Supreme Court New South Wales

• Medium Neutral Citation: Alec Finlayson Pty Ltd v Royal Freemason Benevolent Institution of New South Wales Nominees Ltd [2013] NSWSC 1168
• Hearing dates: 8 and 9 August 2013
• Decision date: 27 August 2013
• Jurisdiction: Equity Division
• Before: Ball J

Decision

See paragraphs 50 and 51 of this judgment.

• Catchwords: CONTRACT - specific performance - limitation of actions - whether an action for specific performance cannot be maintained by operation of Limitation Act 1969 (NSW) ss 14 and 23.
• Legislation Cited: Corporations Act 2001 (Cth); Crown Suits Act 1898 (WA); Limitation Act 1969 (NSW); Limitation Act 1939 (UK); Limitation Act 1980 (UK)
• Cases Cited: Bourke v Hooper [2007] NSWSC 1516; Cia de Seguros Imperio v Heath (REBX) Ltd [2001] 1 WLR 112; Duke v Royalstar Pty Ltd [2001] WASCA 273; Fitzgerald v Masters [1956] HCA 53; (1956) 95 CLR 420; Hasham v Zenab [1960] AC 316; Hoon v Westpoint Management Ltd [2011] WASC 239; Hovenden v Lord Annesley (1806) 2 Sch & Lef 607; Hoyt's Pty Ltd v Spencer [1919] HCA 64; (1919) 27 CLR 133; In the Matter of Auzhair Supplies Pty Ltd (in Liq) [2013] NSWSC 1; Italiano Oliveri v Invocare Australia Pty Limited [2008] NSWSC 1138; Knox v Gye (1872) LR 5 HL 656; Leon Fink Holdings Proprietary Limited v Australian Film Commission [1979] HCA 26; (1979) 141 CLR 672; P&O Nedlloyd BV v Arab Metals Co (No 2) [2006] EWCA Civ 1717; [2007] 1 WLR 2288; Project Blue Sky Inc v Australian Broadcasting Authority [1998] HCA 28; (1998) 194 CLR; R v McNeil [1922] HCA 33; (1922) 31 CLR 76; Walton Stores (Interstate) Ltd v Maher [1988] HCA 7; (1988) 164 CLR 387
• Texts Cited: First Report on the Limitation of Actions (LRC 3), 1967; ICF Spry, The Principles of Equitable Remedies, 8th ed (2010) Lawbook Co; Meagher, Gummow & Lehane's Equity Doctrines and Remedies, 4th ed (2002) Butterworths
• Category: Principal judgment
• Parties: Alec Finlayson Pty Ltd ACN 001 144 501 (Plaintiff); Royal Freemason Benevolent Institution of New South Wales Nominees Ltd ACN 002 162 227 (Defendant)
• Representation: Counsel: DH Murr SC (Plaintiff); RPV Carey (Defendant); Solicitors: Everingham Solomons (Plaintiff); Adam Raves Marsh & Co (Defendant)
• File Number(s): 2012/339841
• Publication restriction: Nil

Judgment

Introduction

1 Prior to November 2003 the plaintiff, Alec Finlayson Pty Ltd (AFPL), a company controlled by Mr Alec Finlayson, owned four adjacent blocks of land in Armidale. Two of the blocks (Lot 1 of DP826983 (Lot 1) and Lot 364 of DP755808 (Lot 364)) were to the south of the remaining two blocks (Lot 366 of DP755808 (Lot 366) and Lot 363 of DP755808 (Lot 363)). In 2003, AFPL and the defendant, Royal Freemason Benevolent Institution of New South Wales Nominees Ltd (RFBI), began to negotiate for the sale of the two southern blocks to RFBI. RFBI intended to construct an aged care facility on those two blocks. The negotiations were protracted because AFPL wanted RFBI, on the sale of the blocks, to grant an easement for services in favour of Lots 366 and 363 which was to run from the point where the four blocks intersected in a direct line to a local council manhole known as MH3738, which is to the south of Lot 1 and slightly to the west of the boundary between Lots 1 and 364. Annexure 1 to this judgment is a drainage plan showing the position of the four lots and the proposed easement (marked in yellow).

2 RFBI was willing to grant an easement for services, but it was concerned about the location of the easement sought by AFPL, since the easement would effectively bisect the two blocks that RFBI intended to buy and would be located in an area where RFBI intended to build.

3 Eventually, AFPL and RFBI entered into a contract for the sale of Lots 1 and 364, which settled on 19 December 2003. AFPL says that it was a term of that contract that RFBI would grant AFPL an easement for services in the position AFPL originally sought and it seeks specific performance of that obligation. RFBI resists that claim on four bases. First, it says that the contract contained a term that AFPL would first investigate the viability of an alternative route for the easement and that only if no other route was possible was RFBI bound to grant an easement along the route proposed by AFPL. In the alternative, it asserts that there was a collateral contract between the parties to the same effect. Second, it contends in the alternative that AFPL is estopped from asserting that the contract does not contain such a term. Third, it contends that AFPL's claim is statute barred. Fourth, in the alternative, it claims that AFPL has been guilty of laches and for that reason the court ought to, in the exercise of its discretion, refuse to grant the relief claimed.

