Barker v Duke Group Ltd (in liq)
[2005] SASC 81
•11 March 2005
SUPREME COURT OF SOUTH AUSTRALIA
(Full Court)
BARKER & ORS v THE DUKE GROUP LTD (IN LIQ); HAMBROS AUSTRALIA LTD & ORS v THE DUKE GROUP LTD (IN LIQ)
Judgment of The Full Court
(The Honourable Justice Perry, The Honourable Justice Duggan and The Honourable Justice White)
11 March 2005
EQUITY - GENERAL PRINCIPLES - EQUITABLE DEFENCES - LACHES AND DELAY
LIMITATION OF ACTIONS - CONTRACTS, TORTS AND PERSONAL ACTIONS - THE PERIOD OF LIMITATION
LIMITATION OF ACTIONS - APPLICATION OF STATUTES OF LIMITATION
APPLICATION OF STATUTORY LIMITATION BY ANALOGY TO A REMEDY IN EQUITY
The appellants, the defendants in proceedings in the Supreme Court, appealed against the dismissal by a single judge of applications brought by them seeking the dismissal of the proceedings, or an order that they be stayed as an abuse of process - the respondent, a company in liquidation, claimed equitable compensation on the ground that the appellants knowingly assisted the respondent's directors in breaches by them of fiduciary duties which they owed to it - the action was based upon the appellants' involvement in transactions which took place in 1987 and 1988 - the appellants claimed that the actions would inevitably fail by reason of the direct application of the Limitation of Actions Act 1936 (SA), or having regard to the application in equity of a statutory limitation period by analogy - alternatively, the appellants claimed that the equitable defence of laches was bound to succeed, or that the action should be stayed as an abuse of process - held on appeal that the judge at first instance had correctly dismissed the appellants' applications - appeal dismissed.
Limitation of Actions Act 1936 (SA), s 26, s 34, s 38(1), s 35(c), s 47 and s 48; Companies (South Australia) Code s 229(1) and s 229(7); Trade Practices Act 1974 (Cth), s 82(1); Companies and Securities (Interpretation and Miscellaneous Provisions) Act 1980 (Cth), s 38, referred to.
Barnes v Addy (1874) LR 9 Ch 244; Clay v Clay and Ors [2001] HCA 9; (2001) 202 CLR 410; International Vending Machines Pty Ltd and the Companies Act [1962] NSWR 1408; Mulkana Corporation NL (In liq) v Bank of New South Wales (1983) 1 ACLC 1143; Sealy, The Director as Trustee [1967] Cambridge Law Journal; Knox v Gye (1872) LR 5 HL 656; 90-5 Pty Ltd (In liq) v Banque Nationale de Paris [1988] WAR 132; Spry, Equitable Remedies (6th Ed) LBC Information Services (2001); Spry, Equitable Remedies (5th Ed) LBC Information Services (1997); Williams v Minister, Aboriginal Land Rights Act 1983 and Anor (1994) 35 NSWLR 497; Carabelas and Anor v Scott (2003) 177 FLR 334; Wardley Australia Ltd and Anor v State of Western Australia (1992) 175 CLR 514; Young v Waterways Authority of New South Wales (Unreported) [2002] NSWSC 612-VC200203758; Equity Doctrines and Remedies (4th ed) Butterworths LexisNexis (2002; Cia de Seguros Imperio v Health (REBX) Ltd [2001] 1 WLR 112; Lindsay Petroleum Co v Hurd (1874) LR5PC 221; Lamshed v Lamshed (1963) 109 CLR 440; Orr v Ford (1989) 167 CLR 316; Cubillo v The Commonwealth (No 2) (2000) 103 FCR 1; Cubillo v The Commonwealth (2001) 112 FCR 455; Masterton Homes Pty Ltd v LED Builders Pty Ltd (1996) 33 IPR 417; Jago v District Court (NSW) (1989) 168 CLR 23; Walton v Gardiner (1992-1993) 177 CLR 378; General Steel Industries Inc v Commissioner of Railways (NSW) (1964) 112 CLR 125; Dey v Victorian Railways Commissioner (1949) 78 CLR 62; Brook v Flinders University of South Australia (1988) 47 SASR 119; Tuchey v Hawkins (1847) 4 CB 655; 136 ER 665; Gilman v Schute (1847) 11 ILR 442; Kennedy v Whaley (1848) 12 ILR 54; Halsburys Laws of Australia [255-165]; The Millstream Pty Ltd v Schultz [1980] 1 NSWLR 547; Sheldon v McBeath (1993) Aust Torts Reports 81-209; Napolitano v Coyle (1977) 15 SASR 559; Brisbane South Regional Health Authority v Taylor (1996) 186 CLR 541, considered.
BARKER & ORS v THE DUKE GROUP LTD (IN LIQ); HAMBROS AUSTRALIA LTD & ORS v THE DUKE GROUP LTD (IN LIQ)
[2005] SASC 81Full Court: Perry, Duggan and White JJ
PERRY J. These are two appeals against the dismissal by a single judge of certain pre-trial applications brought by the defendants.
The applications sought the dismissal of the proceedings, or alternatively that they be stayed as an abuse of process.
There are eight defendants to the proceedings.[1] Separate appeals were brought by two groups of the defendants. The appeals raise substantially similar issues, and I will not trouble to distinguish between the two notices.
[1] One of the defendants, Alamain Investments Limited ACN 007554690, which is now in liquidation, was not a party to the appeals and did not appear on the hearing of the appeals.
Although these are appeals, for convenience, I will refer to the parties as the plaintiff and the defendants.
In its statement of claim, the plaintiff claims equitable compensation on the ground that the defendants knowingly assisted the plaintiff’s directors in breaches by them of fiduciary duties which they owed to the plaintiff. The claim is based upon what is sometimes described as the second limb of the principles which find expression in Barnes v Addy.[2]
[2] (1874) LR 9 Ch 244.
The applications for dismissal or a stay were argued on various bases.
The defendants contended that the action must fail because it was brought out of time, either by reason of the direct application of the Limitation of Actions Act1936 (SA) (“the LAA”), or having regard to the equitable principles by which a statutory limitation may be applied by analogy.
