[2017] HCA 49
Tonto Home Loans Australia Pty Ltd v Tavares [2011] NSWCA 389
(2011) 15 BPR 29,699
Tran v Perpetual Trustees Victoria Ltd [2012] NSWSC 1560
Ultimate Property Group Pty Ltd v Lord (2004) 60 NSWLR 646
[2004] NSWSC 114
Wardley Australia Ltd v Western Australia (1992) 175 CLR 514
Judgment (21 paragraphs)
[1]
g Tran Nguyen (Third Defendant)
Representation: Counsel:
D W Elliott (Plaintiffs/Respondents to motion)
M A Collins (First Defendant/Applicant to motion)
No appearance (Second Defendant)
No appearance (Third Defendant)
[2]
Solicitors:
Quy Lawyers (Plaintiffs/Respondents to motion)
Thomson Geer (First Defendant/Applicant to motion)
File Number(s): 2020/215584
Publication restriction: No
[3]
Judgment
HER HONOUR: This is an application by the first defendant, Perpetual Trustees Victoria Ltd, to strike out the plaintiffs' claim as statute-barred. In turn, the plaintiffs, Anne Thompson and Raymond Strachan, seek leave to file an Amended Statement of Claim, addressing the matters raised by Perpetual.
The plaintiffs seek to recover loan funds advanced by Perpetual to the plaintiffs, which were disbursed in accordance with a fraudulent direction issued by Perpetual's broker (the second defendant) and paid to the broker's girlfriend (the third defendant). This happened 14 years before commencement of these proceedings. The plaintiffs repaid Perpetual's loan nine years before commencement of these proceedings. The plaintiffs seek to recover the monies by pursuing an equitable remedy not subject to a statutory limitation period.
Perpetual relied on the evidence of its solicitor, Pip Nagam. The plaintiffs relied on the evidence of Ms Thompson. What follows also includes the facts pleaded in the proposed Amended Statement of Claim, which I have assumed to be correct. Of course, these allegations have yet to be proved. Perpetual has yet to file a defence.
[4]
FACTS
In 1989, the plaintiffs bought a home in Canley Vale, subject to a mortgage in favour of Westpac, securing some $73,000. The plaintiffs also owed $65,000 to GE Finance for car loans. The plaintiffs worked as a carpet layer and a cleaner. Neither were well educated or sophisticated investors; they only borrowed money for home purchases and consumer goods.
The second defendant, Eric Minh Lu, was the sole director and shareholder of Dollar Group Pty Ltd. From about 2004, Mr Lu and Dollar Group were appointed as one of Perpetual's mortgage originators and became a party to Perpetual's Loan Origination Mortgage Agreement (LOMA). As a mortgage originator, Mr Lu and Dollar Group were responsible for sourcing and introducing homeowners to Perpetual's manager as potential borrowers. According to Ms Thompson, Mr Lu branded his office and stationery with Perpetual's logo and enjoyed access to Perpetual's computer systems. As such, Mr Lu and Dollar Group prepared loan applications, assessed and recommended loan applications, submitted loan applications and subsequently managed the mortgage transaction and the borrower on behalf of Perpetual. Perpetual's mortgage managers and mortgage originators, including Dollar Group and Mr Lu were Perpetual's agents.
The third defendant, Thi Hong Trang Nguyen, was Mr Lu's partner, business associate, employee or agent. As such, Ms Nguyen was also Perpetual's agent. Mr Lu and Ms Nguyen also had a personal relationship.
In 2006, Mr Strachan met Mr Lu at a local club, where they played pool. Mr Lu offered to obtain a loan for the plaintiffs through Dollar Group, so that the plaintiffs could consolidate their Westpac and GE Finance loans and reduce their interest bill. Mr Lu introduced the plaintiffs to Ms Nguyen as his employee and, later, defacto wife.
In about January 2006, the plaintiffs signed a loan application prepared by Mr Lu. In about March 2006, Mr Lu organised a valuation on the Canley Vale property. Mr Lu negotiated a loan of $227,500 from Perpetual for the plaintiffs. Perpetual agrees that the plaintiffs procured the loan through broker, Dollar Group.
[5]
Loan agreement
The loan agreement is in evidence, comprising a Loan Offer by Perpetual to the plaintiffs dated 22 March 2006.
1. The loan amount was $227,500, with interest payable at 7.5% per annum and monthly payments of $1,614.19 in the event that the facility was drawn down in full (which it appears that it was).
2. As security for the loan, the plaintiffs agreed to provide a registered first mortgage over the Canley Vale property.
3. The mortgage manager was Dollar Group, which would be paid commission of $3,503.50 for referring the loan.
The plaintiffs executed a mortgage over the Canley Vale property.
The transaction completed on 6 April 2004. Westpac's mortgage over the Canley Vale property was discharged and Perpetual's mortgage was registered in its place. The full amount of the loan, being $227,500, was debited to a Loan Statement in the plaintiffs' name. The funds were used to discharge the Westpac mortgage, leaving a surplus of $151,592 (the Surplus). As I understand it, the GE Capital car loans were not repaid with the Perpetual loan. Ms Thompson says the car finance loan was ultimately paid out by one of her daughters.