Factual background

4 On 30 June 2003, AW Simpson & Co acting for AFPL sent a draft contract for the sale of Lots 1 and 364 to EH Tebbutt & Sons acting for RFBI. The draft contract contained the following two special conditions:

32.1 The Vendor and the Purchaser acknowledge and agree that the Vendor will have the benefit of an easement for services generally 3 meters wide from MH3738 to the intersection of Lots 366, 363 and 364 DP755808 and Lot 1 DP826989 and as marked on the attached Drainage Plan marked "A".

32.2 The Purchaser will, prior to completion, execute a Transfer providing the benefit of an easement to the Vendor as described in Clause 32.1 and in the attached Drainage Plan marked "A".

The Drainage Plan is the plan that is Annexure 1 to this judgment.

5 There was then correspondence between the solicitors for the parties concerning a number of terms in the proposed contract including special conditions 32.1 and 32.2.

6 On 4 September 2003, EH Tebbutt & Sons wrote to AW Simpson & Co raising concerns about the location of the proposed easement. The letter relevantly said:

We are also now instructed that our client wishes that the easement is to go from MH374A on the Drainage Plan to the point marked "X" along that boundary, not through the middle of the property as has been indicated by your client. However if there are reasons due to the nature of the services which means this is not possible, could you please let us know.

7 Shortly afterwards, impatient with the slow progress, Mr Shaw, the chief executive officer of RFBI, and Mr Adams, a director of RFBI, amended special conditions 32.1 and 32.2 by adding the words "AS SHOWN IN RED" to the end of each clause. They also amended annexure A to the contract by showing in red an easement which ran from the point marked "X" (the intersection of the four lots) to a manhole known as MH3742A, which was on the western boundary of Lots 1 and 366, near the dividing line between the two lots. They signed the counterpart contract on behalf of RFBI and sent it to EH Tebbutt & Sons together with a cheque for the deposit and instructed them to send the executed contract and deposit to AW Simpson & Co. EH Tebbutt & Sons did that on 11 September 2003.

8 AW Simpson & Co responded to EH Tebbutt & Sons' letter on 29 September 2003. In that response, they said:

We are instructed to inform you that the easement is for services such as sewer/water/storm water and cables if necessary. The stormwater has to be located in the lower portion of the creeklands which is at the approximate position MH3737.

The letter went on to say that the issue of the easement required resolution and requested that the addressee ring the writer.

9 There then appears to have been a discussion between Mr Finlayson and Mr Mortimer, who worked in RFBI's Armidale office, concerning the terms of the contract. In a letter dated 30 September 2003, Mr Finlayson reported to AW Simpson & Co that it had been agreed to include the following clause in the contract:

In the event that our company, or any future owner of Portion 366 and 363 DP755808, requires an easement on the boundary between Lot 1 and Lot 363 for the provision of services to Lot 366 and Lot 363 due to not being able to achieve the following

1. Obtain sufficient fall or Armidale Dumaresq Council's permission for the sewer being connected to MH3742A.

2. Similarly stormwater disposal adjacent into the creeklands adjacent to MH3742A.

3. Obtain water and electricity extension without excessive cost over and above the cost that would arise if the services were provided in easement.

Then it is agreed that RFBI will agree to the easement on the boundary between Lot 1 and Lot 364.

Mr Finlayson also sent a copy of his letter to AW Simpson & Co to Mr Mortimer, who in turn referred it to EH Tebbutt & Sons under cover of a letter dated 2 October 2003. At some stage, Mr Shaw was given a copy of the letter.

10 EH Tebbutt & Sons then sent a fax to AW Simpson & Co on 17 October 2003. In that fax they said:

We understand that this has been agreed that the precise location of the easement shall be delayed until the development stage, but that your client will make every effort to connect at the point MH3742A.

If this is impossible, then our client will afford an easement to connect with MH3737 or MH3738 along a route which is convenient to our client given the nature of its proposed development at the time.

We understand that it is acknowledged that the original proposed route would prove difficult.

If this is agreed in principle then we can draft an appropriate condition for insertion in the Contract.

11 Mr Finlayson wrote to AW Simpson & Co in relation to that fax on 22 October 2003. In that letter, he said:

[AFPL] will make every effort to connect the sewer main to MH3742A and if this is impossible an easement will be given to MH3737 or MH3738 as per the initial sale agreement. All costs that are over and above the costs that would have been attributed to the initial connection to MY3737 or MH3738 due to [RFBI's] request to connect the sewer to MH3742A are to be paid by [RFBI]. This includes all services such as electricity, stormwater, water etc. This agreement to be transferable to any future owner.

Financially the cheapest and easiest option is as per the initial sale agreement which required an easement between Lot 1 and Lot 364. The costs to both parties will be quite significantly reduced to all services whereas the costs relating to the MH3742A at this stage is unknown as regard to other services extensions.

