Supreme Court of SA|2003-12-23|Before: Doyle CJ

THE DUKE GROUP LTD (IN LIQ) v ALAMAIN INVESTMENTS LTD & ORS No. SCCIV-02-1675 [2003] SASC 415 (23 December 2003)

1 DOYLE CJ: The plaintiff company claims an award of equitable compensation against the defendants on the basis that they knowingly and dishonestly assisted the plaintiff's directors in a breach of fiduciary duty owed by the directors to the plaintiff company. The claim is brought in the exclusive jurisdiction of equity. It is based on Barnes v Addy ;

2 The defendants have applied for an order dismissing or staying the action, on the grounds that it is an abuse of process. They argue that the action is bound to fail. They argue that it must fail because it is brought out of time, by direct application of the Limitation of Actions Act 1936 (SA) ("the LAA"), or applying its provisions by analogy, and because delay by the plaintiff and consequent prejudice to the defendants give rise to the equitable defence of laches. As I understand the submissions, they further argue that even if those points are not made good as separate points, the delay that has occurred and the prejudice suffered in combination are a reason to stay the proceedings as an abuse of process.

3 Certain of the defendants also submit that in any event the Statement of Claim is defective and should be struck out.

4 The defendants' applications were heard by me on affidavit evidence. A substantial amount of material was tendered. The argument occupied three days.

5 The plaintiff's action is at an early stage. The plaintiff has filed a Statement of Claim. The defendants have not filed a Defence.

6 The defendants invoke the Court's inherent power to dispose of proceedings summarily.

7 In the circumstances it is appropriate to deal with the matter on the basis of the allegations made in the Statement of Claim. The summary that follows is taken from the Statement of Claim, or contains matters that I understand to be common ground. In the interest of brevity, I will not continue to refer to matters as being alleged, but will simply state them as facts. For the same reason I will simplify matters somewhat and will omit a considerable amount of detail. It is not necessary to have a detailed understanding of the plaintiff's claim to deal with the defendants' applications.

8 The plaintiff was previously known as Kia Ora Gold Corporation NL ("KO"). I will refer to it as KO. In 1988 KO made a successful takeover bid and acquired all of the shares in Western United Limited ("WU"). This was done after the proposed takeover was approved by a general meeting of shareholders of KO in October 1987.

9 KO claims that in promoting the takeover its directors acted in breach of fiduciary duties that they owed to KO. KO claims that the directors knew that the value placed on the shares in WU for the purpose of the takeover was far in excess of their true value. The directors, or some of them, had shares or an interest in shares, in WU. The takeover scheme was implemented to enable the directors or their associates to profit by transferring cash out of KO in this way. KO suffered heavy losses as a result of the takeover, because the shares in WU were of little or no value. This ultimately led to the liquidation of KO.

10 The directors retained a firm of accountants in Perth, Nelson Wheeler ("NWP") to prepare a report to be placed before the shareholders of KO in general meeting. That report was required by listing rules of the Australian Stock Exchange. NWP provided that report. In the report NWP advised that the proposed price to be paid for the shares in WU was "fair and reasonable". The report was put before the shareholders at the general meeting

11 KO claims that the report was prepared incompetently and in breach of a duty of care owed by NWP to KO. KO claims that its directors knew that the opinion expressed in the report was unreliable.

12 KO's claim against the defendants is made against the background of these allegations. In a nutshell, the allegation is that the directors of KO promoted a takeover of WU in breach of their duty to KO, and relied on and used an incompetent report by NWP as to the value of the shares in WU.

13 The first defendant was previously known as Autocure Limited ("Autocure"). Mr Barker, the second defendant, Mr Abrahams, the third defendant, and Mr Dent, the fourth defendant, were directors of Autocure. On occasions I will refer to this group of defendants as "the Autocure defendants". In 1987 Autocure held 2.9 million shares in KO. Autocure was the largest shareholder in KO without Board representation.

14 The fifth defendant, Hambros Australia Limited ("Hambros Australia") and the sixth defendant Hambros Securities Limited (in Liquidation) ("Hambros Securities") are subsidiaries of Hambros Bank Limited ("Hambros"), an English bank. Hambros Australia was a merchant banker and "corporate adviser" and Hambros Securities carried on "the corporate advisory arm" of Hambros Australia. I gather that Hambros also acted as a financial or corporate adviser.

15 The seventh defendant Mr Ewart-James, was Deputy Managing Director of Hambros Australia and the director in charge of Hambros Securities. The eighth defendant, Mr Corcoran, was an associate director of Hambros Australia and a director of Hambros Securities, and reported to Mr Ewart-James. On occasions I will, for convenience, refer to the fifth to eighth defendants collectively as "the Hambros defendants".

16 In early October 1987 Mr Barker and Mr Dent, on behalf of Autocure, sought advice from Hambros Australia and Hambros Securities on the proposed takeover. Mr Dent, who was resident in Australia, collected some relevant information and provided that information to Hambros Australia and Hambros Securities. The Hambros defendants investigated the proposed takeover.

17 In due course the Hambros defendants, and in particular Mr Ewart-James and Mr Corcoran, advised Autocure that the amount that KO was proposing to pay for the shares in WU was far in excess of the true value of the shares in WU, that the directors of KO were not independent because of their interests in shares in WU, that the takeover would dilute the asset backing of the KO shares and that the takeover was not in the interests of the shareholders of KO, or of Autocure in particular. The Hambros defendants also advised Autocure that these events gave Autocure an opportunity to dispose of its shares in KO advantageously. Autocure could tell the directors of KO that it considered the proposed takeover to be contrary to the interests of the shareholders of KO, and would lobby other shareholders for support and would vote against the takeover, unless a purchaser was found for Autocure's shares at an appropriate price.

18 The directors of Autocure accepted this advice and authorised the Hambros defendants to act accordingly.

19 Mr Ewart-James and Mr Corcoran on behalf of Hambros Australia and Hambros Securities then made contact with Mr Abbott, a director and the Chief Executive of KO. They informed him of their view of the soundness of the takeover and that Autocure would vigorously oppose the takeover unless a purchaser for its shares were found.

20 After a relatively short time Mr Abbott told Mr Corcoran that a purchaser had been found for the Autocure shares. Autocure finally agreed on a price to be paid. That price was well in excess of the then market price for the shares. Autocure agreed as a term of the sale that it would vote in favour of the takeover at the general meeting, if so instructed by the purchasers.

21 KO alleges that the directors of Autocure and the Hambros defendants knew or had reason to suspect that the purchaser of the Autocure shares was acting in concert with the directors of KO.

22 The Autocure shares were duly sold, and Mr Dent voted in favour of the takeover at the meeting of shareholders. Neither Autocure nor the Hambros defendants informed other shareholders in KO of the reasons that might exist for opposing the takeover.

23 KO alleges that all defendants knew that the directors of KO were acting contrary to the interests of KO and of its shareholders, and that all defendants acted so that Autocure could profit from this by causing the directors of KO to find a purchaser for Autocure's shares in KO at an advantageous price. KO also alleges that all defendants knew or had cause to suspect that the purchaser of the Autocure shares was associated with the directors of KO. KO alleges that Autocure assisted the directors in the scheme for the proposed takeover by voting for it, knowing that the scheme was in breach of the directors' duty to KO.

24 KO has brought other proceedings to recover its loss. The liquidator says that it was appropriate to give these other proceedings priority over the present proceedings. He says that the need to preserve sufficient funds for the other proceedings, and the demands the other proceedings made on his advisers, are together a substantial reason why the present proceedings were not brought sooner.

25 In February 1990 KO instituted proceedings against Arthur Young, a firm of accountants. In these proceedings KO claimed damages for negligence in connection with a "reverse takeover" which took place after KO took over WU.

26 These proceedings were settled in February 1992 after about 240 hearing days. The case was obviously a substantial one. The terms of settlement are confidential, and the liquidator says no more than that he received a "sizeable payment". An affidavit filed by the solicitors for the second to fourth defendants claims that the liquidator's accounts reveal payments to KO of about $34 million as proceeds of this settlement. I accept that to be the case.

27 KO began proceedings against NWP in 1992. NWP joined the directors of KO as third parties in March 1993. KO joined the directors as defendants in November 1993. The trial began in June 1994. It ended in September 1997 after 471 sitting days. Judgment was given in January 1998. The Judge awarded KO damages of about $50 million. The decision is reported as The Duke Group Limited (In Liquidation) v Pilmer & Ors [1998] SASC 6529; (1998) 27 ACSR 1.

28 This was obviously a very big case. It is thought to be the longest case ever heard in the Supreme Court of South Australia.

