Issa v Issa & Anor [2015] NSWSC 112 | Case summary

Nature of the claim and cross-claim

The cross-claimant is Ms Anastazija Balaz. The cross-defendants are the partners of a firm of solicitors that at all material times traded under the name Pigott Stinson. Ms Balaz and her husband, Mr Michael Issa, are defendants to a claim brought by Michael Issa's brother, Mr Steven Issa. Steven Issa sues Michael Issa and Ms Balaz for $4.5 million said to be payable under a deed dated 28 February 2007 between Oceanview Group Holdings Pty Ltd ("Oceanview" but referred to in the deed as the "Plaintiff"), Steven Issa, and Ms Balaz and Michael Issa. In the deed Ms Balaz and Michael Issa are called the "Defendants".
In 2006 Oceanview instituted proceedings against Ms Balaz and Michael Issa in this Court. In its statement of claim Oceanview pleaded that Steven Issa was then its sole director. Oceanview alleged that Ms Balaz or Michael Issa had been directors or de facto directors of Oceanview and had misappropriated moneys that were used to assist Ms Balaz to acquire a property in Rose Bay. Oceanview sought a declaration that the Rose Bay property was held by Ms Balaz on a constructive trust for it, an order for the appointment of trustees for sale of the property and an order that the proceeds of sale be applied in reimbursing those persons who advanced moneys towards the purchase of the property (presumably including Oceanview). A claim for damages was also made against Michael Issa.
Two deeds were executed on 28 February 2007. The shorter document was between Oceanview and Ms Balaz and Michael Issa. That deed provided that the parties had agreed that the proceedings commenced by Oceanview against the defendants should be dismissed with the parties to pay their own costs.
The parties to the second deed were Oceanview, Steven Issa, Michael Issa and Ms Balaz. It recited (incorrectly) that Oceanview had commenced proceedings against each of the "Defendants" (Michael Issa and Ms Balaz) to recover certain loans. It recited that the parties had agreed to dismiss the proceedings and that Oceanview had agreed to withdraw a caveat it had lodged against Ms Balaz's Rose Bay property on the terms set forth in the document. Clause 1.1 provided: "1.1 The Defendants jointly and severally agree to pay Steven Issa at the direction of the Plaintiff by way of repayment of the above recited loans the sum of four million five hundred thousand dollars ($4,500,000.00) ('lump settlement sum') within twelve (12) months from the date of this Deed in full and final settlement of the Proceedings."
Clause 1.2 provided that the "Defendants" would procure that a company called Pacific Hotel Design Pty Limited, said to be the trustee for the Issa Family Trust, would grant a second mortgage in favour of Steven Issa over a property at Hunters Hill as security for the "lump settlement sum". Clause 1.6 provided that Ms Balaz would forthwith transfer to Steven Issa at his expense all her shares in Oceanview for the consideration of $1.
I was told that Oceanview was wound up on 12 November 2008 and is now deregistered.
It is common ground on the pleadings in this case that the 2006 proceedings were dismissed. By his statement of claim Steven Issa pleads the terms of clause 1.1 of the second deed dated 28 February 2007. He pleads that the defendants (Michael Issa and Ms Balaz) have failed to pay him the sum of $4.5 million within 12 months from the date of the second deed or at all, and have failed to take all steps and do everything reasonably required to give effect to the contemplated payment of $4.5 million to him. He pleads that despite his demand for payment, the defendants have failed to pay that sum as allegedly required by the second deed. Steven Issa does not plead the giving of any direction by Oceanview for the payment of $4.5 million.
Steven Issa's statement of claim was filed on 17 May 2013, that is, more than six years after the execution of the documents on 28 February 2007.
In her defence to the statement of claim Ms Balaz states that the second document was purportedly executed as a deed, but denies that it placed any binding obligations on either her or her husband to make any payment. She does not plead facts that might establish that the document was not a deed. She does not plead the Limitation Act as a defence to Steven Issa's claim. The limitation period for suing for a debt created by the deed is 12 years, not six years (Limitation Act, s 16).
Ms Balaz denies that the deed is enforceable against her on a number of grounds. She alleges that: (a) contrary to the recital in the second deed, the 2006 proceedings did not include any allegation that Oceanview had advanced any loans to Michael Issa or Ms Balaz; (b) no liability arose under cl 1.1 of the second deed because no direction has been given by Oceanview to either of the defendants to pay the sum of $4.5 million; (c) neither she nor Michael Issa wrongly used any Oceanview funds and accordingly no debt or other amount of money ever was in fact due and payable by either of them to Oceanview and that this was a matter known to Steven Issa; (d) Steven and Michael Issa knew that the recital in the deed as to the existence of the loan was untrue and that they executed the document to represent facts as existing which they knew to be untrue; (e) the deed was entered into as a means for Steven Issa to obtain a personal benefit from the claims brought by Oceanview, to the detriment of Oceanview and its shareholders and creditors; (f) this was a breach of Steven Issa's duties to Oceanview; (g) she signed the deeds having been informed by Michael Issa that he had been the subject of threats and intimidating conduct, including threats to his life by Steven Issa, and had genuine concerns as to the physical safety and well-being of her husband and her family if she did not do so; (h) she was called urgently into a solicitor's office to sign the deeds without adequate notice; (i) she was led to believe that execution of the deeds was required urgently, and she had no opportunity to obtain independent advice; (j) she signed the deeds without the opportunity for them to be the subject of negotiation; (k) she received no financial advice as to the implications and ramifications of her executing the documents; (l) she only met with the solicitor who drafted the deeds for the first time at his office when she attended his office to sign the deeds; (m) she did not have the opportunity to meet separately with the solicitor and that he did not give her any independent advice, or any advice at all, except in the presence of Steven and Michael Issa; (n) she signed the deed when the solicitor had a conflict of duties in purporting to act for parties on opposing sides of the litigation without disclosing to her that he could not act for Oceanview and Steven Issa at the same time as acting for her and Michael Issa; (o) she signed the deeds without providing informed consent to the solicitor allowing him to act for all parties and the solicitor did not draw to her attention his obligation under the Solicitors' Rules; (p) it was not drawn to her attention that the deed diverted an apparent asset of Oceanview to Steven Issa in breach of his duties to Oceanview; (q) the intention of Steven Issa and Michael Issa was to mislead the solicitors who were acting in the 2006 proceedings into the belief that the only terms upon which those proceedings were to be settled were as set out in the first deed; (r) the solicitors acting for her in the 2006 proceedings were denied any opportunity to provide her with advice on the terms of the settlement, including the terms of the second deed; and (s) she was also apprehensive about having to leave her children unattended to attend the solicitor's office to execute the deeds urgently.