They contended further that delay in the institution of the proceedings has given rise to irremediable prejudice, and that the proceedings should be dismissed on the ground that the equitable defence of laches is bound to succeed, or that the proceedings should be stayed on the ground that the delay is such that they are an abuse of process.
There was a separate application by certain of the defendants to strike out the statement of claim on the ground that it is defective.
The pleadings have not proceeded beyond the point of the filing of a statement of claim by the plaintiff.
The judge at first instance, Doyle CJ, dealt with the matter by reference to the statement of claim and a substantial volume of affidavit evidence.
Background circumstances
This summary of the factual background is based largely upon the allegations in the statement of claim.
For ease of expression I will simply set out a narrative of the various facts, without qualifying the account to indicate that many of the matters have not at this stage risen above the status of allegations.
The case has its genesis in the circumstances surrounding the takeover by Kia Ora Gold Corporation NL (“KO”) of Western United Limited (“WU”), the preliminaries to which took place in the last quarter of 1987, and the completion of which was effected on 28 January 1988.
At the relevant time, the directors of KO were Harold Abbott, Gary Abbott, Alfred Schneider-Paas, Sir Ernest Lee-Steere, Kevin Somes, Francis Quilty and Keith Singleton.
Five of them, Harold and Gary Abbott, and Messrs Schneider-Paas, Lee-Steere and Somes were directors of, and held 85 per cent of the shares in, WU.
The take over offer was four shares in KO for one share in WU, or five shares in KO for two shares in WU, plus $1.20 per share.
For the purposes of the takeover, Nelson Wheeler, a firm of accountants, provided a report pursuant to Stock Exchange Listing rule 3J(3) for the information of KO’s shareholders. The report valued WU at $82.6 million.
Nelson Wheeler reported that the proposed takeover offer was in the interests of KO.
The takeover offer valued WU at between $101 million and $112 million.
The true value of WU was $6.4 million.
In 1992, KO began proceedings against Nelson Wheeler. Later the directors of KO were joined as defendants.
Following a long trial, Mullighan J found that the directors of KO were in serious breach of the fiduciary duties owed by them to the company.
In particular, he found that Harold Abbott, Lee-Steere and Somes supported KO’s acquisition of WU’s shares dishonestly, in preferment of their own interests above the interests of the company, and with knowledge that the Nelson Wheeler report was based on misleading and inaccurate information, and did not accurately value the WU shares.
Mullighan J found also that both Quilty and Singleton dishonestly acquiesced in the wishes of the “common directors”, without exercising an independent judgment, and without making diligent and proper inquiries as to the propriety of the Nelson Wheeler report.
KO later became The Duke Group Limited (“Duke”), the plaintiff in these proceedings.
Duke was placed in liquidation by order of the Supreme Court on 11 July 1989. John Sheahan was appointed liquidator.
The defendants to these proceedings are as follows:
1. Alamain Investments Pty Ltd (“Alamain”)
2. Trevor Barker
3. Michael David Abrahams
4. Peter Ian Dent
5. Hambros Australia Ltd
6. Hambros Securities Ltd (in liquidation)
7. David Owen Ewart-James
8. John Anthony Corcoran
Alamain, which is now in liquidation, was formerly known as Autocure Ltd (“Autocure”). At the relevant time, Autocure owned 2.9 million shares in KO and was KO’s largest single shareholder.
The defendants Barker, Abrahams and Dent were respectively directors of Alamain. The other directors were Thomas Hartigan, Leon Finke, John Ray and Bob King.
The first four defendants, that is, Autocure, Barker, Abrahams and Dent, may conveniently be described as the Autocure defendants.
I will describe the remaining defendants as the Hambros defendants.
Hambros Australia Ltd (“Hambros Australia”) carried on business as a merchant banker, investment banker and corporate adviser.
Hambros Securities Ltd (in liquidation) (“Hambros Securities”) carried on business as the corporate advisory arm of Hambros Australia.
Ewart-James was deputy managing director of Hambros Australia and was the director in charge of Hambros Securities.
Corcoran was employed as an associate director of Hambros Australia and a director of Hambros Securities, and reported to Ewart-James.
Apart from the defendants, one of the participants in relevant transactions was a company known as International & Irish Securities Plc (“International & Irish”), which is a company incorporated in England. International & Irish provided corporate advice and services to Harold Abbott, who was a shareholder in the company.
It is alleged that in late 1987, when Autocure became aware of the proposed takeover by KO of WU, Autocure’s director Hartigan told Dent of the takeover and informed him that Harold Abbott was managing director of KO and WU.
Dent and Barker then contacted the Hambros defendants, asking for advice as to whether the takeover was in the best interests of Autocure.
Hambros furnished a very unfavourable report. Hambros advised a meeting of the Board of Directors of Autocure attended by King, Hartigan, Finke and Graham that the takeover was proceeding on an obvious and gross over-valuation of WU which operated for the personal benefit of the directors of KO, and that the takeover was not in Autocure’s interests as a shareholder of KO.
Hambros advised Autocure vigorously to oppose the takeover; to advise KO’s directors of its attitude; and to advise KO that if a purchaser was not found for Autocure’s shares at a favourable price, Autocure would lobby other shareholders to vote against the takeover, and if necessary take legal proceedings to prevent it.
Autocure accepted the advice and adopted that strategy. They prepared a draft press release which could form part of a media campaign in opposition to the takeover, if events drove them to take that course.
Ewart-James and Corcoran then made contact with Harold Abbott and advised him that they were speaking on behalf of Autocure. They informed him that the valuation of WU was excessively high, and that if the takeover proceeded, Autocure’s interest in KO would be diluted by reason of the number of new shares to be issued. Against that background, Autocure and Hambros would take every step within their power to prevent the takeover, including canvassing support from other shareholders to join Autocure in voting against the proposal; initiating adverse publicity; and if necessary instituting legal proceedings.
In response, Harold Abbott inquired whether Autocure would maintain its opposition to the proposal, if it sold its shares in KO prior to the Extraordinary General Meeting which would be called to approve the takeover.
Ewart-James informed him that Autocure in those circumstances would not continue its opposition, but Autocure would require in the order of $1.50 per share.