According to Ms Johnson, Mr Lu told the plaintiffs of a plan to invest the Surplus with Perpetual and earn enough to pay off the loan over time. The plaintiffs agreed with this investment strategy, relying on Mr Lu's assurances as to investment returns. The plaintiffs subsequently received documents from Mr Lu regarding investments made on their behalf with Perpetual, which the plaintiffs accepted as genuine at the time. The documents referred to comprise two pages which appear to relate to different transactions:
1. An unsigned, undated document issued by Dollar Group entitled "Portfolio Share Investment Account" referring to an investment of $85,000 commenced on 17 March 2006 for 360 months at 15% interest, with $466,200 payable on maturity on 17 March 2036.
2. An incomplete, undated letter from Dollar Group to the plaintiffs entitled "Investment Facility" confirming "your Investment facility has been fully finalised in principle with your Mortgage as per the following terms and conditions". As I read this partial letter, on 30 May 2006, the plaintiffs borrowed $65,000 from Dollar Group for four years at 15% interest per annum, with monthly payments of $1,596.30. (The partial document is equally consistent with a loan by the plaintiffs). The loan was said to be secured over two motor vehicles.
[6]
Fraud discovered
On 4 March 2008, Perpetual wrote to Ms Thompson as follows:
Thank you for your enquiry on about an investment with Perpetual.
I have reviewed our records and can confirm that neither Perpetual Limited nor any of its subsidiary companies holds an investment in your or your husband's name …
Perpetual has recently been made aware of the Dollar Group and claims that money was invested, on behalf of clients, with Perpetual. Perpetual does not have any record of the Dollar Group investing with Perpetual and does not recognise this group as a client's agent or a licensed financial adviser. Perpetual is aware that the Dollar Group's conduct has been reported to ASIC and queries in relation to this matter should be directed in the first instance to ASIC.
If you wish to discuss this matter further with Perpetual, please contact me …
In the proposed Amended Statement of Claim, it is said that Perpetual confirmed, by this letter, that Perpetual was aware of Mr Lu's fraud and denied responsibility. More to the point, the letter made tolerably clear that the investments which the plaintiffs had been led to believe had been made by Mr Lu or Dollar Group on their behalf with Perpetual (see [11] and [12]) did not exist.
In December 2008, Perpetual claimed that the plaintiffs were in default of the loan agreement and recovery proceedings would be commenced if the plaintiffs did not regularise their loan account. This demand for repayment is said to have been unconscionable in the circumstances.
On 20 February 2009, Ms Thompson spoke to Perpetual and was informed that there was no record of any investment by the plaintiffs with Perpetual. I note that the Direction annexed to Ms Thompson's affidavit has a facsimile transmission mark dated 20 February 2009, which suggests that the document was sent to Ms Thompson that day. Consistent with this, in the proposed Amended Statement of Claim, it is pleaded that on or about 20 February 2009, the plaintiffs learned of Perpetual's unauthorised payment of the Surplus to Ms Nguyen on 6 April 2006. That is, the plaintiffs were now not only aware that the investments did not exist. The plaintiffs were now also aware of an additional fact, being what had happened with the Surplus.
Ms Thompson then contacted Challenger Mortgage Management Pty Ltd and spoke to Christine Macarthur. (Presumably Challenger was contacted as its name appeared on the Loan Statement.) The plaintiffs denied authorising the payment of the Surplus to Ms Nguyen and sought repayment of the Surplus. Ms Macarthur said there were other dissatisfied Dollar Group customers and asked for a copy of the investment documents, which Ms Thompson supplied. On receipt of documents from the plaintiffs, Perpetual advised the plaintiffs that the payment of the Surplus was the plaintiffs' responsibility and referred them back to Mr Lu as their manager. (This is now said in the proposed Amended Statement of Claim to be further unconscionable conduct on Perpetual's part).
[7]
Loan repaid
The plaintiffs say that, as a result of the transfer of the Surplus to Ms Nguyen, they fell into arrears on the Perpetual loan. To alleviate these financial difficulties, the plaintiffs sold the Canley Vale home to their son, as they could not afford the mortgage repayments. The plaintiffs now live with their son, who charges them no rent.
More precisely, on 21 November 2011, the plaintiffs completed a Discharge Authority in anticipation of completion of the sale of the Canley Vale property. On 25 November 2011, the property was transferred by the plaintiffs to their son and his partner for $400,000, of which $220,360.90 was paid to Perpetual in discharge of its mortgage. The Loan Statement received a $220,360.90 credit, resulting in a nil balance. A discharge of mortgage was registered in respect of Perpetual's mortgage.
On 26 July 2013, the plaintiffs' solicitor wrote to Perpetual, enclosing police statements provided by the plaintiffs in respect of Mr Lu. Relying on Tran v Perpetual Trustees Victoria Ltd [2012] NSWSC 1560, the plaintiffs' solicitor contended that Mr Lu and the Dollar Group were acting as Perpetual's agent when defrauding the plaintiffs. Further, payment of the Surplus was unauthorised by the plaintiffs. As such, Perpetual was said to be liable for the plaintiffs' loss. Perpetual was asked to re-credit the Surplus together with charges, fees and interest, failing which proceedings would be commenced. A draft proposed statement of claim was enclosed (although was not in evidence on this application). Ms Thompson says there was no reply to this letter. Nor were proceedings commenced.
