Lewis Securities Ltd (in liq) v Carter

[2018] NSWCA 118

Court of Appeal

Supreme Court

New South Wales

Medium Neutral Citation:

Lewis Securities Ltd (in liq) v Carter [2018] NSWCA 118

Hearing dates:

12 March 2018

Decision date:

07 June 2018

Before:

Leeming JA at [1];
Sackville AJA at [94];
Emmett AJA at [100]

Decision:

1.   Appeal allowed in part.
2.   Set aside order 1 made on 7 April 2017 in proceeding 2014/317554, and in lieu thereof, order that there be judgment in favour of the plaintiffs against the first and second defendants.
3.   Direct the parties to file and serve within 21 days (a) agreed short minutes of order, or, in default of agreement, (b) the orders for which they contend and short submissions in support as to (i) the amount of the judgment debt, (ii) the appropriate order as to costs in this Court, and (iii) and further orders which should be made.

Catchwords:

CORPORATIONS ACT - claim in equity against third parties involved in director’s dishonest and fraudulent breach of duty - whether claim limited by analogy with 6 year limitation period under Corporations Act 2001 (Cth) s 1317K against persons involved in breach of directors’ duties under s 79 of that Act

 

EQUITY - fiduciary duty - Barnes v Addy claim for knowing receipt - money taken from client account and used to contribute to purchase price of property - liquidator contended money taken from company in breach of duty - no error in finding by primary judge that money borrowed from client - no claim for breach of duty owed to client pleaded

 

EQUITY - fiduciary duty - Barnes v Addy claim for knowing assistance - fraudulent scheme by director to create appearance that his personal indebtedness to the company had been repaid - scheme involved dishonestly created letter referring to commercial opportunity, the creation of companies unbeknownst to their directors, and a “round robin” of cheques - primary judge held that transactions although fraudulent had no legal effect and thus caused no loss to company - held on appeal that effect of transactions was to replace claim in debt against director by more complicated claim against third parties - consideration of direct application of limitation statute, and application by analogy in equity

LIMITATION PERIODS - definition of “trust” and “trustee” in s 11 of Limitation Act 1969 - whether limitation period of 6 years applied to Barnes v Addy claim for knowing assistance by analogy with Corporations Law s 1317K - whether direct application of Limitation Act - whether defences of laches and informed consent made out

Legislation Cited:

Civil Procedure Act 2005 (NSW), s 100
Corporations Act 2001 (Cth), ss 79, 180, 181, 182, 183, 1274B and 1317K,
Evidence Act 1995 (NSW), s 140
Judicature Act 1873 (36 & 37 Vict c 66)
Limitation Act 1969 (NSW), ss 11, 13, 15, 16, 17, 18, 20, 21, 23, 47, 55
Limitation Act 2005 (WA), ss 13, 47
Limitation of Actions Act 1974 (Qld), s 27
Real Property Limitation Act 1833 (3 & 4 Wm IV c 27), s 25
Trustee Act 1888 (51 & 52 Vict c 59)

Cases Cited:

Abdulla v Birmingham City Council [2012] UKSC 47; [2012] ICR 1419
Baden v Société Générale pour Favouriser le Développement du Commerce et de l’Industrie en France SA [1993] 1 WLR 509
Barnes v Addy (1874) LR 9 Ch App 244
Belan v Casey (2003) 57 NSWLR 670; [2003] NSWSC 159
Boral Bricks Pty Ltd v Cosmidis (No 2) (2014) 86 NSWLR 393; [2014] NSWCA 139
Briginshaw v Briginshaw (1938) 60 CLR 336; [1938] HCA 34
Brisbane South Regional Health Authority v Taylor (1996) 186 CLR 541; [1996] HCA 25
Clarkson v Davies [1923] AC 100
Commonwealth v Cornwell (2007) 229 CLR 519; [2007] HCA 16
Croton v The Queen (1967) 117 CLR 326; [1967] HCA 48
Dubai Aluminium Co Ltd v Salaam [2003] 2 AC 366
Equuscorp Pty Ltd v Glengallan Investments (2004) 218 CLR 471
Farah Constructions Pty Ltd v Say-Dee Pty Ltd (2007) 230 CLR 89; [2007] HCA 22
Gerace v Auzhair Supplies Pty Ltd (in liq) (2014) 87 NSWLR 435; [2014] NSWCA 181
Grimaldi v Chameleon Mining NL (No 2) (2012) 200 FCR 296; [2012] FCAFC 6
Hart v Commissioner of Taxation (No 4) [2017] FCA 572
Hasler v Singtel Optus Pty Ltd (2014) 87 NSWLR 609 [2014] NSWCA 266;
In re Coomber; Coomber v Coomber [1911] 1 Ch 723
Knox v Gye (1872) 5 LR HL 656
Lewis Securities (In Liq) v Marilyn Carter & Anor [2017] NSWSC 412
Lewis v Condon (2013) 85 NSWLR 99; [2013] NSWCA 204
Michael Wilson & Partners Ltd v Nicholls (2011) 244 CLR 427; [2011] HCA 48
Orr v Ford (1989) 167 CLR 316; [1989] HCA 4
Parsons v The Queen (1999) 195 CLR 619; [1999] HCA 1
Port Ballidu Pty Ltd v Frews Lawyers [2017] QSC 19
Port Ballidu Pty Ltd v Frews Lawyers [2018] QCA 110
Queensland Mines Ltd v Hudson (1975-1976) CLC 40-266
Queensland Mines Ltd v Hudson (1978) 18 ALR 1
Sharrment Pty Ltd v Official Trustee in Bankruptcy [1988] FCA 266; 18 FCR 449
Simmons v New South Wales Trustee and Guardian [2014] NSWCA 405
Sze Tu v Lowe (2014) 89 NSWLR 317; [2014] NSWCA 462
Target Holdings v Redferns [1996] AC 421
Taylor v Davies [1920] AC 636
The Duke Group Ltd (in liq) v Alamain Investments Ltd [2003] SASC 415
The Duke Group Ltd v Alamain Investments Ltd (2005) 91 SASR 167
Warman International Ltd v Dwyer (1995) 182 CLR 544; [1995] HCA 18
Westpac Banking Corporation v Bell Group Ltd (in liq) (No 3) (2012) 44 WAR 1; [2012] WASCA 157
Williams v Bank of Nigeria [2014] AC 1189; [2014] UKSC 10
Yorke v Lucas (1985) 158 CLR 661
Youyang Pty Ltd v Minter Ellison Morris Fletcher (2003) 212 CLR 484; [2003] HCA 15

Texts Cited:

G E Dal Pont, Law of Limitation (LexisNexis, 2016)
J Edelman, “An English Misturning with Equitable Compensation” in S Degeling and J Varuhas (eds), Equitable Compensation and Disgorgement of Profit (Hart Publishing, 2017) 91.
First Report on the Limitation of Actions (Parliamentary Paper 64/1967, Parliament of New South Wales)
P Handford, “A New Limitation Act for the 21st Century” (2007) 33 University of Western Australia Law Review 387
P Handford, Limitation of Actions, 3rd ed (Sydney, Thomson Reuters, 2011)
L Ho, “The Importance of Being Earnest: The Doctrines of Laches and Acquiescence” in P Davies,
S Douglas and J Goudkamp (eds), Defences in Equity (Hart Publishing, 2018)
M Leeming, ‘Not Slavishly Not Always – Equity and Limitation Statutes’, Defences in Equity (Hart, 2018)
S Douglas and J Goudkamp (eds), Defences in Equity (Hart Publishing, 2018)
S Worthington, “Four Questions on Fiduciaries” (2016) 2 Canadian Journal of Comparative and Contemporary Law 723

Category:

Principal judgment

Parties:

Lewis Securities Ltd (in liq) (First Appellant)
LSL Holdings Pty Ltd (in liq) (Second Appellant)
Marilyn Carter (First Respondent)
Robert Miller (Second Respondent)

Representation:

Counsel:
J Stoljar SC with M Cleary (Appellants)
AG Bell SC with L Livingston (First Respondent)
N A Cotman SC with E Finnane (Second Respondent)

  Solicitors:
Easton Belle Lawyers (Appellants)
Swaab Attorneys (First Respondent)
Uther Webster & Evans Pty Ltd (Second Respondent)

File Number(s):

2017/130893

 Decision under appeal 

Court or tribunal:

Supreme Court of New South Wales

Jurisdiction:

Equity

Citation:

[2017] NSWSC 412

Date of Decision:

7 April 2017

Before:

Rein J

File Number(s):

2014/317448; 2014/317554

HEADNOTE

[This headnote is not to be read as part of the judgment]

Mr Anthony Lewis and Mr Robert Miller were directors and Ms Marilyn Carter (Mr Lewis’ wife) was the company secretary of Lewis Securities Ltd (LSL). Mr Lewis was also a director of a related company, LSL Holdings Pty Ltd (Holdings). Liquidators were appointed to both companies in 2009. By statement of claim filed on 28 October 2014, the liquidators alleged that (a) in 2000 Ms Carter used funds which she knew were provided by Mr Lewis from LSL’s bank account in a dishonest and fraudulent breach of his fiduciary duty to LSL to purchase a property in Vaucluse, and (b) in 2002 that Ms Carter and Mr Miller had assisted Mr Lewis to conduct a fraudulent and dishonest scheme in breach of his fiduciary duty to reduce the debt he owed to LSL by $1 million, when in fact he had paid no money in reduction of the loan (referred to below as the Bass Transactions)

Ms Carter’s defence pleaded that the causes of action were barred by the application by analogy of ss 23 and 14 of the Limitation Act 1969 (NSW) and s 1317K of the Corporations Act 2001 (Cth). Mr Miller’s defence stated that these sections, together with s 15 of the Limitation Act, applied by analogy. Additionally, the Ms Carter pleaded laches and Mr Miller pleaded that LSL had given fully informed consent.

Investors and depositors of LSL paid monies into LSL’s ANZ account and repayments were made from that account; however, funds paid by investors were separated in the general ledger of LSL, each investor had his or her own ledger recording a running account, and there was a ledger recording the running balance of the account between LSL and Holdings.

The claim for a constructive trust over the Vaucluse property

On 28 March 2000, Ms Carter entered into a contract to purchase a property in Vaucluse. Settlement took place on 23 June 2000. On that day, a cheque was drawn on LSL’s account in the sum of $1,024,923.20. That cheque was used to acquire a bank cheque tendered as payment of the purchase price.

The $1,024,923.20 was accounted for in the ledgers as follows. First, $774,923.20 was recorded as a loan from Holdings to Lewis. Secondly, the remaining $250,000 was debited to the ledger account with LSL in the name of Mrs Beryl Malone, who was a customer of LSL and had known Mr Lewis since he was a child. Before the transaction, Mrs Malone’s account was recorded as in credit to the amount of $170,000. After the transaction, Mrs Malone’s ledger account was recorded as in debit in the amount of $80,000.

The pleadings alleged that the $250,000 was “borrowed” from LSL, not Ms Malone, that Mr Lewis had procured the monies in breach of duty to LSL and that Ms Carter had knowingly assisted in doing so and had knowingly received it. The primary judge found that, on the face of the ledger accounts, Mr Lewis did not borrow $250,000 from LSL or Holdings, but from Mrs Malone, and that most of those monies were repaid.

The claim in relation to the fraudulent cancellation of debts

Prior to June 2002, the ledger accounts had recorded an $850,000 loan from Holdings to LSL, and a further loan of $850,000 from LSL to Mr Lewis. After the series of transactions set out below, the ledger accounts recorded that the loan from LSL to Lewis and from Holdings to LSL had been repaid, and a credit of $145,000 to Vimow Pty Ltd, a company with three issued shares, two of which were owned by Mr Lewis and one of which was owned by Ms Carter.

That result was created by the following steps. First, Mr Miller caused Bass Holdings and Investments Pty Ltd (Bass Holdings) and Graham Byrne Investments Pty Ltd (Byrne Investments) to be incorporated on 14 May 2002. Mr Robert Bass and Mr Graham Byrne were appointed as the sole director and shareholder of the respective companies. Both men were clients of Mr Miller, but neither knew anything of the incorporation of those companies or their respective appointments.

