Commonwealth of Australia v Cornwell [2006] ACTCA 7

Court of Appeal (ACT)|2006-05-08|Before: Crispin P, North JJ, Higgins CJ

1. This is an appeal from a decision of Higgins CJ of 4 March 2005 in which his Honour held that the plaintiff/respondent had made out his claim for damages for economic loss flowing from a negligent misstatement by an officer of the Commonwealth. His Honour ordered that there be judgment for the plaintiff for damages to be assessed, and it is from this decision that the Commonwealth appeals. Although the appeal was brought in the ordinary form, counsel were in accord at the hearing of the appeal that, as the primary decision was of an interim nature - a finding of liability with damages to be assessed - the safer course would be to treat the primary decision as though it were interlocutory and, accordingly, the Commonwealth sought leave to bring the appeal. This was not opposed and leave was granted at the hearing.

2. The claim arises from events in the 1960s when the plaintiff was a young tradesman spray painter employed by the Commonwealth at the bus depot at Kingston in the Australian Capital Territory, and concerns what he says, and the primary judge found, was negligent advice given to him by the Manager of the Transport Section concerning his eligibility to join the Commonwealth Superannuation Fund (the Fund). It is common ground that under the legislation in place at the time, permanent members of the Australian Public Service were required to contribute to this Fund, and would become entitled to a pension upon retirement by reason of age or disability. It is common ground that at the time there were a number of persons employed by the Commonwealth Government in trades and labouring occupations who were not classified as permanent members of the Australian Public Service, and who accordingly were not required to contribute, and so did not become entitled to the retirement benefit. It is also common ground that there was provision under the legislation for such workers, termed "temporary" or "industrial" employees, to make application to and be accepted as members of the Fund.

3. It is the respondent's case that in July 1965 he made an appointment to see Mr Nelson Simpson, who was the Manager of the Transport Section of the Department of the Interior, and the senior officer in charge at the bus depot, to seek advice about becoming a member of the scheme. It is the respondent's case that his understanding was that as a temporary industrial employee, he had no entitlement to join the Fund, but that as a young tradesman who had recently married, he was concerned to obtain security for his future, and wished to join the Fund. It is also his case, and the learned trial judge found, that at that meeting Mr Simpson told him, "You are not entitled because you are an industrial and temporary employee, but I will see what I can do". The respondent says that he never received any further advice from Mr Simpson or any other senior officer and, accordingly, remained of the view that, as a temporary industrial officer he was not entitled to join the Fund. Many years later, in 1987, his position, by this time as a senior tradesman but still working with the bus network for Canberra, was reclassified as a permanent public service position, and he accordingly joined the Fund. He retired in 1994. In the period leading up to his retirement, he inspected his personnel file, and found on it documents indicating that Mr Simpson had generated some correspondence which could have lead to him being accepted into the Fund. His case is that he was never told of this, and that as a consequence of the negligent misstatement - being on his case an assertion that he could not join the Fund - he was kept out of membership of the Fund for many years, with the consequence that, upon his retirement in 1994 his entitlement to a retirement benefit was significantly lower than it would have been had he been a member of the Fund from 1965 or 1966.

The Limitation Act: When does a cause of action in negligence arise?

6. Section 11(1) of the Limitation Act relevantly provides that -

... an action on any cause of action is not maintainable if brought after the end of a limitation period of 6 years running from the date when the cause of action first accrues to the plaintiff or to a person through whom he or she claims.

7. It follows from this that, if the plaintiff's cause of action accrued at the time of the negligent misstatement in 1965, the action would have been statute barred when commenced in 1999. If the cause of action first accrued upon retirement in December 1994, it was brought within time.

8. His Honour found that the cause of action first arose upon retirement, because that is the point at which the negligent misstatement of 1965 first produced an actual loss. He said -

The fallacy, to which the defendant's argument succumbs, is that the loss is but potential until the plaintiff retired. Even in 1987, it could have been the case that superannuation benefits might have been so altered by the time of his retirement that the net result at the end of the plaintiff's period of service was "no loss". In any event, the loss could not be quantified until the plaintiff's retirement (see Wardley Australia Limited v The State of Western Australia [1992] HCA 55; (1992) 175 CLR 514 (indemnity - no loss until the indemnity is called on)).