29 The sale of the Autocure shares was the subject of evidence in the proceedings. Mr Ewart-James gave evidence. The Judge made findings on the matter. This matter was relevant because the reaction of the directors of KO to the threat by Autocure to oppose the takeover was said by the Judge to demonstrate the lengths to which the directors would go to effect the takeover. This included finding a purchaser for the Autocure shares, and causing that purchaser to suffer a substantial loss because that purchaser acquired the Autocure shares at a substantial overvalue.

30 All parties appealed against the trial Judge's decision. The appeal occupied 14 days. It was heard in November 1998, and judgment was given in May 1999. The amount awarded for damages and compensation was increased. The Court found that only the partners of NWP in Perth were liable. It reversed the finding by the trial Judge that there was a national partnership, and that all of the partners in that national partnership were liable. NWP appealed to the High Court. The appeal was heard in November 2000 and judgment was given in May 2001. The amount awarded was reduced to about $32 million. The High Court ordered that the Full Court finalise the amount of the judgment, and remitted the matter to the Full Court. Those orders were made by the Full Court in December 2001.

31 The appeal to the Full Court is reported as Duke Group Ltd (In Liquidation) v Pilmer & Ors [1999] SASC 97; (1999) 73 SASR 64, and in the High Court as Pilmer and Others v Duke Group Limited (In Liquidation) and Others at [2001] HCA 31; (2001) 207 CLR 165.

32 For various reasons, the question of contribution as between the defendants remained a live issue, requiring a further hearing in October 2003: see Duke Group (In Liq) v Pilmer & Ors (No5) [2003] SASC 381.

33 In October 2002 KO began proceedings in the United Kingdom against the present defendants making the same claims as are made in these proceedings. The defendants applied for an injunction restraining KO from prosecuting these proceedings. That application also came on before me. During the hearing before me KO stated that it would discontinue these proceedings, and undertook not to re-institute them without first giving 30 days' notice to the defendants.

34 The application by the defendants is based upon the time that has elapsed between the relevant events and the institution of proceedings, and, to the extent necessary, the nature and extent of the prejudice that they claim to have suffered because of the time that has elapsed. KO's answer is, in part, that when all the circumstances are understood the time lapse is reasonable and understandable. KO also denies that the defendants will suffer any significant prejudice as a result of the time lapse.

35 So that the plaintiff's explanation can be understood, it is appropriate to provide a chronology of events prior to the proceedings. Once again, my understanding is that there is no real dispute about the matters that I will now set out. I make findings in terms of the chronology. It will be necessary to explain the significance of some items, and I will do so in due course.

KO joins directors as defendants in action against NWP

The documents comprising exhibit D 5-10 before me are given to the solicitors for the liquidator. These documents raise questions about the propriety of the Autocure shares

Mr Ewart-James gives evidence for the defendants, and is questioned in detail about the sale of the Autocure shares

Hearing of claim against NWP and directors finishes

Hambros Plc sells its interest in Hambros Bank Ltd to Société-Générale. That transfers control to Société-Générale over the fifth and sixth defendants

Between August 1999 and August 2000 the liquidator obtains orders for the examination of, and examines, various persons about the sale of the Autocure shares. Those persons include Mr Barker, Mr Abrahams and Mr Dent. The liquidator is given an affidavit by Mr Corcoran in place of an examination

36 I now make further findings as to the circumstances leading up to the institution of these proceedings. It suffices to make the findings, in most cases, in general terms.

37 I accept that the winding-up of KO was a substantial and complex undertaking. The creditors' claims that were accepted by the liquidator amounted to about $30 million. The claims against Arthur Young and against NWP and the directors of KO were complicated cases. They would have required substantial funds and would have involved lengthy preparation. I accept that from a practical point of view the liquidator needed to make payments to the creditors to keep them satisfied. The liquidator also needed to hold back money to cover his likely commitments in connection with the first two cases that he instituted. It was reasonable to concentrate initially on the claims against Arthur Young and against NWP and the directors of KO. That is, it was reasonable for the liquidator to concentrate on these cases in the early years. I accept that from a practical point of view it was not possible to pursue all possible claims concurrently.

38 When the liquidator in July 1994 received the documents now tendered as exhibit D5-10, he was given notice of facts that would have prompted an examination of the sale of the Autocure shares, on the basis that the sale might give rise to a claim against those involved. But it was reasonable at that time to continue to give priority to the claim against NWP and the directors of KO. The hearing had already begun.

39 By the time that Mr Ewart-James gave evidence in July 1995 it is apparent from the questions put to him by counsel for KO that the liquidator had sufficient information about the sale of the Autocure shares to know that there was a reasonable prospect of establishing the facts now relied on, and that there were solid grounds on which to question the propriety of the transaction. However, the evidence was important. It helped confirm things that the liquidator would have suspected. It suggested that the Hambros defendants had been aware that the directors of KO had a conflict of interest because of their shares in WU.

40 Had the liquidator then initiated the necessary investigations and procedures, including the examination of persons involved, he could have been in a position to institute these proceedings by about the middle of 1997. That conclusion assumes that it would have taken about two years to assemble all the material, assuming the Autocure transactions were investigated at a reasonable pace but without allowing it to take priority over other matters.

41 It was reasonable for the liquidator to continue to concentrate his attention and resources on the claim against NWP and the directors of KO. The liquidator also had to take account of his financial resources. As things unfolded, he also had to take account of the fact that the judgment against NWP and the directors was challenged on appeal, and it was reasonable for him to be influenced by that fact and by the possible outcomes of the case. I accept that the liquidator's resources were limited, and that this was a reason not to commit resources to the present proceedings, until he was assured of a substantial recovery from other proceedings.

42 Nevertheless, I am satisfied that the liquidator could have undertaken his enquiries into the Autocure transaction somewhat sooner than he did, meaning that making due allowance for the matters referred to, there was no substantial reason not to undertake those enquiries sooner than the liquidator did. In saying this I am not finding that the liquidator should have instituted these proceedings by the middle of 1997. It suffices, in my opinion, to find that there is no substantial reason why the liquidator could not have instituted the proceedings some three or four years sooner than he did.

43 I find also that there is no good reason why the liquidator could not have given notice to the defendants that he might institute or proposed to institute these proceedings, before they were instituted. On the material before me no notice was given at any stage to the defendants.

44 I have no information about the legal advice given to the liquidator. The liquidator has, properly, done no more than indicate when advice was obtained. However, I am satisfied that at least a year before the proceedings were instituted the liquidator was in a position to give notice that a claim might be made. In light of the findings made above, the liquidator could have been in a position to give such notice two or three years prior to that, had the liquidator moved sooner than he did in relation to the Autocure shares.

45 As I said earlier, to some extent the facts speak for themselves. By this I mean the period of time that elapsed between the sale of the Autocure shares and the institution of the proceedings. The effect of my finding is that, acting reasonably, the liquidator could have instituted them some three or four years sooner than he did. The effect of my findings is that, acting reasonably, he could have given notice of intention to issue the proceedings before he actually did so. He could have given that notice of intention about four years before the proceedings were actually instituted.

46 In making these findings I make no criticism of the liquidator. My findings are no more than a conclusion that, on the information available to me, the proceedings could have been instituted sooner than they were and that the defendants could have been warned of the prospect of those proceedings, and could have been given that warning well before the proceedings were actually instituted.

The effect on the defendants of the passage of time

47 Until the defendants give evidence one cannot make a full assessment of the impact of the passage of time on their ability to defend the claim against them. But I must do the best I can on the basis of the information available to me. I will consider separately the significance of the fact that I am asked to make these findings, and to reach conclusions, at an early stage of the case.

48 I must assess things as they are today. But it is appropriate to recognise that if the case goes on, it will take a fair time before it can come to trial. Memories will continue to fade, and some defendants or witnesses might die or become too ill to be involved.

49 The matters that I need to consider are the individual defendants' recall of the relevant events, the availability of relevant documents, the availability of other witnesses, the impact of other events such as the sale by Hambros Plc of Hambros to Société-Générale.

50 Any effects of the passage of time have to be assessed by reference to their impact on the defendants' ability to defend the claims now made against them, and on the Court's ability to do justice by making sound findings.

51 The defendants are entitled to put the plaintiff to proof on all issues, even though a number of them were canvassed at length in the proceedings before Mullighan J, and were the subject of findings by him. However, the occurrence of the trial before Mullighan J means that the matters relevant to the allegation that the directors of KO breached their duty to KO in connection with the take over of WU were thoroughly explored and documented. So were aspects of the role of the present defendants. It is unlikely that the passage of time will cause any significant difficulty to the defendants in putting whatever case they wish to put on this aspect of the matter.