Ms Balaz contends that the second deed is not binding on her on grounds that include that the conduct of the plaintiff towards her was unconscionable, that she executed the deed under duress, that she was subject to undue influence by both Steven Issa and Michael Issa, and that the deed was unjust in the circumstances in which it was made and ought to be avoided pursuant to the Contracts Review Act 1980 (NSW). She also relies on the principles in Yerkey v Jones (1939) 63 CLR 649 and Garcia v National Australia Bank Ltd [1998] HCA 98; (1998) 194 CLR 395.
Ms Balaz's cross-claim against Pigott Stinson was filed on 27 May 2014. It relates to the same matters. She alleges that Steven Issa and Michael Issa met with Mr Anthony Gavan, a partner of Pigott Stinson, on 28 February 2007 at which time he entered into a retainer with them. She alleges that pursuant to the retainer Mr Gavan was instructed to draw up a deed or deeds to provide for the resolution of legal proceedings then on foot between Oceanview and Michael Issa and her. She alleges that he drew the two deeds and met her at a second meeting held on 28 February 2007 at the office of Pigott Stinson in the presence of both Steven and Michael Issa for the purposes of having her execute the deeds. Ms Balaz alleges that at the second meeting Mr Gavan made statements to her to the following effect: "(a) That he had been instructed by the Plaintiff and the First Defendant to draft the Deeds without knowing the history or background of the matter and had only been instructed to draft the Deeds in the terms as set out; (b) That the Deeds had been prepared on the instructions of the Plaintiff and the First Defendant; (c) That the First Deed had been prepared to cause the 2006 Proceedings to be concluded[;] (d) That the Second Deed was for the payment of $4,500,000 to be paid within 12 months to the Plaintiff and had other conditions and terms; (e) That the Second Defendant should sign the Deeds today as the Plaintiff and First Defendant had already signed."
Pigott Stinson pleads in its defence to the second cross-claim that at this meeting Mr Gavan informed Ms Balaz that he was being engaged by all four of Steven Issa, Michael Issa, Ms Balaz and Oceanview and that he had been instructed to draft the deeds and correspondence to be sent to the solicitors acting for the parties in the 2006 proceedings advising that the proceedings had been settled, without knowing the history and background of the matter, but had been instructed to draft the documents in accordance with terms which had already been negotiated and agreed by the parties. Pigott Stinson alleges that Mr Gavan informed Ms Balaz that he had not been informed of the substance of the 2006 proceedings, but he informed her that the first deed was prepared to cause the 2006 proceedings to be concluded and that the second deed required a payment of $4.5 million to be made by Michael Issa and Ms Balaz to Steven Issa within 12 months, and that he made other statements as to the terms and effect of the clauses in the deed. Pigott Stinson alleges amongst other things that Mr Gavan confirmed with Ms Balaz that no advice was sought from him, nor was he providing any advice, as to whether or not it was wise to settle the 2006 proceedings on the terms negotiated and agreed by the parties and that he recommended that she take independent legal advice from another solicitor before signing the deeds, but that she declined to take the deeds away and elected to sign them.
Ms Balaz alleges that Pigott Stinson owed her a duty to exercise reasonable care, skill and diligence in advising her of the terms and effect of the deeds that she was being asked to execute and to consider her interests when advising her on the terms of the deed. This allegation is denied. Ms Balaz alleges that there was an implied retainer between her and Mr Gavan pursuant to which she retained him to advise her as her solicitor on the terms of the deed and that it was a term of the implied retainer that Mr Gavan would provide legal services to her in the nature of advice on the terms and conditions of the deed and their effect. She alleges that it was a term of the implied retainer that in providing such services Mr Gavan was obliged to exercise reasonable care, skill and diligence in the provision of legal advice and legal services in her interests. It is not clear from the pleading whether this is a claim in contract. It would cover a claim in contract, but Ms Balaz could say that it was also relevant to the other claims.
Ms Balaz alleges that Mr Gavan owed fiduciary duties to her including a duty to avoid an actual conflict, or a significant possibility of a conflict, between the duties owed by him to her and his own interests, or the duties owed by him to his other clients, including Steven Issa, Oceanview and Michael Issa, unless he had obtained her fully informed consent to such an actual or potential conflict.
The same facts are alleged to constitute a breach of the duty of care, the "implied retainer", and the fiduciary duties. Ms Balaz alleges that: 1. Mr Gavan failed to ensure that she had the opportunity to read and review the terms of the deeds and that she understood their terms and effect before she was required or expected to sign them; 2. she was not given appropriate time properly to consider the terms and effect of the deeds; 3. Mr Gavan failed to ensure that she was given adequate time to seek independent advice; 4. he failed to advise that he was acting in a position of actual potential conflict of interests or duties; 5. he failed to obtain her fully informed consent to his so acting; 6. he did not advise that a prudent solicitor would not advise her to execute the deeds until he or she was aware of the history and background of the matter; 7. he ought to have told those present that he was not in a position to act for all of them and that they should each take the draft deeds that he had prepared and obtain separate advice from separate solicitors; 8. he failed to ensure that Ms Balaz was aware that she was agreeing to make payments to Steven Issa when, on the terms of the deeds, it appeared there was no pre-existing obligation for her to do so; 9. he failed to draw to her attention that there was a term in the second deed by which she warranted that she had obtained independent advice as to the nature and extent of the deed when he was aware that she had not done so; 10. he failed to make inquiries of her as to what her understanding was of the agreement that had been reached between Steven and Michael Issa which had given rise to the deeds being prepared; 11. he otherwise failed to seek instructions from her concerning her understanding of the background or history to the deeds; and 12. he failed to make any inquiries of Ms Balaz to ascertain if she was being placed in any situation of duress or undue influence by Steven or Michael Issa.
Ms Balaz alleges that had Mr Gavan not committed the alleged breaches she would not have executed both deeds or alternatively not executed the second deed, or alternatively she would not have executed the deeds without first obtaining independent legal advice or, in the further alternative, would not have done so without first obtaining amendments to the second deed to better protect her interests. Ms Balaz alleges that she suffered the following loss or damage as a result of the alleged breaches, or alternatively that she will suffer the following loss or damage if relief is not granted under her cross-claim against Steven Issa. The loss and damage alleged is particularised as follows: "In the event (which is denied) that the Second Deed is found to be enforceable against the Second Defendant and the Second Defendant is found liable to pay moneys to the Plaintiff pursuant to the Second Deed she will have suffered loss: a. to the extent of that liability and for the costs she has incurred in the proceedings and any liability under any adverse costs order made in the proceedings; or b. alternatively to the extent of liability as referred to in (a) above, less any liability the Second Defendant may have had to pay to the Oceanview [sic] if the 2006 Proceedings proceeded to judgment or to a settlement, and less any costs that the Second Defendant would have incurred (or have been liable to pay) in the 2006 Proceedings to the time such judgment or settlement was obtained; or c. alternatively the loss of the opportunity for the Second Defendant to have obtained a judgment or obtained a settlement the 2006 Proceedings [sic] for an amount less than $4.5m; or alternatively d. the loss of the opportunity to obtain amendments to the Deeds which better protected the Second Defendant's interests before executing the Deeds."