9. It seems to us that his Honour's conclusion is correct. Counsel for the Commonwealth did not seek to maintain that the action first accrued at the time of the claimed misstatement, acknowledging that there is strong authority for the proposition that a cause of action in tort will not arise until at least some damage is suffered. As Brennan J said in Hawkins v Clayton (1987-1988) 164 CLR 539 at 561 -

Whether the raising of the Limitation Act in a case like the present is regarded as appropriate or not, the issue raises questions which depend on the answer to a technical question: when does a cause of action in tort for breach of a duty to disclose first accrue? The majority in the Court of Appeal held that such a cause of action first accrues when damage occurs irrespective of the claimant's knowledge (per Kirby P) or as soon as the wrongful act has caused some damage beyond what can be regarded as negligible: per Glass JA.

10. In accepting that a negligent misstatement must cause some damage beyond what can be regarded as negligible before the cause of action accrues, Mr Hanks QC, for the Commonwealth, pointed to a number of points of time when statutory modifications to the Commonwealth Superannuation Scheme would, he said, have had the effect of crystallising the respondent's damages. Without going into the somewhat intricate detail of the various manifestations of the Scheme, the difficulty with his argument is that, while it is true that, as the Scheme changed, persons who remained in the Scheme until retirement by way of age or disability would, depending upon their date of entry to the Scheme, qualify for different benefits, the entitlement to that benefit is contingent upon either serving until retirement age, or being accepted for retirement on the ground of disability. Under all of the variations of the Fund, a person who simply moved on from Commonwealth employment to alternative employment before retirement age would only become entitled to a return of their own salary contributions together with a fixed statutory interest amount. Such a person, who of course had lost the benefit of that money for the period of membership of the Fund, and the potential to invest that money, could hardly be said to have suffered a loss by reason of a diminished period of membership of the Fund. Indeed, they may well have been better off for being able to utilise their contributions for other purposes. The benefit of membership of the Fund only becomes apparent upon retirement (for age or accepted disability), because this entitles the member to the ongoing pension, which, it was common ground, would significantly exceed the value of the member's contributions.

11. Mr Hanks argued that, at the latest, the cause of action would have accrued when the respondent was accepted into membership of the Fund when he became a permanent employee in 1987. Again, it is true that it is possible to apply the tables and schedules to the Act in its various forms and conclude that a person who joins the Fund in 1987 will, upon retirement by reason of age or accepted disability, qualify for a significantly lower pension than a person who joined the Fund in 1965. But, it seems to us, actual loss accrues only upon the happening of a contingency, being retirement by reason of age or accepted disability, because this again is the contingency that triggers an entitlement to the ongoing pension, reflecting a significant and ongoing employer contribution. If the respondent had in 1987 elected to leave the bus depot and take up employment as a spray painter for a private bus company, what would his loss have been? If he had been a member of the Fund, he would upon leaving Commonwealth employment have received back his own contributions, plus the statutory interest. There is no evidence to suggest that this would have been of greater benefit than his ongoing use of those monies over the period from 1965 or 1966. Rather than have fortnightly salary deductions to the Fund, he may have used these monies to pay off his home mortgage or make other investments. It cannot, it seems to us, be assumed that, in these circumstances, being kept out of the Fund due to the claimed negligent misstatement caused him any economic loss, because by being kept out of the Fund he had available for his own use the monies that would otherwise have been deducted.

12. The situation would of course have been entirely different if he had been accepted for retirement by reason of age or disability. At this point, which on the facts here occurred in 1994, the loss becomes measurable and actual.

13. The proposition that a cause of action on negligent misstatement accrues when actual damage occurs is consistent with authority. In Wardley v Western Australia the Court (Mason CJ, Dawson Gaudron and McHugh JJ said (at 527) -

When a plaintiff is induced by a misrepresentation to enter into an agreement which is, or proves to be, to his or her disadvantage, the plaintiff sustains a detriment in a general sense on entry into the agreement. That is because the agreement subjects the plaintiff to obligations and liabilities which exceed the value or worth of the rights and benefits which it confers upon the plaintiff. But, as will appear shortly, detriment in this general sense has not universally been equated with the legal concept of "loss or damage". And that is just as well. In many instances the disadvantageous character or effect of the agreement cannot be ascertained until some future date when its impact upon events as they unfold becomes known or apparent and, by then, the relevant limitation period may have expired. To compel a plaintiff to institute proceedings before the existence of his or her loss is ascertained or ascertainable would be unjust. Moreover, it would increase the possibility that the courts would be forced to estimate damages on the basis of likelihood or probability instead of assessing damages by reference to established events. In such a situation, there would be an ever-present risk of undercompensation or over-compensation, the risk of the former being the greater.