52 The role of the defendants was explored to some extent in those proceedings, and was further explored when the liquidator caused certain of the defendants and other relevant persons to be examined about the sale of the Autocure shares. It appears to be well established and fairly well documented that the defendants believed that the takeover by KO of WU was not in the interests of the shareholders of KO, that certain directors of KO had a conflict of interest, and that there was reason to suspect that the directors of KO were involved with or had an interest in the purchaser of the Autocure shares. Likewise, the strategy devised for Autocure, to enable it to sell its shares in KO, and the role of the Hambros defendants seem to be fairly well established and documented. Less clear is the knowledge of the defendants as to whether the directors of KO were merely careless or incompetent, or were acting deliberately in breach of their duty to KO.

53 I proceed on the basis that despite the passage of time, the case now made by the plaintiff is one in which much of the relevant material has already been canvassed with relevant participants, and much of the relevant documentation has been preserved. In my view the present claim is not one in which the memory of witnesses will, by and large, be crucial. Relevant matters will be able to be established from other sources. As well, I am satisfied that a substantial number of the documents to which the defendants might wish to refer, have been preserved.

54 I turn to the position of the Hambros defendants.

55 I accept and find that files and other records held by Hambros Securities and Hambros Australia have been disposed of. Those files may have contained relevant documents.

56 But I am satisfied that much of the relevant documentation generated by the Hambros defendants and the Autocure defendants has been preserved as a result of the trial before Mullighan J, as a result of the examination of the defendants, including Mr Ewart-James, and as a result of the production of documents by various persons in response to subpoenas issued during the trial.

57 It is neither practical nor appropriate for me to comb through all of these documents, with a view to making a detailed assessment of what they cover, and where the gaps are. No one attempted to do this before me. My finding is that there are unlikely to be any significant gaps in the documentation. In other words, I accept that there is a risk that material documents will be found to be missing. But at this stage of the case I find that substantial documentation has been preserved. I am not satisfied that the defendants will in fact suffer significant prejudice due to loss of documents.

58 I accept Mr Corcoran's claim that he kept detailed notebooks that he has now discarded, and that are no longer available. I accept that he made numerous file notes from these notebooks. I find that the notebooks and file notes will not be available to the Hambros defendants at trial.

59 Nevertheless, I find that in 1995 Mr Ewart-James had a good recall of relevant events, as did Mr Corcoran when he provided an affidavit in 1999. I am not satisfied on the information before me that the missing files and documents will cause either witness substantial difficulty in giving evidence.

60 Whether that will be the case can only be known at trial. I recognise the risk of prejudice. But at this stage of the proceedings, I am not prepared to go any further than that. Accordingly, I am not prepared to find that the Hambros defendants will in fact suffer significant prejudice because of the unavailability of documents and other records, or because of the frailty of memory of Mr Ewart-James or Mr Corcoran or other persons whom the Hambros defendants might wish to call.

61 I find that Mr Ewart-James in particular was on notice from 1995 that the conduct of the Hambros defendants might be called in question in connection with the Autocure shares. He had reason from then to preserve anything that was relevant, and to direct his mind to the relevant events.

62 I accept that documents previously held by other defendants or parties might have helped to fill gaps (if there are any) in the knowledge of the Hambros defendants, and in documents now available to them. But, for the reasons given, I go no further than to find that there is a risk of prejudice in that respect.

63 I am not persuaded that the deaths of Mr Abbott, Mr Stokes or Mr Schneider-Paas will cause the Hambros defendants any difficulty. On what I know, Mr Abbott is the only director of KO whose role is likely to prove significant in the claim against the present defendants. I consider that his absence from the proceedings will not cause any particular problem.

64 I am not satisfied that Hambros Australia or Hambros Securities will suffer any prejudice attributable to the sale by Hambros Plc of its interest in Hambros to Société-Générale in December 1997, or that Société-Générale has suffered any significant prejudice.

65 I find that the liquidator of KO was or should have been aware at about the time of the sale by Hambros Plc to Société-Générale of its interest in Hambros, and of the transfer of control over the Hambros group of companies. This was a major transaction and was widely publicised in financial newspapers and journals at the time.

66 I accept that Société-Générale and Hambros Plc were, at the time, unaware of the possibility of the claim now made against the Hambros defendants.

67 Hambros Plc gave to Société-Générale a warranty, in effect, that there were no claims being made against members of the Hambros group, or of which it was aware, nor were there circumstances that might give rise to a claim, other than those of which it gave notice in a disclosure letter. The claim now made was not referred to in the disclosure letter. It is possible that a reference to the claim might be found in documents referred to in the disclosure letter, but I find on the balance of probabilities that that will not occur.

68 Hambros Plc is not at risk of a claim for breach of warranty. The warranty was limited to a 12-month period, which has now expired. In any event, on the facts available to me, Hambros Plc was not in breach of the warranty, because it had no knowledge nor means of knowledge of the claim now made.

69 Hambros Securities and Hambros Australia suggest that if they had notice of the claim at the time, they would have drawn it to the attention of Hambros Plc. I accept that. They submit that Hambros Plc would have obtained insurance cover for them, or would have protected them in some other way.

70 Assuming that Hambros Australia and Hambros Securities were not already covered by insurance, it is unlikely that insurance cover could have been obtained, or would have been obtained, after the liquidator gave notice that he intended to make a claim, had he done so. Certainly there is no evidence before me to show that Hambros Plc would have obtained such insurance cover, or could have done so at a reasonable price.

71 I accept that if the liquidator had given notice prior to December 1997, when the agreement was signed, and the Hambros defendants had drawn this to the attention of Hambros Plc, then Hambros Plc would have disclosed the possible claim to Société-Générale in the disclosure letter. Hambros Plc would not then have been at risk of any claim against it by Société-Générale, but nor is it now.

72 I agree that Société-Générale might have paid less for the shares then transferred by Hambros Plc, but whether it would have paid less remains speculative, as does the amount by which the purchase price might have been reduced. The overall transaction was a very large one. However, it is possible that it would have paid less than it did. If the claim had been disclosed by Hambros Plc, Société-Générale would be in the position as against Hambros Plc in which it now finds itself - a claim being made against two of its subsidiaries, with no right of recourse against Hambros Plc.

73 In short, the only possible prejudice is the possibility that Société-Générale would have paid less than it did pay. This is something which it is difficult to quantify.

74 I accept that neither Société-Générale nor Hambros Securities nor Hambros Australia are now able to establish if the Hambros defendants had insurance cover when the relevant events occurred in 1987 and l988, or when Société-Générale acquired control of the Hambros group in December 1997. Mr Hilton properly acknowledges that the Hambros defendants have no means of knowing whether, at either time, they were covered by policies of insurance. Accordingly, there is a chance that, had written notice been given much earlier by the liquidator, the Hambros defendants might have located insurance policies providing them with insurance protection against the claim now made. This, however, is speculative.

75 My earlier conclusion was that the liquidator, acting reasonably, could have instituted these proceedings by about 1999. Acting reasonably, he could have given notice of them a year or so before then. It may be that he could and should have given notice that he was considering a claim even sooner than that, but I think it questionable whether he could be expected to have given notice of a possible claim before late 1999. I am not satisfied that he should have given notice prior to December 1997.

76 Accordingly, all one can say is that the possibility that insurance cover existed remains, whether it ever did exist is unknown, and whether the existence or non existence of insurance cover would have been ascertained as a matter of fact, had the liquidator given notice as soon as he reasonable could, cannot be known, but seems somewhat doubtful.

77 The Hambros defendants point to the fact that Société-Générale has given certain guarantees to creditors at large in respect of the liabilities of its subsidiaries, including Hambros Securities and Hambros Australia. I am told that the liquidator has threatened, if the claim against the Hambros defendants succeeds, to claim against Société-Générale under those guarantees. The role of these guarantees in the business of Société-Générale is unclear. I accept the submission by Mr Karkar QC, counsel for KO, that bearing in mind that Société-Générale had been giving these guarantees for some time, it is unlikely that its conduct in this respect would have altered had it had notice at an earlier time of the claims now made.

79 John Crowther Group Plc ("Crowther") was a public company incorporated in England. In March 1987 Crowther acquired a shareholding in Autocure. That shareholding gave it a significant say in the affairs of Autocure, and possibly control over those affairs. Mr Barker was Chairman and Chief Executive Officer of Crowther. Mr Abrahams was Deputy Chairman and an Executive Director of Crowther. Mr Dent was the son in law of Mr Barker, and was then living in Australia.

80 At about this time Crowther appointed Mr Barker as a director and chairman of Autocure, Mr Abrahams as a director and Deputy Chairman and Mr Dent as a director. There were other directors at the time, some at least of whom were resident in Australia. Mr Dent was resident in Australia, but Mr Barker and Mr Abrahams were resident in England.

81 For business reasons, Crowther proposed that Autocure should dispose of its shares in KO, and formed that intention before acquiring its interest in Autocure.