After a trial before McClintock DCJ in the District Court of New South Wales, on 13 September 2013, Mr Lu was convicted of 21 charges of cheating or defrauding being a director of a company contrary to section 176A of the Crimes Act 1900 (NSW). The offences were committed over more than three years and related to 11 separate victims; the total amount defrauded was $2.163 million: Lu v R [2014] NSWCCA 307 at [2]-[4]. The trial judge imposed an aggregate sentence of nine years with a non-parole period of six years, which sentence was not disturbed on appeal: Lu v R at [12].
Six years passed. In October 2019, Mr Lu was released from prison. On learning of his release, the plaintiffs decided to sue. However, Ms Thompson had no funds to finance court proceedings: Mr Strachan is on an old age pension and Ms Thompson retired in December 2019. For that reason, they declined to pursue the matter further.
[8]
Commencing proceedings
On 23 July 2020, the plaintiffs commenced these proceedings, being 14 years after the payment of the Surplus in accordance with the Direction.
It will be noted immediately that section 55(1) of the Limitation Act 1969 (NSW) provides: (emphasis added)
55 Fraud and deceit
(1) … where:
(a) there is a cause of action based on fraud or deceit, or
(b) a cause of action or the identity of a person against whom a cause of action lies is fraudulently concealed,
the time which elapses after a limitation period fixed by or under this Act for the cause of action commences to run and before the date on which a person having (either solely or with other persons) the cause of action first discovers, or may with reasonable diligence discover, the fraud deceit or concealment, as the case may be, does not count in the reckoning of the limitation period for an action on the cause of action by the person or by a person claiming through the person against a person answerable for the fraud deceit or concealment.
The plaintiffs first discovered that the Surplus had not been invested with Perpetual in March 2008. The plaintiffs also discovered, in February 2009, that the Surplus had, instead, been paid to Ms Nyugen. Even taking the latter date as being when the plaintiffs first discovered the fraud, more than 6 years passed before these proceedings were commenced, such that claims in contract, tort and the like were statute barred.
On 26 August 2020, Perpetual's solicitors wrote to the plaintiffs' solicitors, suggesting that the causes of action were statute-barred and urging the plaintiffs to discontinue the proceedings against Perpetual within seven days, in which event Perpetual would not seek any order as to costs. Otherwise, Perpetual intended to set aside the statement of claim and reserved its right to rely on its letter on the question of costs, including costs on an indemnity basis. On 2 September 2020, Perpetual's solicitors sent a follow up email, seeking confirmation that the proceedings had been discontinued against Perpetual. On 3 September 2020, Perpetual's solicitor attempted to call the plaintiffs' solicitor to discuss the matter, but the plaintiffs' solicitor was unavailable and a message was left to return Ms Nagam's call. No response was received.
On 3 September 2020, Perpetual filed a notice of appearance and, on 16 September 2020, the motion now before the Court. After evidence had been filed in respect of the motion, Perpetual's solicitors wrote to the plaintiffs' solicitors again, asking the plaintiffs' solicitor to set out why it was that their claim was not statute-barred, and reserved its right to rely on the letter and previous communication on the question of costs in respect of the motion. There does not appear to have been a reply.
[9]
THE PLEADING
By the proposed Amended Statement of Claim, the plaintiffs seek declarations in various forms to the effect that Perpetual's transfer of the Surplus to Ms Nyugen was not authorised nor directed by the plaintiffs, was in breach of the loan agreement, was a fraud and unconscionable. Further, by prayers 5 to 8, the plaintiffs seek:
5 A declaration that [Perpetual] engaged in unconscionable conduct by:-
[a]. paying [the Surplus] in accordance with the forged documents to the account of [Ms Nguyen] … on or about 6 April 2006; and/or
[b]. by purporting to enforce its full security in the knowledge of [Mr and Ms Nguyen's] fraudulent misappropriation of $151,592.00; and/o[r],
[c]. by failing to adjust the Plaintiffs' loan account by re-crediting the sum of $151,592.00.
6 A declaration that the Plaintiffs were never justly indebted to [Perpetual] in respect to the [Surplus paid to Ms Nyugen] … on or about 6 April 2006, in purported reliance on the forged documents.
7 An order that an Account be taken and the Plaintiff[s'] true indebtedness to [Perpetual], absent the fraud committed, on discharge of [the] loan … be recalculated in accordance with the above declarations and their accounts adjusted accordingly.
[8] An order for damages.
The pleading sets out the facts as already described. In short, a series of unconscionable acts are described as events unfolded, being:
1. On 6 April 2006, when the loan transaction completed, as it is said that the forged documents submitted to Perpetual (of which the Direction is one) were by their nature such as to put an honest and reasonable person in Perpetual's position on inquiry and could only have been acted upon by a person who was wilfully blind to their true and obviously fraudulent nature.
2. In December 2008, when Perpetual claimed that the plaintiffs were in default under the loan agreement and demanded payment, notwithstanding its knowledge of the likely fraud.
3. On or about 20 February 2009, when the plaintiffs provided documents to Challenger; Perpetual is said to have acted unconscionably by advising the plaintiffs that they were responsible for payment of the Surplus and referring them back to Mr Lu, with the knowledge that he was a fraudster.
