AustLII Home | Databases | WorldLII | Search | Feedback

Precedent (Australian Lawyers Alliance)

You are here:  AustLII >> Databases >> Precedent (Australian Lawyers Alliance) >> 2016 >> [2016] PrecedentAULA 33

Database Search | Name Search | Recent Articles | Noteup | LawCite | Author Info | Download | Help

Saddler, Jan --- "The ticking time bomb: limitation periods and accrual of cause of action in financial claims" [2016] PrecedentAULA 33; (2016) 134 Precedent 30

THE TICKING TIME BOMB

LIMITATION PERIODS AND ACCRUAL OF CAUSE OF ACTION IN FINANCIAL CLAIMS

By Jan Saddler

Successfully identifying limitation periods and being able to advise clients on them correctly can be one of the most challenging and vital tasks a solicitor or barrister will ever do, and it can be fraught with danger.

It is not difficult to understand why calculating limitation periods accurately is so important or why it can be very confusing, and it should be noted that limitation periods can vary significantly between jurisdictions. Once outside the limitation period, it is difficult to convince a court to extend the limitation period. For this reason, it is imperative to identify when a cause of action arises, as this will start the clock running. Many years can elapse between the date poor financial advice was given and the date a client is first able to ‘realise’ their loss, for example. A typical case in this realm might relate to advice inducing a client to make a poor financial decision; for example, borrowing against their mortgage to invest in agricultural schemes which results in a substantial loss. What emerges from the authorities is the importance of determining precisely when loss or damage occurs.

DETERMINING THE LIMITATION PERIOD

The general position, in Queensland, is that actions founded on either simple contract or on tort need to be brought within six years from the date on which the cause of action arose: s10(1) Limitation of Actions Act 1974 (Qld).[1] Causes of action for breach of contract will arise at the date of breach, which may be either the date financial advice was given or the date an adverse investment was made under advice.

Financial services licensees owe a number of statutory duties to their clients under the Australian Securities and Investment Commission Act 2001 (Cth) and the Corporations Act 2001 (Cth). These duties include providing appropriate financial services to clients; preparing appropriate statements of advice for any recommendations; complying with client best interest and remuneration obligations; preparing product disclosure statements for financial products, and ensuring that such disclosure statements are actually provided to clients.

Advice given to clients may often centre around investment strategies, superannuation advice and the provision of financial products and services. Often, contraventions of either Commonwealth Act will occur well before any loss or damage occurs or is noticed; for example, when financial disclosure is due and not made or at the time an investment is made on financial advice. Regarding the limitation period for such claims, it will run for six years from the date of a contravention of the ASIC Act or Corporations Act where there is a breach of a civil penalty, or six years from the date damage is sustained in other situations in which there is a right to recover loss or damage caused by the contravention.

When does a cause of action arise?

While the Limitation of Actions Act 1974 (Qld) does provide for extensions of time in personal injury claims, this provision does not apply to claims involving economic loss, which has been a criticism of the Act. Courts have circumvented this problem in certain cases by holding that the loss did not crystallise until such time as it became subjectively ascertainable. This solution provides a safeguard for clients whose claims are statute-barred before they even know of its existence. A further possible criticism of the Limitation of Actions Act 1974 (Qld) is that the fact that a limitation period commences upon accrual of a cause of action may be counter intuitive to the principles of certainty and fairness. The accrual rules can increase uncertainty in the sense that they have developed at common law, not in statute. When the law progresses through such means, specific rules can be made which are difficult to apply to all cases generally.

In relation to negligence, the tort is not complete until a plaintiff sustains actual or ascertainable damage, or damage becomes inevitable. Proceedings must then be commenced within six years. It is interesting to note that in negligence claims, the conduct of a defendant post-initial loss or damage can constitute new breaches and effectively reset the limitation period. This is most likely to occur where information is concealed or when the relationship between financial adviser and client is continuing and negligent advice continues to be given. Negligence can therefore often be a plaintiff’s last possible cause of action to pursue. Following Hawkins and Clayton (1988) 164 CLR 539, the date at which actual damage is suffered depends upon the precise interest that has been infringed by the conduct, the nature of the interference and the chain of events causing damage. As regards damage, it is important to note that it is not a prerequisite that all damage be crystallised. All that is necessary is that some damage has been sustained because the courts can make a relatively straightforward assessment of loss already incurred and have demonstrated a preparedness to calculate anticipated loss into the future.

Ascertained vs ascertainable loss

The seminal case and starting position of a discussion regarding limitation periods with respect to financial negligence is Wardley Australia Ltd v Western Australia [1992] HCA 55; (1992) 175 CLR 514. The case contains a useful discussion regarding when causes of action arise and when damage is suffered. Wardley is authority for the view that ‘...with economic loss, as with other forms of damage, there has to be some actual damage. Prospective loss is not enough.’ There is a distinction to be made between loss which already exists but has not been ascertained by a plaintiff and loss which is not yet capable of being ascertained by a plaintiff. In the former scenario, the limitation period begins to run when the loss is suffered, regardless of whether the plaintiff is aware of it, and in the latter scenario the limitation will commence at some point in the future when the loss is capable of being ascertained.