Ms Balaz claims damages, or alternatively equitable compensation, in the amount necessary to compensate her for the loss and damage.
It was not disputed that if the claim based on the "implied retainer" is a claim for breach of contract, that cause of action is statute-barred as the cause of action would have accrued by no later than 28 February 2007 when Ms Balaz executed the second deed. The alleged breach of contract had occurred by then and the cross-claim was filed more than six years after the cause of action for breach of contract had accrued (Limitation Act 1969, s 14(1)(a)). A cause of action in contract accrues at the time of breach.
The cause of action in tort for negligence first accrued when actual damage was suffered, as distinct from the risk or prospect of damage or contingent damage. The damage must be measurable, or beyond what could be regarded as negligible (Wilson v Rigg [2002] NSWCA 246; (2002) 36 MVR 451 at [23] and the cases there cited). Mr Darke SC for Pigott Stinson submitted that damage was first sustained by Ms Balaz no later than when she executed the deeds on 28 February 2007. It was at that time that she became liable to pay the $4.5 million claimed by Steven Issa in these proceedings and she lost the opportunity to defend or settle the 2006 proceedings for less than that sum, and lost the opportunity to obtain amendments to the deeds which might better have protected her interests.
The difficulty with that argument is that clause 1.1 of the second deed contained an agreement by the Defendants to pay Steven Issa "at the direction of [Oceanview]" $4.5 million by way of "repayment of the above recited loans" within 12 months. It is at least arguable that the obligations of Ms Balaz and Michael Issa to pay any money to Steven Issa was contingent upon Oceanview's providing a direction for payment. Steven Issa's statement of claim does not plead that any direction was given by Oceanview. His counsel said that it was his case that the deed itself provided the necessary direction, but did not foreclose the possibility that Steven Issa might rely upon some other direction.
It is not possible on the present application to construe the second deed of 28 February 2007 in a way which would be binding on all parties as if there were a separate issue for determination.
Mr Darke SC submitted that the words "at the direction of the Plaintiff" in clause 1.1 were not a precondition to the obligation to make a payment within 12 months, but simply recorded the basis on which Michael Issa and Ms Balaz agreed to pay the lump settlement sum to Steven Issa. This is an arguable construction of clause 1.1. It may be that clause 1.1 simply records the fact that a direction had already been given by Oceanview for repayment of the "above recited loans". But there is no evidence to that effect and no allegation by Steven Issa in the statement of claim to that effect. The matter is complicated because notwithstanding the recital to the deed that the 2006 proceedings were proceedings by Oceanview "to recover certain loans", they were not. If the recital were pleaded (which it is not) the parties to the deed would presumably be estopped from denying the truth of the recital (assuming the deed is otherwise binding). But that question could raise its own issues.
It might also be arguable that the deed of 28 February 2007 itself contained the direction by Oceanview, but if that were so then the words "at the direction of the Plaintiff" in clause 1.1 would be otiose.
The third possibility is that the liability to make a payment within 12 months was contingent upon Oceanview's giving a direction to that effect, presumably within 12 months. No such direction has been pleaded by Steven Issa, but it is possible that such an allegation will be made. It is also possible that Steven Issa might allege that if a separate direction were required from Oceanview, it could be given after 28 February 2008 (i.e. more than 12 months after the date of the deed). The cross-claim against Pigott Stinston was filed on 27 May 2014. It is possible that Steven Issa will rely upon a direction given by Oceanview at some time after 26 May 2008 and thus within the six-year limitation period.
Mr Darke SC submitted that even if the obligations of Ms Balaz and Michael Issa under clause 1.1 were subject to Oceanview giving a direction for them to repay the so-called loans the subject of the recital to Steven Issa, they had an actual subsisting obligation that was not in any sense contingent. Mr Darke submitted that even on the defendants' argument no step was required to be taken under clause 1.1 other than the giving of the direction. He sought to distinguish the terms of the obligation in clause 1.1 from the terms of the indemnity that was considered by the High Court in Wardley where the indemnity was subject to the condition that the bank had proceeded to the fullest extent of its rights against Rothwells to obtain payment out of Rothwells' assets. In relation to that indemnity the plurality said (at 524): "The indemnity was not one of a kind which generates an immediate non-contingent liability to pay upon execution of the instrument. It was neither a promise to meet a liability of the promisee to make a payment nor a promise to pay a debt owing by a third party to the promisee."
Mr Darke submitted that there was no such contingency in relation to clause 1.1 of the deed.
In my view the contrary is at least seriously arguable. That is, it is arguable that the giving of a direction by Oceanview was a contingency on which a debt arose, albeit a contingency of a different kind than in Wardley.
In Wardley the plurality also said (at 527): "With economic loss, as with other forms of damage, there has to be some actual damage. Prospective loss is not enough. When a plaintiff is induced by a misrepresentation to enter into an agreement which is, or proves to be, to his or her disadvantage, the plaintiff sustains a detriment in a general sense on entry into the agreement. That is because the agreement subjects the plaintiff to obligations and liabilities which exceed the value or worth of the rights and benefits which it confers upon the plaintiff. But, as will appear shortly, detriment in this general sense has not universally been equated with the legal concept of 'loss or damage'. And that is just as well. In many instances the disadvantageous character or effect of the agreement cannot be ascertained until some future date when its impact upon events as they unfold becomes known or apparent and, by then, the relevant limitation period may have expired. To compel a plaintiff to institute proceedings before the existence of his or her loss is ascertained or ascertainable would be unjust. Moreover, it would increase the possibility that the courts would be forced to estimate damages on the basis of likelihood or probability instead of assessing damages by reference to established events. In such a situation, there would be an ever-present risk of undercompensation or overcompensation, the risk of the former being the greater."
Those comments are relevant to the present case. If the argument for Pigott Stinson is right Ms Balaz would have needed to bring proceedings by 28 February 2013 against Pigott Stinson for damages to compensate her for the loss she is said to have suffered as a result of entering into the deed of 28 February 2007. But it is seriously arguable that by that time she had suffered no measurable loss. For reasons which do not appear, no claim had been made by Steven Issa against her. Had a claim for damages then been brought by Ms Balaz against Pigott Stinson and determined, what damages would have been recoverable and how would they have been assessed? If Steven Issa never made a claim, then any damage arising from entering into the deed would be negligible or non-existent.