It is said that as a consequence of the threatened recovery action, the plaintiff sold the Canley Vale property to their son and now occupy that property as his tenants and have suffered loss and damage, of which the following particulars are given:
Particulars of Loss
a. Mis-debit of $151,592 to the Plaintiff's loan account with [Perpetual] together with interest, penalty interest, fees and charges.
b. GE Loan unrepaid on drawdown.
c. General Damages on breach of loan agreement.
d. Rental payments.
e. Shock and distress.
f. Loss of the value and security of owning their own home by reason of its sale.
[10]
CAUSES OF ACTION
Turning to the relief sought and the various bases on which the plaintiffs contended that these proceedings are in time, five causes of action require consideration.
[11]
Declaratory relief
As to the declaratory relief sought, "declaratory relief must be directed to the determination of legal controversies and not to answering abstract or hypothetical questions. The person seeking relief must have "a real interest" and relief will not be granted if the question "is purely hypothetical" or if "the Court's declaration will produce no foreseeable consequences for the parties": Ainsworth v Criminal Justice Commission (1992) 175 CLR 564 at 582; [1992] HCA 10. Thus, unless the plaintiffs' claim is otherwise within time, the proceedings would not ordinarily be permitted to proceed for the purposes of declaratory relief alone.
[12]
Account
As to the claim for an account in prayer 7, section 15 of the Limitation Act 1969 (NSW) provides:
15 Accounts
An action on a cause of action for an account founded on a liability at law to account is not maintainable in respect of any matter if brought after the expiration of a limitation period of six years running from the date on which the matter arises.
As noted by Peter Handford, Limitation of Actions - The Laws of Australia (2nd ed, 2007, Lawbook Co) at [5.10.730], the cause of action for an account arises when the defendant comes into possession of property belonging to the plaintiff in respect of which the defendant is liable to account. As I understand the pleading, this is said to be 25 November 2011, when Perpetual was repaid the loan in full, including that portion which related to the Surplus. Applying 6 years, the time to commence proceedings seeking an account would be 25 November 2017, being more than two years before these proceedings were commenced.
I infer that the account sought is founded on a liability in equity to account. As Gleeson JA explained in Sze Tu v Lowe (2014) 89 NSWLR 317; [2014] NSWCA 462 at [360]:
… First, a claim for an account in equity, absent any trust, has no equitable element. It is based on legal, not equitable rights. Accordingly, where the liability to account is contractually based, equity acts in obedience to the statute of limitations. However, if there is no contractual relationship between the parties, and the liability is exclusively equitable, the court acts by analogy with the statute.
No trust is pleaded. Thus, where proceedings are brought in equity, equity acts in obedience to the statute and applies section 15 directly to such a claim for the taking of accounts: Sze Tu at [362]. The claim for an account is statute barred.
[13]
Mortgage-related limitation periods
The plaintiffs submitted that the relevant limitation periods were sections 41 and 42(1)(a) of the Limitation Act. Section 41 provides:
41 Redemption
An action on a cause of action to redeem mortgaged property in the possession of a mortgagee is not maintainable against that mortgagee if brought after the expiration of a limitation period of twelve years running from the only or later of such of the following dates as are applicable:
(a) the date on which that mortgagee or a person through whom the mortgagee claims last goes into possession of the property in respect of which the action is brought, and
(b) the date on which that mortgagee or a person through whom the mortgagee claims last receives a payment of principal money or interest secured by the mortgage from the plaintiff or from a person through whom the plaintiff claims.
The plaintiffs submit that the 12 years began when Perpetual went into possession, said to be when the Canley Vale property was sold to the plaintiffs' son. Accepting that the Canley Vale property was transferred to the son less than 12 years before commencement of these proceedings, and assuming for the purposes of argument that Perpetual 'went into possession' of the property before it was sold to the son, the plaintiffs do not seek to redeem the mortgaged property, being the Canley Vale property. Nor is Perpetual in possession of said property. Section 41 does not apply to the case at hand.
Section 42(1)(a) of the Limitation Act provides: (emphasis added)
42 Action for principal, possession or foreclosure
(1) An action on a cause of action:
(a) to recover principal money secured by mortgage,
…
is not maintainable by a mortgagee under the mortgage if brought after the expiration of a limitation period of twelve years running from the date on which the cause of action first accrues to the plaintiff or to a person through whom the plaintiff claims.
This action is not brought by the mortgagee (Perpetual). Section 42 does not apply here.
[14]
Trust property
Section 47(1) of the Limitation Act provides:
47 Fraud and conversion; trust property
(1) An action on a cause of action:
(a) in respect of fraud or a fraudulent breach of trust, against a person who is, while a trustee, a party or privy to the fraud or the breach of trust or against the person's successor,
(b) for a remedy of the conversion to a person's own use of trust property received by the person while a trustee, against that person or against the person's successor,
(c) to recover trust property, or property into which trust property can be traced, against a trustee or against any other person, or
(d) to recover money on account of a wrongful distribution of trust property, against the person to whom the property is distributed or against the person's successor,
is not maintainable by a trustee of the trust or by a beneficiary under the trust or by a person claiming through a beneficiary under the trust if brought after the expiration of the only or later to expire of such of the following limitation periods as are applicable:
(e) a limitation period of twelve years running from the date on which the plaintiff or a person through whom the plaintiff claims first discovers or may with reasonable diligence discover the facts giving rise to the cause of action and that the cause of action has accrued, and
(f) the limitation period for the cause of action fixed by or under any provision of this Act other than this section.
