Issa v Issa & Anor

1. [1]

   HIS HONOUR: This is an application by the cross-defendants to a second cross-claim for an order that the cross-claim be summarily dismissed. The ground of the application is that the claims are barred by s 14 of the Limitation Act 1969 (NSW) and that in so far as the cross-claimant seeks equitable relief her claim is barred on the principle that equity would apply the Limitation Act by analogy.

2. [2]

   In Wardley Australia Limited v State of Western Australia (1992) 175 CLR 514 Mason CJ, Dawson, Gaudron and McHugh JJ said (at 533) that it is only in the clearest of cases that limitation questions of the kind under consideration in that case should be decided in advance of the hearing of the action. The cross-defendants contend that this is such a clear case. I do not agree. The application for summary dismissal should be dismissed.

Nature of the claim and cross-claim

1. [3]

   The cross-claimant is Ms Anastazija Balaz. The cross-defendants are the partners of a firm of solicitors that at all material times traded under the name Pigott Stinson. Ms Balaz and her husband, Mr Michael Issa, are defendants to a claim brought by Michael Issa’s brother, Mr Steven Issa. Steven Issa sues Michael Issa and Ms Balaz for $4.5 million said to be payable under a deed dated 28 February 2007 between Oceanview Group Holdings Pty Ltd (“Oceanview” but referred to in the deed as the “Plaintiff”), Steven Issa, and Ms Balaz and Michael Issa. In the deed Ms Balaz and Michael Issa are called the “Defendants”.

2. [4]

   In 2006 Oceanview instituted proceedings against Ms Balaz and Michael Issa in this Court. In its statement of claim Oceanview pleaded that Steven Issa was then its sole director. Oceanview alleged that Ms Balaz or Michael Issa had been directors or de facto directors of Oceanview and had misappropriated moneys that were used to assist Ms Balaz to acquire a property in Rose Bay. Oceanview sought a declaration that the Rose Bay property was held by Ms Balaz on a constructive trust for it, an order for the appointment of trustees for sale of the property and an order that the proceeds of sale be applied in reimbursing those persons who advanced moneys towards the purchase of the property (presumably including Oceanview). A claim for damages was also made against Michael Issa.

3. [5]

   Two deeds were executed on 28 February 2007. The shorter document was between Oceanview and Ms Balaz and Michael Issa. That deed provided that the parties had agreed that the proceedings commenced by Oceanview against the defendants should be dismissed with the parties to pay their own costs.

4. [6]

   The parties to the second deed were Oceanview, Steven Issa, Michael Issa and Ms Balaz. It recited (incorrectly) that Oceanview had commenced proceedings against each of the “Defendants” (Michael Issa and Ms Balaz) to recover certain loans. It recited that the parties had agreed to dismiss the proceedings and that Oceanview had agreed to withdraw a caveat it had lodged against Ms Balaz’s Rose Bay property on the terms set forth in the document. Clause 1.1 provided:

5. [7]

   Clause 1.2 provided that the “Defendants” would procure that a company called Pacific Hotel Design Pty Limited, said to be the trustee for the Issa Family Trust, would grant a second mortgage in favour of Steven Issa over a property at Hunters Hill as security for the “lump settlement sum”. Clause 1.6 provided that Ms Balaz would forthwith transfer to Steven Issa at his expense all her shares in Oceanview for the consideration of $1.

6. [8]

   I was told that Oceanview was wound up on 12 November 2008 and is now deregistered.

7. [9]

   It is common ground on the pleadings in this case that the 2006 proceedings were dismissed. By his statement of claim Steven Issa pleads the terms of clause 1.1 of the second deed dated 28 February 2007. He pleads that the defendants (Michael Issa and Ms Balaz) have failed to pay him the sum of $4.5 million within 12 months from the date of the second deed or at all, and have failed to take all steps and do everything reasonably required to give effect to the contemplated payment of $4.5 million to him. He pleads that despite his demand for payment, the defendants have failed to pay that sum as allegedly required by the second deed. Steven Issa does not plead the giving of any direction by Oceanview for the payment of $4.5 million.

8. [10]

   Steven Issa’s statement of claim was filed on 17 May 2013, that is, more than six years after the execution of the documents on 28 February 2007.

9. [11]

   In her defence to the statement of claim Ms Balaz states that the second document was purportedly executed as a deed, but denies that it placed any binding obligations on either her or her husband to make any payment. She does not plead facts that might establish that the document was not a deed. She does not plead the Limitation Act as a defence to Steven Issa’s claim. The limitation period for suing for a debt created by the deed is 12 years, not six years (Limitation Act, s 16).

10. [12]

    Ms Balaz denies that the deed is enforceable against her on a number of grounds. She alleges that:

11. [13]

    Ms Balaz contends that the second deed is not binding on her on grounds that include that the conduct of the plaintiff towards her was unconscionable, that she executed the deed under duress, that she was subject to undue influence by both Steven Issa and Michael Issa, and that the deed was unjust in the circumstances in which it was made and ought to be avoided pursuant to the Contracts Review Act 1980 (NSW). She also relies on the principles in Yerkey v Jones (1939) 63 CLR 649 and Garcia v National Australia Bank Ltd [1998] HCA 98; (1998) 194 CLR 395.