It is also arguable that no damage would be suffered unless and until Ms Balaz is found liable to pay moneys to Steven Issa pursuant to the second deed, or alternatively that no damage is suffered prior to her incurring costs and expense in defending the proceedings brought by Steven Issa. That is how the claim for loss is pleaded. There is support for that view that no loss would be suffered unless and until Ms Balaz is found liable in the decision of the Full Court of the Supreme Court of Victoria in Van Win Pty Ltd v Eleventh Mirontron Pty Ltd [1986] VR 484 at 489.
On an application for summary dismissal it is unnecessary and would be inappropriate for me to express a concluded, or even provisional, view on these questions. It is enough to conclude that it is seriously arguable that the cause of action in tort for damages is not barred by s 14(1)(b) of the Limitation Act.
Counsel for Ms Balaz also submitted that the allegedly wrongful conduct of the solicitors concealed from Ms Balaz that she had a cause of action against them for breaches of duty. It was not suggested that the conduct of the solicitors amounted to fraudulent concealment (Limitation Act, s 55). But counsel did submit that the solicitors' alleged failure to explain their conflict of duties and to ensure that Ms Balaz obtained independent advice before signing the second deed, combined with misrepresentations made by Steven Issa and Michael Issa that were allegedly enabled or facilitated by the solicitors' conduct, effectively prevented Ms Balaz from perceiving or understanding that she had a viable cause of action against the solicitors until after the six-year limitation period had expired. Counsel submitted that the solicitors' conduct put Ms Balaz in a situation where she did not and could not understand that her rights and interests, separately from those of her husband, had been adversely affected by the agreement negotiated between Steven Issa and Michael Issa, that by reason of the divergence of her interests from those of the other parties she was entitled to obtain independent legal advice and a full disclosure from the solicitors of their conflict of duties, and that because of the solicitors' failure adequately to explain the existence of their conflict and the need for independent advice, and to explain how her rights were adversely affected, she had executed the deed in circumstances which gave rise to a claim against the solicitors that was at least seriously arguable.
Counsel submitted that it was arguable that s 14(1) of the Limitation Act did not apply in these circumstances because the alleged wrongful acts themselves effectively precluded the bringing of proceedings (Hawkins v Clayton (1988) 164 CLR 539 per Deane J at 590). The status of Deane J's observations in Hawkins v Clayton remains unclear. Mason CJ and Wilson J agreed with this part of Deane J's reasons (at 543), but they dissented in the result (see Walmsley v Cosentino [2001] NSWCA 403 at [48] and State of New South Wales v Harlum [2007] NSWCA 120 per Basten JA at [144]). The principle enunciated by Deane J has often been distinguished by reasoning which assumes that a negligent act only "effectively precludes" the bringing of proceedings if it makes it impossible for such proceedings to be brought (Sampson v Zucker (Unreported, New South Wales Court of Appeal, 11 December 1996); Cheney v Duncan [2001] NSWCA 197; (2001) 34 MVR 28 at [31]; see also Scarcella v Lettice [2000] NSWCA 289; (2000) 51 NSWLR 302 at [43]).
In my view, and having regard to the warning of the High Court in Wardley, these are not questions that should be determined on an application for summary dismissal. It is true that the facts in Hawkins v Clayton were such that the solicitors' negligence made it impossible for the plaintiff to bring proceedings within the limitation period, but the principle stated by Deane J, that was endorsed in general terms by Mason CJ and Wilson J, was expressed in terms that s 14(1) did not bar a cause of action for a wrongful act that itself "effectively precluded" the bringing of proceedings, not that rendered it impossible for the plaintiff to bring proceedings. Effective preclusion might suggest something short of an impossibility. I agree with the submissions of counsel for Ms Balaz that the question whether or not the facts of this case could fall within the principle identified by Deane J in Hawkins v Clayton is not suitable for summary determination as there are factual issues to be determined which might impinge upon the principles to be applied.
For these reasons Ms Balaz's claim for damages should not be summarily dismissed.
It follows that her claim for equitable compensation for alleged breach of fiduciary duty should also not be summarily dismissed. There is no limitation period prescribed under the Limitation Act for a claim for equitable compensation for breach of fiduciary duty. Such a claim is cognisable in equity's exclusive jurisdiction. Pigott Stinson submitted that equity would apply the Limitation Act by analogy to the claims in tort and in contract which depended upon precisely the same facts. The alleged breaches of fiduciary duty were also components of the alleged breach of a duty of care and of the implied term of the retainer. As I have found that the claim for damages for negligence should not be summarily dismissed it follows that even if the submission of Pigott Stinson is accepted, the claim for equitable compensation should also not be summarily dismissed.
Had I been of the view that the claim for damages in tort should be summarily dismissed, I would nonetheless not have considered that the claim for equitable compensation for breach of fiduciary duty should meet the same fate.
There was no dispute that the equitable claim for compensation for breach of fiduciary duty is analogous to the claim at law for damages whether in tort or contract (Cia de Seguros Imperio v Heath (REBX) Ltd [2001] 1 WLR 112 per Waller LJ at 121, 125-126; Aussie Ideas Pty Ltd v Tunwind Pty Ltd [2006] NSWCA 286 per Clarke JA at [22]-[24]; McDonald v Grech [2012] NSWSC 717 at [70]; Taluja v Orford (t/as John Orford & Associates) [2014] NSWSC 714 at [114]).
Prior to the Court of Appeal's decision in Gerace v Auzhair Supplies Pty Ltd [2014] NSWCA 181; (2014) 310 ALR 85, there was authority that equity had a discretion as to whether to apply a statute of limitations by analogy to a case within its exclusive jurisdiction, and would not do so if in the circumstances of the case it would be unjust or unconscionable to do so (The Duke Group Ltd (in liq) v Alamain Investments Ltd [2003] SASC 415; (2003) 232 LSJS 58 at [114]; Barker v Duke Group Ltd (in liq) [2005 SASC 81; (2005) 91 SASR 167 at [84]; Hewitt v Henderson [2006] WASCA 233 at [25]; Brightwell v RFB Holdings (In Liq) (2003) 171 FLR 464 at [63]; Short v Crawley (No. 30) [2007] NSWSC 1322 at [583]). It would arguably be unjust to apply the Limitation Act by analogy in the circumstances of the present case where no claim had been made against Ms Balaz within the limitation period for which she might be entitled to compensation by way of indemnity. The same difficulties would arise in quantifying a claim for equitable compensation as would arise in a claim for damages.
