Lewis Securities Ltd (in liq) v Carter

The appeal in *Lewis Securities Ltd (in liq) v Carter* was heard by the Court of Appeal of New South Wales, with Leeming JA, Sackville AJA, and Emmett AJA presiding. The liquidator of Lewis Securities Ltd brought claims against third parties, alleging their involvement in a director's dishonest and fraudulent breach of duty. The central dispute concerned whether an equitable claim against these third parties for knowing assistance was limited by analogy to the six-year limitation period prescribed by section 1317K of the *Corporations Act 2001* (Cth) for claims against persons involved in a breach of directors' duties.

The court was required to determine several key legal issues. Firstly, it had to consider the nature of the claims brought against the third parties, specifically whether they constituted claims for knowing receipt or knowing assistance under the principles established in *Barnes v Addy*. Secondly, the court had to decide whether the six-year limitation period under section 1317K of the *Corporations Act* applied directly or by analogy to the equitable claim for knowing assistance. Thirdly, the court examined the application of the *Limitation Act 1969* (NSW), including the definitions of "trust" and "trustee" within that Act, and whether the equitable claim fell within its scope. Finally, the court considered whether defences such as laches and informed consent were made out.

The Court of Appeal found that while the primary judge had correctly determined that money was borrowed from a client account and that no claim for breach of duty owed to the client was pleaded, the primary judge erred in concluding that the fraudulent transactions had no legal effect and caused no loss to the company. The appellate court held that the effect of the transactions was to replace a direct debt claim against the director with a more complex claim against the third parties. The court considered the direct application of limitation statutes and the application by analogy in equity, ultimately allowing the appeal in part.

Consequently, the Court of Appeal set aside a previous order and entered judgment in favour of the plaintiffs against the first and second defendants. The parties were directed to file agreed short minutes of order or, in default, their contentions regarding the amount of the judgment debt, costs, and any further orders within 21 days.