12. [14]

    Ms Balaz’s cross-claim against Pigott Stinson was filed on 27 May 2014. It relates to the same matters. She alleges that Steven Issa and Michael Issa met with Mr Anthony Gavan, a partner of Pigott Stinson, on 28 February 2007 at which time he entered into a retainer with them. She alleges that pursuant to the retainer Mr Gavan was instructed to draw up a deed or deeds to provide for the resolution of legal proceedings then on foot between Oceanview and Michael Issa and her. She alleges that he drew the two deeds and met her at a second meeting held on 28 February 2007 at the office of Pigott Stinson in the presence of both Steven and Michael Issa for the purposes of having her execute the deeds. Ms Balaz alleges that at the second meeting Mr Gavan made statements to her to the following effect:

13. [15]

    Pigott Stinson pleads in its defence to the second cross-claim that at this meeting Mr Gavan informed Ms Balaz that he was being engaged by all four of Steven Issa, Michael Issa, Ms Balaz and Oceanview and that he had been instructed to draft the deeds and correspondence to be sent to the solicitors acting for the parties in the 2006 proceedings advising that the proceedings had been settled, without knowing the history and background of the matter, but had been instructed to draft the documents in accordance with terms which had already been negotiated and agreed by the parties. Pigott Stinson alleges that Mr Gavan informed Ms Balaz that he had not been informed of the substance of the 2006 proceedings, but he informed her that the first deed was prepared to cause the 2006 proceedings to be concluded and that the second deed required a payment of $4.5 million to be made by Michael Issa and Ms Balaz to Steven Issa within 12 months, and that he made other statements as to the terms and effect of the clauses in the deed. Pigott Stinson alleges amongst other things that Mr Gavan confirmed with Ms Balaz that no advice was sought from him, nor was he providing any advice, as to whether or not it was wise to settle the 2006 proceedings on the terms negotiated and agreed by the parties and that he recommended that she take independent legal advice from another solicitor before signing the deeds, but that she declined to take the deeds away and elected to sign them.

14. [16]

    Ms Balaz alleges that Pigott Stinson owed her a duty to exercise reasonable care, skill and diligence in advising her of the terms and effect of the deeds that she was being asked to execute and to consider her interests when advising her on the terms of the deed. This allegation is denied. Ms Balaz alleges that there was an implied retainer between her and Mr Gavan pursuant to which she retained him to advise her as her solicitor on the terms of the deed and that it was a term of the implied retainer that Mr Gavan would provide legal services to her in the nature of advice on the terms and conditions of the deed and their effect. She alleges that it was a term of the implied retainer that in providing such services Mr Gavan was obliged to exercise reasonable care, skill and diligence in the provision of legal advice and legal services in her interests. It is not clear from the pleading whether this is a claim in contract. It would cover a claim in contract, but Ms Balaz could say that it was also relevant to the other claims.

15. [17]

    Ms Balaz alleges that Mr Gavan owed fiduciary duties to her including a duty to avoid an actual conflict, or a significant possibility of a conflict, between the duties owed by him to her and his own interests, or the duties owed by him to his other clients, including Steven Issa, Oceanview and Michael Issa, unless he had obtained her fully informed consent to such an actual or potential conflict.

16. [18]

    The same facts are alleged to constitute a breach of the duty of care, the “implied retainer”, and the fiduciary duties. Ms Balaz alleges that:

17. [19]

    Ms Balaz alleges that had Mr Gavan not committed the alleged breaches she would not have executed both deeds or alternatively not executed the second deed, or alternatively she would not have executed the deeds without first obtaining independent legal advice or, in the further alternative, would not have done so without first obtaining amendments to the second deed to better protect her interests. Ms Balaz alleges that she suffered the following loss or damage as a result of the alleged breaches, or alternatively that she will suffer the following loss or damage if relief is not granted under her cross-claim against Steven Issa. The loss and damage alleged is particularised as follows:

18. [20]

    Ms Balaz claims damages, or alternatively equitable compensation, in the amount necessary to compensate her for the loss and damage.

19. [21]

    It was not disputed that if the claim based on the “implied retainer” is a claim for breach of contract, that cause of action is statute-barred as the cause of action would have accrued by no later than 28 February 2007 when Ms Balaz executed the second deed. The alleged breach of contract had occurred by then and the cross-claim was filed more than six years after the cause of action for breach of contract had accrued (Limitation Act 1969, s 14(1)(a)). A cause of action in contract accrues at the time of breach.

20. [22]

    The cause of action in tort for negligence first accrued when actual damage was suffered, as distinct from the risk or prospect of damage or contingent damage. The damage must be measurable, or beyond what could be regarded as negligible (Wilson v Rigg [2002] NSWCA 246; (2002) 36 MVR 451 at [23] and the cases there cited). Mr Darke SC for Pigott Stinson submitted that damage was first sustained by Ms Balaz no later than when she executed the deeds on 28 February 2007. It was at that time that she became liable to pay the $4.5 million claimed by Steven Issa in these proceedings and she lost the opportunity to defend or settle the 2006 proceedings for less than that sum, and lost the opportunity to obtain amendments to the deeds which might better have protected her interests.