In the result, by an agreement dated 22 October 1987, Autocure sold its shares to International & Irish (put forward by Abbott for this purpose) at a high value of $1.40 per share.
It was a condition of the sale that the takeover be approved and that Autocure would vote in favour of it. Title in Autocure’s shares would pass to International & Irish immediately on the payment of a deposit of $876,090 by International & Irish, and the passing of a resolution approving the acquisition by KO of the WU shares.
Autocure played its part by voting in favour of the acquisition, which was approved, and the sale of Autocure’s shares in KO to International & Irish was completed.
The plaintiff alleges that the Autocure defendants, more particularly Barker, Abrahams and Dent, caused the sale of Autocure’s shares in KO in circumstances in which
they knew that by doing so they were procuring KO’s purchase of the shares in WU, contrary to the best interests of KO and
they assisted the directors of KO to breach their fiduciary duties owed by them to KO.
The plaintiff alleges that the Hambros defendants participated in and assisted Barker, Abrahams and Dent in the achievement of the aims of Barker, Abrahams and Dent, and in formulating the strategy which they pursued.
The statement of claim contains various allegations of knowledge and dishonesty on the part of Ewart-James and Corcoran as agents of Hambros.
The allegations in the statement of claim contain references to various statements made by Barker and Abrahams in the course of examinations which took place before Master Bowen Pain in London in June 2000.
Likewise, allegations in the statement of claim assert that Dent admitted to the substance of the knowledge attributed to him, in certain statements made in the course of his examination before Master Bowen Pain, which was conducted in Adelaide in August 2000.
The critical allegation is that all of the defendants were “accessories” to the breaches of duty by KO’s former directors, and are therefore liable for the loss and damage suffered by KO, by way of equitable compensation.
The calculation of loss as it appears in the statement of claim is as follows:
Cash & Shares
$
Cash Paid 26,178,135.81
Shares Issued 55,720,438.28
Paid to Western United 81,898,574.09
Less: real value rec’d cash component 2,060,588.48
Less: real value rec’d share component 4,378,751.52
Loss at October 1987 $75,459,234.09The plaintiff states in the statement of claim, that it will give credit for recoveries from other parties liable for the same loss. At the time of the filing of the statement of claim other recoveries amounted to $41.8 million.
The Judgment under Appeal
Doyle CJ had before him applications by both the Hambros defendants and separately by the Autocure defendants. The applications sought orders that the action be stayed as an abuse of process.
The Hambros defendants also sought an order that the proceedings be dismissed.
In their application, the Autocure defendants, as well as seeking an order for a stay, sought an order striking out the plaintiff’s statement of claim.
There was a further application by Barker, Abrahams and Dent for orders restraining Duke from continuing with proceedings commenced in the High Court of Justice in the United Kingdom, which were, apparently, proceedings which duplicated the proceedings now in question.
Doyle CJ dismissed the applications for a permanent stay or dismissal of the proceedings.
In light of undertakings offered by the plaintiff, he dismissed the application for staying the proceedings in the United Kingdom.
He allowed the applications to strike out the statement of claim and ordered that the plaintiff file a further statement of claim.
Direct application of the LAA
The direct application of the LAA was argued in two contexts.
Before Doyle CJ, the Hambros defendants submitted that s 38(1) of the LAA applied, with the result that KO’s claims were subject to a time limit of six years.
Relevantly, the section provides:
“38Limitation on actions for recovery of money
(1)Subject to subsection (2), an action for the recovery of money paid under a mistake (either of law or of fact) or otherwise based on restitutionary grounds must be commenced-
(a) if the cause of action arose on or after the commencement of this section - within 6 years after the cause of action arose; or
(b) if the cause of action arose before the commencement of this section - within the limitation period that would have been applicable if this section had not been enacted or 6 years after the commencement of this section (whichever expires first).
(2)…..”
The Hambros defendants submitted that the claim by KO against the directors was an action “for the recovery of money … based on restitutionary grounds” within the meaning of the section.
Doyle CJ rejected that submission and held that the claim by KO against the defendants was similar in character to the claim against the directors themselves, that is, it was a claim for equitable compensation or equitable damages for breach of duty by the directors. Such a claim could not properly be characterised as a claim “for the recovery of money paid”.
On the hearing of the appeal, none of the defendants challenged that finding, so that it is unnecessary further to refer to that argument.
The other contention which was advanced as to the direct application of the LAA was put forward by the plaintiff. Mr Karkar QC for the plaintiff submitted that s 32(1) of the LAA applied, with the result that no time limit was imposed on KO’s claim.
Doyle CJ rejected the argument, which was repeated before this Court by a notice of alternative contentions.
Section 32 of the LAA provides in part:
“32…..
(1) In any action or other proceeding against a trustee or any person claiming through him, except where the claim is founded on any fraud or fraudulent breach of trust to which the trustee was party or privy, or is to recover trust property, or the proceeds thereof still retained by the trustee, or previously received by the trustee and converted to his use, the following provisions shall apply: …”
The provisions which follow effectively establish time limits for certain claims, none of which encompass actions of the kind now in question.
The argument put by Mr Karkar QC of counsel for the plaintiff was that, given that the claim in the present case was based on fraud or upon recovery of trust property or the proceeds thereof, the effect of s 32 was to exclude the application of any time bar to such actions against the trustees.
In support of that argument, Mr Karkar QC referred to authorities which illustrate that in certain situations a company director may be treated as a trustee. Doyle CJ dealt with the argument in the following passage in his reasons:
“[109] I do not agree. The contemporary understanding is that a company director is not a trustee: Clay v Clay and Others [2001] HCA 9; (2001) 202 CLR 410 at [41]. I doubt whether it is appropriate to read s 32(1) with the eyes of the past, even if, as suggested by Millett LJ in Paragon Finance, directors were treated by equity like trustees for the purposes of the equitable principle that claims against an express trustee were never barred by lapse of time: Paragon Finance at 408. But even if the submission is correct, it simply leads to the result that I have already reached, that there is no statutory time limit which is applicable on its own terms.”