Secondly, a letter dated 1 June 2002, purportedly written to Mr Lewis as director of LSL Holdings by Mr Bass on behalf of Bass Holdings, stated that Bass Holdings required $1,000,000 to be invested in preference shares in Bass Holdings. It stated that those funds would then be used to invest in Byrne Investments.

Thirdly, on 21 June 2002, a cheque for the sum of $1 million was drawn on LSL’s ANZ account payable to “Bass Holdings and Investments P/L”. The ledger entries recorded a borrowing by Holdings of $1 million from LSL.

Fourthly, on 21 June 2002, the cheque for $1 million was deposited to the credit of an account of Bass Holdings with St George Bank Ltd.

Fifthly, on 27 June 2002, a cheque for $998,000.00 was deposited to the credit of an account of Byrne Investments with the Bank of South Australia.

Sixthly, on 27 June 2002, a debit was recorded in the statement of account of Byrne Investments in the amount of $996,832.50 with the notation “TEL WDL CASHED CHQ”.

Seventhly, the same day the joint account of Mr Lewis and Ms Carter was credited with the sum of $996,800.

Eighthly, on 2 July 2002, Mr Lewis wrote four cheques totalling $850,000, ostensibly in repayment of his loan from LSL. A further cheque totalling $145,000 was also deposited in LSL’s account, and recorded in the ledger as being to the credit of Vimow.

The primary judge held that (a) there was a dishonest and fraudulent breach of fiduciary duty, but (b) the Bass Transaction was a sham, and as a consequence did not reduce the indebtedness of Mr Lewis, (c) because LSL did not lose the chose in action, neither Mr Miller nor Ms Carter could be held liable, and (d) if wrong on liability, the liquidators’ causes of action were barred by analogy with s 1317K of the Corporations Act. His Honour rejected the informed consent defence and did not consider laches.

On appeal, the liquidator challenged the finding that the loan was from Mrs Malone, not LSL, the conclusion that the transactions were a sham and the conclusion that the causes of action were barred by analogy. By notice of contention, Mr Miller and Ms Carter raised their informed consent and laches defences.

Held, per curiam:

1. The $250,000 was a loan from Mrs Malone, not LSL or Holdings. In circumstances where no party pleaded a breach of duty owed from Lewis to Mrs Malone, the appellants could not complain about that finding: at [2]-[7], [135]-[136], [95].

2. The Bass Transactions should not be characterised as a sham. Mr Miller intended Holdings to become the owner of preference shares in Bass Holdings and Bass Holdings to become the owner of preference shares in Byrne Investments. Notwithstanding that LSL, Bass Holdings and Byrne Investments may have had good causes of action to recover the moneys eventually deposited in Mr Lewis and Ms Carter’s bank account, ownership in those funds passed to Mr Lewis and Ms Carter, and the presentation of cheques to LSL extinguished Mr Lewis’s debt. As a result, rather than a straightforward claim in debt, LSL had a more complicated claim involving third parties: at [13]-[15], [96], [170]-[176].

Lewis v Condon (2013) 85 NSWLR 99; [2013] NSWCA 204, applied.

3. Section 1317K of the Corporations Act is not an apt analogy to accessory liability under the second limb of Barnes v Addy (1874) LR 9 Ch App 244 because the causes of action it limits do not require a dishonest and fraudulent breach of duty: at [37]-[47], [60]-[72], [98], [204]-[218].

Belan v Casey (2003) 57 NSWLR 670; [2003] NSWSC 159, applied. Port Ballidu Pty Ltd v Frews Lawyers [2017] QSC 19, Gerace v Auzhair Supplies Pty Ltd (in liq) 2014) 87 NSWLR 435; [2014] NSWCA 181, Westpac Banking Corporation v Bell Group Ltd (in liq) (No 3) 2012 44 WAR 1; [2012] WASCA 157, distinguished.

4. Section 47 of the Limitation Act 1969 (NSW) applies directly to claims for a constructive trust under the second limb of Barnes v Addy (1874) LR 9 Ch App 244; however, in circumstances where it was not pleaded it did not operate to bar the liquidator’s causes of action: at [52]-[59], [98], [199], [217]-[218].

Sze Tu v Lowe (2014) 89 NSWLR 317; [2014] NSWCA 462, applied. Queensland Mines Ltd v Hudson (1975-1976) CLC 40-266, considered. Westpac Banking Corporation v Bell Group Ltd (in liq) (No 3) 2012 44 WAR 1; [2012] WASCA 157, Taylor v Davies [1920] AC 646, distinguished.

5. The defence of laches was not made out because no prejudice as a result of the liquidator’s delay sufficient to make relief inequitable or unreasonable was shown: at [84], [98], [181].

Orr v Ford (1989) 167 CLR 316; [1989] HCA 4, applied.

6. Mr Lewis and Ms Carter could not cause the company to ratify their own breaches of duty, and so the defence of informed consent was not available: at [85], [98], [182].

Grimaldi v Chameleon Mining NL (No 2) (2012) 200 FCR 296; [2012] FCAFC 6, applied.

Judgment

1. LEEMING JA: I have had the advantage of reading Emmett AJA’s reasons for judgment in draft. Subject to the following, which presupposes familiarity with the background explained by Emmett AJA, I agree with his Honour’s reasons.

Mrs Malone’s account

2. I agree with his Honour that grounds 1-6 of the appeal, which concern $250,000 transferred from Mrs Malone’s account, should be dismissed.

3. I share the concerns expressed by the primary judge who said at [95] that “there are reasons to seriously doubt the veracity of [Mr] Lewis’ claim that Mrs Malone agreed to loan him $250,000”. However, no differently from the primary judge and Emmett AJA, I consider that the appellants are not able to complain of a breach of duty owed by Mr Lewis to Mrs Malone, because that was not pleaded. Ground 3 of the appeal challenged the finding that such a case was inadequately pleaded, but no written nor oral submissions were directed to this particular ground, and the fact is that the pleading makes no allegation of duty owed to Mrs Malone or breach of any such duty. The gravamen of the appellants’ case was that the transaction involving the $250,000 should be characterised as a loan from LSL or Holdings, rather than from Mrs Malone, but I do not consider that there is error in the conclusion reached by the primary judge, based on the unchallenged accounting records as well as testimonial evidence, that the loan was from Mrs Malone.

4. The appellants contended that “[t]he money had to come from LSL (or, in substance, from LSL’s bank account)”, because at the time, Mrs Malone’s account was in credit only to the amount of $170,296.33. Asking “where the money came from” is not particularly illuminating in a case such as this, where there is a single bank account and an elaborate series of ledgers. To the extent that LSL had “money in a bank account”, there was merely an unsecured debt between banker and customer, just as the other accounts in the evidence amounted only to unsecured debts between other companies and clients. In Croton v The Queen (1967) 117 CLR 326 at 330; [1967] HCA 48 Barwick CJ said, uncontroversially and in any event in a passage approved in Parsons v The Queen (1999) 195 CLR 619; [1999] HCA 1 at [17]:

“But, though in a popular sense it may be said that a depositor with a bank has ‘money in the bank’, in law he has but a chose in action, a right to recover from the bank the balance standing to his credit in account with the bank at the date of his demand, or the commencement of action.”

5. Ultimately, the $250,000 contributed to the purchase price of a bank cheque which was delivered to the vendors of the property at settlement. The fact that the bank cheque was purchased with funds withdrawn from the only bank account which was in existence, being an account in the name of LSL, does not mean that the loan was from LSL.

6. Immediately after the transaction involving $250,000, Mrs Malone’s credit account with LSL of some $170,000 had reduced to a debit account of some $80,000. The relevant entry in the ledger was described “Loan to A R Lewis”. The other evidence did not materially detract from the conclusion that Mrs Malone had lent $250,000 to Mr Lewis, including by borrowing some $80,000 from LSL.

7. It is true that the consequence of that characterisation of the transaction involves, as the appellants’ submitted, LSL lending some $80,000 to Mrs Malone (who on-lent that amount, together with the $170,000 she was owed by LSL, to Mr Lewis). That may well have amounted to a breach of LSL’s obligations, for it was no part of its business to lend funds to clients; LSL was in the business of receiving funds from clients for investment. Any such breach was caused by Mr Lewis. Contrary to what was repeatedly put by the respondents to this appeal, it is no answer to the breach to say that the $80,000 was rapidly repaid. However, once again, it is an answer to say that a case of breach of duty based on causing LSL to lend funds to Mrs Malone had never been pleaded.

5. Finally on this part of the appeal, it was accepted that all of the $250,000, save for some $5,000, was repaid over time. It is not necessary to express a view on the remedy which might be available in the event that the appellants had pleaded a case based on knowing receipt or knowing assistance in a breach of duty owed by Mr Lewis to Mrs Malone. This aspect was scarcely argued. Target Holdings v Redferns [1996] AC 421 and Youyang Pty Ltd v Minter Ellison Morris Fletcher (2003) 212 CLR 484; [2003] HCA 15 were mentioned in one sentence of Mr Miller’s submissions and the point was undeveloped orally. In those circumstances, I prefer not to express any views on how this aspect of the case might have been resolved had it been pleaded.

The Bass Transactions

9. I agree with Emmett AJA that the primary judge erred in accepting the respondents’ submission that the Bass transactions (conveniently, albeit slightly inaccurately described as the “round robin”) were a nullity with the consequence that Mr Lewis remained indebted to LSL or Holdings.

10. I agree with Emmett AJA, for the reasons he gives, that the evidence in this case accepted by the primary judge as to the non-involvement of Mr Byrne and Mr Bass in the companies established with them as sole directors constitutes evidence which displaces the inference required by s 1274B of the Corporations Act 2001 (Cth) from the records maintained by ASIC that those two men were the sole directors of the companies which Mr Miller established, which companies each issued one million preference shares. However, I also agree that the companies themselves were established – they were in existence as “shelf companies” before being acquired for the purposes of Mr Lewis’ dishonest scheme. Bank accounts were opened with St George Bank and Bank of South Australia in their names; these were not nullities. Further, there were a series of real transactions, involving the drawing and presentation of separate cheques, described in detail by Emmett AJA, whereby money was transferred as follows:

1. $1,000,000 from LSL to Bass Holdings & Investments Pty Ltd on 21 June 2002;

2. $998,000 from Bass Holdings & Investments Pty Ltd to GB Investments Pty Ld on 26 June 2002;

3. $996,800 from GB Investments Pty Ltd to Mr Lewis and Ms Carter on 27 June 2002, and

4. $995,000 from Mr Lewis and Ms Carter to LSL on 2 July 2002.

11. In part, the last transfer was effected by four cheques adding to $850,000 which were deposited to LSL’s account and was treated in the ledgers maintained by Ms Carter as a repayment by Mr Lewis of the $850,000 owed by him to Holdings. The balance was treated as a credit of Vimow in the amount of $145,000.

12. The primary judge concluded this portion of his judgment as follows (at [130]):

“The real question, I think, is whether the crediting of Lewis’ account with $850,000 on the basis of the monies paid to LSL out of the Lewis/Carter account, with money that formed part of the $1 million removed from LSL, should be treated as having any force or not. In my view it should not because it was a completely fraudulent transaction – if Lewis was sued by the plaintiffs he could not deny that he owed one or other of Holdings or LSL the $850,000. He could not legitimately assert that he had in fact paid the loan monies back given that he had used LSL’s own funds to put $1 million into, and then pay $1 million out of his account. The use of LSL funds in this way would be no different to Lewis having taken $1 million from the LSL safe, given it to an employee and said ‘here is my repayment of my loan. Please credit my loan account.’ The change made to the ledger, by which the loan was purportedly repaid, was part of, indeed, the central purpose of the fraud. I conclude that the fraudulent transaction perpetrated by Lewis cannot be treated as having any substantive effect, with the consequence that Lewis remains indebted to either LSL or Holdings for the $850,000 loan that he received in 2000 (and that Vimow remained indebted to LSL for $145,000). I recognise of course that that is of no comfort to the plaintiffs because Lewis was declared bankrupt in 2009 (and Vimow is in liquidation). It follows that the plaintiffs have not lost the chose in action by reason of what Lewis did, and it follows that neither Miller nor Carter are liable for the $850,000 for which they have been sued in the Bass proceedings.”

