The application of statutory time limitation provisions by analogy to claims in equity's exclusive jurisdiction

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...