In an action brought in
equity's exclusive jurisdiction, where the defendant seeks to
rely by analogy on a statutory limitation period, does the court
have a discretion to decline the application of the analogous time
bar to the equitable proceeding? The question arose in Gerace v
Auzhair Supplies Pty Ltd (2014) 87 NSWLR 435; [2014] NSWCA 181 and
was answered in the negative. This article discusses the principles
on which an analogous time bar is applied to an action in
equity's exclusive jurisdiction, and suggests that this complex
area is one which warrants further attention.
INTRODUCTION
Consider the scenario where there is a cause of action at law
and a corresponding action in equity's exclusive jurisdiction
arising from the same facts and circumstances. Assuming the cause
of action at law is statute barred, how does one ascertain whether
the claim in equity's exclusive jurisdiction1 is
time barred?
The first line of inquiry is to consider any applicable
statutory provision. As Gageler J has observed: "Most cases in
most courts in Australia are cases in which all or most of the
substantive and procedural law that is applied by the court to
determine the rights of the parties who are in dispute has its
source in the text of a statute".2
Historically, limitation periods were imported into the common
law by statute to restrict the bringing of common law
actions.3 Meanwhile, courts of equity developed
limitation periods of their own to govern actions in equity's
exclusive jurisdiction.4 Some statutory limitation
provisions do however apply directly to a claim in equity's
exclusive jurisdiction. For example, the Limitation Act 2005 (WA)
incorporates all claims (whether legal or equitable) into the
limitation regime.5 Writing extra-judicially, Leeming J
has provided another example: s 8 of the Trustee Act 1888 (UK)
which made all limitation defences applicable to claims brought by
a beneficiary against a trustee of an express trust for breach of
trust, except where the claim was founded on "any fraud or
fraudulent breach of trust".6
In New South Wales, s 23 of the Limitation Act 1969
(NSW) provides that: "Sections 14, 16, 17, 18, 20 and 21 do
not apply, except so far as they may be applied by analogy, to a
cause of action for specific performance of a contract or for an
injunction or for other equitable relief".7 The
words of this statute "except so far as they may be applied by
analogy" raise questions as to when and why statutory
limitation provisions which do not apply directly to a claim in
equity's exclusive jurisdiction may be applied by analogy to
the equitable claim.
Such questions arose in the context of the Corporations Act
2001 (Cth) in Re Auzhair Supplies Pty Ltd (in liq)
(2013) 272 FLR 304; [2013] NSWSC 1 and subsequently on appeal in
Gerace v Auzhair Supplies Pty Ltd (2014) 87 NSWLR 435;
[2014] NSWCA 181.
PROCEEDINGS BEFORE THE PRIMARY JUDGE
Three brothers (the Geraces) were the only directors and
shareholders of a company which imported hair colour products named
Auzhair Supplies Pty Ltd. In 2002 and 2003, Mr and Mrs Greenaway
loaned Auzhair Supplies $600,000 on terms that required the
principal to be repaid in 2007 and interest to be paid at a rate of
10% per annum. In about February 2005, with the agreement of the
Greenaways, the Geraces transferred the assets of Auzhair Supplies
to a new company, Auzhair 1 Pty Ltd, a company in which the Geraces
as well as the Greenaways were shareholders. In February 2005, one
of the brothers, Mr Roy Gerace, applied for Auzhair Supplies to be
de-registered, declaring in the application that Auzhair Supplies
had no liabilities. The primary judge found that Mr Gerace believed
(albeit incorrectly) that the liability to the Greenaways had been
assigned along with the assets and undertaking. Auzhair Supplies
was subsequently de-registered in June 2005. The Greenaways
received payments of interest on their loan in varying amounts from
July 2003 to September 2009, notwithstanding that Auzhair Supplies
was deregistered from June 2005. The principal was not repaid. In
2010, the Greenaways successfully applied for Auzhair Supplies to
be re-instated. Ward J ordered that Auzhair Supplies be wound up in
insolvency, and that a liquidator be appointed.8
Auzhair Supplies, then in liquidation, brought a claim in
equity's exclusive jurisdiction for equitable compensation for
breach of fiduciary duty. No statutory remedy under the provisions
of ss 180, 181, 182 and/or 183 of the Corporations Act
2001 was pursued since more than six years had elapsed since
the breach and s 1317K of the Act would operate to bar such a
claim. There was no tolling provision in the Act to suspend or
extend the limitation period in the event of incapacity. The claim
for equitable compensation for breach of fiduciary duty, which was
expressly preserved by s 185 of the Act, was not directly affected
by the limitation provision in s 1317K.
The matter came before Brereton J, who found that the Geraces
had breached their fiduciary duties. The Geraces sought to have s
1317K of the Act applied by analogy to the equitable claim.
Brereton J stated the relevant two-staged approach:
The relevant enquiry is therefore to consider, first, whether
the equitable claim and the corresponding legal right are so
similar that the time limit applicable to the latter should be
applied to the former; and, secondly, where such a similarity
exists, whether it would nevertheless be inequitable to apply the
analogous limitation period.9
Brereton J found that the statutory cause of action and the
equitable claim were "not merely analogous but practically
indistinguishable",10.however his Honour held the
equitable claim should not be barred by analogy because in the
circumstances of the case it would be inequitable to do so. The
circumstances considered by his Honour included the following:
The strength of the plaintiff's
case in this respect is that the wrongdoers remained in control of
the company from the time when the cause of action arose (in or
before February 2005) until they procured it to be (wrongly)
deregistered (in June 2005) by a false declaration that it had no
liabilities – albeit that I am unconvinced that it was
knowingly false. While deregistered, the plaintiff was for all
practical purposes incapable of bringing proceedings to enforce its
equitable rights, and it was only upon reinstatement (which was
initially, though not ultimately, opposed by the defendants) and
the consequent appointment of a liquidator (which was also
opposed), in November 2010, that enforcement of those rights became
possible. These proceedings are taken to have been instituted in
December 2011. There is no evidence of prejudice to the second,
third and fourth defendants from any delay.11
Brereton J further stated:
It is clear that the trigger for the
reinstatement and winding-up proceedings was the non-repayment to
the Greenaways of their loan, which under the 1 July 2004 agreement
was repayable on 1 July 2007, although interest in respect of it
continued to be paid until 2009. As I have concluded above, the
Greenaways agreed to the transaction that is now said to constitute
a breach of the directors' duties – the effect of the
evidence before me being that the directors and the Greenaways
agreed to the establishment of Auzhair 1, in which they were to
have a stake, and the transfer to it of the assets and undertaking
of Auzhair Supplies. However, that does not amount to knowledge of
their rights for the purposes of the law of laches: the Greenaways
themselves had no right to commence proceedings against the
directors. Even if it might be said that the Greenaways knew the
facts that are now said to amount to a breach of the directors'
duties from their occurrence, they did not know – and did not
have the means to know – that they had rights to complain of
any such breach, because they themselves had no such rights. They
could not reasonably have been expected to commence antecedent
proceedings for reinstatement and winding-up until they learned
that the company had been deregistered and had ceased to make
payments in respect of their loan. Accordingly, while I accept that
the knowledge of the Greenaways is a relevant consideration, they
could not themselves have commenced proceedings against the
directors for breach of duty, and I do not accept that it has been
shown that they had the requisite knowledge to warrant the
commencement of the antecedent proceedings for reinstatement and
winding-up before interest payments ceased in September 2009. There
was, as a matter of practical reality, no means by which the
company could bring proceedings against the directors until those
steps had occurred. It would not do so while it remained under the
control of the wrongdoers. It could not do so while deregistered.
