Risk Watch: Calculating time limits — you need to know where to start By Grant Feary

Calculating time limits—you need to know where to start

GRANT FEARY, DEPUTY DIRECTOR, LAW CLAIMS

The calculation of when proceedings need to be commenced so as not to fall foul of time limitations is a well-known feature of litigation practice. In order to know when the relevant time limit ends though, you have to know when and where to begin—when does the limitation period start? In many cases the question of the relevant limitation period will not cause too many problems. In an action based on the tort of negligence in respect of injuries suffered in a motor vehicle accident, for example, the relevant time limit will be three years from the accrual of the cause of action, which will be incurring of the relevant loss or damage. In most cases this will be the date of the accident itself.

There are some areas, however, where the starting point is not so obvious. A good example of this is an action to recover a loan repayable on demand. The answer to the question “When does the cause of action accrue and the time period start to run for such an action?” may be surprising to many practitioners. Many people will think that the cause of action accrues upon a demand for repayment being unmet, but this is not the case. Where a loan is repayable on demand, it is actually immediately due and there is no need for a demand for the cause of action to accrue (Young v Queensland Trustees Ltd [1956] 99 CLR 560 at 566). Further, if a loan agreement is silent about repayment it will be treated as repayable on demand, thereby creating an obligation on the borrower to repay immediately from the time that the funds are advanced (Ogilvie v Adams [1981] VR 1041 and Gleeson v Gleeson [2002] NSWSC 418).

This position of course needs to be contrasted with the position where the loan documents express a time for repayment. If for example it is actually provided that the loan is not repayable until a demand is made—then the making of the demand will be a necessary prerequisite to the right to repayment and therefore the accrual of the cause of action (Haller v Ayre [2005] QCA 224).

In the situation where no such stipulation is made and the loan is merely repayable “on demand” (as outlined above) the cause of action will commence to run when the funds are advanced. This means that actions for recovery of funds advanced more than six years prior to the commencement of the proceedings will be statute barred (s. 35 Limitation of Actions Act 1936 (SA).1

Another example of the importance of getting the correct “start date” and of the difficulties that can arise in this analysis, can be found in the recent Victorian Court of Appeal decision in Orwin v Rickards [2020] VSCA 225. The issue in this case was whether or not a cause of action against a solicitor for negligence in drafting a financial agreement providing for the division of assets between the parties to a de facto relationship was statue barred under the Victorian Limitation of Actions Act 1958.

The solicitor, Mr Rickards, had drafted the financial agreement in question which was signed on 12 March, 2010. The parties to the agreement Ms Orwin and Mr Sarah, separated in 2011, and 2015 Mr Sarah made an application in the Federal Circuit Court seeking to set aside the financial agreement and an order for the just and equitable alteration of property interests. The agreement was found to be defective and was not therefore capable of constituting an answer to the application for property division sought by Mr Sarah.

Ms Orwin settled Mr Sarah’s claim and then sought to recover from Mr Rickard the amount paid to Mr Sarah, plus the fees she had paid to Mr Rickard to prepare the financial agreement. The proceedings against Mr Rickards were commenced on 19 July, 2017, i.e. more than six years after the execution of the agreement and the payment of Mr Rickard’s fees.

Ms Orwin conceded that her claim for breach of contract was statue barred, no doubt because the proceedings had been commenced more than six years after the relevant breach.

Unfortunately for Ms Orwin the Trial Judge found that the proceedings in negligence were also statue barred because they had been commenced more than six years after Ms Orwin had first suffered loss by reason of the negligence. It was found that the relevant losses were the payment of Mr Rickards’ fees and the failure to obtain an “asset” – being a properly drawn agreement - which would have given her protection in the future from claims made by Mr Sarah.

Ms Orwin appealed on the basis that her losses did not occur until the de facto relationship ended and Mr Sarah made his claim for an alternation of property interests. She relied on the decision of Wardley v WA (1992) 175 CLR 514 where the High Court spoke of it being “unjust and unreasonable” to expect a plaintiff to commence proceedings before a contingency is fulfilled and that in that case it was “fair and sensible to say that the plaintiff does not incur loss until the contingency is fulfilled”. In Orwin v Rickards both the trial Judge and the Court of Appeal in dismissing the appeal contrasted this situation with the situation where the Defendant’s negligence results in the plaintiff being provided with “damaged goods” – in this case a defective contract – where the loss is treated as having been suffered immediately.

This reasoning found favour in the New Zealand case of Burton v Thom [2009] NZLR 437 where the distinction between the “damaged goods” and the “contingent loss” approaches was discussed. The facts of the Burton v Thom case were very similar to the facts in Orwin v Rickards and the NZ Supreme Court found that it was a “damaged asset” case and not an “exposure to a contingent liability” case because the prenuptial agreement in the Burton case was created with an inherent flaw.

Despite the fact that the Victorian Court of Appeal recognised that the classification of loss in the Orwin case was one of real difficulty, and said that they saw real force in the argument that the loss suffered by Ms Orwin (apart from the fee payment) was a contingent loss. They also said that it could properly be said that it would be unjust and unreasonable to expect a person in Ms Orwin’s position to have commenced proceedings at a time when she had no reason to suspect that Mr Rickards had been negligent. This was precisely because nothing had occurred which meant that she had to rely on the agreement. The Court also said however that, on the facts the “damaged asset” analysis seemed particularly apt and that “either characterisation might properly have been adopted” [63]. In the end, they found that the trial Judge’s conclusion had a secure foundation in existing authority and rejected the challenge to the trial Judge’s findings.

The Court of Appeal said that it was unsatisfactory that the same facts should be open to alternative legal characterisations in this way, when the choice of characterisation produces such dramatically different answers to the limitation question, and that this degree of uncertainty in an important area of law is regrettable [64].2

The “bottom line” is – it may sometimes be very difficult to ascertain when your client’s cause of action accrues in order to give you the starting point for the time limitation period - so extra care needs to be taken. B

Endnotes 1 An acknowledgement of the debt, or part payment may however have the effect of

“restarting” the limitation period from the time of the acknowledgment or part payment. 2 The Court of Appeal all but flagged that this was an issue that should be resolved by the High

Court but it is unlikely that Orwin v Rickards itself would be a suitable vehicle because of the other issues in the case which were sufficient to resolve it.