21. [23]

    The difficulty with that argument is that clause 1.1 of the second deed contained an agreement by the Defendants to pay Steven Issa “at the direction of [Oceanview]” $4.5 million by way of “repayment of the above recited loans” within 12 months. It is at least arguable that the obligations of Ms Balaz and Michael Issa to pay any money to Steven Issa was contingent upon Oceanview’s providing a direction for payment. Steven Issa’s statement of claim does not plead that any direction was given by Oceanview. His counsel said that it was his case that the deed itself provided the necessary direction, but did not foreclose the possibility that Steven Issa might rely upon some other direction.

22. [24]

    It is not possible on the present application to construe the second deed of 28 February 2007 in a way which would be binding on all parties as if there were a separate issue for determination.

23. [25]

    Mr Darke SC submitted that the words “at the direction of the Plaintiff” in clause 1.1 were not a precondition to the obligation to make a payment within 12 months, but simply recorded the basis on which Michael Issa and Ms Balaz agreed to pay the lump settlement sum to Steven Issa. This is an arguable construction of clause 1.1. It may be that clause 1.1 simply records the fact that a direction had already been given by Oceanview for repayment of the “above recited loans”. But there is no evidence to that effect and no allegation by Steven Issa in the statement of claim to that effect. The matter is complicated because notwithstanding the recital to the deed that the 2006 proceedings were proceedings by Oceanview “to recover certain loans”, they were not. If the recital were pleaded (which it is not) the parties to the deed would presumably be estopped from denying the truth of the recital (assuming the deed is otherwise binding). But that question could raise its own issues.

24. [26]

    It might also be arguable that the deed of 28 February 2007 itself contained the direction by Oceanview, but if that were so then the words “at the direction of the Plaintiff” in clause 1.1 would be otiose.

25. [27]

    The third possibility is that the liability to make a payment within 12 months was contingent upon Oceanview’s giving a direction to that effect, presumably within 12 months. No such direction has been pleaded by Steven Issa, but it is possible that such an allegation will be made. It is also possible that Steven Issa might allege that if a separate direction were required from Oceanview, it could be given after 28 February 2008 (i.e. more than 12 months after the date of the deed). The cross-claim against Pigott Stinston was filed on 27 May 2014. It is possible that Steven Issa will rely upon a direction given by Oceanview at some time after 26 May 2008 and thus within the six-year limitation period.

26. [28]

    Mr Darke SC submitted that even if the obligations of Ms Balaz and Michael Issa under clause 1.1 were subject to Oceanview giving a direction for them to repay the so-called loans the subject of the recital to Steven Issa, they had an actual subsisting obligation that was not in any sense contingent. Mr Darke submitted that even on the defendants’ argument no step was required to be taken under clause 1.1 other than the giving of the direction. He sought to distinguish the terms of the obligation in clause 1.1 from the terms of the indemnity that was considered by the High Court in Wardley where the indemnity was subject to the condition that the bank had proceeded to the fullest extent of its rights against Rothwells to obtain payment out of Rothwells’ assets. In relation to that indemnity the plurality said (at 524):

27. [29]

    Mr Darke submitted that there was no such contingency in relation to clause 1.1 of the deed.

28. [30]

    In my view the contrary is at least seriously arguable. That is, it is arguable that the giving of a direction by Oceanview was a contingency on which a debt arose, albeit a contingency of a different kind than in Wardley.

29. [31]

    In Wardley the plurality also said (at 527):

30. [32]

    Those comments are relevant to the present case. If the argument for Pigott Stinson is right Ms Balaz would have needed to bring proceedings by 28 February 2013 against Pigott Stinson for damages to compensate her for the loss she is said to have suffered as a result of entering into the deed of 28 February 2007. But it is seriously arguable that by that time she had suffered no measurable loss. For reasons which do not appear, no claim had been made by Steven Issa against her. Had a claim for damages then been brought by Ms Balaz against Pigott Stinson and determined, what damages would have been recoverable and how would they have been assessed? If Steven Issa never made a claim, then any damage arising from entering into the deed would be negligible or non-existent.

31. [33]

    It is also arguable that no damage would be suffered unless and until Ms Balaz is found liable to pay moneys to Steven Issa pursuant to the second deed, or alternatively that no damage is suffered prior to her incurring costs and expense in defending the proceedings brought by Steven Issa. That is how the claim for loss is pleaded. There is support for that view that no loss would be suffered unless and until Ms Balaz is found liable in the decision of the Full Court of the Supreme Court of Victoria in Van Win Pty Ltd v Eleventh Mirontron Pty Ltd [1986] VR 484 at 489.

32. [34]

    On an application for summary dismissal it is unnecessary and would be inappropriate for me to express a concluded, or even provisional, view on these questions. It is enough to conclude that it is seriously arguable that the cause of action in tort for damages is not barred by s 14(1)(b) of the Limitation Act.