In Wardley, the court recognised that a plaintiff can sustain a detriment in a general sense upon entry to an agreement or transaction following a misrepresentation given through financial advice but also considered that such detriment is usually not in itself sufficient to amount to loss or damage in the legal sense. That often being the case, damage can be suffered immediately upon entry into an agreement or transaction. In such a situation, a plaintiff will generally institute proceedings months or years after making such an investment, when it becomes evident that the investment will not perform as well as indicated by the financial advice received.

In Wardley, the court held it would be unjust to require a plaintiff to institute legal proceedings before their loss was ascertained or ascertainable. It used the terminology because, subjectively speaking, a particular plaintiff may ascertain his or her loss immediately, or it may go unnoticed for some time. So the court also used the notion of loss being ascertainable to invoke some degree of objectivity. The court introduced the idea of ascertained or ascertainable loss because courts would otherwise be required to estimate damages, if they were not yet ascertainable or ascertained, which would lead to assessments of damages based on likelihood or probability instead of by reference to established events. Brennan J opined that ‘...no loss is suffered until it is reasonably ascertainable that, by bearing the burdens, the plaintiff is “worse off than if he had not entered into the transaction”’.[2] In cases involving purely economic loss, plaintiffs can recover compensation only for actual loss or damage suffered, not for potential or likely damage. That would produce undesirable results, being marked by uncertainty and indeterminate liability.

In Commonwealth v Cornwall [2007] HCA 16; (2007) 229 CLR 519, a higher-ranking Commonwealth employee advised a subordinate employee against joining a superannuation fund. The High Court held that there was no cause of action until the employee's retirement and so any loss suffered prior to that date was contingent and not actual loss. Contingency was a principle referred to in Wardley by Brennan J, who stated that to commence proceedings before a contingency is fulfilled would run the risk that damages would need to be estimated on a contingency basis where the compensable sum may not cover the loss which a plaintiff has truly suffered. In Wardley, where – as a result of the defendant’s negligent misrepresentation – a plaintiff entered into a contract which exposed it to a contingent loss or liability, the plaintiff did not first suffer loss or damage on entry into the contract, as some may contend. Rather, the plaintiff will sustain no actual damage until the contingency is fulfilled and the damage becomes actual. The contingent event will, naturally, be different in each situation and it will depend on the discrete facts of each case. It is also important to note that loss can be suffered in a number of ways, be it by payment of money, by transfer of property, or by the incurring of a liability, to name just a few.

In the usual case, loss is suffered at the time of entering a contract or purchasing an asset. However, there will be situations where it is impossible to ascertain that a loss has been suffered until well into the future. This situation can be described as the difference between ascertained loss and ascertainable loss. It is important to draw a distinction between loss which has occurred but which a plaintiff has not ascertained or recognised, and loss not capable of being ascertained until some point in the future. In the first instance, the limitation period will commence at the time when the loss is suffered, regardless of whether or not the plaintiff is aware of it or not, and in the latter case the time period will commence at some time in the future when the loss is capable of being ascertained.

The consequences of not being able to correctly identify limitation periods can be far-reaching and catastrophic to a plaintiff’s claim. What emerges from the authorities is that it is generally settled that loss or damage is suffered when it is ascertained, ascertainable or becomes inevitable. Until such time, loss or damage is merely prospective and may be contingent on subsequent events occurring. Limitation periods are also, of course, crucial for financial advisers, and it is therefore prudent for them to understand how limitation periods operate. It is particularly imperative for advisers to realise that as they will often have a continuing relationship with their clients, new breaches can occur and reset the limitation period.

Jan Saddler has practised extensively in professional negligence, commercial and financial services litigation and class actions litigation in Australia and England. She is a Partner and Manager of the Class Actions and Professional Negligence Teams at Shine Lawyers, Brisbane. EMAIL: professionalnegligence@shine.com.au.


[1] For equivalent sections in other Australian jurisdictions, see s14(1)(a) Limitation Act 1969 (NSW); s5(1)(a) Limitation of Actions Act 1958 (Vic); s35(a) Limitation of Actions Act 1936 (SA); s12(1)(a) Limitation Act 1981 (NT); s11(1) Limitation Act 1985 (ACT); s4(1)(a) Limitation Act 1974 (Tas); s13(1) Limitation Act 2005 (WA).

[2] Wardley Australia Ltd v Western Australia [1992] HCA 55; (1992) 175 CLR 514 at 536-7.



AustLII: Copyright Policy | Disclaimers | Privacy Policy | Feedback
URL: http://www.austlii.edu.au/au/journals/PrecedentAULA/2016/33.html