WHEN DOES THE CAUSE OF ACTION ACCRUE?
February 22, 2018
In its recent decision in Bodycorp Repairers Pty Ltd v Holding Redlich  VSCA17, the Victorian Court of Appeal provided a useful summary of the principles to be applied in determining when a cause of action for economic loss accrues.
The appellant entered into franchise agreements with a number of franchisee panel beater shops. In 1997, it entered into an agreement with an insurer under which its franchisees would be granted ‘Recommended Repairer’ status.
The appellant alleged it engaged the respondent to draft appropriate agreements, including a restraint of trade clause such that, if any of its franchisees terminated a franchisee agreement, the insurer would not trade with that franchisee for six months.
A number of franchisees subsequently terminated their agreements with the appellant. The appellant alleged that the insurer did not revoke the ‘Recommended Repairer’ status of those franchisees. The appellant sued the insurer, alleging that it contravened the restraint of trade clause. Those proceedings were unsuccessful, it being held that the restraint clause was unenforceable.
The appellant then sued the respondent, alleging negligence in the drafting and preparation of the agreements with the franchisees and the insurer.
The respondent applied for summary judgment, including on the basis that the claim was statute barred by reason of s5 of the Limitation of Actions Act 1958 (Vic). That application was successful at first instance. The appellant sought leave to appeal the decision.
Issue for determination
The issue to be determined was whether the cause of action in negligence accrued outside of the applicable limitation period. The Court stated that a cause of action in negligence accrues when the plaintiff first suffers damage caused by the defendant’s breach of duty. It said that in Australia, there is no overriding qualification to this requirement based upon when the plaintiff discovers the damage, or could with reasonable diligence have discovered the damage. In this case, which involved a claim for pure economic loss, the issue raised concerned the position where the economic damage was, or was said to be, suffered upon the occurrence of a contingency.
Principles applicable in determining when cause of action accrues
The Court stated that the High Court had set out the principles applicable in determining when a cause of action in negligence for economic loss accrues, as follows:
- The cause of action accrues when damage is first suffered, regardless of whether the damage is then discovered or discoverable;
- Where detriment is suffered as a result of entering into an agreement:
- loss and damage may be suffered immediately in some circumstances, such as where an asset is acquired at a price above its true value;
- however if the detriment is exposure to a loss which will only be suffered if events transpire in a particular way, loss and damage will not be suffered until those events do so occur;
- In determining whether loss and damage is suffered it is necessary to:
- analyse the facts in the particular case;
- identify the economic interest of the claimant which allegedly has been infringed; and
- have regard to the pleaded loss and damage claimed.
The Court said that the authorities relied upon by the parties, which it analysed in detail, should probably be seen as particular applications of the above principles.
Identifying interest infringed
The Court held that it was first necessary to analyse the pleaded claim and identify the precise interest infringed by the alleged negligent act or omission.
The loss and damage the appellant claimed as a result of the respondent’s alleged negligence included that but for the respondent’s negligence, the appellant would have been able to successfully sue the insurer to enforce its agreement with it, and recover damages equal to the loss and damage it allegedly suffered by reason of the insurer’s alleged breaches of that agreement.
The appellant contended that it did not suffer loss and damage until 2013, when judgment was delivered in its proceeding against the insurer in which it was held that the restraint clause was unenforceable. It said that it could not have sued the respondent before the Court’s determination of the restraint’s enforceability because its loss was until then ‘in futuro’.
However, the Court said that the appellant’s purpose in seeking the trade restraint was to create a position where it would have at least six months in which to replace an outgoing franchisee without that new franchisee having to compete with another ‘Recommended Repairer’ during that time. It said that the relevant interest was therefore to preserve the appellant’s income‑stream from franchisees. The Court found that if (as alleged by the appellant) this interest was infringed, and damage was suffered by the appellant, this occurred when franchisees left in 1998 and the insurer allegedly did not comply with the restraint clause, and then asserted it was unenforceable.
The Court therefore upheld the primary judge’s decision that because the appellant’s proceeding was not instituted until 2016, it was outside of the six year limitation period.
This decision provides a useful guide for determining when a cause of action for economic loss accrues, and therefore when the relevant limitation period begins to run.
The decision also highlights the importance, when doing so, of identifying precisely what interest is infringed by the alleged negligent conduct of the defendant.
Authored by Greg King, Special Counsel, Melbourne
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