Counsel submitted that within the limitation period Ms Balaz could have sought a declaration that Pigott Stinson was liable to indemnify her against any liability she might have to Steven Issa. In my view it is arguable that this would not be an answer to a submission that it would be unjust to apply the Limitation Act by analogy for at least two reasons. It is arguable that the possibility of bringing a claim for declaratory relief is not relevant to considering whether it is just to apply the statute by analogy to the actual claim made, being a claim for monetary relief by equitable compensation. It is also arguable that it would not be just to require Ms Balaz to have brought a claim for declaratory relief within the limitation period because the claim could arguably have been defended, if brought at that time, on the basis that the issue was hypothetical (The University of New South Wales v Moorhouse (1975) 133 CLR 1 per Gibbs J at 10, 24).
Counsel for Pigott Stinson relied upon Gerace v Auzhair Supplies Pty Ltd (particularly at [70], [74] and [105]) in submitting that it is only if reliance by the defendant on the statute of limitations would be unconscionable that equity has a discretion not to apply the statute by analogy. However, the Court of Appeal did not seek to elucidate all of the circumstances in which reliance by the defendant on the statute would be unconscionable. The Court of Appeal did not say that it would only be if the defendant engaged in unconscionable conduct in relation to the plaintiff, such as by fraudulently concealing a cause of action, that reliance on the statute would be unconscionable.
In Gerace v Auzhair Supplies Pty Ltd the directors of the plaintiff (Auzhair Supplies) caused its business and assets to be transferred to a new company for no consideration. Shortly after the transfer Auzhair Supplies was deregistered. The plaintiffs in related proceedings were lenders to Auzhair Supplies. They obtained orders for the reinstatement of Auzhair Supplies. They were aware of the transfer and supported it. They took up shares in the assignee. Apparently both the lenders and the directors thought that the company's liabilities as well as its assets were being transferred. But they were wrong. After Auzhair Supplies was reinstated and a liquidator was appointed to it, the plaintiff sued the directors for breach of their fiduciary duties. This was more than six years after the transaction. The transaction was also a breach of the statutory duties imposed on directors by ss 180-183 of the Corporations Act 2001 (Cth). Pursuant to s 1317H(1) of the Corporations Act the directors would have been liable to a statutory remedy to pay compensation for the damage suffered. But the Corporations Act prescribed a six-year limitation period for the making of a compensation order under the Corporations Act (s 1317K). The directors submitted that the plaintiff's claim for equitable compensation for breach of fiduciary duty was barred because equity would apply the statutory limitation period by analogy. The limitation period on the bringing of a statutory claim for compensation for breach of the statutory duties was not directly applicable to the claim for equitable compensation for a breach of the directors' fiduciary duties.
The primary judge (Brereton J) held that there was a relevant analogue between the statutory and the equitable remedy, notwithstanding that s 185 of the Corporations Act provides that the statutory duties imposed on directors by ss 180-184 (except the "business judgment rule" in s 180(2) and (3)) have effect in addition to and not in derogation of any rule of law relating to the duties or liabilities of directors, and do not prevent the commencement of civil proceedings in respect of such a liability (Re Auzhair Supplies Pty Ltd (in liq) [2013] NSWSC 1; (2013) 272 FLR 304 at [79]-[81]). It does not appear that there was any argument about this in the Court of Appeal. There is no discussion in the Court of Appeal's judgment as to whether its conclusion that the claim was barred by analogy was consistent with the statutory purpose of s 1317K when read with s 185.
Brereton J held in substance that where equity applied the statute of limitations by analogy it did so as an aspect of the doctrine of laches. His Honour held that the principles applicable to the doctrine of laches were relevant to, and at least in that case, determinative of, the application of the statute of limitations by analogy (at [63] and [83]-[84] and [90]).
The Court of Appeal rejected this reasoning and allowed the appeal. As Emmett JA explained (Gerace v Auzhair Supplies Pty Ltd at [103]-[104]) if the only question is whether the plaintiff was guilty of laches, there would be no scope for the application of a separate principle of equity applying the statutory bar by analogy. As his Honour said (at [104]): "… 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."
Emmett JA said that the question raised by the appeal was whether the primary judge applied a wrong principle in so far as he applied the doctrine of laches (at [103]). Meagher JA (with whom Beazley P agreed) also identified the relevant issue in the appeal as being whether the primary judge was correct in reasoning that, when applying a statute of limitations 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, and in concluding that if the delay during the period of limitation would not constitute laches, equity would exercise its "residual discretion" not to apply the statutory bar (at [17] and [18]). Meagher JA's reasoning was directed to this issue. Thus, in discussing the decision of the Supreme Court of Canada in KM v HM (1993) 96 DLR (4th) 289, Meagher JA noted (at [53]) that La Forest J (with whom the other members of the Court relevantly agreed) held that in the circumstances of that case, equity would not apply the limitation statute by analogy for three reasons. Meagher JA summarised those reasons thus: "They were [1] that 'equity has rarely limited a claim by analogy when a case falls within its exclusive jurisdiction'; [2] 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 [3] that any analogy would be 'nullified by the doctrine of fraudulent concealment'." (numbering added)
Meagher JA said (at [54]) that "Only the second of these reasons is relevant in the present context."
In discussing the judgment of Doyle CJ in The Duke Group Ltd (in liq) v Alamain Investments Ltd Meagher JA quoted Doyle CJ's observation concerning the judgment of Kirby P in Williams v Minister, Aboriginal Land Rights Act 1983 (1994) 35 NSWLR 497. Meagher JA said (at [63]-[65]): "[63] … After referring at [112]-[115] to the judgments of Lord Westbury in Knox and Isaacs J in McNeil as well as to the extract from Spry referred to earlier and the decisions in KM and Williams, Doyle CJ observed (at [116]): 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. [64] 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 (NSW) [2002] NSWSC 612, which proceeded on the basis that the relevant principles were as stated by Isaacs J in McNeil at 100. Doyle CJ then observed (at [136]): [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'. [65] Only the second of the propositions that Doyle CJ considered that Kirby P was intending to approve in Williams 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 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'."
Of particular note is his Honour's statement that it was only the second of the propositions that Doyle CJ considered that Kirby P was intending to approve in Williams that was relevant in the circumstances, that is, that the doctrine of laches accommodates any and all factors that would fall to be considered in deciding whether or not a statutory limit should be applied by analogy. This may suggest that his Honour did not consider that Doyle CJ's statement, that equity would not apply a statutory time limit by analogy unless satisfied that it is just to do so, raised a relevant issue.