The passage in Clay referred to by Doyle CJ in that passage reads:[3]
“[41] It is to be recalled that, in the past, the term ‘trustee’ sometimes was used to describe the position of a director in relation to the company in question.[4] Such a use of the term ‘trustee’ could at best be metaphorical because property of the company was not vested in the directors. Again, in Knox v Gye,[5] Lord Westbury said:
‘Another source of error in this matter is the looseness with which the word “trustee” is frequently used. The surviving partner is often called a “trustee”, but the term is used inaccurately. He is not a trustee …
The application to a man who is improperly, and by metaphor only, called a trustee, of all the consequences which would follow if he were a trustee by express declaration - in other words a complete trustee - holding the property exclusively for the benefit of the cestui que trust, well illustrates the remark made by Lord Mansfield, that nothing in law is so apt to mislead as a metaphor.’”
[3] (202) CLR 410 at 430 at [41].
[4] Re International Vending Machines Pty Ltd and the Companies Act [1962] NSWR 1408 at 1419-1420; Mulkana Corporation NL (In liq) v Bank of New South Wales (1983) 1 ACLC 1143 at 1148-1150; 8 ACLR 278 at 282-285; Sealy, The Director as Trustee [1967] Cambridge Law Journal.
[5] (1872) LR 5 HL 656 at 675-676.
I do not understand that dictum to exclude the possibility that a director of a company may become a constructive trustee of money or property which comes into the director’s possession, when to retain it would be in breach of the fiduciary duty owed to the company.[6]
[6] See, for example, 90-5 Pty Ltd (In liq) v Banque Nationale de Paris [1988] WAR 132 per Smith J at 173.
But here, while it is arguable that the defendants participated in a breach by the directors of the directors’ fiduciary duties, I am quite unable to accept that in the circumstances of this case, this has the consequence that they should be treated as trustees for the purposes of s 32.
Application of statutory limitation by analogy
This principle is of application where a claim is brought within the exclusive jurisdiction of a court of equity, as opposed to cases which fall within what sometimes has been described as its “auxiliary jurisdiction”. I reject the argument of Mr Wells QC, of counsel for the Autocure defendants, to the contrary.[7]
[7] In doing so, I accept the observations of the learned author in Spry, Equitable Remedies (6th Ed) LBC Information Services (2001) at 418-419.
This is a claim which is, within the meaning of that distinction, brought in the exclusive jurisdiction of equity.
In such a case, if there is a statutory period of limitation of action which applies by force of the statute, no question arises as to resort to the principle of that application by analogy.
However, if there is no statutory limitation which applies to the equitable right in question, the court may take the view that the equitable right is so similar to a legal right to which a statutory limitation period is applicable, that a similar limitation period should be applied to the enforcement of the equitable right.
In such cases, the limitation period is said to be applied by analogy. Application of the principle is limited to cases where there is a “sufficiently close similarity between the exclusive equitable right in question and legal rights to which the statutory provision applies”.[8]
[8] Spry (supra) at 419.
However, a court of equity will not apply a statutory period of limitation by analogy, if in the circumstances of the case it would be unjust to do so.
Authorities which support the principles to which I have so far referred are set out in the reasons for judgment of Doyle CJ, and it is unnecessary to repeat references to them here.
In the course of his reasons, Doyle CJ dealt with the argument advanced by Mr Karkar QC for the plaintiff, who contended that in cases such as this, equity will not apply a time limit by analogy, but will deal with the matter within the rubric of the doctrine of laches. Reliance was placed by Mr Karkar upon dicta of Kirby P in Williams v Minster, Aboriginal Land Rights Act 1983 and Anor.[9] Doyle CJ took the dicta of Kirby P in that case as supporting a more limited proposition, namely:
“… that a claim for compensation for breach of fiduciary duty will rarely be subject to a statutory time limit by analogy, and the doctrine of laches accommodates any and all of the factors that would fall to be considered in deciding whether or not a statutory limit should be applied by analogy. That is not to say that equity will never, in such case, apply a statutory time limit by analogy.”
[9] (1994) 35 NSWLR 497 at 509-510.
Doyle CJ went on to address the question whether there was a legal claim “closely similar to the claim made in these proceedings, which is subject to time limit, which time limit, considering all the circumstances, it is appropriate to apply by analogy”.[10]
[10] Reasons [118].
He rejected the argument put forward by Mr Hilton SC of counsel for the Hambros defendants, who contended:
that the claim was so similar to one which might be brought against the directors under s 229(1) and s 229(7) of the Companies (South Australia) Code that the statutory cause of action under those provisions of the code should be treated as analogous.
that although the code fixed no time limit, the s 229 actions were in turn analogous to a claim in tort, which under s 35(c) of the LAA is subject to a limit of six years.
In rejecting that argument, Doyle CJ followed the decision of the Full Court in Carabelas and Anor v Scott.[11] That case is authority for the view that a claim based on s 229 is a claim on a “specialty”, using the word “specialty” as identifying an action on a statute, which is sui generis. An action on a specialty is not subject to a six year time limit, but is subject to a 15 year time limit under s 34 of the LAA.
[11] (2003) 177 FLR 334.
The claim now in question was brought within that time limit.
However, Doyle CJ went on to deal with, and eventually to accept, an alternative argument put by Mr Hilton SC that the causes of action in question were closely similar to actions in tort, more particularly for deceit, for conspiracy to defraud, for conspiracy to injure by unlawful means, or for conversion.[12]
[12] Reasons [122]-[123].
In doing so, he rejected the argument that the essential elements of a cause of action in tort in these circumstances, would differ substantially from the essential elements of a claim for breach of fiduciary duty, and that this should deflect the court from accepting the analogy.
His conclusion as to this aspect of the matter finds expression in the following paragraph in his reasons:[13]
“I agree that authority supports the contention by Mr Hilton that there are causes of action in tort against the directors sufficiently similar to the claim against the directors for breach of fiduciary duty, and which are subject to a six year time limit, to warrant in principle the application of that time limit to a claim against the directors for a breach of fiduciary duty. I also accept the submission that in principle the claim against the present defendants for dishonest assistance in the directors’ breach of fiduciary duty should be subject to the same time limit as applies to the claim against the directors.”
[13] Reasons [133].
It followed that a six year time limit applied by analogy: LAA s 35(c).
With respect to Doyle CJ, I am not sure that I would agree with the reasoning which led him to the conclusion which he reaches in that passage in his reasons.