Thus the control and acts of the wrongdoers rendered it practically
impossible for the company to enforce its equitable claim against
them, until it was reinstated.
In those circumstances, despite the
close analogy with the statutory cause of action, I conclude that
it would be inequitable to apply the analogous limitation period.
That is because while that limitation period prima facie informs
the application of the doctrine of laches, equity would not bar the
proceedings on account of laches where the plaintiff was not able
to enforce its rights, as from the time when the cause of action
arose until the company was reinstated and a liquidator appointed,
it was rendered unable to do so – initially because it
remained under the control of the wrongdoers, and subsequently
because it had been wrongly deregistered at their instance –
and the present proceedings were instituted in December 2011,
promptly after those conditions came to an end. That is all the
more so in the absence of evidence of prejudice to the defendants
from any delay.12
PROCEEDINGS IN THE COURT OF APPEAL
The Geraces appealed to the New South Wales Court of Appeal. The
Court of Appeal found that the primary judge erred in finding that
where equity applied the statute of limitations by analogy, it did
so as an aspect of the doctrine of laches. More controversially,
the Court of Appeal found that the primary judge had no discretion
to decline to apply the analogous s 1317K limitation
period.13 Meagher JA, in the leading judgment,
formulated:
The authorities referred to above,
and in particular R v McNeil, show that in purely
equitable proceedings, where there is a corresponding remedy at law
in respect of the same matter and that remedy is the subject of a
statutory bar, equity will apply the bar by analogy unless there
exists a ground which justifies its not doing so because reliance
by the defendant on the statute would in the circumstances be
unconscionable. They do not support the proposition that equity
retains any broader discretion whether to apply the bar. The
description of such a ground, or the conduct giving rise to or
constituting it, as unconscionable or unconscientious leaves to be
identified the principles according to which equity justifies that
conclusion: Australian Broadcasting Corporation v Lenah Game
Meats Pty Ltd [2001] HCA 63; 208 CLR 199 at [45] (Gleeson CJ)
and Australian Competition and Consumer Commission v CG
Berbatis Holdings Pty Ltd [2003] HCA 18; 214 CLR 51 at
[41]-[42] (Gummow and Hayne JJ).14
According to Emmett JA,
"fraudulent concealment or other conduct that made the
appellant's reliance on the statutory bar unconscionable"
are the exceptions to the rule that equity will apply the bar by
analogy.15
Auzhair Supplies unsuccessfully
sought special leave to appeal to the High Court of
Australia.
THE ORIGINS OF THE RULE
The practice of equity applying an analogous statutory time bar
was recognised by Lord Camden in Smith v Clay (1767) 3 Bro
CC 646; 29 ER 743. Lord Camden is reported as having stated:
[A]s often as parliament had limited
the time of actions and remedies, to a certain period, in legal
proceedings, a Court in Chancery adopted that rule, and applied to
similar cases in equity. For when the Legislature had fixed the
time at law, it would have been preposterous for equity (which, by
its own proper authority, always maintained a limitation), to
countenance laches beyond the period, that law had been confined to
by parliament. And therefore in all cases where the legal right has
been barred by parliament, the equitable right to the same thing
has been concluded by the same bar.16
In the same case, Lord Thurlow is
reported as having stated:
What limitation of time will bar a
suit where there is no positive limitation, or under what
circumstances the lapse of time ought to have that effect, must
depend on the facts of the particular case, and the conclusion must
be an inference of fact, and not an inference of law, and therefore
cannot be made on demurrer.17
In Sterndale v Hankinson
(1827) 1 Sim 393; 57 ER 625 the Vice-Chancellor stated:
The other fallacy is, that the statute bars the suit in Equity;
which it does not. But, as Courts of Equity will not entertain
stale demands, they have thought proper to adopt the limit of six
years, in analogy to the statute; and pleas of the statute are
admitted in these Courts by analogy only. When the circumstances of
a case are such as to make it against conscience to apply the rule
founded upon this analogy, the Court will not enforce
it.18
The Vice-Chancellor's statement
in Sterndale v Hankinson was cited with approval by Jessell MR in
Re Greaves; Bray v Tofield (1881) 18 Ch D 551 at
553.