82 Hambros was an adviser to Crowther, and so Barker in particular turned to the Hambros defendants for advice when the takeover of WU was proposed.

83 The Autocure defendants sought advice from other sources, including solicitors. The Autocure defendants may wish to make a claim against the Hambros defendants and those other advisers if the action proceeds against the Autocure defendants. They may want access to the records of those advisers. One of those advisers is a firm of solicitors, Baker & McKenzie, through their Sydney office. I am not able to make any finding as to the availability of their records. A solicitor named Ratcliffe, from another firm of solicitors, prepared the contract of sale. I am not able to make a finding as to the significance of his role for present purposes, but it may be that he was not particularly concerned with advice as to the propriety of the transaction. Be that as it may, I find that he left his files with the firm for which he then worked, and those files were destroyed about ten years after 1987, in accordance with a routine file destruction policy. I have already made the finding that the liquidator has preserved a substantial number of documents that were in the possession of the Hambros defendants, although I recognise that not all relevant documents may have been preserved.

84 Crowther was taken over by Coloroll Group Plc ("Coloroll") in about 1989. Mr Barker, Mr Abrahams and Mr Dent ceased to be directors of Autocure, and ceased to have any involvement in its affairs at about that time. They left Autocure files with that company, as one would expect. They took their personal papers. Crowther went into administrative receivership in 1990. Its files were destroyed in 1998, and Crowther was dissolved in 1999.

85 I find that Mr Barker, now aged 67 years, suffers from heart disease. I am not satisfied that his state of health is such that he could not satisfactorily involve himself in the defence of the claim. Mr Barker was examined by the liquidator in 1999. That examination indicates that he then had a good recall and understanding of the relevant events. He apparently still had access to a number of relevant documents, and they were produced. I accept that there is a risk that loss of memory on his part, and missing documents will cause prejudice, but at this stage I am not able to make an affirmative finding as to any specific prejudice.

86 Mr Abrahams was examined by the liquidator. I find that he had a limited memory of relevant events, but that it is likely that his memory will be substantially refreshed by reference to relevant documents. I find that he was less involved in the transaction than Mr Barker.

87 I find that Mr Dent, as a director of Autocure, resident in Australia, was directly involved in relevant dealings with directors of KO. His examination by the liquidator indicates that he had a reasonable recall of events, and a reasonable understanding of them. He made a statement about the events to solicitors at a time when he had the benefit of access to records, and at a time when he knew that the sale of the Autocure shares was under scrutiny. He was able to produce relevant documents at the time, although I have no information about the extent of those documents. I accept that he destroyed any remaining personal documents, or copies from Autocure files, in about 1995. I find again that there is a risk, if the matter proceeds to trial, that he will suffer prejudice, but I am not able to make any finding at this stage as to any definite prejudice.

88 I find that the liquidator has obtained from Autocure, from the solicitors who advised it and from the Hambros defendants a substantial number of relevant documents. These remain available. As I have already explained, it is not practicable for me to comb through these documents with a view to making a decision as to their significance in the case.

89 As to each of Mr Barker, Mr Abrahams and Mr Dent I therefore find there is a risk of prejudice through lack of memory, and through it transpiring that relevant documents are not available.

90 I accept that they may wish to join those who advised them at the time, and that there is a risk that relevant persons and documents will not be able to be located, or will be able to be located only with difficulty.

91 As to Autocure itself (now Alamain), I find that control of Autocure has changed several times since the relevant events. The current directors and shareholders had no involvement in the relevant events. They acquired their interests in the company without any knowledge of the possible claim. Alamain has no relevant documents in its possession. Anything it might have had was destroyed in about October 2000, although it is significant that relevant documents had already been produced to the liquidator or taken by other persons with an interest in the events. In the present proceedings the fate of Alamain is in the hands of the other defendants, but that would have been the case in any event. I find that because of the passage of time Alamain has little or no ability to defend the claim, except to the extent that it can reconstruct events from documents in the possession of others. But in any event, as I have said, its fate is in the hands of Mr Barker, Mr Abrahams and Mr Dent. It has suffered no particular prejudice in its own right. But I accept that its current shareholders are unlikely to have taken control of the company if they knew that the present claim would be or might be made.

92 Overall there is a risk that after this passage of time the defendants will be prejudiced by lack of memory, and by loss of documents. If there is a trial it may emerge at trial that the defendants will be able to identify missing documents that would have assisted them, or events of which they no longer have an adequate recall. But there is also the risk that there will be events that are simply unrecalled, that were never documented, or that are no longer documented, upon which they might have relied. In that sense there is a risk of prejudice that cannot be quantified. But the risk of prejudice is less than it otherwise would be because of the fact that by 1995 the Liquidator had cross-examined Mr Ewart-James, and I find that the other defendants became aware of this, and had reason to address their minds to the relevant events when they were a good deal fresher than they now are. As well, other defendants were examined by the liquidator. There is a risk of prejudice to Société-Générale and to the shareholders of Alamain, but they are not parties before me. That does not mean that possible prejudice to them is irrelevant.

93 At this stage I am not prepared to find that the defendants will in fact be significantly prejudiced because of the passage of time, frailty of memory and loss of documents. By this I mean prejudice in the sense of an inability fairly to defend the claim. I accept that they will suffer inconvenience and added difficulty because of the passage of time. Whether they will suffer actual prejudice in presenting their defence can only be known at trial. However, I accept that there is a risk that this will occur. I consider that the claim made is one in which unaided memory of events will not be crucial.

94 I consider that this is as far as I can go. Even if I were to conduct, on the papers, some kind of shadow trial of the action, or anticipatory trial of the action, I could not make reliable findings about actual prejudice. I regard it as inappropriate to attempt an exercise like that. It would be quite artificial.

95 As to Société-Générale and the Alamain shareholders, the position is different. The potential prejudice to them is clear, but will occur only if the claim succeeds. But it would be a big step to strike out KO's claim because, if it succeeds, they will suffer financially. No case like the present one, in this respect, was brought to my attention. I consider that their position needs to be considered in the context of the case as a whole, at trial.

96 The defendants have not yet filed a Defence, pleading that the plaintiff's claim is statute-barred. They acknowledge the warning sounded by Mason CJ, Dawson, Gaudron and McHugh JJ in Wardley Australia Ltd and Another v The State of Western Australia [1992] HCA 55; (1992) 175 CLR 514 against attempts at an early stage of proceedings to determine whether a cause of action is barred by a provision of the LAA. Those Justices of the High Court said at 533:

" We should, however, state in the plainest of terms that we regard it as undesirable that limitation questions of the kind under consideration should be decided in interlocutory proceedings in advance of the hearing of the action, except in the clearest of cases. Generally speaking, in such proceedings, insufficient is known of the damage sustained by the plaintiff and of the circumstances in which it was sustained to justify a confident answer to the question."

97 They were dealing with the issue of whether a Judge had correctly struck out a paragraph in a statement of claim, claiming loss allegedly suffered as a result of misleading and deceptive conduct by the defendant. The paragraph struck out was introduced by amendment more than three years after the date on which the defendant alleged the plaintiff's cause of action arose. It became necessary to consider when the plaintiff incurred the loss in question, and when its cause of action arose. That required an application of the law to the facts. It may not be practical to do so when the court does not have all the facts before it.

98 In the present case the plaintiff alleges that it suffered the loss in question in October 1987. That appears to be a reference to the date of the meeting of shareholders that approved the takeover. It may be that the loss was not suffered until January 1988, when the takeover of WU was completed and the shares in WU were acquired. Little attention was paid to this point in the submissions to me. I proceed on the basis that the plaintiff's cause of action against the defendants arose no later than January 1988.

99 I am prepared to proceed on that basis. But the fact remains that the defendants seek summary relief. They claim an order dismissing the action on the basis that it is statute-barred. That is, that they have a good defence to the claim made. They seek that order before the case is tried. The court will so order only if the case is a clear one. The defence relied upon must be clear before the plaintiff should be shut out without going to trial: General Steel Industries Inc. v Commissioner for Railways (NSW) and Others [1964] HCA 69; (1964) 112 CLR 125.

100 As is well known, the LAA contains relatively few time limits that apply of their own force to equitable claims. The explanation for this is historical: see Meagher, Gummow and Leeming, Meagher, Gummow and Lehane's Equity Doctrines and Remedies (4th ed, Butterworths Lexis Nexis, 2002) Ch 34, and Brunyate, Limitation of Actions in Equity (Stevens, 1932), Ch 1.

101 Mr Hilton SC, for the Hambros defendants, submits that s 38(1) of the LAA fixes a time limit of six years for the claims by KO. That section relevantly provides:

"38. (1) Subject to subsection (2), an action for the recovery of money paid under a mistake (either of law or of fact) or otherwise based on restitutionary grounds must be commenced -

(a) if the cause of action arose on or after the commencement of this section - within 6 years after the cause of action arose; or

(b) if the cause of action arose before the commencement of this section - within the limitation period that would have been applicable if this section had not been enacted or 6 years after the commencement of this section (whichever expires first)."

