898(WA)

At a glance

Court

Decision date

Before

Catchwords

Source

Catchwords

Judgment (14 paragraphs)

Parties

Legislation Cited (4)

Cases Cited (30)