In our November 2013 Alert we looked at the methodology for the assessment of damages in failed transaction cases. This article will look at the principles which govern when a cause of action accrues. As damages may be essential to the accrual, calculating precisely when damage has been suffered and therefore the trigger for when the limitation period in respect of the cause of action expires, is essential but can be complicated.

The Limitations of Actions Act 1974 (Qld)1 requires claims in contract or negligence to be initiated within 6 years from the date the cause of action accrued. Similarly, the Competition and Consumer Act 2010 (Cth) (ACL) requires a claim to be commenced within 6 years after the day on which the cause of action that relates to the conduct accrued.

The General Principles

Contract

In contract, the cause of action is complete and thus time begins to run when the contract is breached. In a claim against a professional advisor the limitation period therefore commences on the date the mistake is made. This is often a straightforward assessment, except in cases where the breach is ongoing and/or where the timing of the mistake or mistakes is unclear.

Negligence & statutory claims under the ACL

In negligence and in claims under the ACL, the cause of action is not complete until damage is suffered by reason of the breach. The general rule is therefore that the limitation period does not commence until damage is suffered. In cases of overt damage to property, the application of this rule is simple. However, in cases of economic loss, calculating the point at which damage is actually suffered is not so straightforward. This is especially so in cases involving economic loss through reliance on professional advisors. The issue becomes whether damage is suffered immediately when the negligent act/omission is done, i.e., when the mistake was made; or at some later point in time.

Loss is sustained when recoupment becomes impossible

Hawkins v Claytons (1988)2 (Hawkins v Claytons) involved members of a leading Sydney law firm who were sued by Mr Hawkins who was named executor and residuary beneficiary under a will. The action was for damages for an alleged failure to take reasonable steps to inform Mr Hawkins of his interest under the will until some six years after the death of testatrix.

In considering when the actual loss was sustained, Gaudron J stated that:

“if the interest infringed is an interest in recouping moneys advanced it may be appropriate to fix the time of accrual of the cause of action when the recoupment becomes impossible rather than at the time when the antecedent right to recoup should have come into existence, for the actual loss is sustained only when recoupment becomes impossible.” (emphasis added)

Consider the nature of the interest infringed

Wardley v Western Australia (1992)3 (Wardley Australia) is the leading case in this area. This case involved the consideration of the accrual of a cause of action for a misleading and deceptive conduct claim under s 52 of the Trade Practices Act 1974 (Cth) (the TPA).

The leading judgement provided that:

“..The answer to the question when a cause of action for negligence causing economic loss accrues may require consideration of the precise interest infringed by the negligent act or omission. The kind of economic loss which is sustained and the time when it is first sustained depends upon the nature of the interest infringed and, perhaps, the nature of the interference to which it is subjected. (emphasis added)

Crisp v Blake [1992]5 (Crisp v Blake) was a professional negligence action, whereby the Defendants applied to have the Statement of Claim struck out. It was common ground that the claim in contract was out of time. However, the principle basis for the application was that the tortious claim was statute barred under s 14(1) (b) of the Limitation Act 1969 (NSW).

Matthews J referred to Gaudron J in Hawkins v Claytons and said:

“In actions in negligence for economic loss it will almost always be necessary to identify the interest said to have been infringed to determine whether the risk of loss or injury to that interest was reasonably foreseeable and whether a sufficient relationship of proximity referable to that interest was present so as to establish a duty of care…

The Full Court referred, with approval, to the remarks of Dunn LJ in Forster v Outred and Co (1982):6

“In cases of financial or economic loss the damage crystallises and the cause of action is complete at the date when the plaintiff, in reliance on negligence advice, acts to his detriment.”7 (emphasis added)

There must be actual and measurable damage

The Full Court in Hawkins v Claytons also went on to say that:

“With economic loss, as with other forms of damage, there has to be some actual damage. Prospective loss is not enough.” (emphasis added)

In Christie v Purves & 2 Ors [2007]8 Ipp JA (with whom Beazely and Campbell JA agreed) referred with approval to Hawkins v Clayton and Wardley Australia and stated:

“The general rule can be stated as follows. For economic loss (as with other forms of damage) to be sustained, there has to be some actually, measurable damage that is beyond what can be regarded as negligible. While prospective loss, alone, is not enough, a cause of action of negligence will accrue when the plaintiff first suffers any actual damage of the kind described. The cause of action will then be regarded as having accrued, even if some of the plaintiff’s damages are prospective. The plaintiff may then claim for the actual damages that have been incurred and should quantify and claim for the prospective damages (such as, for example, future loss of profits).” (emphasis added)

Application and Conclusions

A Case Study

Lets consider the example of a vendor and purchaser entering into an ‘off the plan’ contract in 2006. In 2009, the buyer, due to some default on the part of the vendor, lawfully terminates the contract and the vendor loses the transaction. The vendor is unable to resell the property until 2013 (after the effects of the GFC have played out) and sells the property for significantly less than the original contract price.

The vendor brings an action against its professional advisor alleging that, had adequate service or advice been provided, it would not have lost the transaction. If the solicitor failed to ensure pre-contract compliance with the provisions of the Body Corporate and Community Management Act 1997 (Qld) and/or the Property Agent and Motor Dealers Act 2000 (Qld), the cause of action in contract will have accrued in 2006 and therefore the limitation period in respect thereof will have expired in 2012.

What of the causes of action in tort and under the ACL? Wardley Australia and Crisp v Blake explained that consideration be given to the kind of economic loss sustained and the precise nature of the interest infringed in order to determine when cause of action accrues.

The vendor claims to have lost the original contract and the greater contract price. Therefore, and consistent with Wardley Australia and Crisp v Blake, the loss is suffered when the ability to sell the contract at the original contract price is lost, i.e., when the purchaser terminates the contract. This is because the loss at this point is measurable by virtue of a valuation of the property and notwithstanding that the loss has not, in fact, crystallized by resale. As stated in Christie v Purves, it does not matter that some of the vendor’s loss may be prospective.

As such and notwithstanding that the limitation period for the claim in contract may have expired in 2012, the limitation period for the claims in tort and under the ACL do not expire until 2015. It is therefore important when looking at claims involving economic loss through the negligence of professional advisors to identify with some precision the actual interest infringed and the time at which loss is actually suffered. That may determine when to bring or not to bring…