102 He submits that the claim by KO against the directors for breach of their fiduciary duty to KO was and is a claim "for the recovery of money ... based on restitutionary grounds." He submits that the claim against the present defendants for dishonestly assisting the directors in their breach of fiduciary duty should be subject to the same limitation period as the claim against the directors as principals. He relies on an observation to that effect by Millett LJ in Paragon Finance plc v Thakerar & Co [1998] EWCA Civ 1249; [1999] 1 All ER 400 at 414:

" A principled system of limitation would also treat a claim against an accessory as barred when the claim against the principal was barred and not before. There is, therefore, a case for treating a claim against a person who has assisted a trustee in committing a breach of trust as subject to the same limitation regime as the claim against the trustee..."

I do not accept the submission as to the operation of s 38(1).

103 The present claim is a claim based on the defendants' participation in a breach of fiduciary duty by the directors of KO. But neither claim gives rise to a claim "for the recovery of money paid". The breach of duty by the directors on which the present claim is based gives rise to a claim for equitable compensation or equitable damages for breach of that duty, as does the claim against the present defendants. Taking the words of s 38(1) in their natural ordinary meaning, this is not the type of case to which they refer. It is not a claim for the recovery of money paid. It is a claim for compensation for the loss suffered by KO as a result of the takeover.

104 Nor does the directors' breach of fiduciary duty, nor the defendants' dishonest assistance to the directors, give rise to an action "based on restitutionary grounds". The action in each case is simply one in equity for compensation or damages, assessed or determined according to equitable principles rather than the principles applicable to the assessment of damages in tort or in contract. The essential nature of the remedy is to require the fiduciary, and those who dishonestly assisted in the breach of fiduciary duty, to restore to KO what it has lost.

105 While this remedy involves the effecting of restitution to KO for what it has lost, and can readily be described as restitutionary in character (Greater Pacific Investments Pty Ltd (in liq) v Australian National Industries Ltd and Another (1996) 39 NSWLR 143 at 154) or as intended to ensure restitution (O'Halloran v R T Thomas & Family Pty Ltd [1998] NSWSC 596; (1998) 45 NSWLR 262 at 277) or as intended to ensure restoration of an asset lost (O'Halloran at 281), neither the cause of action nor the remedy itself is "based on restitutionary grounds": see also Parkinson (ed) The Principles of Equity (LBC Information Services, 1996) at [406] and Mason and Carter, Restitution Law in Australia (Butterworths, 1995) at [319].

106 I consider that s 38(1) of the LAA has no application to the present case.

107 Mr Karkar, QC for the plaintiff, submits that s 32(1) of the LAA applies to the present case. The effect of that provision is to apply time limits to certain claims against a trustee:

"...except where the claim is founded on any fraud or fraudulent breach of trust to which the trustee was party or privy, or is to recover trust property, or the proceeds thereof still retained by the trustee, or previously received by the trustee and converted to his use..."

108 Mr Karkar submits that a director is, for the purposes of s 32(1), to be regarded as a trustee, and then argues that the present case is within the exception just referred to. The result would be that no time limit is imposed on such a claim.

109 I do not agree. The contemporary understanding is that a company director is not a trustee: Clay v Clay and Others [2001] HCA 9; (2001) 202 CLR 410 at [41]. I doubt whether it is appropriate to read s 32(1) with the eyes of the past, even if, as suggested by Millett LJ in Paragon Finance, directors were treated by equity like trustees for the purposes of the equitable principle that claims against an express trustee were never barred by lapse of time: Paragon Finance at 408. But even if the submission is correct, it simply leads to the result that I have already reached, that there is no statutory time limit which is applicable on its own terms.

110 If I had upheld Mr Hilton's submissions as to s 38(1), I would have had to consider whether the power conferred by s 48 of the LAA to extend the time limit is relevant. The plaintiff has not claimed an extension of time. The plaintiff denies that it needs one. If the defendant pleads the LAA, the plaintiff might, as a precaution, amend to seek an extension of time should that be necessary. Whether an extension of time would be available was not examined before me in any detail. It suffices to record that the issue has not been decided by me. I consider that I could not properly strike out KO's action without deciding the point.

Is a time limit under the LAA applicable by analogy?

111 A court exercising equitable jurisdiction may apply a statutory limitation by analogy to the grant of an equitable remedy, reflecting the principle that equity follows the law.

112 The statement of principle by Lord Westbury LC in Knox v Gye [1872] UKLawRpHL 16; (1872) LR 5 HL 656 at 674-675 has been treated as authoritative. He said:

"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...Where a Court of Equity frames its remedy upon the basis of the Common Law, and supplements the Common Law by extending the remedy to parties who cannot have an action at Common Law, there the Court of Equity acts in analogy to the statute; that is, it adopts the statute as the rule of procedure regulating the remedy it affords."

The relevant principle appears to be accurately stated in Spry, Equitable Remedies (6th ed., LBC Information Services, 2001) at 419 where the author states:

" Thirdly, a statute of limitations may be raised by analogy in defence to a claim that is brought in the exclusive jurisdiction of a court of equity, such as in proceedings for the enforcement of a trust, rather than in its auxiliary or concurrent jurisdictions. Here there is no question of merely recognising and giving effect to an abrogation of a right at law or of acting in obedience to a statute that relates to rights at law. Hence it must be seen first whether there is a special statutory provision that affects directly, whether expressly or by implication, the particular equitable right that is in question. But if there is no such provision, the court may decide that the material equitable right is so similar to legal rights to which a limitation period is applicable that that limitation period should be applied to it also. In this latter case the limitation period is said to be applied by analogy, and the principles that govern cases of this kind 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 authorities. 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." (footnotes omitted).

113 The issue is whether the equitable right that is asserted, a claim for compensation for loss sustained through breach of a fiduciary duty in which breach the defendants are alleged to have dishonestly assisted, is so similar to a legal right or claim which is subject to a statutory time limit that the time limit should be applied to the equitable claim.

114 It is important to emphasise that when a time limit is applied by analogy to a claim in the exclusive jurisdiction of equity, the decision whether the time limit is to be applied is made in light of all the circumstances. It is necessary to consider whether, despite the similarity, it would be unjust to enforce the analogy: Spry at 422. As Isaacs J said in The Crown v McNeil and Another [1922] HCA 33; (1922) 31 CLR 76 at 100:

"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." (emphasis deleted).

115 Mr Karkar argued that in a claim invoking the exclusive jurisdiction of equity, such as the present claim, equity will not apply a time limit by analogy, but will apply the doctrine of laches. He relied upon remarks to that general effect by Kirby P in Williams v Minister, Aboriginal Land Rights Act 1983 and Another (1994) 35 NSWLR 497 at 509-510, with whom Priestley JA agreed. Powell JA decided the matter on a basis that made it unnecessary for him to consider this particular point. In what he said, Kirby P adopted the approach taken by the Supreme Court of Canada in KM v HM (1993) 96 DLR (4th) 289. Kirby P referred to remarks there made by LaForest J, with whom a majority of the Court agreed. There, LaForest J said at 330:

"While there is no doubt that in some cases equity will operate by analogy and adopt a statutory limitation period that does not otherwise expressly apply, in my view this is not such a case. And this for several reasons. First, equity has rarely limited a claim by analogy when a case falls within its exclusive jurisdiction, as in this claim for breach of fiduciary duty. Moreover, even if it is appropriate to analogize from the common law, the analogy will be governed by the parameters of the equitable doctrine of laches."

" The present case involves a breach of fiduciary duty, which falls solely within the realm of equity. As such, it is not in my view readily amenable to limitation by analogy to some common law action. However, even if an analogy could be drawn that is not to say that it must be applied. As I noted earlier, equity retains a residual discretion on this point, which is the point of distinction from acting in obedience to the statute. In this respect the analogy takes on the character of laches, a point explicitly recognized by Brunyate. A more detailed consideration of laches follows, but for now it is enough to note the following proposition advanced by Brunyate, at p.17:

Where a Court of Equity is applying the statute as part of the law of laches it may reasonably allow any exceptions that are allowed in the law of laches. ...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."

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.

117 I do not consider that the remarks in other cases upon which Mr Karkar relies go any further than this. They are Cassis & Anor v Kalfus [2001] NSWCA 460 at [81] Hodgson JA; Brightwell and Others v RFB Holdings Pty Ltd (In Liq) and Others [2003] NSWSC 7; (2003) 171 FLR 464; (2003) 44 ACSR 186 at [63] Austin J; Cubillo v Commonwealth (No 2) [2000] FCA 1084; (2000) 103 FCR 1 at [1423] O'Loughlin J; Chittick v Maxwell and Others (1993) 118 ALR 728 at 741-742 Young J.