33. [35]

    Counsel for Ms Balaz also submitted that the allegedly wrongful conduct of the solicitors concealed from Ms Balaz that she had a cause of action against them for breaches of duty. It was not suggested that the conduct of the solicitors amounted to fraudulent concealment (Limitation Act, s 55). But counsel did submit that the solicitors’ alleged failure to explain their conflict of duties and to ensure that Ms Balaz obtained independent advice before signing the second deed, combined with misrepresentations made by Steven Issa and Michael Issa that were allegedly enabled or facilitated by the solicitors’ conduct, effectively prevented Ms Balaz from perceiving or understanding that she had a viable cause of action against the solicitors until after the six-year limitation period had expired. Counsel submitted that the solicitors’ conduct put Ms Balaz in a situation where she did not and could not understand that her rights and interests, separately from those of her husband, had been adversely affected by the agreement negotiated between Steven Issa and Michael Issa, that by reason of the divergence of her interests from those of the other parties she was entitled to obtain independent legal advice and a full disclosure from the solicitors of their conflict of duties, and that because of the solicitors’ failure adequately to explain the existence of their conflict and the need for independent advice, and to explain how her rights were adversely affected, she had executed the deed in circumstances which gave rise to a claim against the solicitors that was at least seriously arguable.

34. [36]

    Counsel submitted that it was arguable that s 14(1) of the Limitation Act did not apply in these circumstances because the alleged wrongful acts themselves effectively precluded the bringing of proceedings (Hawkins v Clayton (1988) 164 CLR 539 per Deane J at 590). The status of Deane J’s observations in Hawkins v Clayton remains unclear. Mason CJ and Wilson J agreed with this part of Deane J’s reasons (at 543), but they dissented in the result (see Walmsley v Cosentino [2001] NSWCA 403 at [48] and State of New South Wales v Harlum [2007] NSWCA 120 per Basten JA at [144]). The principle enunciated by Deane J has often been distinguished by reasoning which assumes that a negligent act only “effectively precludes” the bringing of proceedings if it makes it impossible for such proceedings to be brought (Sampson v Zucker (Unreported, New South Wales Court of Appeal, 11 December 1996); Cheney v Duncan [2001] NSWCA 197; (2001) 34 MVR 28 at [31]; see also Scarcella v Lettice [2000] NSWCA 289; (2000) 51 NSWLR 302 at [43]).

35. [37]

    In my view, and having regard to the warning of the High Court in Wardley, these are not questions that should be determined on an application for summary dismissal. It is true that the facts in Hawkins v Clayton were such that the solicitors’ negligence made it impossible for the plaintiff to bring proceedings within the limitation period, but the principle stated by Deane J, that was endorsed in general terms by Mason CJ and Wilson J, was expressed in terms that s 14(1) did not bar a cause of action for a wrongful act that itself “effectively precluded” the bringing of proceedings, not that rendered it impossible for the plaintiff to bring proceedings. Effective preclusion might suggest something short of an impossibility. I agree with the submissions of counsel for Ms Balaz that the question whether or not the facts of this case could fall within the principle identified by Deane J in Hawkins v Clayton is not suitable for summary determination as there are factual issues to be determined which might impinge upon the principles to be applied.

36. [38]

    For these reasons Ms Balaz’s claim for damages should not be summarily dismissed.

37. [39]

    It follows that her claim for equitable compensation for alleged breach of fiduciary duty should also not be summarily dismissed. There is no limitation period prescribed under the Limitation Act for a claim for equitable compensation for breach of fiduciary duty. Such a claim is cognisable in equity’s exclusive jurisdiction. Pigott Stinson submitted that equity would apply the Limitation Act by analogy to the claims in tort and in contract which depended upon precisely the same facts. The alleged breaches of fiduciary duty were also components of the alleged breach of a duty of care and of the implied term of the retainer. As I have found that the claim for damages for negligence should not be summarily dismissed it follows that even if the submission of Pigott Stinson is accepted, the claim for equitable compensation should also not be summarily dismissed.

38. [40]

    Had I been of the view that the claim for damages in tort should be summarily dismissed, I would nonetheless not have considered that the claim for equitable compensation for breach of fiduciary duty should meet the same fate.

39. [41]

    There was no dispute that the equitable claim for compensation for breach of fiduciary duty is analogous to the claim at law for damages whether in tort or contract (Cia de Seguros Imperio v Heath (REBX) Ltd [2001] 1 WLR 112 per Waller LJ at 121, 125-126; Aussie Ideas Pty Ltd v Tunwind Pty Ltd [2006] NSWCA 286 per Clarke JA at [22]-[24]; McDonald v Grech [2012] NSWSC 717 at [70]; Taluja v Orford (t/as John Orford & Associates) [2014] NSWSC 714 at [114]).

40. [42]

    Prior to the Court of Appeal’s decision in Gerace v Auzhair Supplies Pty Ltd [2014] NSWCA 181; (2014) 310 ALR 85, there was authority that equity had a discretion as to whether to apply a statute of limitations by analogy to a case within its exclusive jurisdiction, and would not do so if in the circumstances of the case it would be unjust or unconscionable to do so (The Duke Group Ltd (in liq) v Alamain Investments Ltd [2003] SASC 415; (2003) 232 LSJS 58 at [114]; Barker v Duke Group Ltd (in liq) [2005 SASC 81; (2005) 91 SASR 167 at [84]; Hewitt v Henderson [2006] WASCA 233 at [25]; Brightwell v RFB Holdings (In Liq) (2003) 171 FLR 464 at [63]; Short v Crawley (No. 30) [2007] NSWSC 1322 at [583]). It would arguably be unjust to apply the Limitation Act by analogy in the circumstances of the present case where no claim had been made against Ms Balaz within the limitation period for which she might be entitled to compensation by way of indemnity. The same difficulties would arise in quantifying a claim for equitable compensation as would arise in a claim for damages.