It appears from the reasoning of the Court of Appeal in Gerace v Auzhair Supplies Pty Ltd that no argument was advanced for the respondents to the effect that the statutory limitation period in s 1317K applicable to the statutory remedies should not be applied to the plaintiff's claim for an equitable remedy for a breach of the director's fiduciary duties because it would be unjust to apply the statute by analogy. It may be that the reason no such argument could have been advanced in that case was that the lender to the company that stood behind the claim had concurred in the transfer of the business and undertaking of the company and had taken up a shareholding in the transferee that made payments of interest on the loan. It appears that all parties thought that the liabilities of Auzhair had also been transferred.
In Gerace v Auzhair Supplies Pty Ltd Emmett JA concluded (at [105]) that: "[105] 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. … 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."
After a detailed review of the authorities Meagher JA concluded (at [70]-[74], [79]): "[70] The authorities referred to above, and in particular 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) 208 CLR 199; 185 ALR 1; 54 IPR 161; [2001] HCA 63 at [45] per Gleeson CJ and Australian Competition and Consumer Commission v CG Berbatis Holdings Pty Ltd (2003) 214 CLR 51; 197 ALR 153; [2003] HCA 18 at [41]-[42] per Gummow and Hayne JJ. [71] 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) 186 CLR 541 at 552-4 ; 139 ALR 1 at 8-10 ; [1996] HCA 25. [72] The distinction, referred to by Isaacs J in 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. [73] 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 at 239-40. 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. [74] 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. 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 and Bulli Coal, 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 and 122 relying, in part, on the judgment of Millett LJ in Paragon. … [79] ... There was a claim at law to which a 6-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."
With respect to his Honour's observations at [70] it is not at all clear that the authorities to which his Honour referred show that when a claim is brought in equity's exclusive jurisdiction to which no statutory limitation period is directly applicable, but where there is an analogous claim to which a statutory bar is applicable, the bar will always be applied by analogy unless reliance by the defendant on the statute would in the circumstances be unconscionable, as distinct from doing so unless the application of the statute by analogy would be unjust. The decision in the High Court in R v McNeil (1922) 31 CLR 76, and in particular the judgment of Isaacs J at 100, does not say that.
In R v McNeil, Isaacs J said (at 100): "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 observations of Isaacs J concerning the role of a court of equity in acting in its exclusive jurisdiction were obiter. But in any event, Isaacs J did not say that the only circumstance in which equity, when acting in its exclusive jurisdiction, would not apply a statute of limitations by analogy, was where there was a greater equity caused by fraud. The sentence his Honour emphasised was that where equity created a new right found on its own doctrines exclusively that was not barred by statute, then "equity is free".
The other authorities which Meagher JA reviewed included the decision of the English Court of Appeal in Cia de Seguros Imperio v Heath (REBX) Ltd where the Court approved the statement of principle in the 5th edition of Spry, The Principles of Equitable Remedies (1997, LBC Information Services) at 419-420 that included the following (as quoted at [24] in Gerace v Auzhair Supplies Pty Ltd): "… 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)"
This was an endorsement by the English Court of Appeal that in cases in equity's exclusive jurisdiction there is a discretion not to apply the statute by analogy if to do so would be unjust.
In Gerace v Auzhair Supplies Pty Ltd Meagher JA (at [66]) quoted the Full Court of the Supreme Court of South Australia in Barker v Duke Group Ltd (in liq) [2005] SASC 81; (2005) 91 SASR 167 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". His Honour did not expressly say this was wrong, unless that is to be inferred from his Honour's statement at [70]. In Gerace v Auzhair Supplies Pty Ltd Meagher JA also said: "[67] In Hewitt v Henderson [2006] WASCA 233 (Hewitt), 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; Williams and Barker, Buss JA said (at [25]): '[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.' [68] There have been many decisions in this country since Williams and Barker 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 that equity retains a discretion not to do so: see Brightwell v RFB Holdings Pty Ltd (2003) 44 ACSR 186; [2003] NSWSC 7 at [63] per 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] per Gordon J; Agricultural Land Management Ltd v Jackson (No 2) (2014) 98 ACSR 615 ; [2014] WASC 102 at [212] per 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 at [84] and/or Hewitt at [25]. In Candibon Pty Ltd v Madden (2011) 183 LGERA 10; [2011] VSC 415, Emerton J accepted as correct the two statements of principle that Doyle CJ in Duke Group considered Kirby P was intending to approve in Williams. 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: at [377] and [381]. Finally, the obiter observations of McColl JA in Salvation Army (South Australia Property Trust) v Rundle [2008] NSWCA 347 at [81]-[92] do not address the issue in this appeal."
It was in this context that his Honour said (at [70]) that: "[70] The authorities referred to above, and in particular 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."
It is clear that the Court of Appeal went beyond concluding that the discretion as to whether or not a statute of limitations should be applied by analogy where a remedy was sought in equity's exclusive jurisdiction was not to be determined solely by applying principles relevant to laches. The extent to which its decision on the wider question was part of the ratio of the case is an arguable question.
The Court of Appeal did not attempt an exposition of when reliance by the defendant on a statute of limitations by analogy to a purely equitable claim will be unconscionable. The Court of Appeal identified one ground on which there would be a "greater equity" preventing the application of a statute of limitation by analogy, namely where the defendant engaged in fraudulent conduct that denied the plaintiff the opportunity to sue within the statutory period. But this may not be an exhaustive statement as Meagher JA appears to recognise at [79] of his Honour's reasons. In cases where the relevant period of limitation was prescribed by the Limitation Act such a ground is covered by the statute itself. In other cases it may not be (as, for example, under s 1317K of the Corporations Act).
In Sze Tu v Lowe [2014] NSWCA 462 Gleeson JA, with whom Meagher and Barrett JJA agreed, said (at [365] and [366]): "[365] Gerace may also be taken to establish (at [74]) that where a limitation statute applies by analogy, equity does not retain a general residual discretion to decline to apply it: cf Williams v Minister, Aboriginal Land Rights Act 1983 (1994) 35 NSWLR 497 at 509; Duke Group Ltd (in liq) v Alamain Investments Ltd [2003] SASC 415. It follows that Smart AJ erred in taking the contrary approach (at [499] May Judgment) relying upon those authorities. [366] At [35] in Gerace, Meagher JA observed that there are two classes of cases in which courts of equity have declined to apply limitation periods by analogy: one, claims by a beneficiary against a trustee for breaches of trust, the other, claims involving fraud or fraudulent concealment. It is the latter category which is potentially relevant in the present case."