118 I turn to the question of whether there is a legal claim closely similar to the claim made in these proceedings, which is subject to a time limit, which time limit, considering all the circumstances, it is appropriate to apply by analogy.

119 Mr Hilton submits that the liability of the directors of KO to pay equitable compensation to KO for breach of their fiduciary duty is closely similar to the liability of the directors to compensate KO under s 229(1) and s 229(7) of the Companies (South Australia) Code which was in force at the relevant time. He acknowledges, I think, that the Code fixed no time limit for such a claim. He submits that such a claim is a claim in tort for the purposes of s 35(c) of the LAA and so is subject to a limit of six years. He argues that this limit should be applied by analogy to the present claim.

120 The answer to this submission is that in Carabelas and Anor v Scott [2003] SASC 389 the Full Court rejected the reasoning of Williams J in Scott v Carabelas and Anor [2003] SASC 156; [2003] 227 LSJS 103 ("Scott"), holding that a claim under the Code was a claim in tort: at [68]-[77] in the Full Court. I add this further observation. It may be that some statutory causes of action are to be regarded for the purpose of the LAA, as giving rise to an action "founded on tort", particularly if the statute confers a cause of action for unliquidated damages, and the cause of action is similar to a cause of action in tort. A claim under s 229 is not a claim for unliquidated damages, but for "compensation", not necessarily to be arrived at by applying the principles applicable to the assessment of damages in tort. As well, the claim is similar, if anything, to a claim for breach of fiduciary duty, rather than for a tort. There is a further obstacle. The present claim is a claim against the defendants for dishonest assistance to the breach of a fiduciary duty by the directors. That claim is not closely similar to the claim against the directors, although I recognise the obvious links. However, the short answer to Mr Hilton's submission is that a claim under the Code is not subject to a six year time limit under the LAA.

121 In Scott the Full Court held that the claim under the Code was a claim in specialty, subject to a 15 year time limit under s 34 of the LAA. If that is correct (the point was not argued before me in this case) the claim was brought within that time.

122 Next Mr Hilton submits that the present claim is closely similar to one or all of a common law claim in tort for deceit, for conspiracy to defraud, for conspiracy to injure by unlawful means or for conversion. These causes of action do bear some similarities to the claim against the directors of KO for breach of fiduciary duty. On the relevant facts, the suggested causes of action in tort against the directors might well have succeeded, and might have resulted in an assessment of damages in the same amount as would be awarded by way of compensation or damages in equity for breach of fiduciary duty. The trial Judge found that the directors were in breach of fiduciary duty and of statutory duties under s 229 of the Code: see Duke Group Limited (In Liq) v Pilmer [1999] SASC 97; (1999) 73 SASR 64 at [128]. These findings were upheld on appeal. The findings do suggest that the claims in tort identified by Mr Hilton might also have succeeded.

123 In short, the facts (meaning the circumstances on which the claim for breach of fiduciary duty on the part of the directors is based) might well have founded a claim against the directors in tort that is subject to a six year time limit under s 35(c) of the LAA. I accept Mr Hilton's submission to that effect.

124 I also accept the submission by Mr Karkar that each of these causes of action in tort involves proof of matters, or proof of elements, that are not required to be proved for the claim for breach of fiduciary duty on the part of the directors of KO to succeed. The essential elements of the causes of action in tort differ quite noticeably from the essential elements of the claim for breach of fiduciary duty. Mr Karkar argues that these differences mean that the claims are not closely similar.

125 I accept the further submission by Mr Karkar that it is relevant that the Court is presently concerned with a claim against the defendants for dishonest assistance in a breach of fiduciary duty. The knowledge on the part of the defendants that must be proved has been described as "objective dishonesty": Royal Brunei Airlines v Tan [1995] UKPC 4; [1995] 2 AC 378 at 309. It probably suffices for the plaintiff to prove that the defendants knew "...of facts which themselves would, to a reasonable man, tell of fraud or breach of trust...": Consul Development Pty Ltd v D.P.C. Estates Pty Ltd [1975] HCA 8; (1975) 132 CLR 373 at 412 Stephen J. It is necessary to bear in mind that I am presently concerned with a claim against the defendants, and not directly with the claim against the directors. This fact, and the point just made, is another matter to be borne in mind in considering the closeness of the similarity to the actions in tort against the directors upon which Mr Hilton relies.

126 In that respect Mr Hilton's argument rests, in part, on the proposition that the knowing or dishonest assistance claim against the defendants should be treated in the same way as the claim against the directors of KO, to which claim he submits a common law claim in tort is closely analogous. For the first of these two propositions he relies on Paragon Finance at 408, to which I have already referred.

127 The question remains one of the closeness of the analogy between the claim now made and the claim in tort against the directors which would attract a statutory time limit. It is also necessary to bear in mind the point made by the Supreme Court of Canada in KM v HM, in the passages cited, that the question is whether equity will draw the analogy, and not whether it must.

128 In Coulthard v Disco Mix Club Ltd and Another [2000] 1 WLR 707, a Deputy High Court Judge took a fairly broad view of the approach to be taken. He was dealing with claims for breach of duty to account, fraudulent breach of contract, breach of fiduciary duty and deliberate and dishonest breach of fiduciary duty. He held that the claims in contract and the common law claims of fraud were statute barred. He then considered whether the claims for breach of fiduciary were to be treated as barred, applying by analogy the statutory time limit applicable to the other claims. The Judge focused on the question of whether there was "correspondence" between the remedies available at law or in equity: at 730. He said (at 730):

" Now, in my judgment, the true breaches of fiduciary duty, i.e. the allegations of deliberate and dishonest under-accounting, are based on the same factual allegations as the common law claims of fraud. The breaches of fiduciary duty are thus no more than the equitable counterparts of the claims at common law. The court of equity, in granting relief for such breaches would be exercising a concurrent jurisdiction with that of the common law. I have little doubt but that to such a claim the statute would have been applied."

"...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, namely, the deliberate withholding of money due by a manager to his artist. 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 a court of equity."

129 In Cia de Seguros Imperio v Heath (REBX) Ltd and Others [2000] EWCA Civ 219; [2001] 1 WLR 112 the claim was for damages for breach of agreements, for negligence and breach of fiduciary duty in connection therewith, and for negligent misstatements, negligent misrepresentation and collateral warranty in documents. The claim arose out of the management of binding authorities entered into by the parties in connection with insurance arrangements. On the trial of preliminary issues, the Judge held that the causes of action in contract and in tort were barred by statute, and that the same period of limitation should be applied by analogy to bar the equitable claims for breach of fiduciary duty. This decision was upheld on appeal. In dismissing the appeal Waller LJ said at 121:

" In my view the authorities cited by Mr Gross and the broad principles set out in the above quotations support the submission that equity would have taken the view that it should apply the statute by analogy to a claim for damages or compensation for a dishonest breach of fiduciary duty. I say that because what is alleged against Heaths as giving rise to the dishonest breach of fiduciary duty are precisely those facts which are also relied on for alleging breach of contract or breach of duty in tort. It is true that there is an extra allegation of "intention" but that does not detract from the fact that the essential factual allegations are the same. Furthermore, the claim is one for "damages". The prayer for relief has now been amended with our leave to add a claim for "equitable compensation", but the reality of the claim is that it is one for damages, the assessment of which would be no different whether the claim was maintained as a breach of contract claim or continued simply as a dishonest breach of fiduciary duty claim. Mr Flaux however sought to persuade us that the above conclusion was fallacious. His argument was that the line to be drawn between those cases where equity did apply the statutes of limitation by analogy and those where it did not, was defined by the question whether equity was exercising its "exclusive" jurisdiction or its "concurrent" jurisdiction. In the former case, so Mr Flaux submitted, the court would not apply the statutes by analogy, and I the latter it would. Thus, he submitted, one would find no authority where the court was exercising its exclusive jurisdiction where the statute had been applied by analogy."

His Lordship went on to reject the submissions that he summarised at the end of that paragraph. Along the way Waller LJ approved of the decision in Coulthard: at 123. The other members of the Court agreed in substance with his reasons.

130 These decisions support the submission by Mr Hilton. As I have said, in each case the Court took a fairly broad approach to the question. It gave considerable weight to the point that the facts relied on would support the common law and equitable claims. It seemed not greatly concerned with distinctions between the causes of action. I agree that the application of a time limit by analogy cannot depend on a minute comparison between the claim in equity and the claim that is said to be similar and is said to be statute barred. It is to be expected that there will always be differences in the elements of the claim in equity and the claim which is said to be statute barred. However, differences in the elements of the respective causes of action must be relevant, and possibly significant.