As identified by Meagher JA in
Gerace: "The most often cited statement concerning
equity's treatment of limitation statutes is that of Lord
Westbury in Knox v Gye (1872) 5 LR HL 656 at
674".19 In Knox v Gye, a case which did
not concern an action in equity's exclusive jurisdiction but
rather an equitable action in equity's concurrent jurisdiction,
Lord Westbury stated:
[W]here 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. (emphasis added)
In Australia, the starting point is
the decision of R v McNeil (1922) 31 CLR 76, in which
Isaacs J emphasised that equity is free in its exclusive
jurisdiction to decline to apply the analogue:
Where a Court of equity finds that a
legal right, for which it is asked to give a better remedy than is
given at law, is barred by an Act of Parliament, it has no more
power to remove or lower that bar than has a Court of law. But
where equity has created a new right founded on its own doctrines
exclusively, and no Act bars that specific right, then equity is
free. It usually applies, from a sense of fitness, its own
equitable doctrine of laches and adopts the measure of time which
Parliament has indicated in analogous cases, but, when a greater
equity caused by fraud arises, it modifies the practice it has
itself created and gives play to the greater
equity.20
Isaacs J did not confine equity's
freedom to decline to apply the analogous time bar to circumstances
which come within exceptions to a prescribed rule. Isaacs J
employed the word "usually", just as Brereton J in Re
Auzhair Supplies Pty Ltd (in liq) employed the words
"ordinarily"21 and "prima
facie"22 to reflect equity's usual practice
that prima facie, equity will follow the law by applying the
analogous statutory time bar. This usual practice does not however
curtail equity's "freedom" or "discretion"
not to apply the analogous time bar where the facts and
circumstances of the case make it unjust to do so. Using the
language of Isaacs J, the analogous time bar will not be applied
where a "greater equity" outweighs it. The "greater
equity caused by fraud" is illustrative rather than definitive
of the exceptional circumstances in which equity will not apply the
analogue.
In Motor Terms Co Pty Ltd v
Liberty Insurance Ltd (1967) 116 CLR 177, Kitto J
stated:
The case of Sterndale v
Hankinson ... is cited in one of the judgments below as
authority for the proposition that "the Court will apply the
Statute (of Limitations) in Equity by analogy, but where the
circumstances make it against conscience to apply the rule founded
on this analogy the Court will not enforce it". That is, and
was laid down as, a principle of general Equity jurisprudence only.
The judgment of Sir John Leach shows, and ample other authority for
it might be cited, that the analogy of the statute is used in a
suit for equitable relief as affording a prima facie proper
standard by which to decide whether the relief should be refused on
the ground of the staleness of the claim.23
In Bennett v Minister of
Community Welfare (1993) 176 CLR 408, McHugh J stated that if
the exclusive equitable jurisdiction "to enforce compensation
for breach of a fiduciary obligation" had been invoked
"there would be much to be said for the view that the Minister
could not escape liability to compensate the
appellant".24 The dicta of McHugh J suggests that
in his Honour's view, the limitation period would not have
barred, by analogy or otherwise, the equitable claim.
In Williams v Minister,
Aboriginal Land Rights Act 1983 (1994) 35 NSWLR 497, Kirby P
(with whom Priestley JA expressed agreement), was of the opinion
that the application of the statute "by analogy" does not
lead to the automatic application of the statutory limitation to
the equitable claim.25
In Simpson v Donnybrook
Properties Pty Ltd [2010] NSWCA 229, Young JA (with whom
Macfarlan and Hodgson JA agreed) indicated that in Mathas v
Slater [2009] NSWSC 1397, Rein J was entitled to take the view
that it would be unconscionable to apply the Limitation Act
1969 by analogy.26
In The Duke Group Ltd (in liq) v
Alamain Investments Ltd [2003] SASC 415, Doyle CJ stated at
[135] that "before applying the statutory time limit by
analogy, I must be satisfied that in all the circumstances it is
just to do so". Doyle CJ's decision was upheld on appeal
by the Full Court: Barker v Duke Group Ltd (in liq) (2005)
91 SASR 167; [2005] SASC 81. Perry J (with whom Duggan and White JJ
agreed) stated at [115]:
It is the defendants who seek to rely
on the limitation by analogy. It was for the defendants to satisfy
the court that the analogy should be applied. In the course of
determining the matter, it was incumbent on Doyle CJ to consider
whether it would be just and equitable to apply the statute by
analogy. He did not err in his approach to this question. In
addressing the question which he posed, namely, whether it was just
in all the circumstances to apply the statutory time limit, he
necessarily had regard to the same considerations as it would have
been necessary to address if he had posed the question in terms of
whether there was anything in the circumstances which might render
it unjust to do so.
In Hewitt v Henderson [2006]
WASCA 233, Buss JA stated that the authorities "support the
proposition that equity will not apply a limitation period by
analogy where there are circumstances which make the application of
the statute unconscionable". Buss JA did not think it
appropriate "to determine whether equity retains a broader
discretion as to whether the statute should apply; for example, by
reference to any exceptions that are allowed in the law of
laches".27
In Westpac Banking Corporation v
The Bell Group Ltd (in liq) (No 3) (2012) 44 WAR 1; [2012]
WASCA 157, the Court of Appeal found that the trial judge, who had
determined that insufficient analogy between the nature of the
claims in equity and an action in tort had been demonstrated, but
in any event, had also determined that it would not be just in all
the circumstances to apply such a bar to the foregoing equitable
claims,28 had undertaken a "careful analysis of
principle and his consideration of relevant facts showed no error
in his application of the law nor in the exercise of his
discretion".29 The Court of Appeal of the Supreme
Court of Western Australia clearly accepted that there was a
discretion to decline the application of the analogue.