Currently we have had interest for purchase of the two lots above and we need to be able to advise where services connections are available within the next week or lose the possible purchaser.

12 Mr Shaw said that he saw a copy of that letter, although he does not explain how he did so. He said in his affidavit evidence that he understood from that letter and Mr Finlayson's letter dated 30 September 2003 that if the contract gave RFBI an easement from point "X" to MH3738:

1 [AFPL] would first make every reasonable effort to connect its drainage to sewer main MH3742A as proposed by [RFBI] before requesting RFBI to register an easement from point "X" to MH3738,

2 if a connection to sewer main MH3742A connection was found to be possible, [RFBI] would pay the cost to [AFPL] over and above the cost of connecting to MH3738;

3 the precise location of any easement to be registered would not be determined until either [AFPL] or [RFBI] commenced building on the lots, and would depend on who built first (ie [RFBI] or [AFPL]), and where they built; and

4 [AFPL] would only be given an easement from point "X" to MH3738 if none of the following options could be achieved:

A. obtaining sufficient falls or Council's permission for the sewer being connected to MH3742A, MH3741A or MH3740; or

B. alternative stormwater disposal arrangements into the creek lands adjacent to MH3742A; or

C. obtaining water and electricity extension without excessive cost over and above the cost that would arise if the services were provided in an easement.

On that basis, he said he instructed EH Tebbutt & Sons that they could agree to the original placement of the easement provided "they [meaning AFPL] stand by their agreement". He said he would not have given those instructions otherwise.

13 On 24 October 2003, AW Simpson & Co sent EH Tebutt & Sons a fax which, with some minor amendments, mirrored Mr Finlayson's letter dated 22 October 2003 to them. Having set out what AFPL was prepared to do and the requirement that RFBI pay the additional costs associated with the easement it proposed (assuming that such an easement was practical), the letter concluded:

Our client needs to be in a position to advise prospective purchasers of the other two lots as to where services are available, within the next week. We would be grateful, therefore, for your urgent response.

14 On 24 October 2003, EH Tebbutt & Sons replied to that fax by fax in the following terms:

We are now instructed that our client will agree to the original placement of the proposed easement, and we would be grateful if you would exchange contracts immediately on this basis.

We thank you for your assistance, and look forward to receiving your confirmation that exchange has taken place.

 

15 On 4 November 2003, EH Tebbutt & Sons sent AW Simpson & Co a letter chasing up a counterpart to the contract. AW Simpson & Co replied on 5 November 2003 enclosing the signed contract in its original form. The covering letter said:

We refer to previous correspondence with respect to the Special Conditions and the Easement and now enclose signed Contract (in earlier form) by way of exchange subject to us making the necessary changes to the counterpart Contract sent to us by you. Please confirm that it is in order for us to make those changes.

16 EH Tebbutt & Sons replied to that letter on 6 November 2003 saying:

Subject to the inclusion of the attached Special Conditions, which we understood were agreed previously, the Contracts can be exchanged, and you should make the appropriate amendments to the Contract executed by our client.

17 There was no formal exchange of contracts. However, settlement occurred on 19 December 2003. No easement was granted at that time. However, on 16 December 2003, EH Tebbutt & Sons wrote to AW Simpson & Co saying:

We confirm that our client will comply with its obligations regarding the easement to be created notwithstanding settlement of this matter.

18 AW Simpson & Co replied to that letter on 17 December 2003. They said relevantly:

With respect to the easement we advise that a Surveyor is at present preparing the necessary Plan. Under the Contract the Vendor and Purchaser acknowledge and agree that the Vendor will have the benefit of an easement for services generally 3 metres wide from MH3738 to the intersection of Lots 366, 363 and 364 DP755808 and Lot 1 DP826983 and as marked on the attached Drainage Plan. As there has been some controversy as to the precise placing of the easement we would be grateful if you would have your client confirm that it is agreeable to that easement in that particular place or at a place determined by the parties, between that line and the dividing line between Lot 1 DP 826983 and Lot 365 DP755808.

19 For reasons which remain unclear, no easement was granted.

20 RFBI received development approval to the first stage of its aged care facility on 30 March 2006. The first stage was built substantially on Lot 364 in accordance with a revised development approval that was granted on 15 November 2007. AFPL was aware of the construction of the facility and it was also aware from a letter dated 4 September 2007 from the Armidale Dumaresq Council that no easement had been registered over Lot 1 in favour of Lots 366 and 363. RFBI was also aware from correspondence it had received from the Council that AFPL still claimed that it was entitled to a service easement burdening either Lot 1 or Lot 364.

21 On 10 December 2007, Abbott Pardy & Jenkins (APJLaw), who by that time acted for AFPL, wrote to EH Tebbutt & Sons saying:

It has recently been brought to the attention of our client that the Easement for services which was to be created within Lot 1 DP826983 has not in fact been created.

The Plan of the proposed Easement for services has been created by Mr Jamie Hooke, Surveyor, and we have prepared a Transfer and Grant of Easement to give effect to the attention parties [sic]. We enclose that document herewith and would be grateful if you could arrange for execution of the Transfer and Grant on behalf of the transferor and return same to us for execution and stamping.