Section 11(1) of the Limitation Act defines "trust" and "trustee" as follows: (emphasis added)
Trust includes express implied and constructive trusts, whether or not the trustee has a beneficial interest in the trust property, and whether or not the trust arises only by reason of a transaction impeached, and includes the duties incident to the office of personal representative but does not include the duties incident to the estate or interests of a mortgagee in mortgaged property.
Trustee has a meaning corresponding to the meaning of "trust".
The plaintiffs say the 12 years runs from 20 February 2009. Further, on sale of the Canley Vale property and repayment of the loan, the plaintiffs submitted Perpetual became the trustee of any misappropriated funds and, in breach of trust, failed to account to the plaintiffs, relying on Ultimate Property Group Pty Ltd v Lord (2004) 60 NSWLR 646; [2004] NSWSC 114 at [38]:
The duty is a duty to act conscionably towards the mortgagor and persons under the mortgagor. The duty is not to be considered in some mechanical way, but the whole of the mortgagee's conduct with respect to the sale is to be considered. The mortgagee may, up to a point, act solely in its own interests, but it must also act conscionably towards the mortgagor and those claiming under the mortgagor.
[15]
Equitable damages
The plaintiffs seek damages, which I take to be equitable damages, for unconscionable conduct, where the conduct is a series of events since the Direction was acted upon in 2006 and two occasions since when Perpetual sought to enforce its rights notwithstanding its asserted knowledge of the fraud. The nature of an equitable claim for unconscionable conduct was explained by Allsop P (Bathurst CJ and Campbell JA agreeing) in Aboody v Ryan [2012] NSWCA 395; (2012) 17 BPR 32,359 at [65]:
… At the heart of the doctrine is the taking or retaining of the benefit in a transaction in which advantage was taken of weakness or disability in a manner that in all the circumstances is unjust or unfair: Johnson v Smith [2010] NSWCA 306 at [5].
See more recently Australian Securities and Investments Commission v Kobelt (2019) 267 CLR 1; [2019] HCA 18 at [146]-[150] per Nettle and Gordon JJ.
The Limitation Act does not specify a period within which such a claim must be commenced.
[16]
APPLYING LIMITATION PERIODS BY ANALOGY
Where a statutory limitation period has no direct application to causes of action founded in equity, the statutory limitation may be applied by analogy under doctrines developed by equity. As Meagher JA explained in Gerace v Auzhair Supplies Pty Ltd (in liq) (2014) 87 NSWLR 435; [2014] NSWCA 181 at [70]:
… in purely equitable proceedings, where there is a corresponding remedy at law in respect of the same matter and that remedy is the subject of a statutory bar, equity will apply the bar by analogy unless there exists a ground which justifies its not doing so because reliance by the defendant on the statute would in the circumstances be unconscionable. They do not support the proposition that equity retains any broader discretion whether to apply the bar.
Equity's applying a statutory limitation by analogy "is an illustration of the maxim that equity follows the law": Hewitt v Henderson [2006] WASCA 233 at [16]; Lewis Securities Ltd (In Liq) v Carter [2018] NSWCA 118; (2018) 128 ACSR 120 at [32] per Leeming JA (Sackville AJA agreeing at [98]). Section 23 of the Limitation Act itself refers to the equitable doctrine, providing that the limitation periods prescribed "do not apply, except so far as they may be applied by analogy, to a cause of action … for … equitable relief." As Campbell J observed in Belan v Casey (2003) 57 NSWLR 670; [2003] NSWSC 159, "s23 explicitly contemplates that certain sections of that Act can be applied by analogy to a claim for equitable relief": at [144].
[17]
The suggested analogy
Perpetual submitted that, to the extent the claim for damages was a claim for equitable compensation for loss arising from any unconscionable conduct in equity by Perpetual, the corresponding remedy at law was provided by sections 12CA(1), 12CB(1) and 12GF(2) of the Australian Securities and Investments Commission Act 2001 (Cth). Section 12GF(2) provides a 6 year limitation period for actions for damages by a person who suffers loss or damage by conduct contravening sections 12CA and 12CB.
Perpetual submitted that the time at which a claim by the plaintiffs accrued for the purposes of section 12GF was likely to have been when "recoupment becomes impossible": Wardley Australia Ltd v Western Australia (1992) 175 CLR 514 at 533; [1992] HCA 55. This was said to be some time between 6 April 2006, when the Surplus was disbursed by Perpetual, and 4 March 2008, when Perpetual wrote to Ms Thompson advising that neither Perpetual Ltd nor any of its subsidiary companies held an investment in the plaintiffs' name.
[18]
Is the analogy apt?
As to how to decide whether a statutory limitation period is suitable for application to an equitable claim, Lord Westbury's exposition of the task in Knox v Gye (1872) LR 5 HL 656 at 674 remains apposite (Belan v Casey at [146]; Lewis at [32], [35]): (emphasis added)
For where the remedy in Equity is correspondent to the remedy at Law, and the latter is subject to a limit in point of time by the Statute of Limitations, a Court of Equity acts by analogy to the statute, and imposes on the remedy it affords the same limitation. This is the meaning of the common phrase, that a Court of Equity acts by analogy to the Statute of Limitations, the meaning being, that where the suit in Equity corresponds with an action at Law which is included in the words of the statute, a Court of Equity adopts the enactment of the statute as its own rule of procedure.