In England, the Court of Appeal in
Cia de Seguros Imperio v Heath (REBX) Ltd [2001] 1 WLR 112
endorsed the view that in cases in equity's exclusive
jurisdiction there is a discretion not to apply the statute by
analogy if to do so would be unjust. In P&O Nedlloyd BV v
Arab Metals Co [2007] 2 All ER (Comm) 401 the English Court of
Appeal expressly recognised the discretion.30
The Supreme Court of the United
States, in Gardner v Panama Railroad Co 342 US 29 (1951)
stated:
Though the existence of laches is a
question primarily addressed to the discretion of the trial court,
the matter should not be determined merely by a reference to and a
mechanical application of the statute of limitations. The equities
of the parties must be considered as well. Where there has been no
inexcusable delay in seeking a remedy and where no prejudice to the
defendant has ensued from the mere passage of time, there should be
no bar to relief.31
In Canada, La Forest J in KM v
HM (1993) 96 DLR (4th) 289 held that even if statutes of
limitation are applicable by analogy in the exclusive jurisdiction
of equity, the analogy will be governed by the parameters of the
equitable doctrine of laches, and equity retains a "residual
discretion" as to whether the statute should
apply.32
THE RATIONALE FOR THE RULE
In Agricultural Land Management Ltd v Jackson [No 2]
[2014] WASC 102, Edelman J observed: "The reason why a
statutory limitation period is applied to a circumstance which was
not recognised in the terms of the statute has never been clearly
explained".33 His Honour speculated:
One possibility is that the
application of a limitation period by analogy is an example of the
first limb of the controversial doctrine of the equity of the
statute: cases, thus out of the letter [of the statute], are often
said to be within the equity.34
The application of a limitation
period by analogy has variously been described as a rule of
procedure;35 as an aspect of the doctrine of
laches;36 as taking on the character of
laches;37 as "affording a prima facie proper
standard"38 and as the "doctrine of
application by analogy".39 Recently, Leeming J has
referred to it as the doctrine of applying a statute of limitation
by analogy.40
In Gerace, Meagher JA
stated:
In applying the statute by analogy,
equity gives effect to the maxim that it follows the law and acts
on the basis that "laches is presumable in cases where it is
positively declared at law": Story's Commentaries on
Equity Jurisprudence, First English Edition (1884) at
[64a].41
Meagher JA continued:
If equity retains a residual
discretion not to apply a limitation statute by analogy in
circumstances where there would not be a defence of laches, it
would not truly be acting by analogy and following the
law.42
Must equity follow the law? Not
"slavishly or always".43 As suggested by Mason
CJ and McHugh J in Corin v Patton (1990) 169 CLR 540, it
would be a mistake to set too much store by a maxim, its precise
scope being "necessarily ill-defined and somewhat
uncertain".44 American Professor of Law, Kevin
Kennedy has suggested:
It is frequently true that the maxims
of equity are not very useful analytical tools. Take for example,
the maxim, "Equity follows the law." This maxim states a
truism and beyond that, little more. It is obviously true that a
court sitting in equity cannot depart from substantive rules of law
when rendering a decision.45
As Kennedy suggests, maxims are meant
to be illustrative, not dispositive.46
Equity is not compelled to follow the
law. As observed in Meagher, Gummow and Lehane's Equity
Doctrines and Remedies (4th ed):
[Equity] would not apply the Statute
of Limitations by analogy if there were clear fraud involved, or if
to do so would lead to an inequitable result: Gibbs v
Guild (1882) 9 QBD 59 ... Indeed, if equity always followed
the law in all respects it is not easy to see how it could ever
have become a distinct jurisprudence.47
The fifth edition of Meagher,
Gummow and Lehane's Equity Doctrines and Remedies contains
the additional sentence: "To follow the law in everything
would foreclose equitable intervention
altogether".48
That equity follows the law is not,
in itself, a sufficient explanation as to why a statutory
limitation period is applied to a circumstance which was not
recognised in the terms of the statute. Whether or not the
application of a limitation period by analogy is described as a
rule, or as a doctrine, it is suggested that practitioners across
Australia could benefit from a clear elucidation of the rationale
for applying statutory limitation periods by analogy to actions in
equity's exclusive jurisdiction.
DIFFICULTIES WITH THE COURT OF APPEAL'S DECISION IN
GERACE
Some of the difficulties posed by the leading judgment in
Gerace are canvassed by White J in his interlocutory
judgment in Issa v Issa. White J stated:
With respect to his Honour's
observations at [70] it is not at all clear that the authorities to
which his Honour referred show that when a claim is brought in
equity's exclusive jurisdiction to which no statutory
limitation period is directly applicable, but where there is an
analogous claim to which a statutory bar is applicable, the bar
will always be applied by analogy unless reliance by the defendant
on the statute would in the circumstances be unconscionable, as
distinct from doing so unless the application of the statute by
analogy would be unjust. The decision in the High Court in R v
McNeil (1922) 31 CLR 76, and in particular the judgment of
Isaacs J at 100 does not say that.49
White J continued:
The observations of Isaacs J
concerning the role of a court of equity in acting in its exclusive
jurisdiction were obiter. But in any event, Isaacs J did not say
that the only circumstance in which equity, when acting in its
exclusive jurisdiction, would not apply a statute of limitations by
analogy, was where there was a greater equity caused by fraud. The
sentence his Honour emphasised was that where equity created a new
right found on its own doctrines exclusively that was not barred by
statute, then "equity is free".50
Additional authorities are cited by Meagher JA at [32] and [33]
however it is respectfully suggested that the authorities cited do
not support the conclusion at [34]. In equity's exclusive
jurisdiction, the requirement that there be an "equitable
ground" before the application of the analogue is excepted
does not appear to feature in Dr Spry's work.51 Dr
Spry's view appears to be consistent with the discretion:
"a court of equity will ordinarily act upon [the statutory
bar] by analogy but ... will so act only if there is nothing in the
particular circumstances of the case that renders it unjust to do
so".52 Secondly, reliance on the statement by Lord
Bingham in Sheldon v RHM Outhwaite (Underwriting Agencies)
Ltd [1996] AC 102 at 115 appears to be misplaced. The passage
quoted from Lord Bingham's judgment was not his Honour's
own observation but rather a summary of one of the arguments of the
plaintiffs, an argument which Lord Bingham decided "should not
prevail".53 The issue before Lord Bingham was one
of statutory construction – whether the plaintiffs could rely
on a statutory provision to overcome a statutory bar otherwise
applicable to their claim.
Another difficulty with the Court of Appeal's decision, as
identified by White J in Issa v Issa, is the absence of
any discussion by the Court of Appeal as to "whether its
conclusion that the claim was barred by analogy was consistent with
the statutory purpose of s 1317K when read with s 185 [of the
Corporations Act 2001]".54
Precisely what constitutes an equitable ground for the purposes
of Meagher JA's formulation may cause uncertainty for
practitioners, as may what constitutes conduct that makes reliance
on the statutory bar unconscionable for the purposes of Emmett
JA's formulation. For example, how are the factors of (i) a
plaintiff's lack of capacity or inability to bring the
proceedings, and (ii) absence of prejudice on the part of the
defendant, considered using these formulae? If such factors are not
accommodated by the formulae, is equity to disregard these factors?