We would then request that you produce Certificate of Title Identifier 1/826983 to enable registration of the Transfer and Grant of Easement.

22 EH Tebbutt & Sons did not reply to that letter and APJLaw did nothing further until 8 May 2009 when, prompted by Mr Finlayson, it sent a letter to EH Tebbutt & Sons chasing up the easement. It sent a further letter on 6 October 2009 and, when it received no response, it sent a letter on 20 April 2010 to Mr Mortimer enclosing a copy of the easement and asking for it to be executed and returned to them.

23 It seems that nothing further happened until this proceeding was commenced on 26 October 2012. In the meantime, the first stage of the aged care facility had been completed and RFBI has prepared plans for a second stage which would be connected to the first stage by walkways that would pass over the proposed easement.

RFBI's claims based on contract

24 RFBI's primary claim is that the terms of the contract are to be found not only in the formal contract but the correspondence between the parties including Mr Finlayson's letters dated 30 September 2003 and 22 October 2003. In my opinion, that submission is unsustainable. One difficulty with the submission is that RFBI never articulated precisely the term which it says was agreed by the parties in correspondence. More significantly, EH Tebbutt & Sons' fax dated 24 October 2003 stated that "our client will agree to the original placement of the proposed easement". Mr Shaw candidly admitted that that fax was "clear as a bell". It said that RFBI no longer sought a term of the type referred to in Mr Finlayson's letters. On the basis of that fax, the parties agreed to accept special conditions 32.1 and 32.2 in their original form and agreed that the contract incorporating those terms should be treated as having been exchanged. None of Mr Finlayson's proposals were incorporated into that contract.

25 Nor could the term contended for by RFBI form a collateral contract. Once again, there are difficulties in identifying the contents of the term that formed that contract. There was no agreement on the term set out in Mr Finlayson's letter dated 30 September 2003. As the subsequent correspondence made clear, the parties initially contemplated that a term along the lines proposed would be drafted to be incorporated into the contract to be exchanged. There was further discussion and correspondence concerning the content of the term. However, no term was ever drafted because EH Tebbutt & Sons stated in their fax dated 24 October 2003 that their client no longer sought such a term.

26 In any event, one requirement of a collateral contract is that its terms cannot be inconsistent with the terms of the contract to which it is said to be collateral: Hoyt's Pty Ltd v Spencer [1919] HCA 64; (1919) 27 CLR 133. In this case, the main contract makes it plain that RFBI was to grant an easement over Lot 1 in favour of Lots 363 and 366 in the place marked on Annexure A to the contract. The alleged collateral contract is inconsistent with that obligation because it states that RFBI was not obliged to grant an easement in those terms except in certain circumstances.

RFBI's claims based on estoppel

27 The parties accept that the requirements of an equitable estoppel are those that were set out by Brennan J in Walton Stores (Interstate) Ltd v Maher [1988] HCA 7; (1988) 164 CLR 387 at 428-9:

In my opinion, to establish an equitable estoppel, it is necessary for a plaintiff to prove that (1) the plaintiff assumed that a particular legal relationship then existed between the plaintiff and the defendant or expected that a particular legal relationship would exist between them and, in the latter case, that the defendant would not be free to withdraw from the expected legal relationship; (2) the defendant has induced the plaintiff to adopt that assumption or expectation; (3) the plaintiff acts or abstains from acting in reliance on the assumption or expectation; (4) the defendant knew or intended him to do so; (5) the plaintiff's action or inaction will occasion detriment if the assumption or expectation is not fulfilled; and (6) the defendant has failed to act to avoid that detriment whether by fulfilling the assumption or expectation or otherwise.

28 RFBI says that those requirements are met in this case. According to it, by Mr Finlayson's letters dated 30 September 2003 and 22 October 2003, AFPL represented to RFBI that it (AFPL) was willing to agree to a term of the type set out in Mr Finlayson's letter, which was a representation that was plainly made to induce RFBI to enter into the contract. Mr Shaw gave evidence that he relied on the representation. RFBI will suffer detriment if AFPL is permitted to resile from its representation because RFBI will not be able to build stage two of the aged care facility in the way it proposes because it will not be able to connect the two stages in the way that it wishes. Therefore, it says, it has made out the requirements of an equitable estoppel.