In Lewis Securities, Leeming JA observed, "the question of analogy turns on the particular facts giving rise to the equitable claim", which may be factually dense, particularly in connection with claims for breach of fiduciary duty where breaches may range from "entirely innocent and inadvertent, more or less culpable or seriously fraudulent": at [34], [44]. Thus, Leeming JA held that claims based on a fraudulent breach of fiduciary duty (the second limb of Barnes v Addy (1874) LR 9 Ch App 244) were not barred by analogy with section 1317K of the Corporations Act 2001 (Cth). The analogy was inapt, having regard to the element of "dishonest and fraudulent design" in the cause of action, which took the cause of action outside "the broad class of claims to which s 1317K applies": at [61], [72], with whom Sackville AJA agreed on this point: at [98].
Likewise, an equitable claim based on unconscionable conduct is also factually intensive, which may make it a poor candidate for application of a statutory limitation period by analogy. As noted in Kobelt at [150], the High Court has recognised and restated a number of times (in Jenyns v Public Curator (Qld) (1953) 90 CLR 113 at 118-119; Tanwar Enterprises Pty Ltd v Cauchi (2003) 217 CLR 315; [2003] HCA 57 at [23]; Kakavas v Crown Melbourne Ltd (2013) 250 CLR 392; [2013] HCA 25 at [122]-[123]; Thorne v Kennedy (2017) 263 CLR 85; [2017] HCA 49 at [43]), invocation of equitable doctrines, including unconscionable conduct:
… calls for a precise examination of the particular facts, a scrutiny of the exact relations established between the parties and a consideration of the mental capacities, processes and idiosyncrasies of the [weaker party]. Such cases do not depend upon legal categories susceptible of clear definition and giving rise to definite issues of fact readily formulated which, when found, automatically determine the validity of the disposition. … [']A court of equity takes a more comprehensive view, and looks to every connected circumstance that ought to influence its determination upon the real justice of the case'.
[19]
Is it unjust to apply the analogy?
As to when equity will decline to apply limitation periods by analogy, in Gerace v Auzhair Meagher JA identified two classes of case: claims by a beneficiary against a trustee for breaches of trust and claims involving fraud or fraudulent concealment: at [35]. As to the latter, at [75]:
The grounds on which equity declines to permit a defendant to rely upon a statutory bar by analogy include where there has been fraudulent concealment, which requires either fraudulent conduct as an element of the right of action or conduct consisting of active concealment of a right of action that does not include fraud as an element: Meagher, Gummow and Lehane's Equity Doctrines and Remedies at [34-085]. … The equitable doctrine is not confined to common law fraud or deceit and requires a consciousness on the part of the defendant that what is being done is wrong or that to take advantage of a particular situation involves wrongdoing …
Generally, whether the circumstances of the case make it unjust to apply the statute of limitations is not a question which should be determined on an application for summary dismissal as resolution of the question may depend upon findings of fact: Issa v Issa [2015] NSWSC 112, at [79] per White J. In that case, the findings of fact concerned the nature and extent of any breach of fiduciary duty.
The plaintiffs relied on Gregg v Tasmanian Trustees Ltd (1997) 73 FCR 91; [1997] FCA 128, where Merkel J rejected the application of a two-year time limit in section 87 of the Trade Practices Act 1974 (Cth) to a wife's equitable claim in respect of her husband's unconscionable conduct in obtaining mortgages over her land, of which she was not aware for some time. At 133:
I cannot conceive of any reason why it is conscionable in the present case to require that the applicant's claim in equity for unconscionable conduct be brought within two years of the accrual of the cause of action merely because statutory claims under ss 51AA and 87(1A) have such a limitation.
Perpetual submitted that Gregg was wrongly decided or distinguishable, as Perpetual informed the plaintiffs of relevant matters some time before the limitation period expired rather than after (as in Gregg). Perpetual submitted it was not unconscionable to permit Perpetual to rely on the statute as Perpetual informed the plaintiffs of the relevant facts said to give rise to their claim.
[20]
ORDERS
For these reasons, I make the following orders:
1. Pursuant to rule 14.28 of the Uniform Civil Procedure Rules 2005 (NSW), dismiss the proceedings against the first defendant.
2. Order the plaintiffs to pay the first defendant's costs of the proceedings, including the first defendant's motion filed on 16 September 2020.
3. Stand the proceedings over before the Registrar on 24 June 2021.
[21]
DISCLAIMER - Every effort has been made to comply with suppression orders or statutory provisions prohibiting publication that may apply to this judgment or decision. The onus remains on any person using material in the judgment or decision to ensure that the intended use of that material does not breach any such order or provision. Further enquiries may be directed to the Registry of the Court or Tribunal in which it was generated.
Decision last updated: 04 June 2021
In fact, Perpetual paid the Surplus in accordance with a written direction requesting that the Surplus be paid to Ms Nguyen's bank account at Westpac ending 138 (the Direction). Ms Thompson says the plaintiffs did not sign, authorise or see the Direction and it is fraudulent. It is the Surplus which the plaintiffs seek to recover in these proceedings.