13. The purpose and effect of the transactions was to create the appearance that Mr Lewis’ debt of $850,000 to Holdings was repaid. It was not a sham. As noted in Lewis v Condon (2013) 85 NSWLR 99; [2013] NSWCA 204 at [58]-[59]:

The essence of a sham for present purposes is as stated by the High Court in Equuscorp Pty Ltd v Glengallan Investments Pty Ltd [2004] HCA 55; (2004) 218 CLR 471 at [46]:

“[Sham] refers to steps which take the form of a legally effective transaction but which the parties intend should not have the apparent, or any, legal consequences.”

That is to say, it is essential that there be an intention that the true transaction is different from that which would ordinarily be attributed to the transaction on the face of the documents. As Lord Wilberforce put it, “to say that a document or transaction is a ‘sham’ means that while professing to be one thing, it is in fact something different”: WT Ramsay v Inland Revenue Commissioners [1982] AC 300 at 323.

14. The Bass Transaction was the opposite of a sham. The transfers of funds when the cheques were drawn and presented were real, and were recgonised by third parties including the various banks. Here, the point of the elaborate exercise was to create circumstances in which Mr Lewis could write four cheques totalling $850,000 which could be delivered to LSL in satisfaction of his indebtedness to that LSL or Holdings. The very thing which Mr Lewis was seeking to avoid was the circumstance that the transactions were a nullity such that, as the primary judge concluded, Mr Lewis was still indebted to LSL or Holdings.

15. It may well be that LSL and Holdings had good causes of action at law and in equity to rescind some or all of the transactions which occurred. That does not mean that one can put the “round robin” to one side and say, broadly, that “in our respectful submission all that has happened in reality is that an excuse has been created to make a set of entries in the books”, as Mr Cotman put it. It does not follow from the fact that there is a right to rescind a transaction that there has been no loss. Rather than a straightforward claim in debt, LSL Holdings had a more complicated claim which involved third parties and which, it may now be seen, limitation issues.

Challenges to findings of Barnes v Addy liability

16. Third parties are only liable for assisting in a fiduciary’s breach of duty in this country if the breach amounted to a fraudulent and dishonest design: Farah Constructions Pty Ltd v Say-Dee Pty Ltd (2007) 230 CLR 89; [2007] HCA 22. But Mr Lewis’ fraudulent conduct amply amounted to a “dishonest and fraudulent design” on his part, which by no later than July 2002 had led to the seeming repayment of his loan from LSL or Holdings of $850,000. It was of course necessary for the allegation of a fraudulent and dishonest design to have been pleaded, and made out in accordance with the heightened standard associated with Briginshaw v Briginshaw (1938) 60 CLR 336; [1938] HCA 34 and s 140 of the Evidence Act 1995 (NSW). Both requirements were satisfied. The statement of claim squarely alleged that Mr Lewis’ breach “amounted to a dishonest and fraudulent design as Mr Lewis’ purpose in engaging in the conduct was to use [LSL’s or Holdings’] funds to reduce the amount outstanding under the loan from [LSL or Holdings] to Mr Lewis ... by $850,000 ... and conceal Mr Lewis’ course of conduct through the use of a non-existent ‘investment’, set out in the [Bass letter] and through the use of payments made by numerous entities” (paragraphs 47 and 50). The primary judge applied Briginshaw in terms.

17. The remaining issue on liability was whether Ms Carter and Mr Miller had knowingly assisted Mr Lewis. The findings of knowledge were made at [120]-[121]:

“I am satisfied, and comfortably so, whilst having regard to the serious nature of the allegation, that Miller assisted Lewis in Lewis’ dishonest and fraudulent design. If Miller thought that it was LSL to whom the debt was owed, as he asserts, and that the debt was owed by Holdings, then the scheme in which he thought he was participating was one which replaced a debt by Holdings to LSL with a bogus investment. I do not think it assists Miller that the scheme in which Lewis had him participate was (if Miller’s evidence were accepted) beneficial to Lewis personally, rather than to Lewis’ company, Holdings. In either case what was being used to remove the debt was the money taken from the account of LSL, of which both Lewis and Miller were directors. ...

It follows that, in my view, Miller has knowingly assisted Lewis in Lewis’ fraudulent breach of the duty he owed to LSL and Holdings, and Miller has, himself, thereby breached a fiduciary duty owed to LSL. I also find that Carter assisted Lewis with knowledge, within the meaning of Barnes v Addy, because it was only the ledgers which recorded what was owing by Lewis to Holdings, and Vimow and Holdings, and Vimow to LSL. Carter may not have known of the details of the scheme, but I find that she knew that the Bass transaction had taken $1 million out of LSL’s bank account and put $995,000 in the account of which she was a joint holder, and for which she had, on her evidence, been provided with no justification, and that she deliberately closed her eyes to the reality of the situation and or deliberately abstained from making the inquiries as to the use of LSL’s funds that an honest and reasonable person in her position would have made.”

18. By paragraphs 1-3 of her notice of contention, Ms Carter submitted (a) the first limb of Barnes v Addy (1874) LR 9 Ch App 244 did not apply to persons who received property from a fiduciary who was not a trustee (b) that the transitory passing through of funds into the joint bank account of Mr Lewis and her did not constitute a receipt, and (c) she had no knowledge of Mr Lewis’ breach of fiduciary duty at the time of the receipt, for all of which reasons she should not be liable under the first limb of Barnes v Addy. It is not necessary to address these issues, in light of the absence of any challenge to the finding of knowledge insofar as Ms Carter participated in the breach of duty by Mr Lewis, and was accordingly liable under the second limb of Barnes v Addy.

19. By paragraph 5 of his notice of contention, Mr Miller maintained the ambitious submission that the primary judge erred in finding that he had knowingly assisted Mr Lewis in a breach of fiduciary duty. The written submissions relegated this ground to a single paragraph (paragraph 84), and his senior counsel addressed it in two sentences:

“Our submission is that the transaction being, as we’ve described it at line R, that the return of moneys is not fortuitous and the transaction was a round robin by design. His Honour should have found that Mr Miller wasn’t fixed of the knowledge of a dishonest and fraudulent design in that that which he was fixed with knowledge of was, on the face of it, incapable of causing any harm to the company.”

20. This is no answer to the finding of knowledge. Mr Miller had personal knowledge of the so-called “round robin” of cheques, the whole point of which was to enable the purported repayment of Mr Lewis’ debt to Holdings, starting with the Bass letter which the primary judge found at [103] and [116] was a “complete fiction” and “a fraudulent letter created by Miller or Lewis with the knowledge or acquiescence of the other”. It is no answer to a finding of knowledge of a person’s fraud to say that the fraud was incapable of causing harm. Knowing involvement in the deceit practised by a fraudster is one thing, whether it causes any loss is another. In any event, for the reasons earlier given, I do not accept that no loss was caused to the company.

Limitation defences

21. It follows that, subject to various defences, mostly based on delay, equity requires Ms Carter and Mr Miller to account to the appellants for Mr Lewis’ breach. Grounds 12-14 of the notice of appeal challenge the finding by the primary judge that the appellants’ claims were barred by analogy with s 1317K of the Corporations Act.

Reasons of the primary judge

22. The primary judge appears to have found that the Barnes v Addy claims were analogous to a claim that Ms Carter and Mr Miller were “involved”, within the meaning of s 79 of the Corporations Act, with contraventions by Mr Lewis of his obligations as a director and officer of the appellants, which were subject to a six year limitation period by reason of s 1317K, which provides:

“Time limit for application for a declaration or order

Proceedings for a declaration of contravention, a pecuniary penalty order, or a compensation order, may be started no later than 6 years after the contravention.”

23. The primary judge relied on this Court’s decision in Gerace v Auzhair Supplies Pty Ltd (in liq) (2014) 87 NSWLR 435; [2014] NSWCA 181 and the Queensland decision of Port Ballidu Pty Ltd v Frews Lawyers [2017] QSC 19, which his Honour found “persuasive”, because “a Barnes v Addy claim against a third party is very similar to a claim based against a person alleging knowing involvement in the breaches of duty of a director”: at [141]. His Honour declined to follow what had been said in Westpac Banking Corporation v Bell Group Ltd (in liq) (No 3) (2012) 44 WAR 1; [2012] WASCA 157, on the bases that Bell was (a) based on a line of cases which Gerace considered and did not follow, and (b) did not consider whether a Barnes v Addy claim was analogous to claims under the Corporations Act but rather whether it was analogous to a claim in tort: at [140].

24. His Honour also had regard to what he regarded as the logical difficulty that a claim against a director in equity might be barred by analogy (as held in Gerace) but a claim against a third party for knowing receipt or knowing assistance would not be: at [142].

25. His Honour then stated at [144]:

“I think that the consequence of Gerace and Port Ballidu is that a claim for breach of fiduciary duty (and consequential accessorial liability) that is not found to be a fraudulent and dishonest breach will be barred by analogy with statute (viz s 1317K of the Corporations Act), but a claim based on a fraudulent breach (or actual concealment of a right of action) will not be barred.”

The parties’ submissions

26. The appellants challenged parts of the reasoning of the primary judge; the respondents by their notices of contention challenged other parts. Both appealed to authority. The appellants contended that Bell should have been followed, and should be followed by this Court, and that Gerace and Port Ballidu were distinguishable. The respondents submitted to the contrary. The appellants denied there was an analogy with s 1317K, emphasising the fraudulent breach by the fiduciary and the difference between knowledge required for Barnes v Addy liability as opposed to under s 79 of the Corporations Act. Ms Carter responded by submitting that “[t]he existence of the analogy is not denied by the circumstances that there are necessarily some differences between the statutory and equitable causes of action and remedies”. She referred to what Campbell J had said in Belan v Casey (2003) 57 NSWLR 670; [2003] NSWSC 159 at [149] in support of the proposition that some differences between the elements of the cause of action or remedies “does not prevent the identification and application of the appropriate analogy”. Mr Miller’s submissions were substantially to the same effect. Ms Carter also advanced a submission based on the incongruity that a claim against a director would be barred by analogy with s 1317K, if a derivative claim under Barnes v Addy arising out of the same breach were not.

27. However, no mention was made in the parties’ written submissions in advance of the hearing of the appeal of this Court’s decision in Sze Tu v Lowe (2014) 89 NSWLR 317; [2014] NSWCA 462. As will be seen in what follows, that decision holds that the broader definition of “trustee” in the Limitation Act 1969 (NSW) reflected a deliberate decision to make claims against third persons regarded as constructive trustees subject to the limitation period imposed by s 47. By letter dated 1 May 2018, the parties were invited to provide, if they so wished, further submissions on the following matters:

“(a) the definition of “trustee” in s 11 of the Limitation Act 1969 (NSW);

(b) the consideration of the direct application, and the application bv analogy, of the statute of limitations in Sze Tu v Lowe (2014) 87 NSWLR 435; [2014] NSWCA 462 at [326]-[376], including the legislative history of the definition of “trustee” at [333]-[338];

(c) the passage in G Dal Pont, Law of Limitation (LexisNexis Butterworths 2016) at [10.36], citing Sze Tu v Lowe at [335]-[338]:

“The position has been modified in the Territories and New South Wales by adding to the ‘trust’ definition the words ‘and whether or not the trust arises only by reason of the transaction impeached’. These words, which do not appear in the other Australian jurisdictions or parallel English precursors, are designed to comprehend ‘constructive trusts’ arising out of fiduciary breaches, stolen property and recipient and accessory liability. The modification was driven by a belief that persons declared constructive trustees in these scenario should not be better position as regards limitation than other trustees, to whom a 12 year time bar may apply in the face of fraud or conversion of trust property.””