29 I do not accept RFBI's submission. It is not entirely clear how the letter dated 22 October 2003 can be treated as a representation by AFPL to RFBI. The letter is addressed to AFPL's solicitors and there is no evidence of how it came into the hands of Mr Shaw. In any event, the letter was not a representation by Mr Finlayson of what AFPL would do if RFBI entered into the contract. Rather, it is a statement of the type of term that AFPL was prepared to include in the contract. It was a revision of the term initially proposed by Mr Finlayson on 30 September 2003. As is clear from EH Tebbutt & Sons' letter dated 17 October 2003, what was anticipated was that further drafting would be necessary if the substance of the term could be agreed. The term referred to in Mr Finlayson's letter dated 22 October 2003 placed significant obligations on RFBI as well as on AFPL - in particular, an obligation to pay any additional costs associated with an easement of the type sought by RFBI. It was unclear whether RFBI would accept that obligation and, until it did, Mr Finlayson was not prepared to agree to anything. RFBI never accepted that obligation. Instead, its solicitors replied that it would agree to grant an easement in the original location. It might be inferred that it took that position because it was not prepared to meet the additional costs associated with a different easement. But whether that it is the case or not, it is plain that nothing AFPL did caused Mr Shaw to adopt the assumption he says he did. If Mr Shaw adopted that assumption, he did so as a result of his own mistaken belief about the effect of the correspondence between the parties - a mistake that RFBI's solicitors did not correct. For that reason alone, the defence based on promissory estoppel must fail.

Is the claim statute barred?

30 Section 14(1) of the Limitation Act 1969 (NSW) relevantly provides:

An action on any of the following causes of action is not maintainable if brought after the expiration of a limitation period of six years running from the date on which the cause of action first accrues to the plaintiff or to a person through whom the plaintiff claims:

(a) a cause of action founded on contract (including quasi contract) not being a cause of action founded on a deed,

(b) ...,

...

Section 23 of the Act provides:

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.

31 The Limitation Act 1969 was based on the Limitation Act 1939 (UK), which in turn consolidated a number of Imperial statutes that formed part of the received law of New South Wales. The New South Wales Act was enacted following a report of the New South Wales Law Reform Commission: see First Report on the Limitation of Actions (LRC 3), 1967. According to that report, s 23 "states the position reached by judicial decision on the enactments whose place is taken by the provisions mentioned in the section" (para 132). It appears, however, that there were no judicial decisions at the time the Act was passed dealing with the application of the statutory limitation period for a cause of action founded on contract to a cause of action for specific performance of a contract; and there are surprisingly few cases dealing with that question even now.

32 The leading decision in England is the decision of the Court of Appeal of England and Wales in P&O Nedlloyd BV v Arab Metals Co (No 2) [2006] EWCA Civ 1717; [2007] 1 WLR 2288. That case concerned the application of a limitation period for contractual claims imposed by the Limitation Act 1980 (UK) (1980 Act) to a claim for specific performance of a contract. That Act replaced the 1939 Act. Section 36(1) of the 1980 Act relevantly provides:

The following time limits under this Act, that is to say-

(a) ...

(b) the time limit under section 5 for actions founded on simple contract;

(c) ...;

...;

shall not apply to any claim for specific performance of a contract or for an injunction or for other equitable relief, except in so far as any such time limit may be applied by the court by analogy in like manner as the corresponding time limit under any enactment repealed by the Limitation Act 1939 was applied before 1st July 1940.

33 The judgment of the Court was given by Moore-Bick LJ, with whom Jonathan Parker and Buxton LLJ agreed. As Moore-Bick LJ pointed out, s 36 requires "one to ask whether before 1 July 1940 a court of equity would have applied by analogy the six-year statutory limitation period to a claim for specific performance of a simple contract" (at [34]). Despite "the industry of counsel" no case prior to that date dealing with the question had been found. Consequently, it was necessary to resort to general principle.

34 Moore-Bick LJ concluded that general principle required that the analogy exist between the relevant right and remedy in equity and a corresponding right and remedy at common law. The analogy was not to be drawn simply between the facts giving rise to rights or obligations recognised by the common law and equity. Lord Westbury, in a passage quoted by Moore-Bick LJ at [35], stated the principle in these terms in Knox v Gye (1872) LR 5 HL 656 at 674:

For where the remedy in Equity is correspondent to the remedy at Law, and the latter is subject to a limit in point of time by the Statute of Limitations, a Court of Equity acts by analogy to the statute, and imposes on the remedy it affords the same limitation.

As Moore-Bick LJ pointed out, later cases have examined the similarity in the facts giving rise to the relevant cause of action at common law and in equity as well as the nature of the relief available in determining whether the principle applies. So, for example, in Cia de Seguros Imperio v Heath (REBX) Ltd [2001] 1 WLR 112, the Court of Appeal held that a claim for equitable compensation for breach of fiduciary duties was sufficiently analogous to a claim for damages for negligence to apply the limitation period in respect of the latter claim to the former. In reaching that conclusion, the Court emphasised the similarity in the facts and remedies available for both types of claim. Waller LJ (with whom Sir Christopher Staunton and Clarke LJ agreed) put the point in these terms (at 121):

In my view the authorities cited by Mr Gross and the broad principles set out in the above quotations support the submission that equity would have taken the view that it should apply the statute by analogy to a claim for damages or compensation for a dishonest breach of fiduciary duty. I say that because what is alleged against Heaths as giving rise to the dishonest breach of fiduciary duty are precisely those facts which are also relied on for alleging breach of contract or breach of duty in tort. It is true that there is an extra allegation of "intention" but that does not detract from the fact that the essential factual allegations are the same. Furthermore, the claim is one for "damages". The prayer for relief has now been amended with our leave to add a claim for "equitable compensation", but the reality of the claim is that it is one for damages, the assessment of which would be no different whether the claim was maintained as a breach of contract claim or continued simply as a dishonest breach of fiduciary duty claim.