While I accept that there will always be differences in the elements of the claim sought to be pursued and the cause of action which is said to be analogous, and while in that sense there is always a question as to the degree of difference or similarity, in my view, the elements of a claim in tort against the directors differ so substantially from a claim against the directors for breach of fiduciary duty, that I have some hesitation in thinking that it is appropriate to adopt the analogy.
However, it is unnecessary to express a concluded view as to that aspect of the matter, as I agree with Doyle CJ that even if a six year time limit applies by analogy, it would not be proper to yield to the defendants’ application to dispose of the matter summarily.
Doyle CJ advanced two reasons in support of that conclusion:
He was not satisfied in all the circumstances that it would be just to do so.
Given that a time limit under the LAA can be extended, that was a matter to be taken into account in applying the analogy.
As to the first point, Doyle CJ observed that “in accordance with basic principle, it is necessary for me to consider whether it is just in all the circumstances to apply the statutory time limit”.[14]
[14] Reasons [133].
Doyle CJ held that an application for the summary disposition of an action was not a satisfactory procedure within which to consider a question which could only properly be considered at the trial, when all of the relevant facts are before the court.
Earlier in his reasons for judgment, Doyle CJ referred to the decision of the High Court in Wardley Australia Ltd and Anor v State of Western Australia.[15]
[15] (1992) 175 CLR 514.
In that case, the question arose whether it was appropriate during the course of pre-trial interlocutory proceedings to determine whether a cause of action under s 82(1) of the Trade Practices Act 1974 (Cth) was barred by the three year period of limitation provided for in subsection (2) of the section. Doyle CJ quoted the following observation in the joint judgment of Mason CJ, Dawson, Gaudron and McHugh JJ in that case:[16]
“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 that question.”
[16] Ibid 533.
Doyle CJ went on to refer with approval to the dictum of Burchett AJ in Young v Waterways Authority of New South Wales[17] when he said:
“An application of the statute [of limitations] by analogy could very rarely indeed lead to a summary dismissal of an action.”
[17] (Unreported) [2002] NSWSC 612 - VC200203758.
While Doyle CJ accepted that it was not obvious that there were other matters beyond those disclosed in the material then before the court which would be relevant, he expressed the view that the “very point” of the dicta to which I have referred was that:
“… on an application of this kind there is a risk that relevant matters will not be adequately considered.”[18]
[18] Reasons [135].
Doyle CJ went on to hold, in my view correctly, that in considering whether to apply a statutory time limit by analogy, equity has regard to the time when the plaintiff became aware of the circumstances said to give rise to the cause of action and became aware of the rights to which those facts gave rise. These were matters of particular importance in cases where there has been “concealed fraud”.
In that regard, Doyle CJ referred to passages in Spry Equitable Remedies[19] and Meagher Gummow and Lehane.[20] I do not pause to repeat those passages, as the conclusion which he reached, which appears in the followed passage in his reasons,[21] was not placed under challenge on the hearing of the appeal:
“In my view a relevant consideration in the present case is when the liquidator became aware of the alleged dishonest participation in the breach of fiduciary duty, and of the facts giving rise to the claim now made.”
[19] 6th edition, LBC Information Services 2001 at 424-425.
[20] Equity Doctrines and Remedies (4th ed) Butterworths LexisNexis (2002) at [34-085] and [34-090].
[21] Reasons [138].
There was much evidentiary material before Doyle CJ dealing with this aspect of the matter.
I will not attempt to summarise that material. The conclusion which Doyle CJ reached was as follows:
“[140] I have found that by July 1995 the liquidator had sufficient information about the sale of the Autocure shares to know that there was a reasonable prospect of establishing the facts now relied on. I have found that the liquidator could have assembled all relevant information by about mid 1997. The action was instituted in November 2002. On my findings, somewhere between about July 1995 and about the middle of 1997 the liquidator had sufficient knowledge to warrant the institution of proceedings. Bearing in mind that the action was commenced in November 2002, it may obviously be of considerable importance to make a definite finding about when the liquidator had sufficient knowledge to warrant proceedings. It may also be necessary to make quite definite findings about the reasons for not instituting proceedings at that time, and the impact of obstacles to the proceedings that might be attributable to the breaches of duty that the defendants allegedly assisted.
[141]A decision whether the six year time limit is to be applied and has been exceeded (assuming that it is in principle applicable) requires findings of fact to be made with a degree of precision and confidence that is not possible at this stage. I appreciate that the issue is primarily when did the liquidator become aware of facts giving rise to the claim. On my findings he had knowledge of a substantial number of the relevant facts by July 1995. But that is not the end of the enquiry. Other difficulties facing the liquidator may well be relevant. It is not appropriate, on an application for summary disposition, to make findings of fact that cannot be made confidently. From what I have said, the case may be close to the six year deadline, if I can call it that. Either way, justice requires that the relevant finding me made with all the facts before the Court.”
Those conclusions were attacked by the defendants on the hearing of the appeal.
Mr Hilton SC contended that Doyle CJ “erred in principle in that he required the Hambros defendants to satisfy him that, in all the circumstances, it was just to apply the provisions of the LAA Act by analogy”.[22]
[22] Outline of submissions, par 12(a)(i).
Mr Wells QC for the Autocure defendants made the same submission. He contended:
“1.1His Honour erred … in holding that the test for applying the statutory time limit by analogy was that ‘in all the circumstances it is just to do so’.
1.2His Honour should have held that the analogy should be applied unless it is unjust to do so.”[23]
[23] Supplementary outline as to sub-paragraph 3.2 of the Autocure defendants’ notice of appeal.
In support of that proposition, Mr Wells QC referred to Cia de Seguros Imperio v Health (REBX) Ltd,[24] more particularly to the citation by Waller LJ in that case of a passage in the 5th edition of Spry:[25]
“… the limitation period is said to be applied by analogy, and the principles that govern cases of this kind are that if there is a sufficiently close similarity between the exclusive equitable right in question and legal rights to which the statutory provision applies a court of equity will ordinarily act upon it by analogy but that it will so act only if there is nothing in the particular circumstances of the case that renders it unjust to do so.”
[24] [2001] 1 WLR 112.