28. Each of the parties availed themselves of that opportunity, and thus the Court had the benefit of additional written submissions on those matters. Shortly put:

1. the appellants submitted that if the Court rejected their primary submission that no limitation applied, either directly or by analogy, then s 47(1)(a) and/or (c) applied, such that the proceedings were not statute-barred, the 12 year period only running from 2009 after the appointment of administrators;

2. Mr Miller submitted that in relation to the Bass transaction, he was sued only for equitable compensation, and that in the absence of any claim of an actual, resulting or any other trust, nor any other proprietary right or remedy against him, s 47 had no application to him, and that if contrary to that, s 47 applied, time started running from July 2002, slightly more than 12 years before the proceedings were commenced, such that they were barred;

3. Ms Carter adopted Mr Miller’s submissions insofar as no allegation of trust was made against her in the notice of appeal respect of the Bass transaction. She also said that insofar as Professor Dal Pont suggested that the extended definition of “trust” applied to constructive trusts arising out of recipient or accessory liability, “that suggestion is unsupported by authority or by the extrinsic materials”. She submitted that s 47 did not apply, whether directly or by analogy, and also that the finding that Ms Carter either deliberately closer her eyes or deliberately abstained from making inquiries fell well short of a finding of fraudulent concealment. She said that there had been no investigation of the many facts which would be relevant to the time at which the facts giving rise to the cause of action were discovered, or could with reasonable diligence have been discovered.

Application of limitation statutes by analogy – applicable principles

29. Limitation law is not some “unmeritorious procedural technicality”; it is neither a technicality nor necessarily unmeritorious, as Lord Sumption JSC observed in Abdulla v Birmingham City Council [2012] UKSC 47; [2012] ICR 1419 at [41]. Rather, as McHugh J said in Brisbane South Regional Health Authority v Taylor (1996) 186 CLR 541 at 553; [1996] HCA 25, a limitation period “represents the legislature’s judgment that the welfare of society is best served by causes of action being litigated within the limitation period, notwithstanding that the enactment of that period may often result in a good cause of action being defeated.”

29. The equitable doctrine that a limitation statute might apply by analogy, thereby defeating a plaintiff who would otherwise be entitled to relief, and doing so by reference to a statute which did not in terms apply to the plaintiff’s claim, is a product of early limitation statutes which tended not to address equitable claims in any detail or at all. It is an instance of the theme underlying the maxim that equity follows the law. The somewhat confused history of the doctrine has been expounded by Meagher JA in Gerace v Auzhair Supplies and need not be reiterated here.

30. What is of primary importance to the resolution of this appeal is that the applicability of the equitable doctrine is susceptible to the form of the applicable statute. To take an obvious case, the modern form of limitation statute in Western Australia (applicable to causes of action accruing after 15 November 2005) has a catch-all provision (Limitation Act 2005 (WA), s 13) applicable to all causes of action for which provision is not elsewhere made, while s 27 displaces that provision if equity would apply another provision by analogy. The consequences are that, in Western Australia, (a) it is certain that there are no causes of action which are not the subject of some limitation period and (b) it may be that the equitable doctrine applies somewhat differently from the case where no limitation period will apply to an equitable claim unless one be applied by analogy (for other complexities in the operation of s 27, see P Handford, “A New Limitation Act for the 21st Century” (2007) 33 University of Western Australia Law Review 387 at 400-402).

31. More generally, the equitable doctrine can only apply where statute does not apply directly to an equitable claim. Hence Lord Westbury's famous statement of principle in Knox v Gye (1872) 5 LR HL 656 at 674:

“This is the meaning of the common phrase, that a Court of Equity acts by analogy to the Statute of Limitations, the meaning being, that where the suit in Equity corresponds with an action at Law which is included in the words of the statute, a Court of Equity adopts the enactment of the statute as its own rule of procedure. But if any proceeding in Equity be included within the words of the statute, there a Court of Equity, like a Court of Law, acts in obedience to the statute.”

That is to say, one premise of the availability of equity applying by analogy a statute that does not apply in terms to an equitable claim is that no other statute applies in terms to that claim. There cannot be one limitation period applicable directly pursuant to legislation, and another (different) limitation made applicable by equity by analogy with a (different) statutory provision. As will be seen below, while the Limitation Act 1969 (NSW) is less broadly drafted than its 2005 Western Australian counterpart, it is broader than the legislation in Queensland and the United Kingdom.

33. For the most part limitation statutes are State and Territory law, and, as Professor Handford has observed, “Australian States and Territories are at very different stages of development”: P Handford, Limitation of Actions, 3rd ed (Sydney, Thomson Reuters, 2011) vi. This has an important consequence in this appeal in the resolution of the parties’ competing submissions insofar as they invoked Western Australian and Queensland authority. Decisions based on one form of the statute do not necessarily translate to the New South Wales limitation statute applicable to the claims against Ms Carter and Mr Miller. To anticipate what follows, both Bell and Port Ballidu were decisions based on the (unreformed) Western Australian and Queensland statutes.

34. As Ms Carter and Mr Miller submitted, where no statute applies directly, the question of analogy turns on the particular facts giving rise to the equitable claim. That is particularly relevant in connection with claims for breach of fiduciary duty and claims which are ancillary to such a claim. A wide variety of circumstances may give rise to a breach of fiduciary duty. In Warman International Ltd v Dwyer (1995) 182 CLR 544 at 559-560; [1995] HCA 18, a unanimous High Court endorsed Fletcher Moulton LJ’s statement in In re Coomber; Coomber v Coomber [1911] 1 Ch 723 at 728-9 that:

“There is no class of case in which one ought more carefully to bear in mind the facts of the case ... than cases which relate to fiduciary and confidential relations and the action of the Court with regard to them.”

35. Some breaches of fiduciary duty may support the analogy of tort or contract; others may support an analogy with fraud. Ms Carter’s and Mr Miller’s written submissions accepted the formulation of principle by Campbell J in Belan v Casey (2003) 57 NSWLR 670; [2003] NSWSC 159 at [149]:

“[A]n allegation of breach of fiduciary duty, based on facts which would also have allowed a common law action for fraud to be brought, has applied to it the same statutory limitation period as the common law action for fraud: Coulthard v Disco Mix Club Ltd [2000] 1 WLR 707 at 730, and a claim for breach of fiduciary duty founded upon the same facts as would justify a claim in tort or contract has the limitation periods for tort or contract applied to it: Cia de Seguros Imperio v Heath (REBX) Ltd [2001] 1 WLR 112.”

The question is whether, to use Lord Westbury's words from Knox v Gye extracted above, the “suit in Equity corresponds with an action at Law” which is statute-barred.

36. Finally, although I have referred above to equity, it is a slight simplification to regard the doctrine as purely equitable. Section 27 of the Western Australian statute has been mentioned in [31] above. The Limitation Act 1969 (NSW) in terms refers to the equitable doctrine in s 23 (“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.”) As Campbell J said in Belan v Casey at [144], that section “explicitly contemplates that certain sections of that Act can be applied by analogy to a claim for equitable relief”. Thus an equitable doctrine premised upon a legislative lacuna is referred to expressly in a statute (another example, mentioned below at [76], is concealed fraud which is referred to in s 55(1)(b) of the Limitation Act).

Bell does not support the appellants

37. Contrary to the appellants’ submission that Bell should be followed, I think the primary judge was correct to distinguish that decision.

38. I put to one side the difficulty with the anterior finding in Bell that there was a breach of fiduciary duty that amounted to a “dishonest and fraudulent design”, as to which see Hasler v Singtel Optus Pty Ltd (2014) 87 NSWLR 609; [2014] NSWCA 266 at [91]-[125]. The appellants placed reliance on [1185]-[1186] in the judgment of Lee AJA in Bell, but that was where his Honour rejected the proposition that s 47 of the Limitation Act 1935 (WA) applied directly to the claim against the banks under either limb of Barnes v Addy. That is an area of considerable complexity. To anticipate what will be addressed in more detail below, the decisions at first instance and on appeal in Bell (a) preceded that of the United Kingdom Supreme Court in Williams v Bank of Nigeria [2014] AC 1189; [2014] UKSC 10, and (b) proceeded on the basis that the (former) Western Australian statute of limitations still reflected the drafting of the English legislation and in particular the restrictive view adopted in Taylor v Davies [1920] AC 636 that the provisions directed to claims against trustees did not extend to persons who were liable under Barnes v Addy to account as constructive trustees. The position in New South Wales is quite different. The Limitation Act 1969 (NSW) applies directly to constructive trustees, even if the “the trust arises only by reason of a transaction impeached”. Thus this Court concluded in Sze Tu v Lowe that the statute applied directly to third parties who were constructive trustees under a Black v S Freedman & Co (1910) 12 CLR 105; [1910] HCA 58 trust: see at [162], [336] and [338].

39. All of the reasoning in Sze Tu v Lowe based on the direct applicability of the Limitation Act 1969 (NSW) to the Barnes v Addy claims may be put aside. Ms Carter placed no direct reliance on the Limitation Act in her defence. While Mr Miller did plead the 6 year limitation period in s 15 (which applies to “an action on a cause of action for an account founded on a liability at law to account”), it is plain from the italicised words that s 15 does not directly apply to a claim based on either limb of Barnes v Addy. (There was in 1969 debate as to the operation of the predecessor to the section, which is summarised in the Law Reform Commission report mentioned above (LRC 3, October 1967, at paragraphs 109-112), mostly turning on the obsolete procedure at common law, but on no view did it apply to claims based on Barnes v Addy.) The primary judge pointed out at [146] that s 47 of the Limitation Act had not been pleaded, and thus it was not necessary to consider Ms Carter’s submission that the broader definition of “trust” in s 11 applied; no party challenged that aspect of his Honour’s decision.

40. The reasoning in Bell on the operation of a limitation statute by analogy is found at [1188] and [2673]. In the latter paragraph, Drummond AJA agreed with Lee AJA. In the former, Lee AJA merely found that (a) there was no error in Owen J’s reasoning at first instance based on the absence of an analogy with a claim in tort, and (b) found that there was no error in declining as a matter of justice to apply the limitation statute in the circumstances. Carr AJA, dissenting, did not need to consider either the direct application of the limitation statute or limitation by analogy: see at [3491].

41. The reasoning of Lee AJA cannot, with respect, assist the Court in the present case concerning the application by analogy of a statute of limitations. The absence of an analogy between Barnes v Addy liability and a claim in tort says nothing as to whether there is an analogy between such a liability and a claim for breach of the statutory duties imposed by ss 180-183 of the Corporations Act. The Supreme Court of Western Australia based its reasoning on an analogy with tort, so it may be inferred, because at the relevant time s 1317K had not been enacted. That is sufficient to undermine the appellants’ reliance on Bell.

42. There is a further reason why Bell does not assist the appellants. Lee AJA expressly endorsed Owen J’s refusal at first instance to exercise a residual discretion to apply the limitation statute. The existence of a residual discretion of this kind was rejected after full analysis by this Court in its unanimous decision in Gerace, from which special leave was refused: [2014] HCASL 231. It was confirmed by this Court’s unanimous decision in Sze Tu v Lowe at [365]. Once again, special leave was refused: [2015] HCA Trans 179. The primary judge was, with respect, correct to observe that Bell had relied on decisions which had been considered and not followed in Gerace, and correct not to accede to the appellants’ submission based on Bell.

Gerace and Port Ballidu are distinguishable

43. Nonetheless, I accept the appellants’ submission that Gerace and Port Ballidu are distinguishable from the present case.

44. Breaches of fiduciary duty can be entirely innocent and inadvertent, more or less culpable, or seriously fraudulent. There was no allegation or finding of fraud in Gerace (rather, it appears to have been assumed that the assignment was sufficient to assign the companies’ liabilities as well as its assets: see at [10]). Gerace was not a case of knowing assistance in a breach of fiduciary duty, nor could it have been, absent any allegation or finding of dishonest and fraudulent design.

45. The appellants pointed out that at least so far as the second limb is concerned, Barnes v Addy relief requires the plaintiff to establish that the breach comprised a “fraudulent and dishonest design”, and that the third party had the requisite knowledge (in the first, second, third or fourth categories identified Baden v Société Générale pour Favouriser le Développement du Commerce et de l’Industrie en France SA [1993] 1 WLR 509) of that design. They observed that there is no equivalent requirement under s 79 or elsewhere in the Corporations Act. I agree.