35 In the case of a claim for specific performance of a simple contract, the facts giving rise to the claim for specific performance are not always the same as the facts giving rise to a claim for damages. In some cases, where a contracting party has evinced an intention not to comply with a contract, the innocent party may be entitled to an order for specific performance even when the time for the performance of the relevant contractual obligations has not arrived: see, for example, Hasham v Zenab [1960] AC 316. Consequently, it is "very arguable" (to use the words of Moore-Bick at [47]) that a cause of action for specific performance arises at the time the contract was entered into, not at the time of breach, as in the case of a common law action for damages. More significantly, there is nothing comparable to an action for specific performance available at common law. Plainly, an action for damages is not comparable to an order for specific performance. For that reason, Moore-Bick LJ concluded that a claim for specific performance of a contract was not analagous to a claim for damages for breach of contract and the limitation period in respect of the former did not apply to the latter.

36 The decision of the Court of Appeal has been criticised on the basis that the Court failed to distinguish between cases where equity applies a limitation period by analogy to a purely equitable claim and cases where it grants relief in aid of a legal right. In the latter case, according to Spry, the question of analogy does not arise and equity should always apply the statute:

Where legal rights, such as contractual or tortious rights, have been barred, it is not desirable (and it is contrary to principle) that the barring be circumvented by the grant of auxiliary equitable remedies such as specific performance or injunctions.

See ICF Spry, The Principles of Equitable Remedies, 8th ed (2010) Lawbook Co at 245.

37 In Australia, there are several cases which are relevant to the issue. The first is R v McNeil [1922] HCA 33; (1922) 31 CLR 76. The issue in that case was whether a limitation period of 12 months in respect of contractual claims against the Crown, which was imposed by s 37 of the Crown Suits Act 1898 (WA), could be extended where the contracting party did not know of a breach by the Crown as a result of fraud on the part of the Crown's servants. The Court held that it could not. In discussing the issue, Isaacs J dealt with an argument that equity disregards statutes of limitation in cases of fraud. In dismissing that argument, his Honour set out the true position of equity in these terms (at 100):

The position may be shortly stated. Where a court of equity finds that a legal right, for which it is asked to give a better remedy than is given at law, is barred by an Act of Parliament, it has no more power to remove or lower that bar than has a court of law. But where equity has created a new right founded on its own doctrines exclusively, and no Act bars that specific right, then equity is free. It usually applies, from a sense of fitness, its own equitable doctrine of laches and adopts the measure of time which Parliament has indicated in analogous cases, but, when a greater equity caused by fraud arises, it modifies the practice it has itself created and gives play to the greater equity. (emphasis in original)

This statement of the law supports the position taken by Spry.

38 In a later decision of the High Court, Fitzgerald v Masters [1956] HCA 53; (1956) 95 CLR 420, the Court did grant specific performance of a contract for the sale of land 26 years after the contract had been entered into. However, at the time there was no applicable limitation period. Consequently, it was not necessary for the Court to consider the principle stated by Isaacs J or the question whether a limitation period should be applied by analogy. On the question of delay, Dixon CJ and Fullagar J said (at 433) this:

We have said that the second question of substance in the case is whether the very long delay of the respondent in seeking to enforce his contract is such as ought to induce a court of equity, in the exercise of its discretion, to refuse specific performance. This is, of course, a separate and distinct question, but what has already been said goes a long way towards answering it. There appear to be no circumstances, apart from delay as such, which would make it inequitable to decree specific performance. The land is said to have increased greatly in value over the years, but that cannot be a material consideration. Improvements may have been effected, but, if so, these can be provided for in any ultimate decree. There has been no prejudicing alteration in the position of the vendor or his estate: delay may indeed be said to have been to the advantage of the vendor, who enjoyed all the benefit to be derived from sole possession from 1932 to his death. There are no third parties whose interests may be affected. In these circumstances equity does not, we think, refuse specific performance unless it thinks that the plaintiff ought to be regarded as having abandoned any rights he ever had. And reasons have been given for saying that no abandonment can be inferred here.

39 Commenting on Isaacs J's dictum in R v McNeil, the authors of Meagher, Gummow & Lehane's Equity Doctrines and Remedies, 4th ed (2002) Butterworths say at [34-070]:

This would be consonant with the reasoning of Dixon J in J C Williamson & Co Pty Ltd v Lukey (1931) 45 CLR 282; [1931] ALR 157 that specific performance of a contract rendered unenforceable by the Statute of Frauds should be declined. However, there is also some English authority to the contrary (Talmash v Mugleston (1826) 4 LJ Ch 200), and it is not easy to see how such a view can be reconciled with the decision of the High Court in Fitzgerald v Masters (1956) 95 CLR 420.