[25] Equitable Remedies LBC Information Services (1997) at pp 419-420.
Neither that passage nor any part of the judgment of Waller LJ in that case addresses any question of onus.
Clearly, the court must first determine whether the similarity is such as to justify the application of the analogy. Having done so, it must then consider whether, in all the circumstances, it is just to do so. While to ask whether there is anything which “renders it unjust to do so” might be thought to reflect a different emphasis, in the present circumstances, the two expressions identify the same process. The principle is the same.
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.
The defendants argued further that Doyle CJ erred in holding that he was unable at that stage of the proceedings to make a sufficiently definite finding as to whether the liquidator had sufficient knowledge to justify the issue of proceedings at an earlier stage. The defendants went into considerable detail as to the factual material underlying that aspect of the matter.
The defendants’ analysis of that material was challenged by the plaintiff. In my view, the contention over this issue proves the point taken by Doyle CJ that satisfactory determination of this question could only be made at the trial, when the facts have been fully ventilated.
Furthermore, in my view, Doyle CJ rightly referred to the fact that under the LAA time limits may be extended.
The defendants contended that there was no application for an extension of time before Doyle CJ, and that in any event, s 47 and s 48 of the LAA, under which certain limitation periods may be extended, were not of application.
In my view the defendants’ submission misses the point. There could not be a formal application to extend time under the LAA, as any limitation period will only apply to this case by analogy.
What was of concern to Doyle CJ, and in my view, rightly so, was that if under the LAA a time limit may in certain circumstances be extended, it may well be that in equity, in applying a time limit by analogy, some regard should properly be had to the fact that there is a discretion to extend the time limit in appropriate circumstances.
I do not agree that in this case none of the circumstances postulated in s 48(3) would be capable of being taken into account in that way.
Prejudice
Much of the defendants’ argument on the appeal was taken up in an endeavour to demonstrate that Doyle CJ underestimated the prejudice which is likely to be suffered by the defendants if the action is allowed to proceed.
The question of prejudice is relevant to:
determination of the issue whether a limitation should be applied by analogy, more particularly whether it would be just to apply what is found to be an analogous limitation
the defence of laches
abuse of process.
Doyle CJ was not unmindful of the prejudice likely to be suffered by the defendants, and a large part of his reasons for decision are devoted to a consideration of matters relevant to this aspect of the matter.
He reached the following conclusions with respect to prejudice:
“[161] As to the impact on the defendants on the passage of time, again my findings are set out above. There is a significant risk that the defendants will suffer prejudice attributable to frailty of memory and loss of documents. But, as my findings indicate, I am also satisfied that the examinations undertaken by the liquidator, and the efforts by the liquidator to secure relevant documents, mean that the risk of prejudice to the defendants is substantially less than it otherwise would be. I am satisfied that a substantial number of relevant documents have been preserved. I am satisfied that various defendants have had cause to direct their minds to the matters in issue some time before the liquidator instituted the proceedings. I am also satisfied that the claim is one in relation to which the unaided memory of witnesses should not be crucial.
[162]I am not prepared to find that the defendants will in fact suffer significant prejudice attributable to the delay. I am prepared to do no more than to find that there is a substantial risk of this occurring.” (my emphasis)
The passage which I have italicised represents a conclusion based upon Doyle CJ’s assessment of the nature of the case, and of the evidentiary material which is likely to be relevant to presentation of the claim and the defence. This conclusion was attacked by the defendant on the hearing of the appeal. In my view, the attack is not well founded.
The defendants also challenged the distinction made by Doyle CJ between a finding of a substantial risk of prejudice and a finding that the defendants “will in fact suffer significant prejudice”. They contended that proof of a substantial risk of prejudice was sufficient.
In my view, Doyle CJ did not err in the manner in which he approached this issue. As the plaintiff contended:
“Equity could hardly deny a plaintiff access to a remedy otherwise available to it in circumstances where there is no more than a risk of prejudice to the defendant.”[26]
[26] Outline of submissions, par 71.
I accept the submission of the plaintiff that at least in the context of the defence of laches, relevant authority establishes that actual prejudice is an element of the defence: see Lindsay Petroleum Co v Hurd,[27] Lamshed v Lamshed,[28] and Orr v Ford.[29]
[27] (1874) LR5PC 221 at 239-240.
[28] (1963) 109 CLR 440 per Kitto J at 453.
[29] (1989) 167 CLR 316 per Deane J at 341.
In Cubillo v The Commonwealth (No 2),[30] O’Loughlin J observed:
“[T]he central question is whether the knowing delay of an applicant has prejudiced a respondent, and not whether prejudice has resulted from the mere passage of time.”[31] (my emphasis)
[30] (2000) 103 FCR 1 at 447 [1431].
[31] And see on appeal (2001) 112 FCR 455 at 532, 572 and 578. See also Masterton Homes Pty Ltd v LED Builders Pty Ltd (1996) 33 IPR 417.
As to the general question of the prejudice said to have been suffered by the defendants as a result of the delay, the defendants pointed to the following matters in particular:
“(a)loss of documents;
(b)loss of memory;
(c)death of witnesses;
(d)loss or impairment of cross claims;
(e)impaired ability to prepare a defence on issues never within the knowledge of Hambros, such as causation, breach of duty on the part of the Kia Ora directors; and
(f)prejudice arising from the acquisition of Hambros by Société-Générale.”[32]
[32] Outline of submissions, page 15, par 33.
I have carefully considered this aspect of the matter, as it seems to me to go to the heart of the applications before Doyle CJ and the issues agitated on the appeal. Doyle CJ substantially covered all of those matters, with the exception of the effect of delay on potential cross-claims, which was not an argument advanced before him.
I agree with the contention of the plaintiff that the question of potential cross-claims is speculative and adds little weight to the defendants’ case on prejudice.
As to the other matters, I agree with the reasons advanced by Doyle CJ for the conclusion that on the evidence as it stood before him, as opposed to what might emerge at the trial, he was not prepared to find actual prejudice.
A considerable volume of documents has been preserved, and the transcript of the examinations conducted before the Masters and the affidavits which have been sworn to by potential witnesses, suggest to me that this aspect of the matter has been over-dramatised by the defendants. I specifically accept the submissions of the plaintiff on this issue when they deal with each of the matters of complaint advanced by the defendants.[33]
[33] See outline of submissions of the respondent (plaintiff) par 88-par 110 inclusive.