46. Port Ballidu turned on the Queensland limitation statute. Applegarth J stated at [68] that “A third party who knowingly assists a fraud or fraudulent breach by a trustee is not a ‘trustee’ within the meaning of s 27(1)” of the Limitation of Actions Act 1974 (Qld). Indeed, his Honour expressly referred to the broader language in the definition of “trust” and “trustee” in the New South Wales statute. A decision of a State court on whether equity applies a statute by analogy in circumstances where the local statute does not apply directly to the equitable claim is of limited authority in a jurisdiction when the statute is materially different on this very issue. (An appeal was dismissed without addressing the issues presently relevant: see Port Ballidu Pty Ltd v Frews Lawyers [2018] QCA 110 at [11].)

47. Thus both the appellants’ submissions based on Bell and the respondents’ submissions based on Port Ballidu are misplaced. Both were decisions on materially different legislation (as Applegarth J acknowledged in terms). A recurring phenomenon in litigation is an invocation of the authority of a decision, without sufficient regard to the fact that the principle of law in that decision, to the extent that it is based on statute, is only of precedential or persuasive value to the extent that the applicable statute is in substance identical. The same may be seen (in a very different context) in Boral Bricks Pty Ltd v Cosmidis (No 2) (2014) 86 NSWLR 393; [2014] NSWCA 139 at [100]. The relevant legal norm is very commonly a product of the interaction between statute law and judge-made law. To the extent that the statute on which the decision is based differs from the applicable statute, the authority of the decision may be diminished.

Ms Carter’s submission based on incongruous results

48. Ms Carter submitted that acceptance of the appellants’ submissions would produce an incongruous result, whereby a claim for breach of fiduciary duty against a director would be barred by analogy with s 1317K, while a claim for knowing receipt or knowing assistance by a third party arising out of the same facts would not be barred. Ms Carter sought to obtain support for this proposition from what was said in The Duke Group Ltd (in liq) v Alamain Investments Ltd [2003] SASC 415 at [133].

49. I acknowledge the force of the general proposition that the ancillary liability created by Barnes v Addy should not be greater than the primary liability of the wrongful fiduciary. However, the difficulty in accepting Ms Carter’s submission is that it proceeds on the basis that all breaches of fiduciary duty are of the same character, as are all cases of Barnes v Addy liability. I cannot accept that premise.

50. In this appeal, it will be sufficient to focus on second limb, or “knowing assistance” liability. Such liability presupposes dishonesty and fraud on the part of a fiduciary, and knowledge (in the requisite sense of any of the four Baden categories) on the part of the third party. As explained in Hasler v Singtel Optus Pty Ltd at [69]-[75], the third party may be liable as a constructive trustee in ways that are quite different from the ordinary liability of a trustee under an express trust. In particular, a third party liable for knowing assistance may be liable as a constructive trustee “without ever receiving or handling the trust property”: Dubai Aluminium Co Ltd v Salaam [2003] 2 AC 366 at [141]. The difference was emphasised by Lord Sumption JSC, in the context of the United Kingdom limitation statute, in Williams v Central Bank of Nigeria [2014] AC 1189; [2014] UKSC 10 at [9]:

“In its second meaning, the phrase 'constructive trustee' refers to something else. It comprises persons who never assumed and never intended to assume the status of a trustee, whether formally or informally, but have exposed themselves to equitable remedies by virtue of their participation in the unlawful misapplication of trust assets. Either they have dishonestly assisted in a misapplication of the funds by the trustee, or they have received trust assets knowing that the transfer to them was a breach of trust. In either case, they may be required by equity to account as if they were trustees or fiduciaries, although they are not.”

51. The distinction was dispositive in Williams because of the narrower definition of “trustee” in the United Kingdom statute, which is not mirrored in the New South Wales legislation.

The operation of the Limitation Act 1969 (NSW) to second limb Barnes v Addy claims

52. The most important provision of the Limitation Act 1969 (NSW) in cases of fraud is s 47(1):

“47 Fraud and conversion; trust property

(1) An action on a cause of action:

(a) in respect of fraud or a fraudulent breach of trust, against a person who is, while a trustee, a party or privy to the fraud or the breach of trust or against the person’s successor,

...

(c) to recover trust property, or property into which trust property can be traced, against a trustee or against any other person,

...

is not maintainable by a trustee of the trust or by a beneficiary under the trust or by a person claiming through a beneficiary under the trust if brought after the expiration of the only or later to expire of such of the following limitation periods as are applicable:

(e) a limitation period of twelve years running from the date on which the plaintiff or a person through whom the plaintiff claims first discovers or may with reasonable diligence discover the facts giving rise to the cause of action and that the cause of action has accrued, and

(f) the limitation period for the cause of action fixed by or under any provision of this Act other than this section.”

53. “Trust” is defined broadly in s 11:

“Trust includes express implied and constructive trusts, whether or not the trustee has a beneficial interest in the trust property, and whether or not the trust arises only by reason of a transaction impeached, and includes the duties incident to the office of personal representative but does not include the duties incident to the estate or interests of a mortgagee in mortgaged property.” (Emphasis added.)

54. The legislative history of the provision is a little complex. Under the Judicature legislation which commenced in England in 1875, claims against trustees for property held on express trust were not within the Statute of Limitations: Judicature Act 1873 (36 & 37 Vict c 66), s 25(2). That reflected the position under earlier limitation legislation, notably, s 25 of the Real Property Limitation Act 1833 (3 & 4 Wm IV c 27). It was also established that claims against trustees who did not hold on an express trust were likewise outside the direct application of limitation statutes.

55. However, the Trustee Act 1888 (51 & 52 Vict c 59) extended the benefit of the statute to trustees in special cases. The Ontario counterpart of that statute was construed by the Privy Council in Taylor v Davies [1920] AC 636, where it was found not to apply to the recipient of trust property who was liable under the first limb of Barnes v Addy. In particular, the advice delivered by Viscount Cave stated at 653:

“The expressions ‘trust property’ and ‘retained by the trustee properly apply, not to a case where a person having taken possession of property on his own behalf, is liable to be declared a trustee by the court; but rather to a case where he originally took possession on trust for or on behalf of others. In other words, they refer to cases where a trust arose before the occurrence of the transaction impeached and not to cases where it arises only by reason of that transaction.”

56. The distinction applicable to that form of the limitation statute was applied shortly thereafter in Clarkson v Davies [1923] AC 100, referring at 110-111 to “a trust which arises before the occurrence of the transaction impeached and cases which arise only by reason of that transaction”. More recently, this history was considered by Lord Sumption JSC in Williams v Bank of Nigeria [2014] AC 1189; [2014] UKSC 10 at [23]-[27], and explains the reasoning in Port Ballidu (the Queensland legislation is materially identical in this respect). It also explains the emphasised words in the definition of trustee in s 11, which make it plain that the definition extended to constructive trustees in the category considered in Taylor v Davies, namely, third parties who were accountable as constructive trustees only because of the transaction which was impeached.

57. In its First Report on the Limitation of Actions (Parliamentary Paper 64/1967, Parliament of New South Wales), the New South Wales Law Reform Commission referred to Taylor v Davies in terms and expanded the statutory language. As initially enacted, the Limitation Act 1969 (NSW) had a sidenote which included “cf Taylor v Davies [1920] AC 636 at 653”. The reference was described by the Commission at p 103 as follows:

“The reference to a trust arising only by reason of a transaction impeached and the marginal reference to Taylor v Davies ([1920] AC 636) are made so as expressly to comprehend what might appear to many minds to be a typical constructive trust, namely, the case of a man in a fiduciary position acquiring, in breach of his duty, property in relation to which he is a fiduciary. In Taylor v Davies (above) however, Viscount Cave, giving the reasons of the Privy Council, said that such a man was not a trustee within a definition similar to that in the Trustee Act and was thus not disentitled to plead a statute of limitations. ... We think that a fiduciary who becomes a constructive trustee by taking property in breach of his duty should not be in a better position in relation to the limitation of actions than other trustees and the references inserted in the definition of ‘trust’ will ensure that he is not.”

58. The broader definition in the New South Wales legislation was explained by Wootten J in Queensland Mines Ltd v Hudson (1975-1976) CLC 40-266 at 28,709-28,710, holding that Mr Hudson could take advantage of a limitation defence (a point not considered by the Privy Council which dismissed an appeal: Queensland Mines Ltd v Hudson (1978) 18 ALR 1). The same distinction was made in Sze Tu v Lowe, where it was held, at [338], after reviewing the legislative history, that:

“when one looks at the definitions of ‘trust’ and ‘trustee’ in s 11(1) of the Limitation Act, the reference to ‘and whether or not the trust arises only by reason of the transaction impeached’, makes clear that it was intended that ‘constructive trustee’ or ‘trustee’ was to have a wider meaning than that which they had been given by the Courts of Equity previously, such as in Taylor v Davies. No party sought to argue that s 47 of the Limitation Act did not apply to a constructive trustee liable to account in equity based on a Black v Freedman claim. In the absence of argument to the contrary, the Court should proceed to determine these appeals on the basis argued by the parties.”

59. No party contended that the reasoning was wrong, still less that it should not be followed. Section 47(1)(c) applies to claims to recover trust property or its traceable proceeds from persons who are accountable as constructive trustees.

Application to the present case

60. I do not accept that an equitable claim based on knowing assistance in a director’s dishonest and fraudulent design can be defeated by the defendant relying on the limitation period in s 1317K of the Corporations Act applied by analogy to a claim for breach of duties imposed by ss 180-183 of the Corporations Act. I hold this view for the following reasons.

61. First, a necessary element of the claim is a fraudulent breach of fiduciary duty. This takes the cause of action outside the generality of circumstances which support a finding of breach of fiduciary duty. In accordance with what was said in Belan v Casey, that means that s 1317K is an inapt analogy. The Limitation Act distinguishes between a 6 year limitation period for ordinary actions at common law, and a 12 year period where there is fraud. Why should a claim under the second limb of Barnes v Addy, an element of which is a fraudulent and dishonest design, be analogous to a 6 year limitation period (for causes of action of which fraud is not an element) as opposed to a 12 year limitation period (for causes of action in which fraud is an element). The narrow class of claims based on a fraudulent breach of duty does not “correspond with” the broad class of claims to which s 1317K applies.

62. Secondly, at least where it is said that the third party must account as a constructive trustee, the third party falls squarely within s 47 of the Limitation Act. The extended definition of “trustee”, the side note distinguishing Taylor v Davies, the Law Reform Commission report and what was said in Sze Tu v Lowe all make it plain that in such cases the statute of limitations applies directly. Equity follows the law. Where a limitation statute applies directly to an equitable claim, equity does not apply another limitation statute (one with a shorter limitation period) by analogy.

63. Thirdly, the claim against the third party for knowing assistance is a species of ancillary liability. It is derivative upon the dishonest and fraudulent breach of the fiduciary. True it is that the third party may never have received any trust property or may retain none. That does not prevent that party being required to account to the plaintiff as a constructive trustee. The joint judgment in Michael Wilson & Partners Ltd v Nicholls (2011) 244 CLR 427; [2011] HCA 48 at [106] stated:

“As MWP rightly pointed out, this Court has held that liability to account as a constructive trustee is imposed directly upon a person who knowingly assists in a breach of fiduciary duty. The reference to the liability of a knowing assistant as an ‘accessorial’ liability does no more than recognise that the assistant's liability depends upon establishing, among other things, that there has been a breach of fiduciary duty by another.” [citation omitted].

64. The joint judgment proceeded to note that:

“the relief that is awarded against a defaulting fiduciary and a knowing assistant will not necessarily coincide in either nature or quantum.”

