Application of time bar to equitable proceedings survives appeal
A recent New South Wales Court of Appeal decision was followed and applied in Queensland, in giving summary judgment for a defendant in relation to an equitable claim on limitation grounds.
- Whether the primary judge erred by applying a limitation period by analogy to a claim for equitable compensation.
The appellant company commenced Supreme Court proceedings alleging that:
- In dishonest breach of his fiduciary duty, one of its former directors (O’Rourke) executed a loan agreement and mortgage over the appellant’s property without authority, in order to obtain the loan for his personal benefit.
- The respondents (who acted as solicitors for the lender) knowingly participated in O’Rourke’s breach by doing certain things that facilitated the execution of the loan agreement, the execution and registration of the mortgage and the disbursement of the proceeds of the loan.
The respondents applied for summary judgment on the appellant’s claim on the basis that it was time barred.
The Decision at Trial
The primary judge applied the equitable principle articulated in the decision of the New South Wales Court of Appeal, Gerace v Auzhair Supplies Pty Ltd (in liq) (2014) 87 NSWLR 435 (not previously considered in Queensland), ‘that in purely equitable proceedings, where there is a corresponding remedy at law in respect of the same matter and that remedy is the subject of a statutory bar, equity will apply the bar by analogy unless there exists a ground which justifies it not doing so because reliance by the defendant would in the circumstances be unconscionable’.
The primary judge concluded that the knowing assistance claim closely resembled a corresponding claim upon the same factual basis the appellant could have made for compensation pursuant to the Corporations Act 2001 (Cth) (the Corporations Act) for being knowingly concerned in the director’s breaches of duty as director, such that the statutory limitation period under the Corporations Act (six years) should be applied by analogy to the equitable claim.
The Issues on Appeal
The appellant appealed on a number of grounds, including that the decision in Gerace should not be followed, and that there was insufficient correspondence between a remedy in equity and a remedy in law so as to apply a statutory limitation period by analogy.
The appellant abandoned and/or narrowed these grounds at the hearing of the appeal, and the primary judge’s analysis was ultimately not challenged. Instead, the appeal was confined to a contention (raised for the first time at the hearing) that s185 of the Corporations Act precluded the application of the time bar in s1317K to the equitable claim.
The Decision on Appeal
The Court of Appeal readily disposed of the appellant’s contention, concluding that:
- The effect of section 185 of the Corporations Act was to preserve general law duties, and the entitlement of a plaintiff to commence civil proceedings for a breach of a general law duty, notwithstanding the introduction of the statutory duties in the Corporations Act.
- Section 185 concerns only the effect of the statutory duties in the Corporations Act, and is not inconsistent with the primary judge’s conclusion that the appellant’s equitable claim is barred by the application by analogy of the time bar in s1317K.
- The appellant’s arguments to the contrary required a substantial and unjustifiable departure from the statutory language.
Implications for you
The case is more important for the unchallenged findings of the primary judge than the decision on appeal. In that regard the case is significant, because it is an example of a defendant securing summary disposition of a claim on limitation grounds, consideration of which is generally regarded as undesirable except in the clearest of cases; and it confirms that the decision in Gerace (and the principle that, where a purely equitable claim has an analogous claim at law that is subject to a statutory limitation period, equity applies the statutory limitation period to the purely equitable claim by analogy unless it is unconscionable to do so) is good law in Queensland.