For the reasons above it is arguable that the statement at [74] in Gerace that equity does not retain a residual discretion not to apply a statute of limitations in its exclusive jurisdiction was not part of the ratio of Gerace. It is also arguable, at least at the appellate level, that the reasoning and authorities referred to at [74] of Gerace may not conclude the question. The authorities referred to were Trotter v Maclean (1879) 13 Ch D 574 and Bulli Coal Mining Co v Osborne [1899] AC 351. Neither decision concerned the exercise of equity's exclusive jurisdiction. Both involved claims for damages for trespass. In mining cases equity exercised a concurrent jurisdiction with courts of law in the taking of an account to ascertain the value of the coal removed (Jesus College v Bloom (1745) 3 Atk 262 at 264; 26 ER 953 at 954). Meagher JA noted in Gerace (at [43]), that the doctrine of concealed fraud was not an answer to the application of a limitation statute to a claim at law (citing Imperial Gas Light and Coke Co v London Gas Light Co (1854) 10 Ex 39; 156 ER 346; Hunter v Gibbons (1856) 1 H & N 459; (1856) 26 LJ Ex 1; 156 ER 1281). These were decisions of the Court of Exchequer exercising jurisdiction at common law. But in numerous cases where the Court of Chancery had jurisdiction it refused to allow a defendant to rely on the statute in the case of fraud or concealed fraud even though the case in substance was an action at law. Thus, in Trotter v Maclean, Fry J said (at 584): "The statute 21 James 1, c 16, s 3, imposes the term of six years as the limitation in actions of trespass, and, 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."
Fry J held that the entry onto the plaintiffs' land and the taking possession of the plaintiffs' coal were not fraudulent and accordingly no account was directed of the workings of the defendant's coalmine at any time before the commencement of the period six years before the issue of the writ.
In Gibbs v Guild (1882) 9 QBD 59 the Court of Appeal by majority held that a claim for damages for having been induced to invest in shares by a fraudulent misrepresentation or a claim to recover the price paid with interest were not barred by the statute of limitations because the principle to be applied was that applied in courts of equity that precluded the wrongdoer from taking advantage of his own wrong that had the effect of concealing the cause of action (at 63-66 per Lord Coleridge CJ, 71-72 per Brett LJ).
The Fifth Interim Report (1936) of the Law Revision Committee (UK) on Statutes of Limitation described the position as follows (at 30-31): "It is obviously unjust that a defendant should be permitted to rely upon a lapse of time created by his own misconduct, but the present state of the law is so obscure and pregnant with difficulties that it must be regarded as uncertain whether a fraudulent defendant can in all cases be prevented from setting up the plea that the action has been brought out of time. … The question is a highly technical one, but the position as it exists at the present day may be described in general terms in the following way. Prior to the Judicature Act of 1873, there were causes of action which fell within the exclusive competence either of a Court of Equity or a Court of Law. Thus a suit for breach of trust could only be brought in a Court of Equity, and actions for unliquidated damages for breach of Contract or in tort could only be submitted to a Court of Law. There was also an intermediate type of action in which the Courts of Equity and the Courts of Law had concurrent jurisdiction. This parcelling out of competence had, as one of its consequences, the result that the question whether the Statutes of Limitation applied or not might be governed exclusively, in any particular instance, either by the equitable doctrine or by the rules of the Common Law, as the case might be, and that ,where there was concurrent jurisdiction, the two systems might be in conflict with one another. The importance of this diversity of jurisdiction lies, for our present purpose, in the fact that prior to 1873 the Courts of Law in contradistinction to the Courts of Equity declined to regard fraud or the fraudulent concealment of a cause of action, as excluding the application of the Statutes of Limitation to actions which fell solely within their competence, or in which they had concurrent jurisdiction with the Courts of Equity. (Imperial Gas Co. v. London Gas Co. (1854) 10 Ex. 39; Hunter v. Gibbons (1856 1 H. and N. 459.) It might be supposed that the Judicature Act of 1873 had put an end to this difference of point of view when it enacted that the rules of equity should prevail over those of the common law in the event of a conflict or variance between them. But in a number of cases after 1873 the argument was advanced that the provisions of the Judicature Act did not affect actions in which the Courts of Law enjoyed exclusive or concurrent jurisdiction prior to that date. It seems to be clear, where there is a fraudulent concealment of a cause of action based on fraud, that the equitable rule will prevail at the present day (Gibbs v. Guild (1882) 9 Q.B. 59, and see also the opinion expressed obiter by the Court of Appeal in Armstrong v. Milburn (1885) 2 T.L.R. 615). But it is still an open question whether, in the case of an action which was formerly only cognizable in a Court of Law, it is an answer to the Statutes to say that, although there has been no active concealment of a cause of action, nevertheless the cause of action itself is fraud and that the plaintiff did not discover the fraud until after the statutory period of limitation had expired. The decisions dealing with this question are inconsistent and there is a direct conflict between such decisions as those of the Divisional Court of the Q.B.D. in Armstrong v. Milburn and of Bailhache, J. in Osgood v. Sunderland ([1914] 111 L.T. 529) which somewhat reluctantly support the view that the equitable doctrine has no application to actions in which a Court of Law had exclusive jurisdiction prior to 1873, and the decision of the Privy Council in Bulli Coal Mining Co. v. Osborne ([1899] A.C. 351), and of McCardie J. in Lynn v. Bamber ([1930] 2 K.B. 72) in which the opposite view was taken."
The Committee's recommendations led to the enactment of the provision now found in s 55 of the Limitation Act 1969 (NSW).
Bulli Coal Mining Co v Osborne was also a case concerning a claim for damages for trespass. The plaintiff sought to have its claim for damages admitted in the liquidation of the defendant Bulli Coal Company. The primary judge (Owen CJ in Eq) said that: "The only ground that the claimants have against the Bulli Company is for damages for trespass on their land, and the wrongful conversion of the coal …" ((1896) 17 NSWR (Eq) 242 at 256).
Whilst the administration of the assets of the company in liquidation was a matter for a court of equity, the principles of law to be applied were those applicable to an action between the parties to a claim for damages for trespass. Equity applied the general principle applicable to a commission of bankruptcy that it was only those creditors who could by legal action or equitable suit have compelled payment who would be entitled to prove (Ex parte Dewdney (1809) 15 Ves Jun 479 at 498; 33 ER 836 at 843; Motor Terms Co Pty Limited v Liberty Insurance Limited (in liq) (1967) 116 CLR 177 at 180-181 per Kitto J). The Privy Council held that the statute of limitations had no application: "The Statute of Limitations has really no application to a case such as this. Courts of equity are not within the words of the statute, which only apply to certain legal remedies, though they are, as it has been said, within its spirit and meaning. … Now it has always been a principle of equity that no length of time is a bar to relief in the case of fraud, in the absence of laches on the part of the person defrauded. There is, therefore, no room for the application of the statute in the case of concealed fraud, so long as the party defrauded remains in ignorance without any fault of his own." (Bulli Coal Mining Co v Osborne [1899] AC 351 at 363).