Are circumstances which do not come within defined exceptions to
the rule to be ignored? Is equity to disregard the particular
circumstances of the case in favour of the mechanical application
of a rule?
The question of an applicant's incapacity to bring the
proceedings arose in the NSW Court of Appeal in Cassegrain v
Gerard Cassegrain Pty Ltd (2013) 281 FLR 409; [2013] NSWCA
454. The Court of Appeal dealt with the issue of incapacity by
finding that it was open to the trial judge to find that the period
of receivership ought to be ignored for the purposes of determining
the expiry of an analogous limitation period.55 A just
result was achieved through the suspension of the statute. However
in Gerace, unlike Cassegrain, there was no
disability provision in the Corporations Act 2001 which
allowed for the suspension of the limitation period. There was no
option available to the court within the statute itself to
ameliorate the effect of an analogous application of s 1317K in the
event of an incapacitated plaintiff. The need for the discretion in
such circumstances was manifest. Moreover, its existence is
entirely consistent with the legislative intention recorded in s
185 of the Corporations Act 2001.
In Short v Crawley (No 30) [2007] NSWSC 1322, White J
expressed the view at [583] that prima facie, a claim for breach of
fiduciary duty would not be barred by the analogical application of
a statute of limitations or by laches, where the defendant is
unable to show a fully informed consent to the transaction because
of the non-disclosure of excessive interest payments, and
non-disclosure of the fact that the mortgage advances had been
repaid. His Honour stated: "Before equity applies a statutory
time limit by analogy, the Court must be satisfied that it is just
to do so".56 Adopting either the formulation of the
rule expressed by Meagher JA or that expressed by Emmett JA, how
could equity achieve a just result in the circumstances of material
non-disclosure? Is non-disclosure an equitable ground within the
meaning of Meagher JA's rule? Would non-disclosure constitute
conduct which makes the appellant's reliance on the statutory
bar unconscionable within the meaning of Emmett JA's rule?
The previous decision of the NSW
Court of Appeal in Simpson v Donnybrook Properties Pty Ltd
which affirmed the decision of Rein J in Mathas v Slater
took a different approach to that taken in Gerace. The
case involved, inter alia, a dispute concerning an investment of
$350,000 made on 11 June 1999 and whether a claim for breach of
fiduciary duty (commenced on 6 May 2006) relating to that
investment was out of time. The defendant argued that the claim in
equity was out of time because the analogous statutory time
limitation of six years under s 14 of the Limitation Act
1969 (NSW) should be applied by analogy. Rein J found that s
14 of the Act ought not be applied by analogy because, having
regard to the particular circumstances of the case, it would be
against conscience or unjust to do so. Rein J stated:
In circumstances where the plaintiffs
did not know until 2004 that they would not recover their capital
and where in 2003 Mr Simpson offered to repay that capital to them,
I do not think that s 14 of the Limitation Act can, or
ought be, applied by analogy.57
Rein J did not find that the conduct
of the defendant was unconscionable or that there existed an
equitable ground which justified the analogy not being applied
because reliance by the defendant on the statute would in the
circumstances be unconscionable. The test stated by Rein J was
whether "having regard to all the circumstances it is against
conscience or unjust" for equity to apply the
analogy.58
The defendant appealed to the NSW
Court of Appeal. In Simpson v Donnybrook Properties Pty
Ltd, Young JA (with whom Macfarlan and Hogson JJ agreed)
affirmed the approach of Rein J and stated: "The primary judge
said that, because of Mr Simpson's offer to repay the $350,000
in June 2003, it was unconscionable to apply the Limitation Act
1969 by analogy".59 Young JA concluded that:
"In my view the primary judge, in dealing with a claim in
equity, was entitled to take this view".60 The
focus was not on whether the conduct of the defendant was
unconscionable, but rather whether it would be unconscionable to
apply the statute by analogy.
Likewise, in the early English
decision of Sterndale v Hankinson, the inquiry to be made
by the court was "whether the circumstances of a case are such
as to make it against conscience to apply the rule founded upon
this analogy."61 In Issa v Issa, White J set out a
summary of the decision in Sterndale v Hankinson:
Sterndale v Hankinson
concerned a bill filed by a creditor for the administration of a
deceased estate. The deceased died on 27 June 1810. A bill for
administration was filed by a creditor on 5 May 1812. The decree
for administration was not made until 14 April 1818. On the taking
of accounts the Master disallowed the claims of creditors whose
claims would have been barred by the statute of limitations if
actions at law had been brought to enforce them at the time of the
decree. An exception to the Master's report was allowed. It was
then the practice that a creditor's claim for administration of
a deceased estate was brought on behalf of creditors generally. It
was in that context that Sir Anthony Hart V-C (not Sir John Leach
V-C as stated in Re Greaves, deceased; he had been
appointed Master of the Rolls the previous month) said (at 398,
627):
It has been said that if a creditor
files a bill on behalf of himself and others, and permits it to be
dismissed before decree, the statute would apply. I dissent from
this proposition; for I think that the Court would protect a
creditor against any accident of that kind. I have no doubt that if
a creditor files a bill, and it appears that the rule adopted by
analogy to the statute would affect his demand, but that a bill had
been before filed by another creditor, and that the Plaintiff in
the second suit had, in confidence that the former suit would be
prosecuted, abstained from filing his bill, the Court would not
apply its rule.
There was no question of the
defendants acting unconscionably.62
HAS "THE DISCRETION" SURVIVED?