I mention one aspect of the issue of prejudice, which was the subject of a good deal of argument on the appeal. The argument of the defendants was that Hambros Australia or Hambros Securities will suffer prejudice attributable to the sale by Hambros Plc of its interest in Hambros to Société-Générale in December 1997, or that Société-Générale itself suffered significant prejudice. The defendants complain in particular that Doyle CJ erred in refusing to draw what they describe as an “obvious inference” that Société-Générale would necessarily have sought a significant discount on the purchase price if it had known of the claim, given the quantum of the claim pursued in the proceedings.
Doyle CJ found that Société-Générale “might have paid less for the shares then transferred by Hambros Plc, but whether it would have paid less remains speculative as does the amount by which the purchase price might have been reduced”.[34] While he recognised that there was possible prejudice, having regard to the possibility that Société-Générale would have paid less than it did, it was difficult to quantify the extent of the prejudice.
[34] Reasons [72].
To the extent that the possibility of prejudice arising out of the transaction with Société-Générale was clearly taken into account by Doyle CJ as best he could on the material then before him, I am not satisfied that he erred in the approach which he took.
Looking at the matter overall, and notwithstanding the vigorous and detailed submissions advanced by the defendants, it is simply not possible to assess the weight to be given to the question of prejudice suffered by the defendants, until positive findings can be made as to the nature and extent of the prejudice.
I turn to the question of laches.
Laches
The relevant principles in considering the defence of laches are clearly established. There must be unreasonable delay in the institution of the proceedings, and it must be established that by reason of the delay there has been such a substantial detriment to the defendant as to render it unjust to allow the claim to be prosecuted.
The jurisdiction in equity to allow a plea of laches is preserved by s 26 of the LAA.
Doyle CJ accepted that the delay was substantial, but he was not prepared to find that the plaintiff had been guilty of unreasonable delay.
In reaching that view, he had regard to the complexity of the liquidation, the financial constraints on the liquidator, and the distraction of other proceedings which the liquidator had in train, and which the liquidator considered necessary to attend to before coming to the present claim.
I have already referred to Doyle CJ’s conclusion as to the issue of prejudice which he took into account in his findings as to laches.
As was the case with the question of the application of a statutory limitation by analogy, Doyle CJ concluded that the defence of laches could only properly be assessed at the trial. He said:
“[166] … But the material is not enough for me to make findings that would support a decision that the defence of laches will so clearly be made out that the claim should not proceed to trial.
[167]In so concluding I have not overlooked or discounted the submission by the defendants that it is unfair that they should be put to the cost of a substantial trial after this lapse of time. That is a significant point. But it does not overcome the fact that I am unable to make the necessary factual findings in their favour to warrant disposing of the action without permitting it to proceed to trial.”
Abuse of process
I accept that modern authorities are in favour of the proposition that the court should not take a narrow view of the circumstances in which it would be appropriate to stay the hearing of civil proceedings on the ground that their institution or prosecution constitutes an abuse of process. As was observed by Gaudron J in Jago v District Court (NSW),[35] the power of the court:
“… to control its own process and proceedings is such that its exercise is not restricted to defined and closed categories, but may be exercised as and when the administration of justice demands.”[36]
[35] (1989) 168 CLR 23 at 74.
[36] Cited with approval by Mason CJ, Deane and Dawson JJ in their joint judgment in Walton v Gardiner (1992-1993) 177 CLR 378 at 394.
That is not to say that in a particular case when the defendant contends that the proceedings amount to an abuse of process, particular matters said to give rise to the abuse must be identified, and the competing considerations balanced out.
Furthermore, as it was put by the plaintiff, the “threshold which must be met by the defendants in seeking to have the court stay or dismiss” the proceedings is very high.[37]
[37] Outline of submissions of the respondent (plaintiff) at page 18, par 43.
The plaintiff referred to the warning of Barwick CJ in General Steel Industries Inc v Commissioner of Railways (NSW):[38]
“[T]he jurisdiction summarily to terminate an action is to be sparingly employed and is not to be used except in a clear case where the court is satisfied that it has the requisite material and the necessary assistance from the parties to reach a definite and certain conclusion.”
[38] (1964) 112 CLR 125 at 128.
To that dictum may be added a reference to the observations of Dixon J in Dey v Victorian Railways Commissioner:[39]
“A case must be very clear indeed to justify the summary intervention of the court to prevent a plaintiff submitting his case for determination in the appointed manner by the court …”
[39] (1949) 78 CLR 62 at 91.
The principal factors urged upon the court in support of the submission that these proceedings are an abuse of process, are delay on the part of the plaintiff and resulting prejudice to the defendants.
Doyle CJ, largely for the reasons given by him in his treatment of the arguments raised on the issue of laches, held that he was not satisfied:
“… that the delay that has occurred, in light of the explanation for the delay, coupled with the risk of prejudice to the defendants, is such as to lead to the conclusion that the proceedings are unfairly and unjustifiably oppressive.”
I agree. An order staying civil proceedings which are otherwise not subject to any time bar would be justified only in the most exceptional case. I would not place this case in that category.
At the same time, I agree with the submission of the defendants:
“The warning against deciding certain limitation questions prior to the conclusion of a hearing, which was sounded in Wardley Australia Limited v Western Australia,[40] is not directly applicable to an application founded on abuse of process. The very issue in such an application is whether ‘the continuation of the proceedings’ would involve ‘unacceptable unfairness or injustice’. If such issues were routinely deferred until after the hearing had concluded, then the processes and procedures of the Court would be open to abuse in the meantime, resulting in injustice and unfairness to persons, whatever the ultimate outcome of the proceedings may be.”
[40] (1992) 175 CLR 514.
However, the answer to that submission, is that Doyle CJ did not defer, let alone “routinely” defer, the issue of abuse of process until the hearing had concluded.
He then and there determined the application for a stay on the ground of abuse of process, by dismissing the application on the ground that, on the material adduced in support of the application, he was not satisfied that he should accede to it.