131 A similar broad approach was taken by Campbell J in Belan v Casey [2003] NSWSC 159 at [149]- [152], although the observations there made were not essential to the decision. That Judge referred with approval to the two English decisions to which I have just referred. It might be said that in C_ubillo_ O'Loughlin J also took a fairly broad approach: at [1430].

132 Nevertheless, I am mindful of the need for careful consideration of all the facts, in accordance with the underlying equitable principle that applies. And, as Mr Karkar pointed out, the English cases were decided after the relevant facts had been fully ventilated.

133 I agree that authority supports the contention by Mr Hilton that there are causes of action in tort against the directors sufficiently similar to the claim against the directors for breach of fiduciary duty, and which are subject to a six year time limit, to warrant in principle the application of that time limit to a claim against the directors for breach of fiduciary duty. I also accept the submission that in principle the claim against the present defendants for dishonest assistance in the directors' breach of fiduciary duty should be subjected to the same time limit as applies to the claim against the directors.

134 However, for the following reasons I am not prepared to hold, on this application for summary disposition of the claim by the plaintiff, that the claim should be struck out on the basis that it is barred by the application by analogy of the statutory time limit.

135 The first reason is that before applying the statutory time limit by analogy, I must be satisfied that in all the circumstances it is just to do so. It is not just a question of finding a sufficient similarity between the equitable claim and the claim that is subject to a statutory time limit. This point has not attracted a great deal of attention in the cases referred to. Nevertheless, in accordance with basic principle it is necessary for me to consider whether it is just in all the circumstances to apply the statutory time limit. An application for the summary disposition of an action is not a satisfactory process for considering matters like this. They are best considered in the light of all the facts. As Burchett AJ said in Young v Waterways Authority of New South Wales [2002] NSWSC 612, at [27], with reference to the principle stated by Isaacs J in McNeil (set out above):

" These principles have only to be stated for it to be clear that their implementation involves the very kind of concern with the whole of the evidence which underlies the admonition delivered by the High Court in Wardley Australia Ltd v Western Australia. An application of the statute by analogy could very rarely indeed lead to a summary dismissal of an action."

The obstacles that KO and the liquidator faced in assembling the necessary information funding the claim and then bringing proceedings, might well be relevant. After all, those difficulties find their origin in the breach of duty which the defendants are said to have assisted. While in the present case, in fairness to Mr Hilton, no other particular matters spring immediately to mind as calling for consideration, the very point of these observations is that on an application of this kind, there is a risk that relevant matters will not be adequately considered.

136 More importantly, 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". The relevant principle is conveniently summarised by Spry in Equitable Remedies (cited above) in the following passage at 424-425:

" In equitable proceedings it hence became established that where the defendant set up a statutory limitation period time did not begin to run against the plaintiff so long as, by reason of the fraud of the defendant, he was not aware of the matters giving rise to his cause of action. The question was not whether the cause of action of the plaintiff depended on fraud but was whether, by reason either of fraud at the time of the accrual of the cause of action or of fraud at a later time, the plaintiff was prevented from becoming aware of his cause of action. So it could be said that "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" the commencement of proceedings." (footnotes omitted).

The summary is completed in the following passage at 426:

"Even in the case of fraud, courts of equity ordinarily allow a period of limitation to be set up as from the time at which the plaintiff has first become aware of his rights. To establish awareness it is not ordinarily sufficient to show that the plaintiff might have discovered the material fraud if he had exercised reasonable diligence or that he was negligent in not doing so. In the absence of actual knowledge it is ordinarily necessary to show that an actual suspicion of fraud has been aroused or that the plaintiff has been put upon notice, that is, that "such reasonable notice of what has happened has been given to the person injured, as to make it his duty, if he intends to seek redress, to make inquiry, and to ascertain the circumstances of the case"." (footnotes omitted).

137 See also Meagher, Gummow and Lehane (cited above) at [34-085] and [34-090].

138 In my view a relevant consideration in the present case is when the liquidator became aware of the alleged dishonest participation in the breach of fiduciary duty, and of the facts giving rise to the claim now made.

139 The parties have put substantial material before me. I have made findings in relation to it earlier in these reasons. I consider that I should not and cannot make sufficiently firm findings at this stage of the proceedings to warrant the conclusion that the present claim is to be treated as barred by the application of a six year time limit by analogy.

140 I have found that by July 1995 the liquidator had sufficient information about the sale of the Autocure shares to know that there was a reasonable prospect of establishing the facts now relied on. I have found that the liquidator could have assembled all relevant information by about mid 1997. The action was instituted in November 2002. On my findings, somewhere between about July 1995 and about the middle of 1997 the liquidator had sufficient knowledge to warrant the institution of proceedings. Bearing in mind that the action was commenced in November 2002, it may obviously be of considerable importance to make a definite finding about when the liquidator had sufficient knowledge to warrant proceedings. It may also be necessary to make quite definite findings about the reasons for not instituting proceedings at that time, and the impact of obstacles to the proceedings that might be attributable to the breaches of duty that the defendants allegedly assisted.

141 A decision whether the six year time limit is to be applied and has been exceeded (assuming that it is in principle applicable) requires findings of fact to be made with a degree of precision and confidence that is not possible at this stage. I appreciate that the issue is primarily when did the liquidator become aware of facts giving rise to the claim. On my findings he had knowledge of a substantial number of the relevant facts by July 1995. But that is not the end of the enquiry. Other difficulties facing the liquidator may well be relevant. It is not appropriate, on an application for summary disposition, to make findings of fact that cannot be made confidently. From what I have said, the case may be close to the six year deadline, if I can call it that. Either way, justice requires that the relevant finding be made with all the facts before the Court.

142 And, as I have already mentioned, one must not overlook the need to take account of all relevant circumstances in deciding whether the time limit is to be applied. This does not give the Court an unfettered discretion, but it is certainly not a case of simply determining that the statutory time limit applies because it applies to a closely similar cause of action.

143 I refer again, without repeating them, to the observations made by certain members of the High Court in Wardley about the general undesirability of determining limitation questions in interlocutory proceedings.

144 There is a further point. A time limit under the LAA can be extended. If a court dealing with an equitable claim considers that a statutory time limit should be applied by analogy, what is the significance of the fact that the time limit is capable of extension in a case to which it applies directly? This point was alluded to by Kirby P in Williams at 509. Assume, for present purposes, that the six year time limit is to be applied. If there were circumstances in the present case that would enliven the discretion to grant an extension of time, in relation to a common law claim to which the time limit is directly applicable, might not a court of equity, in exercising its discretion, make allowance for that fact? In my view it is arguable that it would. It would seem odd for a court of equity to apply by analogy a statutory time limit, ignoring the possibility of an extension of that time limit, leading to a result that would not be reached by application of the statutory provision directly. This is another reason why, to my mind, it is not appropriate for me to determine at this stage that the claim is barred by application of the statutory time limit.

145 For those reasons I am not prepared to find that the six year time limit under s 35(c) of the LAA is to be applied to the plaintiff's claim by analogy, resulting in an order that the claim should be dismissed or struck out because it cannot succeed.

146 I am not able to make the necessary findings of fact that with sufficient confidence to make it appropriate to do so. There are other matters that fall for consideration that make it inappropriate to make that decision at this stage.

147 I would reach the same conclusion, even were I to conclude, contrary to my conclusion above, that the claim against the directors under s 229 of the Code is a claim in tort, subject to a statutory time limit, and is sufficiently similar to the present claim for that statutory time limit to be applied.

148 I consider that the Corporations Law does not impose a time limit on a claim pursuant to s 229 of the Code. As to that I refer, without repeating them, to my reasons in Carabelas v Scott at [78]-[87]. Mr Hilton did not submit to the contrary.

149 I reject the submission by Mr Hilton that the fact that the Corporations Law now imposes a time limit on a claim against the directors, similar to the claim in question, provides a basis to apply that time limit by analogy in the present case. The fact that the claim under s 229 of the Code is not subject to a statutory time limit is an answer to any suggestion that a time limit applicable to a similar claim under later legislation should be applied by analogy in the present case.

151 Once again, it is convenient to begin with a summary of the relevant principles appearing in Spry, Equitable Remedies (cited above). I do so because, as I understand things, the principle is a broad one, and is not really in doubt. The issue is the application of the principle. As Spry says at 431:

" The defence of laches arises if two conditions are satisfied: first, there must be unreasonable delay on the part of the plaintiff in the commencement or prosecution of proceedings, and secondly, in view of the nature and consequences of that delay it must be unjust in all the circumstances to grant the specific relief that is in question, whether absolutely or on appropriate terms or conditions." (footnote omitted).