White J has observed in Issa v Issa:
Prior to the Court of Appeal's
decision in Gerace v Auzhair Supplies Pty Ltd ... there
was authority that equity had a discretion as to whether to apply a
statute of limitations by analogy to a case within its exclusive
jurisdiction, and would not do so if in the circumstances of the
case it would be unjust or unconscionable to do so (The Duke
Group Ltd (in liq) v Alamain Investments Ltd [2003] SASC 415;
(2003) 232 LSJS 58 at [114]; Barker v Duke Group Ltd (in
liq) [2005 SASC 81; (2005) 91 SASR 167 at [84]; Hewitt v
Henderson [2006] WASCA 233 at [25]; Brightwell v RFB
Holdings (In Liq) (2003) 171 FLR 464 at [63]; Short v
Crawley (No. 30) [2007] NSWSC 1322 at
[583]).63
White J referred to Meagher,
Gummow and Lehane's Equity Doctrines and Remedies (5th ed)
at [36-085]:
[T]he learned authors say that
Gerace v Auzhair Supplies Pty Ltd has held that equity
does not retain a discretion to decline to apply a statute of
limitations by analogy and the view that there was such a
discretion is inconsistent with elements of the reasoning in
Gibbs v Guild which had been endorsed in the High Court in
R v McNeil. 64
White J continued:
As to the former observation, for the reasons above it is
arguable that the Court of Appeal's conclusion is not part of
the ratio of Gerace. As to the latter observation, it is
arguable that R v McNeil does not provide such support. Knox CJ and
Starke J referred (at 97) to Gibbs v Guild and Trotter
v Maclean as well as Bulli Coal Mining Co v Osborne
as cases in which equity was prepared to consider "repelling
the application of the statute" (quoting Fry J in Trotter
v Maclean at 584). Their Honours observed that the court could
not repel the clear words of s 37 of the Crown Suits Act
1898 (WA) because that would be to give effect to an equity
for which the statute did not provide. The judgment of Knox CJ and
Starke J did not address the question of whether in its exclusive
jurisdiction equity had a residual discretion not to apply the
statute of limitations if to do so would be unjust and for the
reasons above (at [57] and [58]) Isaacs J's judgment, if
anything, supports the existence of such a
discretion.65
However in Shiu Shing Sze Tu v
Lowe [2014] NSWCA 462, Gleeson JA, with whom Meagher and
Barrett JJA agreed, stated:
Gerace may also be taken to establish (at [74]) that
where a limitation statute applies by analogy, equity does not
retain a general residual discretion to decline to apply it: cf
Williams v Minister, Aboriginal Land Rights Act 1983
(1994) 35 NSWLR 497 at 509; Duke Group Ltd (in liq) v
Alamain Investments Ltd [2003] SASC 415. It follows that Smart AJ
erred in taking the contrary approach (at [499] May Judgment)
relying upon those authorities.66
Where the circumstances of the case
make it unjust to apply an analogous time bar to a claim in
equity's exclusive jurisdiction, post-Gerace, how will
equity courts approach the issue? If the facts and circumstances of
a case come within the exceptions formulated by the Court of
Appeal, namely where there is an equitable ground such as
fraudulent concealment or other conduct which makes the
appellant's reliance on the statutory bar unconscionable, the
court may clearly decline to apply the statutory analogue. But
where there is no "equitable ground" such as fraudulent
concealment, or where there is no conduct which makes the reliance
on the statutory bar "unconscionable", it may be
difficult for the court, in its exclusive jurisdiction, to do
equity, curtailed instead by a rule of mechanical
application.
Perhaps the following passage of White J in Issa v Issa
offers a way forward:
If the circumstances of the case make it unjust to apply the
statute of limitations by analogy to prevent a plaintiff from
obtaining an equitable remedy arising from the defendant's
breach of fiduciary duty so that it would be against conscience for
the court to apply a rule founded on the analogy, it is arguable
that it would be unconscientious for the defendant to rely on the
analogical application of the statute.67
A very different way forward is offered, extra-judicially, by
Leeming J:
[T]he approach which is correct in principle and accords with
Gerace is to proceed as follows in relation to a claim in
equity's exclusive jurisdiction. First, does some limitation
statute apply directly? – if so, the question turns on the
application of the statute and the analysis ceases. Secondly, if
not, does the equitable claim "correspond" to a legal
claim to which a limitation statute applies? That inquiry can be
contentious, but it was not in Gerace, where the equitable
claims were close to identical with the time-barred allegations of
statutory breaches of directors' duties. If the equitable claim
does not correspond, then no application by analogy is possible and
the only question is whether some other defence such as laches or
release is available. However if it does, then the statute is to be
applied by analogy in its terms, subject to any discretions it may
contain, but not subject to some further "residual"
discretion which lacks foundation in the statute.68
Leeming J's article recognises that a statutory time bar
will not be applied by analogy where there is concealed fraud but
it does not recognise the additional exception to the rule carved
out by the Court of Appeal, namely that where the defendant's
conduct (other than fraudulent concealment) makes the
appellant's reliance on the statutory bar unconscionable, the
analogy will not be applied. According to Leeming J, the statute is
to be applied subject to any "discretion" contained in
the statute, as occurred in Cassegrain. Where no tolling
provision can be applied, on Leeming J's approach there is no
room for the exercise of a "discretion" to extend or
suspend the limitation period.
There is nothing controversial about the first step in Leeming
J's approach: Does some limitation statute apply directly? Nor
is the second step controversial: Does the equitable claim
"correspond" to a legal claim to which a limitation
statute applies? It is suggested that the ongoing controversy
relates to whether the court has a discretion to decline to apply
to the analogous statutory time bar where the circumstances of the
case make it unjust or unconscionable to do so. It is respectfully
suggested that the difficulty with Leeming J's extra-judicial
approach is that it is premised on an acceptance that Meagher
JA's reasons in Gerace are correct; that they demonstrate that
Doyle CJ in Duke Group Ltd (in liq) v Alamain Investments
Ltd and "many other decisions, including in 'New
South Wales, Victoria and Western Australia' do not accord with
principle or High Court authority, notably R v
McNeil".69
CONCLUSION
An equity court's power to do justice in a particular case,
by exercising discretion in a principled way, is the very hallmark
of equity. If Gerace has removed the court's
discretion to decline to apply a statute of limitations by analogy,
then the analogy of the statute has moved from "affording a
prima facie proper standard"70 as equity's
"own rule of procedure",71 and has become a
rule of mechanical application: hard, fast and legal in its
application.