I should say that the defendants raised as one element in their argument that the proceedings should be stayed, the submission that the liquidator should have included in the proceedings in Duke Group Ltd (In Liq) v Pilmer, if necessary by amendment, the claim now pursued in these proceedings.
I agree with Doyle CJ that while there might have been some advantages in doing so, such a course would have added “a further substantial complication to an already complicated case”.[41] As Doyle CJ points out, the present defendants would have had only a limited interest in a much larger case, and might well have mounted a successful argument against being brought into those proceedings.
[41] Reasons [171].
Conclusion
I would dismiss the defendants’ appeals.
It is unnecessary to refer further to the respondent’s notice of alternative contentions, except to say that I would make no comment about the stated intention of the plaintiff to amend its statement of claim to plead claims under s 229(7) of the Companies Code and s 38 of the Companies and Securities (Interpretation and Miscellaneous Provisions) Act 1980 (Cth).
The question whether the plaintiff should be permitted to amend its statement of claim in that way, will fall to be addressed in the course of further interlocutory proceedings. It is not a matter upon which it is appropriate to comment in the context of the present appeals.
DUGGAN J. I would dismiss the appeals. I agree with the reasons prepared by Perry J.
WHITE J. Save for one qualification, I am in general agreement with the reasons of Perry J.
I would prefer not to express a concluded view on the question of whether the present claim was brought within the period of 15 years fixed by s 34 of the Limitation of Actions Act 1936 (“LAA”).
The plaintiff has foreshadowed an amendment of the Statement of Claim to plead a claim under s 229(7) of the Companies (South Australia) Code. Carabelas v Scott[42] is authority for the proposition that a claim brought against directors pursuant to s 229(1) and s 229(7) of the Code is a claim on a specialty. Section 34 of the LAA fixes a 15 year limitation period for claims brought upon a specialty.
[42] [2003] SASC 389; (2003) 177 FLR 334.
If the amendment foreshadowed by the plaintiff is made, an issue may arise as to the date from which that amendment is to take effect, eg, from the date on which the present proceedings were instituted, or the date upon which the amendment was made, or foreshadowed, or some other date.[43] In the circumstances of this case, the determination of that date is likely to be important in the determination of the question of whether the claim was brought within the limitation period of 15 years. Even if the relevant date be the date upon which the proceedings were commenced, it is not presently clear that the proceedings were commenced within the period of 15 years after the cause of action said to arise pursuant to s 229(7) did accrue. There is old authority for the proposition that a cause of action for breach of a specialty accrues at the date of the breach.[44] This is consistent with the principle that ordinarily the cause of action for breach of contract accrues as at the date of the breach, rather than the date on which damage is suffered as a result of that breach.[45]
[43]Cf Brook v Flinders University of South Australia (1988) 47 SASR 119 at 122-6 per von Doussa J.
[44]Tuchey v Hawkins (1847) 4 CB 655; 136 ER 665; Gilman v Schute (1847) 11 ILR 442; Kennedy v Whaley (1848) 12 ILR 54. See also Halsburys Laws of Australia [255-165].
[45]The Millstream Pty Ltd v Schultz [1980] 1 NSWLR 547; Sheldon v McBeath (1993) Aust Torts Reports 81-209 at 62,076 per Handley JA.
This means that it may be necessary to identify precisely when the breach relied upon did occur. As the pleadings presently stand, the latest conduct of the defendants relied upon by the plaintiff to constitute the knowing participation in the Kia Ora directors’ breach of duty is said to have occurred on 26 October 1987. The present proceedings were instituted on 13 November 2002, ie, just over 15 years after 26 October 1987. On the other hand, the sale was completed in January 1988. If the cause of action accrued at that time, the present proceedings were instituted within 15 years of that accrual.
It is unnecessary, in my opinion, to determine definitely at this stage whether the present proceedings have been instituted within 15 years after the cause of action accrued. It is unnecessary for two reasons. First, the amendment to the Statement of Claim foreshadowed by the plaintiff has not yet been made. Secondly, even if the proceedings were instituted outside the 15 year period, that is a limitation period which can be extended: LAA s 48. Moreover, in determining whether equity would adopt a 15-year limitation period by analogy, account should be taken of the possibility of the 15-year limitation period being extended. I agree with what has been said by the Chief Justice at first instance and by Perry J on this topic. The fact, if it be the fact, that the proceedings were instituted more than 15 years after the cause of action accrued, will not necessarily be decisive in the defendant’s favour whether it is a limitation period fixed by the law or adopted by equity by analogy which is to be applied. As was said by Bray CJ in Napolitano v Coyle, “since 1972 every defendant knows or ought to know that the lapse of the statutory period does not leave him absolutely and for ever immune from suit.”[46]
[46] (1977) 15 SASR 559 at 572.
There is a third factor which, in my opinion, makes it undesirable for a concluded view on the question of the application of a 15-year limitation period in the circumstances of this case to be expressed. Although some submissions were directed to the topic of when the cause of action accrued, the matter was not the subject of full argument. It is preferable that further consideration of the matter be left until after the foreshadowed amendment of the Statement of Claim when full argument can occur.
There are two additional matters which I would like to add. I agree with Perry J that it is not necessary to express a concluded view on the question of whether a claim against directors for breach of fiduciary duty is sufficiently similar to a claim in tort against directors to warrant, in principle, the application to the former of the six year limitation period which is applicable to the latter. I would prefer to leave that question to another day.
Finally, in relation to the effects of the plaintiff’s delay and the possible prejudice caused by that delay, a matter which will have to be considered at trial is the factor to which McHugh J referred in Brisbane South Regional Health Authority v Taylor, namely, the possible oppression, even “cruelty”, to the defendants in allowing an action to be brought so long after the circumstances which gave rise to it have passed.[47] Prejudice of this kind is often more intangible than the prejudice resulting from lost witnesses or lost documents but is nevertheless real. Such prejudice, if it exists in the present circumstances, was not something about which the Chief Justice made any specific findings. It may be that the defendants did not put it at the forefront of their submissions. The significance of prejudice of this kind, if it exists, can best be determined after detailed findings of fact which, for the reasons given by the Chief Justice, cannot be made at this stage.
[47] (1996) 186 CLR 541 at 552.
I would dismiss each of the appeals.
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