65. As Professor Worthington has observed, “[m]erely insisting that a trustee must ‘account’ or pay ‘compensation’ ... does not answer the question about what ends the remedy should deliver and how this is quantified”: S Worthington, “Four Questions on Fiduciaries” (2016) 2 Canadian Journal of Comparative and Contemporary Law 723 at 763. But the possible differences in the nature and quantum of recovery should not be permitted to obscure the fundamental point that there is no sound reason to construe the Limitation Act so that a different limitation period would apply to (a) a director who dishonestly and fraudulently acquires, say, the benefit a contract personally in breach of his or her duty to the company, and who holds that contract on constructive trust for the company, and (b) an adviser who assists in that course with knowledge of the dishonest and fraudulent design. Both are accountable as constructive trustees. The Limitation Act 1969 (NSW) applies a limitation period to constructive trustees. There is no reason for that limitation period to apply differently to the primary liability of the director and the ancillary liability of the adviser.

66. Fourthly, contrary to Ms Carter’s submissions, I see no reason to doubt that the passage from Professor Dal Pont reproduced above correctly states the law. There is ample support for his conclusion in the legislative text and extrinsic materials. And I would strain to avoid a result whereby claims against a third party accountable as a constructive trustee for knowing receipt (the case in Taylor v Davies) or a constructive trustee based on a Black v Freedman claim (the case in Sze Tu v Lowe) were subject to s 47, but a claim against a third party for knowing assistance in a dishonest and fraudulent design were not.

67. Fifthly, true it is as Ms Carter submits that the notice of appeal seeks no relief against her as a constructive trustee. But the notice of appeal cannot be determinative of this issue. To the extent that the applicability of the Limitation Act turns on an allegation of constructive trust, the issue in this appeal which is by way of rehearing is what was alleged at trial, rather than the orders sought in the notice of appeal.

68. The first prayer for relief in the relevant statement of claim was “an order that [Ms Carter] holds the following property on constructive trust for one of more of the plaintiffs”, and then the funds used to repay the $774,923.20 loan to Mr Lewis and the $146,800 retained in the joint bank account were identified. Later prayers sought equitable compensation in respect of those amounts, against both Ms Carter (prayer 2) and Mr Miller (prayer 4). (The dollar amounts apparently reflect a failure on the part of the drafter to fully appreciate the nature of the Bass transaction, notably, the portion directed to Vimow, but nothing presently turns on that.)

69. It is thus quite clear that Ms Carter was sued as a constructive trustee for, relevantly, knowing assistance in the dishonest and fraudulent breach of fiduciary duty by Mr Lewis. Section 47 of the Limitation Act 1969 (NSW) applied directly to that claim, rather than some shorter period, based on s 1317K which could only be applicable by analogy, and which did not turn on an allegation of fraud.

70. Mr Miller’s position is a little different. The pleading did not allege that he was a constructive trustee. A remedy of “equitable compensation” was sought against him. It is not necessary to go so far as to conclude that s 47 applied directly to that claim, although as will be apparent from the foregoing, there is much to be said in favour of that conclusion, especially if “equitable compensation” is regarded as a shorthand for Mr Miller being required to account as a trustee: see for example J Edelman, “An English Misturning with Equitable Compensation” in S Degeling and J Varuhas (eds), Equitable Compensation and Disgorgement of Profit (Hart Publishing, 2017) 91. But my rejection of the proposition that Mr Miller can rely on s 1317K by analogy is sufficient to resolve this appeal.

71. In substance, my conclusion accords with what the primary judge said at [144], to the effect that claims based on a fraudulent breach of fiduciary duty will not be barred by analogy with s 1317K. That is the entirety of the claims against Ms Carter and Mr Miller under the second limb of Barnes v Addy.

72. That is sufficient to resolve these grounds. Neither Ms Carter nor Ms Miller can rely upon a limitation period imposed by equity by analogy with the 6 year period in s 1317K, principally because (a) the analogy is inapt, having regard to the element of “dishonest and fraudulent design” in the cause of action, and (b) at least where a defendant is sued as a constructive trustee, s 47 applies directly, leaving no scope for equity applying a different limitation period by analogy.

73. However, I should deal with three other submissions raised by the parties.

74. First, the relevance of s 47 to this appeal is that it points against any application of the doctrine of equity applying a limitation period by analogy, because s 47 applies directly to a third party sued as a constructive trustee under either limb of Barnes v Addy. The parties made submissions on the applicability of s 47 as a defence, and in relation to whether the 12 year period is prescribed had expired by the time the proceedings were commenced. None of these submissions is to the point, in circumstances where s 47 had not been pleaded.

75. While it is appropriate to have regard to s 47 to deny the operation of the operation of the equitable doctrine of applying a limitation defence by analogy, it would be inappropriate to determine the appeal by the direct application of a provision which was never pleaded.

76. Secondly, I do not accept the appellants’ submission (made orally during the appeal) that they can rely on the fraudulent concealment provisions in s 55(1)(b) of the Limitation Act. Section 55 operates to extend the limitation period in certain circumstances, not only where there is “fraudulent concealment” but where there is a cause of action based on fraud or deceit. Statute thereby has considerably expanded what was originally an equitable doctrine which was not available to a common law claim: see Commonwealth v Cornwell (2007) 229 CLR 519; [2007] HCA 16 at [9]-[10]. But s 55, if it were to be relied upon, needed to have been specifically pleaded: Sze Tu v Lowe at [341] and [343]. And, as Ms Carter rightly submitted, if it had been raised it would have given rise to issues which had not been explored at the trial

77. Thirdly, I also would not accept ground 14, which was that it was unconscionable for Ms Carter and Mr Miller to raise a limitation defence by analogy, for two reasons. The first is that it was not pleaded, and it was not sufficient for it to have been raised in closing submissions in reply. The second is that the submission invokes the notion of a residual discretion not to apply a limitation period by analogy, which is inconsistent with what has been held in Gerace and Sze Tu.

78. It follows that grounds 12 and 13 of the appeal are made out. That makes it necessary to address (a) paragraph 9 of Ms Carter’s notice of contention, based on laches, and (b) paragraphs 7-9 of Mr Miller’s notice of contention, based on informed consent.

Laches

79. The primary judge, having found no loss and upheld a defence of limitation by analogy, declined to address Ms Carter’s pleaded defence of laches. Perhaps for that reason, the submissions on this aspect of the notice of contention were relatively undeveloped. There is no occasion in those circumstances to consider the interaction between laches, limitation by analogy, and a statutory limitation period directly applicable to an equitable claim; cf L Ho, “The Importance of Being Earnest: The Doctrines of Laches and Acquiescence” in P Davies, S Douglas and J Goudkamp (eds), Defences in Equity (Hart Publishing, 2018), ch 15. Favourably to Ms Carter, I shall consider laches independently of the other defences.

80. The events happened in 2002. Proceedings were not commenced until October 2014, and Ms Carter was not served until 8 March 2015.

81. Ms Carter referred to the public examinations which had taken place in 2011 and 2012, including of Ms Carter, and submitted that by that time the liquidators had had three or four years to obtain and review documents and investigate transactions. Those investigations were sufficiently advanced for questions to be asked of Ms Carter of the relevant transactions. She noted that in the liquidators’ report dated 23 April 2013, they stated that they had identified a possible claim in relation to the purchase of the property.

82. Ms Carter submitted that the delay in commencing proceedings caused prejudice by reason of the death of Ms Kurrle (who had worked with her on the accounts) and difficulties in retrieving documents, including because of a change in software. The prejudice was not elaborated in her written submissions, but orally it was put that Ms Kurrle and the destruction of documents “in the case of the $250,000 loan meant that Ms Carter was unable to corroborate her own fading memory of those sources”. It was not said in writing or orally that there was any prejudice through the unavailability of Ms Kurrle or the destruction of documents in relation to Ms Carter’s participation in the transactions which led to repayment of Mr Lewis’ indebtedness to LSL or Holdings.

83. Ms Carter also pointed to the stress, anxiety and disruption caused by the delay in commencing proceedings and serving process, and the difficulties of recalling events some 15 years earlier.

84. I am unpersuaded that a laches defence is made out. The point of the elaborate exercise in the Bass letter, the purported issue of preference shares, and the “round robin” of cheques was to confuse the reality of the position faced by the liquidators when winding up the company. And, as Mr Stoljar submitted in response, there was nothing to prevent Ms Carter from seeking assistance from Mr Lewis if she chose. I am unpersuaded that Ms Carter has established that the liquidators’ delay has placed her in a position in which it would be inequitable and unreasonable for the relief sought to issue: Orr v Ford (1989) 167 CLR 316 at 341; [1989] HCA 4.

Informed consent

85. The primary judge rejected the defence of informed consent at [131], broadly speaking because the shareholders could only give consent while the company was solvent. Mr Miller submitted that insolvency had not been in issue. It is not necessary to take that further (and it would be difficult to do so, because the appellants’ submissions did not engage with this point). It suffices to say that (a) there was no evidence of any ratification (Mr Lewis was not called), and (b) I do not see how Mr Lewis and Ms Carter could cause the companies to ratify the breach of duty. The knowledge of the fraudulent acts of those controlling a company is not imputed to the company: Grimaldi v Chameleon Mining NL (No 2) (2012) 200 FCR 296; [2012] FCAFC 6 at [282]-[284].

Relief

86. There was a dispute between the parties as to whether the appellants could properly seek new orders contained in an amended notice of appeal reflecting a proprietary interest in a Centennial Park property. That dispute may be passed over, because it arose only if the appellants succeeded in relation to the Malone account.

87. The only other substantive order sought was that Ms Carter and Mr Miller “pay damages or equitable compensation to the Appellants in the amount of $1,000,000 together with interest on that amount under s 100 of the Civil Procedure Act”. Damages are inappropriate, but both respondents are accountable to the appellants and may be ordered to pay equitable compensation.

88. Ms Carter raised some further matters in her written submissions. The first was that the appellants’ claim should be limited to $850,000 in light of the way the matter had been pleaded. I disagree. It suffices to focus on the claim against Ms Carter for knowing assistance, which is found in paragraphs 61-65 of the statement of claim. Paragraph 61 alleges she was responsible for maintaining the ledger, paragraphs 62 and 63 allege that she gave effect to the transfers pleaded in paragraphs 35 and 42 of the pleading, and paragraphs 64 and 65 allege that in the premises she knowingly assisted in Mr Lewis’ breach of fiduciary duty amounting to a dishonest and fraudulent design. The transfer in paragraph 35 is the $1,000,000 from LSL to Holdings, while the transfers in paragraph 42 are the $850,000 crediting Mr Lewis loan account. The former is sufficient to give rise to a claim for knowing assistance in relation to the entire $1,000,000.

89. Ms Carter’s second submission was that she was entitled to a set off for “admitted proofs of debts” of $43,750.68 and $43,812.34. The appellants’ written submissions in response proceeded on the basis that the proofs had not been admitted. In oral submissions, Mr Bell said, with respect correctly, that the liquidators’ submissions “miss the point”. No further response was made.

90. In principle, Ms Carter is entitled to a set off of proofs of debt which have been admitted. However, it is far from clear that any orders need, or should, be made by this Court in this appeal to reflect it. If that be wrong, the orders I propose will permit the parties to be heard.

150. It follows that the primary judge erred in concluding that the indebtedness of MrLewis was not extinguished and that neither LSL nor Holdings suffered a loss. I consider that a loss was suffered. It is therefore necessary to consider in relation to the Bass Proceedings the matters raised by Ms Carter in her Notice of Contention of 3 August 2017 and by Mr Miller in his Amended Notice of Contention filed on 24 November 2017. It is also necessary to consider the limitation defences raised by each of them. I have had the opportunity of reading in draft form the proposed reasons of Leeming JA in relation to those questions. I do not disagree with anything said in relation to those questions by his Honour in his proposed reasons.

Notices of Contention

177. By her Notice of Contention, Ms Carter asserted that the first limb of Barnes v Addy did not apply to persons who received property from a fiduciary who was not a trustee. She also contended that the primary judge should have concluded that the claims made against her in the Bass Proceedings were defeated by the equitable defence of laches. In his Amended Notice of Contention, Mr Miller asserted that the primary judge should have found that Mr Lewis and Vimow, being the only shareholders of Holdings, and Mr Lewis as its sole director, implicitly ratified and gave their informed consent to the Bass Transactions.