In Meagher, Gummow and
Lehane (4th ed), the authors refer to a "fusion
philosophy"72 as articulated by Professor Burrows
in his article, "We Do This at Common Law But That in
Equity".73 In the article, Professor Burrows
argued:
[T]o support fusion seems
self-evident, resting, as it does, on not being slaves to history
and on recognizing the importance of coherence in the law and of
"like cases being treated alike" ... on the assumption
that fusion is a good thing, we as academics, judges, legislators
and practitioners are simply not doing enough to eradicate the
needless differences in terminology used, and the substantive
inconsistency, between common law and equity. In other words, to
use a rather hackneyed phrase, I am calling on all lawyers to take
fusion seriously.74
A difficulty arises when one assumes
that in all instances fusion is a good thing. The warning and
questions posed in Meagher, Gummow and Lehane (4th ed) are
salient, in particular the questions:
[W]hat compelling reason requires
this program to be attempted (all that is certain is that it will
be to the heavy costs of litigants involved in the reformulation of
doctrine), and by what authority are the courts to grant themselves
such a radical law reform brief?75
In Gerace, where there was
no challenge to the primary judge's finding that Auzhair
Supplies was rendered unable to enforce its rights from the time
the cause of action arose until the company was reinstated and a
liquidator appointed; where there was no legislative provision that
suspended or extended the limitation provision for an incapacitated
plaintiff; where as a matter of practical reality, there was no
means by which the company could bring proceedings against the
directors until the company had been reinstated; and where there
was no evidence of prejudice to the defendants, one might query
whether justice was done by the application of a statutory
limitation provision, which parliament had not sought to apply to
equitable actions, to bar the equitable claim.
In light of the divergent approaches that courts within
Australia and overseas have taken when asked to apply statutory
time limitation provisions by analogy to claims in equity's
exclusive jurisdiction, it is respectfully suggested that this
complex area warrants the attention of the High Court of Australia
or a full bench of five judges of the New South Wales Court of
Appeal.
Footnotes
1 The scope of this article is limited to
claims brought in equity's exclusive jurisdiction (such as for
breach of trust or breach of fiduciary duty). This article does not
examine in detail the law relating to claims brought in
equity's concurrent or auxiliary jurisdictions which operate
where the right in question is recognised by both equity and common
law or where equity will give better protection for the
infringement of a purely common law right (eg an action for
specific performance which is a claim brought in aid of a legal
right).
2 Gageler S, "Common Law Statutes and Judicial
Legislation: Statutory Interpretation as a Common Law Process"
(2011) 37(2) Monash University Law Review 1.
3 See Handford P, Limitation of Actions (3rd
ed, Thomson Reuters, 2012) at [5.10.270].
4 See Brunyate J, Limitation of Actions in
Equity (Stevens & Sons, 1932).
5 See Skead N, "Limitation Act 2005 (WA) and
Equitable Actions: A Fatal Blow to Judicial Discretion and
Flexibility – How Other Australian Jurisdictions Might Learn
from Western Australia's Mistakes" (2009) 11 UNDALR 1, in
which the author has observed: "[T]he 2005 Act reflects the
trend towards subjecting all claims for equitable relief to a
statutory limitation regime. This trend embodies the policy that,
in the face of the fusion of the common law and equity, common law
and equitable actions and remedies should be assimilated as far as
possible: if the legislation applies to common law actions and
remedies there is no good reason why it should not apply to
equitable actions and remedies." See also Handford P, "A
New Limitation Act for the 21st Century" (2007) 33 UWALR 387,
in particular at 400-402.
6 Leeming M, "How Long is Too Long for an Equitable
Claim?" (2014) 88 ALJ 621 at 622. Leeming J noted "the
1888 provision is preserved in the legislation of South Australia,
and continues in modified form in other Australian States and
Territories".
7 Limitation Act 1969 (NSW), ss 14, 16, 17, 18,
20 and 21 deal with various causes of action including causes of
action founded on contract, tort (including for damages for breach
of statutory duty), a deed, or a judgment. They also include a
cause of action to recover a penalty or forfeiture, a cause of
action to enforce an award of an arbitrator and a cause of action
for the conversion or detention of goods.
8 Greenaway v Auzhair 1 Pty Ltd [2010] NSWSC
1339.
9 Re Auzhair Supplies Pty Ltd (in liq) (2013)
272 FLR 304; [2013] NSWSC 1 at [63].
10 Re Auzhair Supplies Pty Ltd (in liq) (2013)
272 FLR 304; [2013] NSWSC 1 at [76].
11 Re Auzhair Supplies Pty Ltd (in liq) (2013)
272 FLR 304; [2013] NSWSC 1 at [84].
12 Re Auzhair Supplies Pty Ltd (in liq) (2013)
272 FLR 304; [2013] NSWSC 1 at [88]-[90].
13 Gerace v Auzhair Supplies Pty Ltd (2014) 87
NSWLR 435; [2014] NSWCA 181 at [70] (Meagher JA, with whose reasons
Beazley P and Emmett JA agreed).
14 Gerace v Auzhair Supplies Pty Ltd (2014) 87
NSWLR 435; [2014] NSWCA 181 at [70].
15 Gerace v Auzhair Supplies Pty Ltd (2014) 87
NSWLR 435; [2014] NSWCA 181 at [105].
16 Smith v Clay (1767) 3 Bro CC 646; 29 ER 743
at 744.
17 Smith v Clay (1767) 3 Bro CC 646; 29 ER 743
at 746.
18 Sterndale v Hankinson (1827) 1 Sim 393 at
398.
19 Gerace v Auzhair Supplies Pty Ltd (2014) 87
NSWLR 435; [2014] NSWCA 181 at [20].
20 R v McNeil (1922) 31 CLR 76 at 100 (Isaacs
J).
21 Re Auzhair Supplies Pty Ltd (in liq) (2013)
272 FLR 304; [2013] NSWSC 1 at [64].
22 Re Auzhair Supplies Pty Ltd (in liq) (2013)
272 FLR 304; [2013] NSWSC 1 at [91].
23 Motor Terms Co Pty Ltd v Liberty Insurance
Ltd (1967) 116 CLR 177 at 184 (Kitto J).
24 Bennett v Minister of Community Welfare
(1993) 176 CLR 408 at 426 (McHugh J).
25 Williams v Minister, Aboriginal Land Rights Act
1983 (1994) 35 NSWLR 497 at 509-510.
26 Simpson v Donnybrook Properties Pty Ltd
[2010] NSWCA 229 at [104] and [106]; and see Mathas v
Slater [2009] NSWSC 1397 at [105] (Rein J).