41. [43]

    Counsel submitted that within the limitation period Ms Balaz could have sought a declaration that Pigott Stinson was liable to indemnify her against any liability she might have to Steven Issa. In my view it is arguable that this would not be an answer to a submission that it would be unjust to apply the Limitation Act by analogy for at least two reasons. It is arguable that the possibility of bringing a claim for declaratory relief is not relevant to considering whether it is just to apply the statute by analogy to the actual claim made, being a claim for monetary relief by equitable compensation. It is also arguable that it would not be just to require Ms Balaz to have brought a claim for declaratory relief within the limitation period because the claim could arguably have been defended, if brought at that time, on the basis that the issue was hypothetical (The University of New South Wales v Moorhouse (1975) 133 CLR 1 per Gibbs J at 10, 24).

42. [44]

    Counsel for Pigott Stinson relied upon Gerace v Auzhair Supplies Pty Ltd (particularly at [70], [74] and [105]) in submitting that it is only if reliance by the defendant on the statute of limitations would be unconscionable that equity has a discretion not to apply the statute by analogy. However, the Court of Appeal did not seek to elucidate all of the circumstances in which reliance by the defendant on the statute would be unconscionable. The Court of Appeal did not say that it would only be if the defendant engaged in unconscionable conduct in relation to the plaintiff, such as by fraudulently concealing a cause of action, that reliance on the statute would be unconscionable.

43. [45]

    In Gerace v Auzhair Supplies Pty Ltd the directors of the plaintiff (Auzhair Supplies) caused its business and assets to be transferred to a new company for no consideration. Shortly after the transfer Auzhair Supplies was deregistered. The plaintiffs in related proceedings were lenders to Auzhair Supplies. They obtained orders for the reinstatement of Auzhair Supplies. They were aware of the transfer and supported it. They took up shares in the assignee. Apparently both the lenders and the directors thought that the company’s liabilities as well as its assets were being transferred. But they were wrong. After Auzhair Supplies was reinstated and a liquidator was appointed to it, the plaintiff sued the directors for breach of their fiduciary duties. This was more than six years after the transaction. The transaction was also a breach of the statutory duties imposed on directors by ss 180-183 of the Corporations Act 2001 (Cth). Pursuant to s 1317H(1) of the Corporations Act the directors would have been liable to a statutory remedy to pay compensation for the damage suffered. But the Corporations Act prescribed a six-year limitation period for the making of a compensation order under the Corporations Act (s 1317K). The directors submitted that the plaintiff’s claim for equitable compensation for breach of fiduciary duty was barred because equity would apply the statutory limitation period by analogy. The limitation period on the bringing of a statutory claim for compensation for breach of the statutory duties was not directly applicable to the claim for equitable compensation for a breach of the directors’ fiduciary duties.

44. [46]

    The primary judge (Brereton J) held that there was a relevant analogue between the statutory and the equitable remedy, notwithstanding that s 185 of the Corporations Act provides that the statutory duties imposed on directors by ss 180-184 (except the “business judgment rule” in s 180(2) and (3)) have effect in addition to and not in derogation of any rule of law relating to the duties or liabilities of directors, and do not prevent the commencement of civil proceedings in respect of such a liability (Re Auzhair Supplies Pty Ltd (in liq) [2013] NSWSC 1; (2013) 272 FLR 304 at [79]-[81]). It does not appear that there was any argument about this in the Court of Appeal. There is no discussion in the Court of Appeal’s judgment as to whether its conclusion that the claim was barred by analogy was consistent with the statutory purpose of s 1317K when read with s 185.

45. [47]

    Brereton J held in substance that where equity applied the statute of limitations by analogy it did so as an aspect of the doctrine of laches. His Honour held that the principles applicable to the doctrine of laches were relevant to, and at least in that case, determinative of, the application of the statute of limitations by analogy (at [63] and [83]-[84] and [90]).

46. [48]

    The Court of Appeal rejected this reasoning and allowed the appeal. As Emmett JA explained (Gerace v Auzhair Supplies Pty Ltd at [103]-[104]) if the only question is whether the plaintiff was guilty of laches, there would be no scope for the application of a separate principle of equity applying the statutory bar by analogy. As his Honour said (at [104]):

47. [49]

    Emmett JA said that the question raised by the appeal was whether the primary judge applied a wrong principle in so far as he applied the doctrine of laches (at [103]). Meagher JA (with whom Beazley P agreed) also identified the relevant issue in the appeal as being whether the primary judge was correct in reasoning that, when applying a statute of limitations by analogy in its exclusive jurisdiction, equity has regard to any circumstances that, applying its doctrine of laches, would be taken into account in determining whether the delay constitutes laches, and in concluding that if the delay during the period of limitation would not constitute laches, equity would exercise its “residual discretion” not to apply the statutory bar (at [17] and [18]). Meagher JA’s reasoning was directed to this issue. Thus, in discussing the decision of the Supreme Court of Canada in KM v HM (1993) 96 DLR (4th) 289, Meagher JA noted (at [53]) that La Forest J (with whom the other members of the Court relevantly agreed) held that in the circumstances of that case, equity would not apply the limitation statute by analogy for three reasons. Meagher JA summarised those reasons thus:

48. [50]

    Meagher JA said (at [54]) that “Only the second of these reasons is relevant in the present context.”