Laches

178. The Liquidators conducted public examinations of various witnesses, including Ms Carter, in 2011 and 2012. By 2012 they had had three to four years to obtain and review documents and investigate transactions and, by that time, were sufficiently advanced in their analysis to examine witnesses, including Ms Carter, about the relevant transactions. In a report to creditors for the period up to 6 February 2012, the Liquidators confirmed that they had conducted examinations of Mr Lewis and Ms Carter with reference to the source of funds that enabled the purchase of the Vaucluse Property and they expected to finalise the public examinations by September 2012. By the time of the report for the period up to 6 February 2013, the Liquidators had already identified the possible claim against Ms Carter in relation to the purchase of the Vaucluse Property and were in the process of taking advice from senior counsel about those claims. Nevertheless, the Liquidators did not give any thought, as at April 2013, to the possibility that, having foreshadowed the possibility of claims against Ms Carter, delay in the commencement of proceedings might cause her emotional distress and anxiety. Further, the Liquidators were aware of the fact that Ms Kurrle had died in January 2014.

179. However, the Bass Proceedings were not commenced until October 2014 and Ms Carter was not served until March 2015. Ms Carter asserts that the delay in the commencement of Bass Proceedings caused her prejudice by reason of:

• the death of Ms Kurrle;

• the unavailability of evidence and the difficulty in accessing and retrieving documents relevant to the allegations made against her by LSL and Holdings;

• changes in the software accounting programs such that Ms Carter no longer had access to earlier accounting records;

• documents relating to the purchase of the Vaucluse property having been destroyed;

• stress, anxiety and disruption caused to her; and

• the fact that the events had occurred more than 15 years before the Bass Proceedings were heard.

180. In the course of the argument, Ms Carter contended that the destruction of documents meant that she was unable to corroborate her own fading memory as to some matters. However, it was not asserted either in her written submissions or orally that there was any prejudice by reason of the unavailability of Ms Kurrle or the destruction of documents in relation to Ms Carter’s participation in the Bass Transactions.

181. As indicated above, substantial detail is still available as to the Bass Transactions. There was nothing to prevent Ms Carter from consulting Mr Lewis concerning the Bass Transactions if there was anything unclear or that needed elaboration. Ms Carter has not established that the Liquidators’ delay has placed her in a position in which it would be inequitable and unreasonable for the relief sought to be granted. [5]

     5. See Orr v Ford (1989) 167 CLR 316 at 341.

Informed consent

182. There was no evidence of any ratification of the Bass Transactions. Mr Lewis could have been called to give evidence but was not. There is no reason for drawing an inference that he turned his mind to the question of ratification. In any event, Mr Lewis and Ms Carter could not cause the relevant companies to ratify their own breach of duty. The knowledge of the fraudulent acts of those controlling a company will not be imputed to the company. [6]

     6. Grimaldi v Chameleon Mining NL (No 2) (2012) 200 FCR 296 at [282]-[284].

Barnes v Addy liability

183. There was no issue as to the relevant principles of liability based on Barnes vAddy. Thus, under the first limb, persons who receive trust property acquired in breach of trust become chargeable if it is established that they have received it with notice of the breach of trust. A claim on that basis may be made against not only a trustee who misapplies trust property but also a fiduciary who deals with property in respect of which he or she owes fiduciary obligations, in breach of such obligations. The elements of such a claim are as follows:

• the existence of a trust or a fiduciary duty with respect to property;

• the misapplication of such property by the trustee or beneficiary;

• the receipt of such property by the third party; and

• knowledge by the third party, at the time he or she received the relevant property, that it was property with respect to which a trust or fiduciary duty existed and that it was being misapplied or, in the case of breach by a fiduciary, that the property was transferred pursuant to a breach of fiduciary duty. [7]

  7. See Simmons v New South Wales Trustee and Guardian [2014] NSWCA 405 at [86]-[89] (‘Simmons’).

184. The knowledge sufficient to attract liability under the first limb is:

• actual knowledge of the trust or the existence of fiduciary duty and the misapplication of the relevant property or transfer pursuant to a breach of fiduciary duty;

• wilfully shutting one’s eyes to those things;

• abstaining in a calculated way from making such enquiries as an honest and reasonable person would make; or

• knowledge of facts that to an honest and reasonable person would indicate the existence of the trust and the fact of misapplication. [8]

  8. See Simmons at [90].

185. Under the second limb, liability will also be imposed if the following are established:

• the existence of a fiduciary duty;

• a dishonest and fraudulent design by the fiduciary;

• the assistance in that design by the person to be made liable with knowledge of that design.

186. The categories of knowledge that are necessary are as follows:

• actual knowledge;

• wilfully shutting one’s eyes to the obvious;

• wilfully and recklessly failing to make such inquiries as an honest and reasonable person would make; or

• knowledge of circumstances that would indicate the facts to an honest and reasonable person. [9]

  9. See Simmons at [111]-[113].

187. Liability under the second limb of Barnes vAddy is confined to cases where the breach of fiduciary duty amounts to a dishonest and fraudulent design. Thus, there must be dishonesty on the part of the fiduciary. Dishonesty amounts to a transgression of ordinary standards of honest behaviour. It is not necessary to demonstrate that the person thought about what those standards were. [10]

     10. See Simmons at [114].

188. The primary judge was comfortably satisfied that Mr Miller assisted in the dishonest and fraudulent design of Mr Lewis. His Honour did not consider that it assisted Mr Miller to say that the scheme in which Mr Lewis had him participate was beneficial to Mr Lewis personally, rather than to Holdings: in either case, what was being used to remove the debt was the money taken from the account of LSL, of which both Mr Lewis and Mr Miller were directors. His Honour therefore concluded that Mr Miller had knowingly assisted Mr Lewis in the fraudulent breach of duty that Mr Lewis owed to LSL and Holdings and that Mr Miller had thereby himself breached the fiduciary duty owed to LSL.

189. The primary judge also found that Ms Carter assisted Mr Lewis with knowledge because it was only the ledgers that recorded what was owing by Mr Lewis to Holdings, and Vimow and Holdings, and Vimow to LSL. While Ms Carter may not have known about the details of the scheme, his Honour found that she knew that the Bass Transactions involved taking $1 million out of LSL’s bank account and putting $995,000 into the Joint Account, of which she was a joint holder and for which she had been provided with no justification. His Honour found that Ms Carter deliberately closed her eyes to the reality of the situation or deliberately abstained from making the inquiries as to the use of the funds that an honest and reasonable person in her position would have made.

190. Ms Carter contended that the first limb of Barnes v Addy did not apply to persons who received property from a fiduciary who was not a trustee, that the transitory passing through of funds into the Joint Account did not constitute a receipt, and that she had no knowledge of the breach of duty by Mr Lewis at the time of the receipt. However, there has been and could be no challenge to the finding of knowledge in so far as Ms Carter participated in the breach of duty by Mr Lewis.

191. Mr Miller contended that the primary judge erred in finding that he had knowingly assisted Mr Lewis in a breach of fiduciary duty. However, Mr Miller had personal knowledge of the Bass Transactions, the whole point of which was to enable the purported repayment of the debt owing by Mr Lewis to Holdings. His Honour found that the Bass letter had been created by Mr Miller or Mr Lewis with the knowledge or acquiescence of the other.

192. It follows that each of Ms Carter and Mr Miller is liable to LSL and Holdings for knowingly assisting Mr Lewis in his breach of fiduciary duty. That breach constituted a fraudulent and dishonest design. [11] LSL and Holdings clearly articulated in their pleading that the breach by Mr Lewis amounted to a dishonest and fraudulent design as his purpose in engaging in the relevant conduct was to use the funds of LSL or Holdings to reduce the amount outstanding under the loan that had been made to him by the sum of $850,000. It was also alleged that his purpose was to conceal his course of conduct through the use of a non-existent investment and the use of payments made by various entities. There was no error on the part of the primary judge in concluding that Barnes v Addy applied in the circumstances.

     11. Farah Constructions Pty Ltd v Say-Dee Pty Ltd (2007) 230 CLR 89.

Limitation of action

193. Relevantly for present purposes, in her defences filed in the Property Proceedings and in the Bass Proceedings, Ms Carter said in answer to the whole of the statements of claim that, by virtue of s 23 and, by analogy, s 14 of the Limitation Act1969 (NSW) (the Limitation Act), or by analogy with s 1317K of the Corporations Act, a limitation period of six years applied to any cause of action of the kind pleaded in the Statement of Claim against her relating to any alleged event, act or omission occurring in the period before 28 October 2008, and any such cause of action is statute barred by reason of being brought more than six years after the cause of action accrued. In his defence filed in the Bass Proceedings, Mr Miller raised a similar limitation answer to the whole of the Statement of Claim.

194. Ms Carter and Mr Miller contend that any cause of action in relation to the Bass Transactions accrued, at the latest, in July 2002, by which time all of the facts necessary to constitute the cause of action, including breach, receipt or assistance and loss had occurred. The Bass Proceedings were commenced more than 6 years after the cause of action had accrued. Holdings and LSL contend, however, that there is no claim in law analogous to a claim in equity under either limb of Barnes vAddy, such that the limitation period did not apply to claims such as those made by them. [12]

     12. See Westpac Banking Group Ltd v Bell Group Ltd [2012] WASCA 157; 44 WAR 1 [1188]-[1189].

195. The primary judge concluded that the limitation defences in the Property Proceedings and the Bass Proceedings would have been an answer to the claims in relation to Mrs Malone’s so-called loan and the purported investment in Bass Holdings. His Honour concluded that a Barnes v Addy claim against a third party is very similar to a claim against a person alleging knowing involvement in the breaches of duty of a director. His Honour concluded that a claim for breach of fiduciary duty and consequential accessorial liability will be barred by analogy with s 1317K.

196. Ms Carter and Mr Miller each contended that neither the Limitation Act nor s 1317K of the Corporations Act deals specifically with equitable claims against third parties based on Barnes v Addy. They contended, however, that equity applies time bars by analogy with those statutes. LSL and Holdings challenge the conclusion by the primary judge that there is no reason in logic why a claim against a director should be statute barred but a claim against a third party for knowing receipt or knowing assistance should not be statute barred. They assert that such a third party will not be more culpable than the director.

197. Under s 14(1) of the Limitation Act, an action on specified causes of action is not maintainable if brought after the expiration of six years running from the date on which the cause of action first accrues to the plaintiff. The specified causes of action are:

• a cause of action founded on contract;

• a cause of action founded on tort, including a cause of action for damages for breach of a statutory duty;

• a cause of action to enforce a recognisance; and

• a cause of action to recover money recoverable by virtue of an enactment of New South Wales, the Imperial Parliament, another State or a Territory, the Commonwealth or any other country, other than penalty or forfeiture.

Clearly enough, s 14 does not apply directly to the claims made by LSL and Holdings as formulated above.

198. However, although not pleaded by the parties, s 47(1) of the Limitation Act is relevant to the claims made by LSL and Holdings. Section 47(1) relevantly provides that an action on a cause of action in respect of fraud or a fraudulent breach of trust:

• against a person who is, while a trustee, a party or privy to the fraud or the breach of trust or against the person’s successor; or

• to recover trust property, or property into which trust property can be traced, against a trustee or against any other person

is not maintainable by a trustee of the trust or by a beneficiary under the trust or by a person claiming through a beneficiary under the trust if brought after the expiration of a limitation period of twelve years running from the date on which the plaintiff or a person through whom the plaintiff claims first discovers or may with reasonable diligence discover the facts giving rise to the cause of action and that the cause of action has accrued.