27 Hewitt v Henderson [2006] WASCA 233 at [25]
(Buss JA, with whom Steytler P and Pullin JA agreed).
28 The Bell Group Ltd (in liq) v Westpac Banking
Corporation [No 9] (2008) 39 WAR 1; [2008] WASC 239 at [9294]
(Owen J).
29 Westpac Banking Corporation v The Bell Group Ltd (in
liq) [No 3] (2012) 44 WAR 1; [2012] WASCA 157 at
[1188]-[1189].
30 P&O Nedlloyd BV v Arab Metals Co [2007]
2 All ER (Comm) 401 at [48] (Bick LJ, with whom Buxton and Jonathan
Parker LJJ agreed).
31 Gardner v Panama Railroad Co 342 US 29
(1951) at [30]-[31].
32 KM v HM (1993) 96 DLR (4th) 289 at
[332]-[333].
33 Agricultural Land Management Ltd v Jackson
[No 2] (2014) 48 WAR 1; [2014] WASC 102 at [207].
34 Blackstone W, The Commentaries on the Laws of
England, Kerr RM (ed) (7th ed, Book III, 1775), p 431;
Agricultural Land Management Ltd v Jackson [No 2] (2014)
48 WAR 1; [2014] WASC 102 at [207].
35 Knox v Gye (1872) LR 5 HL 656 at 674 (Lord
Westbury).
36 Re Auzhair Supplies Pty Ltd (in liq) (2013)
272 FLR 304; [2013] NSWSC 1 at [53]. See also R v McNeil
(1922) 31 CLR 76 at 100 (Isaacs J).
37 KM v HM (1993) 96 DLR (4th) 289 at
332.
38 Motor Terms Co Pty Ltd v Liberty Insurance Ltd
(in liq) (1967) 116 CLR 177 at 184 (Kitto J).
39 Commonwealth v Cornwell (2007) 229 CLR 519;
[2007] HCA 16 at [51] (Callinan J).
40 Leeming, n 6 at 623.
41 Gerace v Auzhair Supplies Pty Ltd (2014) 87
NSWLR 435; [2014] NSWCA 181 at [71].
42 Gerace v Auzhair Supplies Pty Ltd (2014) 87
NSWLR 435; [2014] NSWCA 181 at [74].
43 Cardozo J in Graf v Hope Building
Corporation 171 NE 884 (1930) at 887 as cited by Burchett AJ
in Young v Waterways Authority (NSW) [2002] NSWSC 612 at
[26]; The Bell Group Ltd (in liq) v Westpac [No 9] (2008)
39 WAR 1; [2008] WASC 239 at [9268] (Owen J), which was upheld on
appeal.
44 Corin v Patton (1990) 169 CLR 540 at 557
(Mason CJ and McHugh J).
45 Kennedy K, "Equitable Remedies and Principled
Discretion: The Michigan Experience" (1996-1997) 74
University of Detroit Mercy Law Review 609 at 617.
46 Kennedy, 45 at 617.
47 Meagher R, Heydon D and Leeming M, Meagher,
Gummow and Lehane's Equity Doctrines and Remedies (4th ed,
LexisNexis, 2002) at [3-045].
48 Heydon JD, Leeming MJ and Turner PG, Meagher,
Gummow and Lehane's Equity Doctrines and Remedies (5th ed,
LexisNexis, 2014) at [3-040].
49 Issa v Issa [2015] NSWSC 112 at [56].
50 Issa v Issa [2015] NSWSC 112 at [58].
51 Spry ICF, Equitable Remedies (5th ed, LBC
Information Services, 1997).
52 Spry, n 51, pp 419-420.
53 Sheldon v RMH Outhwaite (Underwriting Agencies)
Ltd [1996] 1 AC 102 at 115.
54 Issa v Issa [2015] NSWSC 112 at [46].
55 Cassegrain v Gerard Cassegrain Pty Ltd
(2013) 281 FLR 409; [2013] NSWCA 454 at [156] (Beazley P, with whom
Macfarlan JA agreed on this issue) at [201].
56 White J cited The Duke Group (in liq) v Alamain
Investments Ltd [2003] SASC 415 at [114]; Barker v Duke
Group Ltd (in liq) (2005) 91 SASR 167; [2005] SASC 81 at [84];
Hewitt v Henderson [2006] WASCA 233 at [25];
Brightwell v RFB Holdings Pty Ltd (in liq) (2003) 171 FLR
464; [2003] NSWSC 7 at [63].
57 Mathas v Slater [2009] NSWSC 1397 at
[106]
58 Mathas v Slater [2009] NSWSC 1397 at
[105].
59 Simpson v Donnybrook Properties Pty Ltd
[2010] NSWCA 229 at [104].
60 Simpson v Donnybrook Properties Pty Ltd
[2010] NSWCA 229 at [106].
61 Sterndale v Hankinson (1827) 1 Sim 393,
approved by Jessel MR in Re Greaves; Bray v Tofield (1881)
15 Ch D 551 at 553.
62 Issa v Issa [2015] NSWSC 112 at [77].
63 Issa v Issa [2015] NSWSC 112 at [42].
64 Cited by White J in Issa v Issa [2015] NSWSC
112 at [74].
65 Issa v Issa [2015] NSWSC 112 at [74].
66 Shiu Shing Sze Tu v Lowe [2014] NSWCA 462 at
[365].
67 Issa v Issa [2015] NSWSC 112 at [79].
68 Leeming, n 6 at 623.
69 Leeming, n 6 at 623.
70 Motor Terms Co Pty Ltd v Liberty Insurance
Ltd (1967) 116 CLR 177 at 184 (Kitto J).
71 Knox v Gye (1872) 5 LR HL 656 at 674 (Lord
Westbury).
72 Meagher, Heydon and Leeming, n 47 at [2-320].
73 Burrows A, "We Do This at Common Law But That In
Equity" (2002) 22 Oxford Journal of Legal Studies
1.
74 Burrows, n 73 at 4-5.
75 Meagher, Heydon and Leeming, n 47 at
[2-320].
The content of this article is intended to provide a general
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about your specific circumstances.