49. [51]

    In discussing the judgment of Doyle CJ in The Duke Group Ltd (in liq) v Alamain Investments Ltd Meagher JA quoted Doyle CJ’s observation concerning the judgment of Kirby P in Williams v Minister, Aboriginal Land Rights Act 1983 (1994) 35 NSWLR 497. Meagher JA said (at [63]-[65]):

50. [52]

    Of particular note is his Honour’s statement that it was only the second of the propositions that Doyle CJ considered that Kirby P was intending to approve in Williams that was relevant in the circumstances, that is, that the doctrine of laches accommodates any and all factors that would fall to be considered in deciding whether or not a statutory limit should be applied by analogy. This may suggest that his Honour did not consider that Doyle CJ’s statement, that equity would not apply a statutory time limit by analogy unless satisfied that it is just to do so, raised a relevant issue.

51. [53]

    It appears from the reasoning of the Court of Appeal in Gerace v Auzhair Supplies Pty Ltd that no argument was advanced for the respondents to the effect that the statutory limitation period in s 1317K applicable to the statutory remedies should not be applied to the plaintiff’s claim for an equitable remedy for a breach of the director’s fiduciary duties because it would be unjust to apply the statute by analogy. It may be that the reason no such argument could have been advanced in that case was that the lender to the company that stood behind the claim had concurred in the transfer of the business and undertaking of the company and had taken up a shareholding in the transferee that made payments of interest on the loan. It appears that all parties thought that the liabilities of Auzhair had also been transferred.

52. [54]

    In Gerace v Auzhair Supplies Pty Ltd Emmett JA concluded (at [105]) that:

53. [55]

    After a detailed review of the authorities Meagher JA concluded (at [70]-[74], [79]):

54. [56]

    With respect to his Honour’s observations at [70] it is not at all clear that the authorities to which his Honour referred show that when a claim is brought in equity’s exclusive jurisdiction to which no statutory limitation period is directly applicable, but where there is an analogous claim to which a statutory bar is applicable, the bar will always be applied by analogy unless reliance by the defendant on the statute would in the circumstances be unconscionable, as distinct from doing so unless the application of the statute by analogy would be unjust. The decision in the High Court in R v McNeil (1922) 31 CLR 76, and in particular the judgment of Isaacs J at 100, does not say that.

55. [57]

    In R v McNeil, Isaacs J said (at 100):

56. [58]

    The observations of Isaacs J concerning the role of a court of equity in acting in its exclusive jurisdiction were obiter. But in any event, Isaacs J did not say that the only circumstance in which equity, when acting in its exclusive jurisdiction, would not apply a statute of limitations by analogy, was where there was a greater equity caused by fraud. The sentence his Honour emphasised was that where equity created a new right found on its own doctrines exclusively that was not barred by statute, then “equity is free”.

57. [59]

    The other authorities which Meagher JA reviewed included the decision of the English Court of Appeal in Cia de Seguros Imperio v Heath (REBX) Ltd where the Court approved the statement of principle in the 5th edition of Spry, The Principles of Equitable Remedies (1997, LBC Information Services) at 419-420 that included the following (as quoted at [24] in Gerace v Auzhair Supplies Pty Ltd):

58. [60]

    This was an endorsement by the English Court of Appeal that in cases in equity’s exclusive jurisdiction there is a discretion not to apply the statute by analogy if to do so would be unjust.

59. [61]

    In Gerace v Auzhair Supplies Pty Ltd Meagher JA (at [66]) quoted the Full Court of the Supreme Court of South Australia in Barker v Duke Group Ltd (in liq) [2005] SASC 81; (2005) 91 SASR 167 at [84] that “a court of equity will not apply a statutory period of limitation by analogy, if in the circumstances of the case it would be unjust to do so”. His Honour did not expressly say this was wrong, unless that is to be inferred from his Honour’s statement at [70]. In Gerace v Auzhair Supplies Pty Ltd Meagher JA also said:

60. [62]

    It was in this context that his Honour said (at [70]) that:

61. [63]

    It is clear that the Court of Appeal went beyond concluding that the discretion as to whether or not a statute of limitations should be applied by analogy where a remedy was sought in equity’s exclusive jurisdiction was not to be determined solely by applying principles relevant to laches. The extent to which its decision on the wider question was part of the ratio of the case is an arguable question.