In about September 2009, Ms Thompson reported the matter to the police. It appears from later correspondence that the plaintiffs provided witness statements to the police. Mr Lu was charged with fraud.
The motion was listed for hearing on 17 December 2020. During the course of argument, the plaintiffs' counsel accepted that most of the pleaded causes of action were out of time but suggested that equitable claims remained available which were not subject to a limitation period. As such claims were not readily apparent on the pleading, directions were made for the plaintiffs to circulate a proposed amended statement of claim, with the statute barred claims removed and the equitable claim more clearly identified. This was duly done. On 12 February 2021, Ms Thompson and Mr Strachan each verified the proposed Amended Statement of Claim, verifying that they believed that the allegations of fact in the pleading were true.
This did not alter Perpetual's position that the plaintiffs' claims were out of time. On 17 February 2021, Perpetual's solicitors again advised the plaintiffs' solicitors that the causes of action now sought to be relied upon could not be maintained and, in the circumstances, Perpetual did not consent to the filing of the amended pleading. The plaintiffs were invited to identify the basis on which they said the proposed pleading was not out of time before the matter next came before the Court.
The hearing resumed on 29 March 2021, when further submissions were made as to whether the plaintiffs should be given leave to file the Amended Statement of Claim, or whether the proceedings against Perpetual should be dismissed as out of time.
Ms Thompson says that, as a result of the fraud committed against the plaintiffs, they have been financially ruined. The Canley Vale home is now said to be worth about $1.2 million.
In the passage relied upon, Young CJ in Eq was considering the equitable duty of a mortgagee when exercising a power of sale. It is not clear how the duty applies here. The definition of 'trust' in section 11(1) may preclude a trust said to have come into existence in such circumstances in any event. The more significant problem is that the proposed Amended Statement of Claim does not plead the existence of a trust or trust property, nor that Perpetual had a connection with such a trust, for example, as trustee, nor that the plaintiffs had any connection with such a trust, for example, as beneficiaries. Section 47(1) does not apply either.
In Hewitt v Henderson, Buss JA (with whom Steytler P and Pullin JA agreed) also observed, "a strike-out application will rarely be a satisfactory process for determining whether equity should apply a statutory limitation period by analogy": at [29]. Further, at [30]:
In the present case, the respondents have pleaded, relevantly, causes of action for breach of fiduciary duty and an account. The appellant's allegation that a limitation period should be applied by analogy would, in the ordinary course, be specifically pleaded in his defence. … The respondents would then plead to that allegation in a reply. The plea in reply would include any facts which, on the respondents' contention, make it unconscionable for the appellant to invoke the limitation defence. The appellant has not (yet) sought to amend its defence to raise limitation issues. In my opinion, the application before the learned Judge was not a satisfactory process for determining, on a summary basis, whether the respondents' pleaded causes of action for breach of fiduciary duty and an account were hopelessly barred. That issue should be determined at trial on the pleadings and after all material facts have been found.
Turning to whether the analogy is apt here, section 12CA(1) of the ASIC Act provides: (emphasis added)
12CA Unconscionable conduct within the meaning of the unwritten law of the States and Territories
(1) A person must not, in trade or commerce, engage in conduct in relation to financial services if the conduct is unconscionable within the meaning of the unwritten law, from time to time, of the States and Territories.
Sections 12CA applies where there is conduct that is "unconscionable within the meaning of the unwritten law", being a clear reference to the equitable doctrine of unconscionable conduct: Jams 2 Pty Ltd v Stubbings [2020] VSCA 200 at [78] per Beach, Kyrou and Hargrave JJA.
Section 12CB(1) of the ASIC Act provides:
12CB Unconscionable conduct in connection with financial services
(1) A person must not, in trade or commerce, in connection with:
(a) the supply or possible supply of financial services to a person; or
(b) the acquisition or possible acquisition of financial services from a person;
engage in conduct that is, in all the circumstances, unconscionable.
The section applies where there is conduct "that is, in all the circumstances, unconscionable" and section 12CB(4)(a) provides that the section "is not limited by the unwritten law…". Nonetheless, the unwritten law "has a significant part to play in ascribing meaning to the term "unconscionable" under s 12CB(1)": Kobelt at [144].
Section 12CC lists 16 non-exhaustive matters to be taken into account when determining whether a person has contravened section 12CB. This list "necessarily implies that the statutory conception of unconscionability is more broad-ranging than that of the unwritten law": Kobelt at [144].
Thus, section 12CB is wider than the general law and the provisions are intended to build on and not be constrained by cases at general law and in equity: Tonto Home Loans Australia Pty Ltd v Tavares [2011] NSWCA 389; (2011) 15 BPR 29,699 at [291] citing Australian Securities and Investments Commission v National Exchange Pty Ltd (2005) 148 FCR 132; [2005] FCAFC 226 at [30]. In Jams 2, the Court performed an admirable reconciliation of the judgments in Kobelt, concluding that the standard to be applied under section 12CB(1) was, at [90]: (footnotes omitted)
The applicable standard is a normative one involving the evaluation of whether the conduct in question is 'so far outside societal norms of acceptable commercial behaviour as to warrant condemnation as conduct that is offensive to conscience'; in the sense that a court should only take the serious step of denouncing conduct as unconscionable when it is satisfied that the conduct is 'offensive to a conscience informed by a sense of what is right and proper according to values which can be recognised by the court to prevail within contemporary Australian society'.