However, for the reasons already given, the reliance on Fitzgerald v Masters seems to be misplaced.

40 In Bourke v Hooper [2007] NSWSC 1516 at [78], McDougall J expressed the view that equity would apply s 14(1)(a) of the Limitation Act by analogy to a claim for specific performance of a contract. His Honour cited the 7th edition of Spry at 244-5 in support of that proposition, which was substantially to the same effect as the passage quoted above from the 8th edition. It appears that his Honour's attention was not drawn to the decision in P&O Nedlloyd BV v Arab Metals Co (No 2) [2006] EWCA Civ 1717; [2007] 1 WLR 2288. Moreover, the position taken by Spry is not that the analogy should be drawn, but rather that the question of analogy does not arise. According to Spry, a claim for specific performance of a contract is a claim brought in the "auxiliary" jurisdiction; and in that jurisdiction equity follows the law.

41 The approach taken by Spry and by Isaacs J in R v McNeil was also approved by Brereton J in In the Matter of Auzhair Supplies Pty Ltd (in Liq) [2013] NSWSC 1. That case concerned the question whether the court would apply the limitation period in respect of a claim for statutory compensation under the Corporations Act 2001 (Cth), s 1317H, by analogy to a claim for equitable compensation for fraudulent breach of trust. His Honour, however, discussed the application of limitation periods by analogy more broadly. He began by observing (at [28]) that:

It is important to recognise that Limitation Act, s 23, is not the source of or authority for the application by analogy in equity of limitation periods fixed by statute; it merely recognises the longstanding principle that Courts of Equity follow the law in this respect [see Belan v Casey [2003] NSWSC 159 ; (2003) 57 NSWLR 670, [146]].

42 After an exhaustive review of the authorities, his Honour summarised the position in these terms:

[61] In my view, the authorities to which reference has been made establish the following.

[62] First, in equity's auxiliary jurisdiction, where the Court is asked to give a superior remedy for a legal right, Equity applies the legal limitation period: it obeys the law.

[63] Secondly, even in equity's exclusive jurisdiction, where the cause of action is Equity's own creature, then if there is an analogue between the equitable claim and a legal or statutory right to which a limitation period applies, a court of equity will ordinarily apply the limitation period: in this, equity follows the law, and applies the limitation period as an aspect of the doctrine of laches. The existence of an analogue can only be determined by considering each of the equitable claim, the legal or statutory right and their respective remedies in the context of the facts and circumstances of the case; but it does not depend on a minute comparison between the claim in equity and the supposed analogue; while differences in the elements of the respective causes of action are relevant, and possibly significant, not every difference justifies not applying the statute by analogy. Further, because, in this context, application of the analogous limitation period is an aspect of laches, it is also subject to exceptions where the greater equity outweighs it; thus it is relevant to consider the plaintiff's knowledge of the plaintiff's rights and in particular of the impact of fraud, as equity will not apply a time limit in a case of "concealed fraud". The relevant enquiry is therefore to consider, first, whether the equitable claim and the corresponding legal right are so similar that the time limit applicable to the latter should be applied to the former; and, secondly, where such a similarity exists, whether it would nevertheless be inequitable to apply the analogous limitation period.

43 A number of the cases his Honour refers to certainly support the propositions his Honour summarised and, in particular, the proposition stated in para [62]. Included among those is the decision in Hovenden v Lord Annesley (1806) 2 Sch & Lef 607 and, of course, the dictum of Isaacs J R v McNeil. In the former case, Lord Redesdale said (at 630):

But it is said that Courts of Equity are not within the statutes of limitations. This is true in one respect: they are not within the words of the statutes, because the words apply to particular legal remedies: but they are within the spirit and meaning of the statutes, and have been always so considered. I think it is a mistake in point of language, to say that Courts of Equity act merely by analogy to the statute; they act in obedience of it. ...Equity, which in all cases follows the law, acts or legal titles, and legal demands, according to matters of conscience which arise and which do not admit of the ordinary legal remedies: nevertheless, in thus administering justice, according to the means afforded by a Court of Equity, it follows the law.

However, that proposition has not received universal approval, as the decsion in P&O Nedlloyd BV demonstrates.

44 There are a number of other Australian decisions that have touched on the issue. In Duke v Royalstar Pty Ltd [2001] WASCA 273 the Western Australian Full Court observed (at [25]) that, in the absence of a specific limitation period in respect of a claim for specific performance of a contract, there were a number of possibilities. One was that the claim was barred because the plaintiff could not sue at law for damages for breach of contract - applying Isaacs J's dictum in R v McNeil. Another was that the statute imposing a limitation period in respect of contractual claims would be applied by analogy. A third was to apply the doctrine of laches. In that case, the Court concluded that the plaintiff had failed to make out any prima facie case for being able to overcome the doctrine of laches. Consequently, it was not necessary to consider the other grounds on which the claim might be barred.