Gibbs v Guild and Lynn v Bamber were criticised in R P Meagher, J D Heydon and M J Leeming, Meagher, Gummow & Lehane's Equity Doctrines and Remedies 4th ed at [34-095] as examples of the fusion fallacy. That is not the present question. What is significant is that many of the cases, including Trotter v Maclean and Bulli Coal Mining Co v Osborne, concerning the principles of fraudulent concealment were not cases in equity's exclusive jurisdiction. Whether correctly or not, equity, at least where it had concurrent jurisdiction, refused to allow a fraudulent defendant to rely on the statute where his wrongdoing had concealed the cause of action. It may now be taken as settled that the correct law was as stated in Hunter v Gibson and that "concealed fraud" could not be relied on as an answer on equitable grounds to an action in tort (Commonwealth v Cornwell [2007] HCA 16; (2007) 229 CLR 519 at [9]) What is relevant for present purposes is that in neither Trotter v Maclean nor Bulli Coal Mining Co v Osborne was there any issue as to whether, in the case of its exclusive jurisdiction, equity had a residual discretion not to apply a statute of limitations if to do so would be unjust in the circumstances.
In J D Heydon, M J Leeming and P G Turner, Meagher, Gummow and Lehane's Equity Doctrines and Remedies 5th ed at [36-085] the learned authors say that Gerace v Auzhair Supplies Pty Ltd has held that equity does not retain a discretion to decline to apply a statute of limitations by analogy and the view that there was such a discretion is inconsistent with elements of the reasoning in Gibbs v Guild which had been endorsed in the High Court in R v McNeil. As to the former observation, for the reasons above it is arguable that the Court of Appeal's conclusion is not part of the ratio of Gerace. As to the latter observation, it is arguable that R v McNeil does not provide such support. Knox CJ and Starke J referred (at 97) to Gibbs v Guild and Trotter v Maclean as well as Bulli Coal Mining Co v Osborne as cases in which equity was prepared to consider "repelling the application of the statute" (quoting Fry J in Trotter v Maclean at 584). Their Honours observed that the court could not repel the clear words of s 37 of the Crown Suits Act 1898 (WA) because that would be to give effect to an equity for which the statute did not provide. The judgment of Knox CJ and Starke J did not address the question of whether in its exclusive jurisdiction equity had a residual discretion not to apply the statute of limitations if to do so would be unjust and for the reasons above (at [57] and [58]) Isaacs J's judgment, if anything, supports the existence of such a discretion.
I need not determine whether the statement in para [365] of Sze Tu v Lowe quoted at [65] above is part of the ratio of that case. Even if it is, on a summary dismissal application it is necessary to consider how the case might be considered in either an intermediate or ultimate appellate court (Wickstead v Browne (1992) 30 NSWLR 1 at 5 per Kirby J (approved by the High Court in Wickstead v Browne (1993) 10 Leg Rep SL2); Telecom Vanuatu Ltd v Optus Networks Pty Ltd [2005] NSWSC 951 at [21]-[24])).
In Sterndale v Hankinson (1827) 1 Sim 393; 57 ER 625, the Vice-Chancellor stated the relevant principle in terms approved by Jessel MR in Re Greaves, deceased (1881) 15 Ch D 551 at 553 as follows: "… 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."
Sterndale v Hankinson concerned a bill filed by a creditor for the administration of a deceased estate. The deceased died on 27 June 1810. A bill for administration was filed by a creditor on 5 May 1812. The decree for administration was not made until 14 April 1818. On the taking of accounts the Master disallowed the claims of creditors whose claims would have been barred by the statute of limitations if actions at law had been brought to enforce them at the time of the decree. An exception to the Master's report was allowed. It was then the practice that a creditor's claim for administration of a deceased estate was brought on behalf of creditors generally. It was in that context that Sir Anthony Hart V-C (not Sir John Leach V-C as stated in Re Greaves, deceased; he had been appointed Master of the Rolls the previous month) said (at 398, 627): "It has been said that if a creditor files a bill on behalf of himself and others, and permits it to be dismissed before decree, the statute would apply. I dissent from this proposition; for I think that the Court would protect a creditor against any accident of that kind. I have no doubt that if a creditor file a bill, and it appears that the rule adopted by analogy to the statute would affect his demand, but that a bill had been before filed by another creditor, and that the Plaintiff in the second suit had, in confidence that the former suit would be prosecuted, abstained from filing his bill, the Court would not apply its rule." There was no question of the defendant's acting unconscionably.
In Re Greaves, deceased Jessel MR said (at 553-554) that because of the changes in the practice of the court Sterndale v Hankinson could no longer be relied on; but also said that the principles stated in that case were stated correctly.
If the circumstances of the case make it unjust to apply the statute of limitations by analogy to prevent a plaintiff from obtaining an equitable remedy arising from the defendant's breach of fiduciary duty so that it would be against conscience for the court to apply a rule founded on the analogy, it is arguable that it would be unconscientious for the defendant to rely on the analogical application of the statute. That is not a question which should be determined on an application for summary dismissal. The resolution of the question may depend upon findings of fact in relation to the nature and extent of any breach of fiduciary duty that is established.
Counsel for Ms Balaz submitted that it would be contended that the acts and omissions of the solicitors, including their failure to explain their position of conflict of duties and failure to ensure that Ms Balaz obtained independent advice, and their enabling or facilitating what are alleged to be misrepresentations made to her by Steven and Michael Issa, effectively prevented her from perceiving or understanding that she had a viable cause of action against the solicitors until after the six-year limitation period had expired. That is not a question that could be determined on an application for summary dismissal. If the matters alleged are established at trial, it is at least arguable that equity would not apply the Limitation Act by analogy to the claim for equitable compensation for breach of fiduciary duty, even if it is found that the claim for common law damages is barred.
Accordingly, if I am wrong in my conclusion that the claim for damages in tort is arguably not statute-barred, nonetheless I do not consider that the claim for equitable compensation for alleged breach of fiduciary duty should be summarily dismissed.
The only remaining question is whether paragraphs 15-17 of the second cross-claim that plead an implied retainer should be struck out. If those paragraphs only pleaded a claim in contract then it would be appropriate to strike out those paragraphs as it is admitted that a claim for damages for breach of contract is barred. But it does not appear to me that that is the only relevance of those paragraphs. The allegation of a retainer and a term implied in the retainer may be relevant to the other claims pleaded. In my view those paragraphs should not be struck out.
For these reasons I order that the notice of motion filed by the cross-defendants to the second cross-claim on 5 August 2014 be dismissed. Prima facie the cross-defendants should pay the cross-claimant's costs of the notice of motion. I will hear the parties on costs and make directions for the further conduct of the proceeding.

Issa v Issa & Anor

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