199. For the purpose of the Limitation Act, the term “trust” includes express, implied and constructive trusts, whether or not the trustee has a beneficial interest in the trust property, and whether or not the trust arises only by reason of a transaction impeached. Thus, the term has a broader meaning than the term as generally understood by a Court of Equity. [13] The reason for such an extension of the definition was to ensure that constructive trustees in respect of money arising from a breach of fiduciary duty and recipient accessory liability are not in a better position to that of other trustees to whom a 12 year time bar would apply in the face of fraud or conversion of trust property. [14]

     13. See Sze Tu v Lowe (2014) 89 NSWLR 317 at [338].

     14. G E Dal Pont, Law of Limitation (LexisNexis, 2016) at [10.36].

200. Under s 55(1), where there is a cause of action based on fraud or deceit, the time that elapses after a limitation period fixed by or under the Limitation Act for the cause of action commences to run and before the date on which a person having (either solely or with other persons) the cause of action first discovers, or may with reasonable diligence discover, the fraud deceit or concealment, as the case may be, does not count in the reckoning of the limitation period for an action on the cause of action by the person or by a person claiming through the person against a person answerable for the fraud deceit or concealment. For the purposes of that provision, a person is answerable for fraud deceit or concealment relevantly if the person is a party to the fraud deceit or concealment.

201. LSL and Holdings allege breaches by Mr Lewis and Mr Miller of ss 180, 181, 182 and 183 of the Corporations Act, which appear in Pt 2D.1 of Ch 2D of the Corporations Act. Section 179 provides that Pt 2D.1 sets out “some of the most significant duties of directors and other officers and employees of corporations”. It provides that other duties are imposed by other provisions of the Corporations Act and other laws, including the general law.

202. Under s 180(1), a director of a corporation must exercise his or her powers and discharge his or her duties with the degree of care and diligence that a reasonable person would exercise if that person were a director of the corporation in the circumstance of that corporation and occupied the office held by and had the same responsibilities within the corporation as that director. Under s 181(1), a director of a corporation must exercise his or her powers and discharge his or her duties in good faith in the best interests of the corporation and for a proper purpose. Under s 182, a director of a corporation must not improperly use his or her position to gain an advantage for himself or herself or someone else or cause detriment to the corporation. Under s 183, a person who obtains information because that person is or has been a director of a corporation must not improperly use the information to gain an advantage for himself or herself or someone or cause detriment to the corporation.

203. Section 1317H of the Corporations Act provides that a court may order a person to compensate a corporation for damage suffered by the corporation if the person has contravened a “corporation scheme civil penalty provision” in relation to the corporation and the damage resulted from the contravention. Under s 1317DA, ss 180(1), 181(1), 182(1) and 183(1) are corporation/ scheme civil penalty provisions. However, under s 1317K, proceedings for a compensation order under s 1317H may be started no later than six years after the contravention. The primary judge concluded, in effect, that the claims against Ms Carter and Mr Miller, in so far as they were based on the principle in Barnes vAddy, would, by analogy with s 1317K, be subject to a limitation period of six years from the time of contravention by Mr Lewis and, in the case of Ms Carter, the contravention by Mr Miller.

204. The question is whether s 1317K operates by analogy to prevent the bringing of claims against Ms Carter and Mr Miller. The primary judge found that the elements outlined above were satisfied in relation to Ms Carter’s involvement in contraventions of the Corporations Act and breaches of fiduciary duty on the part of Mr Lewis. His Honour was also satisfied that the principles were satisfied in relation to Mr Miller’s involvement in those contraventions and breaches.

205. These questions are not without difficulty. In considering such questions, it is necessary to consider not only whether a statute is to be applied by analogy but, if so, how that is to occur, bearing in mind that equity has its own doctrines directed to delay, such as laches. Indeed, the reason why a statutory limitation period is applied to a circumstance that was not recognised in the terms of the statute has never been clearly explained. [15] A threshold question is the nature of the limitation statute itself, because limitation statutes come in a wide variety of types. Thus, statutory provisions impose time limits, in various forms, and have different purposes. Some are for preventing stale claims, some for establishing possessory titles, some for the protection of public authorities, some in aid of executors and administrators. Some are incidents of rights created by statute. Some prevent actions being brought after, some before, a lapse of time. Thus, if the statute is merely an incident of the statutory right, it will be inapplicable directly and would be unlikely to be applicable by analogy. [16]

     15. See Mark Leeming, ‘Not Slavishly Not Always – Equity and Limitation Statutes’, Defences in Equity (Hart, 2018) p 304.

     16. See Leeming at p 306-307.

199. If equity applies a limitation statute by analogy, there is no analogical application of the statute if it is merely a contributory consideration to a more general exercise of discretion. Most limitation statutes provide a necessarily arbitrary resolution to questions of delay. If the statute applies by analogy to an equitable claim, there will be no scope for a further residual discretion. However, that is not to deny that separate equitable defences, such as acquiescence or estoppel, may also be available in a particular case. [17]

     17. See Leeming at p 306.

200. Generally, once equity has determined that a limitation provision applies by analogy, it is applied in the manner specified by the statute, rather than as an ingredient in a broader discretion. That is in accordance with orthodox notions of legislative supremacy, especially where the legislature has itself endorsed the existence of the equitable doctrine. However, the statute itself may of course confer discretion. Further, it may be that doctrines concerning a conscientious reliance on the statute may also apply. If a limitation statute does not apply directly to an equitable claim, the question is whether the equitable claim “corresponds” to a legal claim to which the statute does apply. If it does not correspond, no application by analogy is possible and the only question is whether some other equitable defence is available. However, if there is a corresponding legal claim to which the statute applies, then the statute is to be applied by analogy in its terms, subject to any discretions that the statute may contain and subject to doctrines precluding a party from relying on a statute. There is no further residual discretion other than is founded on the statute. [18]

     18. See Leeming at p 308.

201. In some circumstances, equity will, by analogy, apply a time limitation imposed by statute even where, on its proper construction, the statute does not, on its terms, apply. LSL and Holdings contended that there is no liability under the Corporations Act analogous to a claim for ancillary liability under either of the limbs of Barnes vAddy.

202. Section 79 of the Corporations Act provides a basis for claims against third parties who are “involved” in contraventions of the Corporations Act. However, the liability under s 79 is different in kind from the liability under either limb of Barnes vAddy.

203. First, liability under s 79 requires a knowing consciousness of wrongdoing. In particular, it requires intentional participation in the commission of the relevant contravention, which, in turn, requires that the relevant party have knowledge of the essential matters that go to make up the offence or contravention, whether or not that person knows that the matters constitute an offence. [19] They assert that accessorial liability under Barnes vAddy is very different. Thus, for example, it may arise where the relevant person fails to make inquiries or merely has knowledge of circumstances that would indicate the facts to an honest and reasonable person.

     19. Yorke v Lucas (1985) 158 CLR 661 at 667.

204. Secondly, a claim under the second limb of Barnes vAddy requires the claimant to establish that the breach consisted of a “fraudulent and dishonest design” and that the relevant party had the requisite knowledge of that design. LSL and Holdings assert that there is no equivalent requirement under s 79 of the Corporations Act. Further, LSL and Holdings contend, it would be unconscionable for Ms Carter and Mr Miller to invoke limitation periods, by analogy, in answer to claims in equity. On the findings made by the primary judge, each was complicit in improperly and fraudulently removing funds from LSL and Holdings through the book entries described above and the creation of false and misleading documents such as the Bass Holdings Letter and the documents lodged with ASIC relating to the purported issue and allotment of preference shares in Bass Holdings and Byrne Investments.

205. 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 that justifies it not doing so because reliance by the defendant on the statute would, in the circumstances, be unconscionable. However, equity does not retain 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 requires identification of the principles according to which equity justifies that conclusion. [20]

     20. See Gerace v Auzhair Supplies Pty Ltd (2014) 87 NSWLR 435 at [70] and Sze Tu v Lowe (2014) 89 NSWLR 317 at [365].

206. The claims made against Ms Carter are purely equitable and were founded upon claims of breach of duty against Mr Lewis in his capacity as a director of LSL and Holdings. Ms Carter contends that the relevant analogy is with a claim for breach of a director’s statutory duties under ss 180, 181, 182 and 183 of the Corporations Act and the liability of those who are involved in such a contravention within the meaning of s 79.

207. The primary judge concluded that a claim under Barnes vAddy against a third party is very similar to a claim against a person alleging knowing involvement by that person in breaches by a director of the duties imposed by ss 180, 181, 182 and 183 of the Corporations Act. An allegation of breach of fiduciary duty, based on facts that would also have allowed a common law action for fraud to be brought, attracts the same statute of limitation period as the common law action for fraud. Further, a claim for breach of fiduciary duty founded upon the same facts as would justify a claim in tort or contract attracts the same limitation period as would apply to a claim in tort or contract. [21] In every case there will be some differences between the elements of the cause of action or remedies afforded at law and the elements of cause of action or remedies afforded in equity. Nevertheless, that does not prevent the identification and application of the appropriate analogy. [22]

     21. See Belan v Casey (2003) 57 NSWLR 670 at [149].

     22. See The Duke Group Ltd v Alamain Investments Ltd [2003] SASC 415 at [130]. Appeal dismissed 91 SASR 167.

208. I consider that a claim for compensation for a breach of a director’s fiduciary duties is sufficiently analogous to a claim for a breach of the statutory duties under s 180, 181, 182 and 183 such that the six year limitation period arising under s 1317K should be applied by analogy. Further, a claim against a third party for knowing assistance in a director’s breach of fiduciary duty is sufficiently analogous to a claim for knowing involvement under s 79 in a breach of the statutory duties under ss 180 to 183, such that the limitation period in s 1317K applies by analogy. [23]

     23. See Port Ballidu Pty Ltd v Frews Lawyers & Ors [2017] QSC 19 at [2]-[4], [26]-[27] and [34]-[40]. Appeal dismissed [2018] QCA 110, with the appeal ground challenging the limitation by analogy point having been abandoned.

209. However, LSL and Holdings accept that a claim for breach of fiduciary duty and consequential accessorial liability may only be barred by analogy with s 1317K of the Corporations Act if the breach is not fraudulent and dishonest. That is to say, a claim based on a fraudulent breach or actual concealment of a right of action will not be barred by analogy. As I have said above, LSL and Holdings clearly articulated in their pleading that the breaches of fiduciary duty by Mr Lewis amounted to a dishonest and fraudulent design.

210. The claims against Ms Carter for liability under both limbs of Barnes v Addy are claims in respect of fraud or fraudulent breaches of trust against a person who falls within the extended definition of trustee for the purpose of s 47(1) of the Limitation Act. It may be arguable that the limitation period did not commence until the time when the person through whom the plaintiff claims first discovered or may with reasonable diligence have discovered the facts giving rise to the cause of action. In the present case, the relevant time is when the Liquidators first discovered or were, with reasonable diligence, able to discover, the facts giving rise to the causes of action. They were appointed as administrators on 29 October 2008 and as liquidators on 6 February 2009. It is arguable that time began to run under s 47(1) only after they had carried out their inquiries and had discovered, or would with reasonable diligence have been able to discover, the facts giving rise to the relevant cause of action, namely the facts of the Bass Transactions. That is sometime after 6 February 2009. The Bass Proceedings were commenced on 28 October 2014, well within the 12 year limitation period. However, s 47 was not pleaded by Ms Carter. Further, the presence of s 47 in the Limitation Act points against equity applying a limitation period by analogy with s 14 of the Limitation Act or with s 1317K of the Corporations Act. On any view, the Bass Proceedings were not barred by the Limitation Act or by analogy with the Limitation Act or the Corporations Act.

211. It was not alleged that Mr Miller was also a constructive trustee, and thus a person who could fall within the extended definition of trustee for the purpose of s 47(1) of the Limitation Act. However, for the reasons just given, it is sufficient for present purposes to reject the proposition that the limitation period in s 1317K of the Corporations Act applies by analogy to the claim against Mr Miller, in circumstances where Mr Lewis’ breach amounted to a fraudulent and dishonest design.

Conclusion

219. It follows that the appeal should be allowed in part. Order 1 made in the Bass Proceedings on 7 April 2017 should be set aside. In lieu thereof, there should be an order for judgment in favour of Holdings and LSL against Ms Carter and Mr Miller. The parties should be directed to bring in agreed short minutes or, in default of agreement, the orders for which they respectively contend, together with written submissions as to the amount for which judgment should be entered against Ms Carter and Mr Miller. The parties should also have the opportunity of making written submissions as to the costs both of the Bass Proceedings and of the appeal as well as any other ancillary matters.

**********

Endnotes

Decision last updated: 07 June 2018