45 In Hoon v Westpoint Management Ltd [2011] WASC 239 Corboy J, after referring to P&O Nedlloyd BV, concluded that the law was sufficiently uncertain that it could not be determined at an interlocutory hearing (for the extension of a caveat). In Italiano Oliveri v Invocare Australia Pty Limited [2008] NSWSC 1138, McLaughlin AsJ expressed the view (at [47]) that the limitation period in s 14 of the Limitation Act could not apply by analogy to a claim for specific performance since s 14 expressly applied to a cause of action founded on contract and "[s]uch a cause of action apppears to me to be a cause of action in common law, which would result only in an award of damages to a successful plaintiff".

46 In my opinion, the starting point in answering the limitation question in this case is s 23 of the Limitation Act. Although, as Brereton J pointed out in In the Matter of Auzhair Supplies Pty Ltd (in Liq), that section is not the source of or authority for the application by analogy in equity of limitation periods fixed by all statutes, it is the source of the application by analogy in equity of the limitation periods fixed by, relevantly, s 14 of the Act. Section 23 does two things. First, it states that the limitation periods fixed by, among other sections, s 14 do not apply to a cause of action for specific performance of a contract or for an injunction or for other equitable relief. Second, it creates an exception to that rule in the case of and to the extent that those limitation periods may be applied by analogy. Consequently, if the limitation period set out in s 14 applies to a cause of action for specific performance of a contract, it must apply by analogy. Generally, in answering the question whether the analogy can be drawn, it is appropriate to apply common law principles. Whatever the status of the principle that is said to operate where the claim is for equitable relief in aid of a legal right, s 23 leaves no room for the operation of that principle where the limitation period is imposed by s 14.

47 There is one other point to be noted about s 23 in this context. It appears to be implicit in the section that the limitation period set out in s 14(1)(a) does not apply by analogy to a cause of action for specific performance of a contract. The section creates an exception to the operation of s 14 for all forms of equitable relief but mentions two specifically - a cause of action for specific performance of a contract and a cause of action for an injunction. However, the specific reference to a cause of action for specific performance of a contract adds nothing to the operation of s 23 if the limitation period set out in s 14(1)(a) applies by analogy to causes of action of that type. In that event, s 23 says that causes of action of that type are not the subject of the limitation period set out in s 14(1)(a) and the exception to that exception says that they are subject to that limitation period (by analogy). In other words, if the analogy can be drawn, the exception to s 14(1)(a) which is specifically provided for by s 23 in the case of a cause of action for specific performance of a contract is taken away by the (analogy) exception to that section. On that basis, the words "for specific performance of a contract" are otiose. They can only be made to do some work if it is assumed that the analogy exception does not apply to causes of action of that type. Then the section makes it clear that a limitation period does not apply to causes of action for specific performance of a contract. That suggests that s 23 was not intended to have the effect of applying the limitation period in s 14(1)(a) to causes of action for specific performance of a contract. That approach is consistent with the general principle of statutory interpretation that courts will strive to adopt a construction which gives some meaning to every word of the statute and will seek to avoid an interpretation which renders words of a statute redundant or tautologous: see Leon Fink Holdings Proprietary Limited v Australian Film Commission [1979] HCA 26; (1979) 141 CLR 672 at 679 per Mason J; see also Project Blue Sky Inc v Australian Broadcasting Authority [1998] HCA 28; (1998) 194 CLR 355 at [71] per McHugh, Gummow, Kirby and Hayne JJ.

48 Leaving aside what might be implicit in the section, it appears to be generally accepted that, in asking the question whether a limitation period can apply by analogy, it is necessary to consider both the facts which are said to give rise to the cause of action as well as the nature of the relief that is available. That approach is consistent with the wording of s 23, which describes the cause of action in terms of the relief that is granted rather than the facts which must be proved in order to establish a right or obligation recognised by the law. For the reasons given by Moore-Bick LJ in P&O Nedlloyd BV, in my opinion, a cause of action for specific performance of a contract is not analogous to a cause of action founded on contract that is recognised by the common law - that is, a claim for damages for breach of contract. The nature of the relief is completely different and the circumstances in which the relief is available in relation to the two causes of action are not the same. It follows that the limitation period set out in s 14(1)(a) of the Limitation Act does not apply to AFPL's claim for specific performance.

The defence of laches

49 The parties accept that the defence of laches is not available for mere delay, as the decision of Fitzgerald makes clear. In order for the defence to be available, RFBI must have suffered some prejudice as a result of the delay. RFBI says that it has suffered prejudice because it is now unable to build the second stage of the facility in the way that it wants. However, that prejudice arises from AFPL's rights, not from the delay in enforcing them. RFBI would have suffered the same prejudice if the relief had been sought the day after settlement. RFBI was unable to point to any other prejudice it has suffered. Consquently, the defence of laches must fail.

Orders

50 AFPL is entitled to an order for specific performance. It should bring in short minutes of order to give effect to that finding. If the parties can agree on the terms of the short minutes, I will make them in chambers. If not, the matter should be re-listed to deal with any dispute concerning the form of the orders.

51 RFBI should pay AFPL's costs of the proceeding.

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Decision last updated: 04 September 2013