62. [64]

    The Court of Appeal did not attempt an exposition of when reliance by the defendant on a statute of limitations by analogy to a purely equitable claim will be unconscionable. The Court of Appeal identified one ground on which there would be a “greater equity” preventing the application of a statute of limitation by analogy, namely where the defendant engaged in fraudulent conduct that denied the plaintiff the opportunity to sue within the statutory period. But this may not be an exhaustive statement as Meagher JA appears to recognise at [79] of his Honour’s reasons. In cases where the relevant period of limitation was prescribed by the Limitation Act such a ground is covered by the statute itself. In other cases it may not be (as, for example, under s 1317K of the Corporations Act).

63. [65]

    In Sze Tu v Lowe [2014] NSWCA 462 Gleeson JA, with whom Meagher and Barrett JJA agreed, said (at [365] and [366]):

64. [66]

    For the reasons above it is arguable that the statement at [74] in Gerace that equity does not retain a residual discretion not to apply a statute of limitations in its exclusive jurisdiction was not part of the ratio of Gerace. It is also arguable, at least at the appellate level, that the reasoning and authorities referred to at [74] of Gerace may not conclude the question. The authorities referred to were Trotter v Maclean (1879) 13 Ch D 574 and Bulli Coal Mining Co v Osborne [1899] AC 351. Neither decision concerned the exercise of equity’s exclusive jurisdiction. Both involved claims for damages for trespass. In mining cases equity exercised a concurrent jurisdiction with courts of law in the taking of an account to ascertain the value of the coal removed (Jesus College v Bloom (1745) 3 Atk 262 at 264; 26 ER 953 at 954). Meagher JA noted in Gerace (at [43]), that the doctrine of concealed fraud was not an answer to the application of a limitation statute to a claim at law (citing Imperial Gas Light and Coke Co v London Gas Light Co (1854) 10 Ex 39; 156 ER 346; Hunter v Gibbons (1856) 1 H & N 459; (1856) 26 LJ Ex 1; 156 ER 1281). These were decisions of the Court of Exchequer exercising jurisdiction at common law. But in numerous cases where the Court of Chancery had jurisdiction it refused to allow a defendant to rely on the statute in the case of fraud or concealed fraud even though the case in substance was an action at law. Thus, in Trotter v Maclean, Fry J said (at 584):

65. [67]

    Fry J held that the entry onto the plaintiffs’ land and the taking possession of the plaintiffs’ coal were not fraudulent and accordingly no account was directed of the workings of the defendant’s coalmine at any time before the commencement of the period six years before the issue of the writ.

66. [68]

    In Gibbs v Guild (1882) 9 QBD 59 the Court of Appeal by majority held that a claim for damages for having been induced to invest in shares by a fraudulent misrepresentation or a claim to recover the price paid with interest were not barred by the statute of limitations because the principle to be applied was that applied in courts of equity that precluded the wrongdoer from taking advantage of his own wrong that had the effect of concealing the cause of action (at 63-66 per Lord Coleridge CJ, 71-72 per Brett LJ).

67. [69]

    The Fifth Interim Report (1936) of the Law Revision Committee (UK) on Statutes of Limitation described the position as follows (at 30-31):

68. [70]

    The Committee’s recommendations led to the enactment of the provision now found in s 55 of the Limitation Act 1969 (NSW).

69. [71]

    Bulli Coal Mining Co v Osborne was also a case concerning a claim for damages for trespass. The plaintiff sought to have its claim for damages admitted in the liquidation of the defendant Bulli Coal Company. The primary judge (Owen CJ in Eq) said that:

70. [72]

    Whilst the administration of the assets of the company in liquidation was a matter for a court of equity, the principles of law to be applied were those applicable to an action between the parties to a claim for damages for trespass. Equity applied the general principle applicable to a commission of bankruptcy that it was only those creditors who could by legal action or equitable suit have compelled payment who would be entitled to prove (Ex parte Dewdney (1809) 15 Ves Jun 479 at 498; 33 ER 836 at 843; Motor Terms Co Pty Limited v Liberty Insurance Limited (in liq) (1967) 116 CLR 177 at 180-181 per Kitto J). The Privy Council held that the statute of limitations had no application:

71. [73]

    Gibbs v Guild and Lynn v Bamber were criticised in R P Meagher, J D Heydon and M J Leeming, Meagher, Gummow & Lehane’s Equity Doctrines and Remedies 4th ed at [34-095] as examples of the fusion fallacy. That is not the present question. What is significant is that many of the cases, including Trotter v Maclean and Bulli Coal Mining Co v Osborne, concerning the principles of fraudulent concealment were not cases in equity’s exclusive jurisdiction. Whether correctly or not, equity, at least where it had concurrent jurisdiction, refused to allow a fraudulent defendant to rely on the statute where his wrongdoing had concealed the cause of action. It may now be taken as settled that the correct law was as stated in Hunter v Gibson and that “concealed fraud” could not be relied on as an answer on equitable grounds to an action in tort (Commonwealth v Cornwell [2007] HCA 16; (2007) 229 CLR 519 at [9]) What is relevant for present purposes is that in neither Trotter v Maclean nor Bulli Coal Mining Co v Osborne was there any issue as to whether, in the case of its exclusive jurisdiction, equity had a residual discretion not to apply a statute of limitations if to do so would be unjust in the circumstances.