Like equity, section 12CB requires a focus on 'all the circumstances' of the case: Jams 2 at [79]. Further, it has been said to be "obviously correct" that, if conduct is unconscionable in equity, it will also be unconscionable under section 12CB(1): Jams 2 at [83].
Perpetual's provision of a loan to the plaintiffs, and the discharge of the loan, would appear to fall within the ambit of sections 12CA and 12CB.
1. A person provides a "financial services" if they deal in a financial product: section 12BAB(1)(b), ASIC Act.
2. A "financial product" includes a credit facility within the meaning of the regulations, which includes the provision of credit and the provision of a mortgage that secures obligations under a credit contract: section 12BAA(7)(k), ASIC Act; regulation 2B(1)(a) and (f), Australian Securities and Investments Commission Regulations 2001 (Cth).
3. "Dealing" in a financial product includes issuing, varying or disposing of a financial product: section 12BAB(7)(b), (d) and (e), ASIC Act.
I note that, until 1 January 2012, section 12CB also included sub-section (5), which limited financial services to which the section applied to "financial services of a kind ordinarily acquired for personal, domestic or household use". Whether Perpetual's loan met that description is unknown, although it appears from the pleading and Ms Thompson's affidavit that the plaintiffs were endeavouring to establish this (in particular, when the Statement of Claim included a claim under the comparable provisions of the Trade Practices Act 1974 (Cth)). This restriction, however, did not affect section 12CA.
Both sections 12CA(1) and 12CB(1) capture the unconscionable conduct as alleged by the plaintiffs in these transactions. There is an 'identity' of unconscionable conduct between the law of equity and section 12CA. Equitable unconscionable conduct is a sub-set of unconscionable conduct within the meaning of section 12CB. The plaintiffs' claim for equitable damages for unconscionable conduct corresponds to the remedy provided by section 12GF(2) for contravention of sections 12CA(1) and 12CB(1). I consider that the analogy between the statutory remedy and the equitable remedy is apt such that the statutory limitation period should apply to the plaintiffs' equitable suit, subject to whether it is unjust to apply the statutory limitation in this case.
Accepting that the plaintiffs were not aware until 4 March 2008 that the Surplus had been disbursed in accordance with the Direction, it may be unjust to apply the statutory limitation period by analogy. However, the unjust result which might otherwise pertain if the six-year limitation period in section 12GF(2) began in April 2006 can be ameliorated by equity imposing the statutory limitation period from when the fraud was revealed, rather than refusing to impose the statutory limitation period on equity's remedy altogether. In this way, equity may also 'follow the law' in respect of section 55(1) of the Limitation Act: see [26]. This is consonant with the principle stated in Sheldon v RHM Outhwaite (Underwriting Agencies) Ltd [1996] 1 AC 102 at 115 per Bingham MR: (emphasis added)
The equitable exception to the old and unqualified statutory limitation rule rested on the principle that a defendant whose unconscionable conduct had denied the plaintiff the opportunity to sue in time should not in conscience be permitted to plead the statute to defeat the plaintiff's claim provided the claim were brought timeously once the plaintiff learned or should have learned of it.
See also Finance & Guarantee Co Pty Ltd v Auswild [2019] VSC 664 at [290]-[294] and [311] per Riordan J.
I do not consider it unjust to apply the statutory limitation period by analogy, at least, from when the plaintiffs became aware of the fraud. However, suspending the limitation period in this manner does not solve the plaintiffs' problem as these proceedings were not commenced within 6 years of discovering the fraud.
Further, as I understand the pleading, the unconscionable conduct was effectively continuing whilst Perpetual sought repayment of its loan in full, including by exercising its rights under the mortgage if need be. Such unconscionable conduct would thus have continued until 25 November 2011, when the loan was repaid and the mortgage discharged. These proceedings were not commenced within six years of the last 'act' of unconscionable conduct but more than two years later.
A statement of claim will only be struck out in the clearest of cases, as explained by the High Court in Wardley 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.
This is such a case. A court of equity acts by analogy to the statute and imposes the same limitation period on its remedy such that the equitable claim cannot now be further pursued against Perpetual. As regrettable as that may seem, it should be noted as Leeming JA stated in Lewis Securities at [29]:
Limitation law is not some "unmeritorious procedural technicality"; it is neither a technicality nor necessarily unmeritorious, as Lord Sumption JSC observed in Abdulla v Birmingham City Council [2012] UKSC 47; [2012] ICR 1419 at [41]. Rather, as McHugh J said in Brisbane South Regional Health Authority v Taylor (1996) 186 CLR 541 at 553; [1996] HCA 25, a limitation period "represents the legislature's judgment that the welfare of society is best served by causes of action being litigated within the limitation period, notwithstanding that the enactment of that period may often result in a good cause of action being defeated."
Perpetual seeks their costs of the motion on an indemnity basis. Notwithstanding that there is some merit in that application, I have also had regard to the fact that applications such as these are technically difficult and it was not unreasonable for the plaintiffs to press an equitable claim. I also have in mind the plaintiffs' modest financial circumstances.