" It is not sufficient, however, that the defendant should be able to show merely that the plaintiff has been guilty of unreasonable delay. It must be shown further that the delay in question has rendered unjust the grant of the particular relief that is sought. So ordinarily it must be established, that by reason of the material delay, either the plaintiff has gained an unjust advantage or the position of the defendant has been altered so that an injunction now granted would operate more harshly upon him than an injunction granted with delay or that some other such consideration has arisen so that in all the circumstances it is just that the plaintiff should be confined to such other remedies as he maybe entitled to."

"The classic cases of laches arise when, during unreasonable delay by the plaintiff, the defendant either expends money or incurs an additional liability or, again during unreasonable delay by the plaintiff, evidence that may assist the defendant in presenting his case becomes more difficult to procure, so that, on either of these grounds, he will be in a substantially worse position if proceedings for specific relief are pursued against him now rather than earlier. In either of these cases it must appear that the delay of the plaintiff has given rise, not merely to some trivial inconvenience, but to a substantial detriment." (footnote omitted)

154 Section 26 of the LAA preserves the power of this Court to refuse relief on the grounds of laches.

155 The fact that the present action is brought at the instance of the liquidator is relevant when considering the question of delay. The duties of a liquidator, and the difficulties that a liquidator may face in bringing substantial proceedings, are relevant when assessing the delay that has occurred. But the fact that the liquidator represents large group of creditors of KO is, in my opinion, not relevant. There is an obvious public interest in a liquidator conducting a winding up in an orderly and thorough fashion. But I do not consider that involvement of the liquidator is relevant beyond the extent to which it may explain or justify delay that has occurred. At the end of the day, the claim is nothing more than a claim by KO for compensation for breach of a fiduciary duty.

156 In connection with the defence of laches, two main issues arise. Has there been unreasonable delay by the plaintiff? Or, putting it more broadly, what explanation is there for the time that has elapsed since the occurrence of the events giving rise to the claim, and since the liquidator was aware of the circumstances giving rise to the claim? Second, the impact of the passage of time on the defendants.

157 I accept that in relation to the second issue it is not simply a question of considering the impact of the passage of time after the time at which the liquidator, acting reasonably, could have commenced proceedings. I agree with the observations by McHugh J in Brisbane South Regional Health Authority v Taylor [1996] HCA 25; (1996) 186 CLR 541 at 555, that in a case like this the court should not confine its attention to the "marginal prejudice" created by the delay beyond the point at which the proceedings should have been commenced. The court should consider the impact on the defendants of the proceedings as things stand, and should make an assessment of the prejudice that the defendants will now suffer. It is not merely a question of identifying the additional prejudice attributable to delay beyond the time at which proceedings should have been instituted.

158 I add that in considering the question of prejudice, I agree that one should take into account the matters identified by McHugh J in that decision including, in particular, the inherent desirability of justice being administered promptly, because of the way in which delay can be oppressive and "cruel" to a defendant, because of the need to allow persons to arrange their affairs on the basis that claims will no longer be made against them, and because of the inevitable deterioration of memory and loss of evidence with the passage of time. All of these matters are to be considered.

159 But when the defence of laches is raised, with a view to barring a claim, it remains necessary to descend from the general to the particular. As Wilson, Toohey and Gaudron JJ said in Orr v Ford and Another (1988 - [1989] HCA 4; 1989) 167 CLR 316 at 330:

" The question of prejudice resulting from unavailability of evidence necessarily involves some degree of speculation, but it is not a question of pure speculation. The issue is not whether evidence may have been lost but whether evidence which may have cast a different complexion on the matter has been lost. Thus in Crago v. McIntyre a defence of laches was successful because a different conclusion may have been reached "if all of the witnesses, including the doctors, who could have given first-hand accounts of the plaintiff's behaviour, and of other relevant circumstances, had been available to be called as witnesses." (footnotes omitted).

160 In the present case I am not prepared to find that the plaintiff has been guilty of unreasonable delay. My findings are set out above, and I will not repeat them here. But in essence my finding was that the liquidator, acting reasonably, could have instituted the proceedings some three or four years sooner than he did. The liquidator could have given notice to the potential defendants that he might make the claim even sooner than that. The delay is substantial. There is no escaping that. But I recognise the complexity of the liquidation, the financial constraints on the liquidator, and the reasons why the liquidator might have thought it appropriate to concentrate on the other proceedings in which KO was involved. That is why I describe the delay as substantial, without, on the material available to me at present, being prepared to find that the liquidator has acted unreasonably. But that latter qualification may not matter too much. The significant thing is the substantial delay need not have occurred.

161 As to the impact on the defendants on the passage of time, again my findings are set out above. There is a significant risk that the defendants will suffer prejudice attributable to frailty of memory and loss of documents. But, as my findings indicate, I am also satisfied that the examinations undertaken by the liquidator, and the efforts by the liquidator to secure relevant documents, mean that the risk of prejudice to the defendants is substantially less than it otherwise would be. I am satisfied that a substantial number of relevant documents have been preserved. I am satisfied that various defendants have had cause to direct their minds to the matters in issue some time before the liquidator instituted the proceedings. I am also satisfied that the claim is one in relation to which the unaided memory of witnesses should not be crucial.

162 I am not prepared to find that the defendants will in fact suffer significant prejudice attributable to the delay. I am prepared to do no more than to find that there is a substantial risk of this occurring.

163 Accordingly, I am not satisfied that the delay by the plaintiff was such that it would be unjust and inequitable to allow the plaintiff to proceed.

164 I am influenced by the fact that the liquidator's enquiries would or should have alerted the Hambros defendants to the possibility of a claim by KO as from 1995 and the Autocure defendants (other than Alamain) from 1999, if not earlier. To some extent this offsets the failure of the liquidator to give notice that a claim might be made, and to institute proceedings sooner than he did.

165 My conclusion is that the question of the prejudice to the defendants as a result of the liquidator's delay, and to a lesser extent the explanation for the delay, can properly be assessed only at trial.

166 In saying that I make no criticism of the parties. To the contrary, they have done a thorough job of providing me with affidavit material on the reasons for the delay and on the impact of the delay on the defendants. The parties could not have done any more than they did. But the material is not enough for me to make findings that would support a decision that the defence of laches will so clearly be made out that the claim should not proceed to trial.

167 In so concluding I have not overlooked or discounted the submission by the defendants that it is unfair that they should be put to the cost of a substantial trial after this lapse of time. That is a significant point. But it does not overcome the fact that I am unable to make the necessary factual findings in their favour to warrant disposing of the action without permitting it to proceed to trial.

168 I accept that I have power to decide that the proceeding should be stayed as an abuse of process. I refer to the statement of principle by Mason CJ, Dean and Dawson JJ in Walton v Gardiner (1992-1993) 177 CLR 378 at 392. I accept that that statement of principle is capable of application to a case in which the complaint is delay, coupled with the prejudicial effect of delay.

169 The principal factors in deciding in this case whether the proceedings should be stayed as an abuse of process are delay and prejudice, matters that I have already canvassed. It may be that in considering a claim that the proceedings are an abuse of process, the court is required to consider matters that do not arise in connection with the defence of laches. In particular, it is possible that delay that brings "the administration of justice into disrepute among right-thinking people" might be a factor: Walton at 393.

170 However, for the reasons already given, I am not satisfied that the proceedings are an abuse of process. I am not satisfied that the delay that has occurred, in light of the explanation for the delay, coupled with the risk of prejudice to the defendants, is such as to lead to the conclusion that the proceedings are unfairly and unjustifiably oppressive.

171 In connection with this aspect of the matter I add that I do not accept the submission that the liquidator should have amended the claim made in Duke Group Ltd. (In Liq) v Pilmer to include this claim. There would have been some advantages in doing so. In particular, that would have avoided the risk of conflicting findings, should the defendants in the present case put in issue matters the subject of findings in the earlier case. But there are equally obvious practical and substantial disadvantages in attempting to include this claim in the earlier claim. To do so would have added a further substantial complication to an already complicated case. The present defendants might well have protested on the grounds that they should not be involved in a much larger case, in which their interest was limited. In short, I do not consider that the liquidator acted in any way unreasonably in not including this claim in the earlier claim, nor do I consider that to bring it by way of separate proceedings is oppressive or vexatious. A court should be slow to find that an abuse arises in such a case: cf Johnson v Gore Wood & Co [2002] 2 AC 1 at 59-60.

THE DUKE GROUP LTD (IN LIQ) v ALAMAIN INVESTMENTS LTD & ORS No. SCCIV-02-1675 [2003] SASC 415

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Judgment (217 paragraphs)

THE DUKE GROUP LTD (IN LIQ) v ALAMAIN INVESTMENTS LTD & ORS No. SCCIV-02-1675 [2003] SASC 415 (23 December 2003)

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Cases Cited (14)