72. [74]

    In J D Heydon, M J Leeming and P G Turner, Meagher, Gummow and Lehane’s Equity Doctrines and Remedies 5th ed at [36-085] the learned authors say that Gerace v Auzhair Supplies Pty Ltd has held that equity does not retain a discretion to decline to apply a statute of limitations by analogy and the view that there was such a discretion is inconsistent with elements of the reasoning in Gibbs v Guild which had been endorsed in the High Court in R v McNeil. As to the former observation, for the reasons above it is arguable that the Court of Appeal’s conclusion is not part of the ratio of Gerace. As to the latter observation, it is arguable that R v McNeil does not provide such support. Knox CJ and Starke J referred (at 97) to Gibbs v Guild and Trotter v Maclean as well as Bulli Coal Mining Co v Osborne as cases in which equity was prepared to consider “repelling the application of the statute” (quoting Fry J in Trotter v Maclean at 584). Their Honours observed that the court could not repel the clear words of s 37 of the Crown Suits Act 1898 (WA) because that would be to give effect to an equity for which the statute did not provide. The judgment of Knox CJ and Starke J did not address the question of whether in its exclusive jurisdiction equity had a residual discretion not to apply the statute of limitations if to do so would be unjust and for the reasons above (at [57] and [58]) Isaacs J’s judgment, if anything, supports the existence of such a discretion.

73. [75]

    I need not determine whether the statement in para [365] of Sze Tu v Lowe quoted at [65] above is part of the ratio of that case. Even if it is, on a summary dismissal application it is necessary to consider how the case might be considered in either an intermediate or ultimate appellate court (Wickstead v Browne (1992) 30 NSWLR 1 at 5 per Kirby J (approved by the High Court in Wickstead v Browne (1993) 10 Leg Rep SL2); Telecom Vanuatu Ltd v Optus Networks Pty Ltd [2005] NSWSC 951 at [21]-[24])).

74. [76]

    In Sterndale v Hankinson (1827) 1 Sim 393; 57 ER 625, the Vice-Chancellor stated the relevant principle in terms approved by Jessel MR in Re Greaves, deceased (1881) 15 Ch D 551 at 553 as follows:

75. [77]

    Sterndale v Hankinson concerned a bill filed by a creditor for the administration of a deceased estate. The deceased died on 27 June 1810. A bill for administration was filed by a creditor on 5 May 1812. The decree for administration was not made until 14 April 1818. On the taking of accounts the Master disallowed the claims of creditors whose claims would have been barred by the statute of limitations if actions at law had been brought to enforce them at the time of the decree. An exception to the Master’s report was allowed. It was then the practice that a creditor’s claim for administration of a deceased estate was brought on behalf of creditors generally. It was in that context that Sir Anthony Hart V-C (not Sir John Leach V-C as stated in Re Greaves, deceased; he had been appointed Master of the Rolls the previous month) said (at 398, 627):

76. [78]

    In Re Greaves, deceased Jessel MR said (at 553-554) that because of the changes in the practice of the court Sterndale v Hankinson could no longer be relied on; but also said that the principles stated in that case were stated correctly.

77. [79]

    If the circumstances of the case make it unjust to apply the statute of limitations by analogy to prevent a plaintiff from obtaining an equitable remedy arising from the defendant’s breach of fiduciary duty so that it would be against conscience for the court to apply a rule founded on the analogy, it is arguable that it would be unconscientious for the defendant to rely on the analogical application of the statute. That is not a question which should be determined on an application for summary dismissal. The resolution of the question may depend upon findings of fact in relation to the nature and extent of any breach of fiduciary duty that is established.

78. [80]

    Counsel for Ms Balaz submitted that it would be contended that the acts and omissions of the solicitors, including their failure to explain their position of conflict of duties and failure to ensure that Ms Balaz obtained independent advice, and their enabling or facilitating what are alleged to be misrepresentations made to her by Steven and Michael Issa, effectively prevented her from perceiving or understanding that she had a viable cause of action against the solicitors until after the six-year limitation period had expired. That is not a question that could be determined on an application for summary dismissal. If the matters alleged are established at trial, it is at least arguable that equity would not apply the Limitation Act by analogy to the claim for equitable compensation for breach of fiduciary duty, even if it is found that the claim for common law damages is barred.

79. [81]

    Accordingly, if I am wrong in my conclusion that the claim for damages in tort is arguably not statute-barred, nonetheless I do not consider that the claim for equitable compensation for alleged breach of fiduciary duty should be summarily dismissed.

80. [82]

    The only remaining question is whether paragraphs 15-17 of the second cross-claim that plead an implied retainer should be struck out. If those paragraphs only pleaded a claim in contract then it would be appropriate to strike out those paragraphs as it is admitted that a claim for damages for breach of contract is barred. But it does not appear to me that that is the only relevance of those paragraphs. The allegation of a retainer and a term implied in the retainer may be relevant to the other claims pleaded. In my view those paragraphs should not be struck out.

81. [83]

    For these reasons I order that the notice of motion filed by the cross-defendants to the second cross-claim on 5 August 2014 be dismissed. Prima facie the cross-defendants should pay the cross-claimant’s costs of the notice of motion. I will hear the parties on costs and make directions for the further conduct of the proceeding.