14. Their Honours undertook an extensive review of English authorities which were said to support the proposition that a cause of action in misrepresentation accrues when the plaintiff enters into an arrangement by reason of the misrepresentation, even where damage is contingent on future events. They said (at 532) -

If, contrary to the view which we have just expressed, the English decisions properly understood support the proposition that where, as a result of the defendant's negligent misrepresentation, the plaintiff enters into a contract which exposes him or her to a contingent loss or liability, the plaintiff first suffers loss or damage on entry into the contract, we do not agree with them. In our opinion, in such a case, the plaintiff sustains no actual damage until the contingency is fulfilled and the loss becomes actual; until that happens the loss is prospective and may never be incurred.

15. In our opinion, the trial judge properly applied this principle in holding that, until the respondent retired from the Commonwealth Public Service on 31 December 1994, his loss flowing from the negligent misrepresentation that on his claim kept him out of the Fund from 1965 to 1987, was contingent and not actual, and that accordingly his cause of action first accrued upon his retirement, with the consequence that the action for damages for misrepresentation was not statute barred.

16. We note that in Wardley v Western Australia the High Court indicated that this approach, as well as being sound in legal analysis, better advances justice. At 533 their Honours said -

The conclusion which we have reached is reinforced by the general considerations to which we referred earlier. It is unjust and unreasonable to expect the plaintiff to commence proceedings before the contingency is fulfilled. If an action is commenced before that date, it will fail if the events so transpire that it becomes clear that no loss is, or will be, incurred. Moreover, the plaintiff will run the risk that damages will be estimated on a contingency basis, in which event the compensation awarded may not fully compensate the plaintiff for the loss ultimately suffered. These practical consequences which would follow from an adoption of the view for which the appellants contend outweigh the strength of the argument that the principle applicable to the cases in which the plaintiff acquires property (or a chose in action) should be extended to cases where an agreement subjects the plaintiff to a contingent loss. In such case, it is fair and sensible to say that the plaintiff does not incur loss until the contingency is fulfilled.

17. In this case, on the assumption that the words found by his Honour to have been said were said and, as his Honour found, amounted to a negligent misrepresentation, the respondent's case was that this representation had led him to believe that, contrary to the law and established practice, he was not and could not become eligible to join the Fund. On his case, he did not become aware that this was a misrepresentation until about the time of his retirement when he inspected his personnel file. It seems to us that, consistently with the principle in Wardley v Western Australia, where a negligent misrepresentation causes a plaintiff to refrain from taking an action which, dependent upon a later contingency, may subject him to a significant loss, the cause of action does not accrue until the occurrence of that contingency, which in this case was his retirement at the end of 1994.

18. There are abundant examples of the application of this principle. In Vulic v Bilinsky [1983] 2 NSWLR 472 at 485, Miles J held that in an action for professional negligence against a firm of solicitors, the action accrues only when the damage becomes actual rather than potential. In Christopoulos v Angelos (1996) 41 NSWLR 700 an action against solicitors concerning failure to notify a purchaser of property of a right of way was held, following Wardley v Western Australia, to not accrue "until actual damage was incurred" (per Cole JA at 711). In Registrar-General v Cleaver (1996) 41 NSWLR 713 the Registrar-General appealed a primary finding of negligence for failure to properly register a covenant in 1967 on a Limitations Act point. The Court of Appeal rejected the argument that the action accrued at the time of the negligent failure to register, relying on Wardley v Western Australia for the proposition that the action accrues when damage occurs. The legal principle to be applied was succinctly stated by Clarke JA (at 718-719) as follows -

A cause of action ...arises when a person suffers loss or damage consequent upon a relevant omission. Accordingly loss or damage is an essential ingredient of the cause of action. It follows that, prior to the suffering of the relevant loss or damage, there is no complete cause of action. Consequently the search for the time of the accrual of the cause of action focuses on the date at which the respondents first suffered loss or damage. Once loss has been suffered the cause of action accrues and time starts to run.

I also agree generally with the views of Clarke JA in relation to this matter. As the cases show where an alleged loss is purely economic its existence, causation and assessment can all present difficult problems: Sellars v Adelaide Petroleum NL [1994] HCA 4; (1992) 179 CLR 332 at 348. That decision and the earlier decision in Wardley Australia Limited v State of Western Australia [1992] HCA 55; (1992) 175 CLR 514 would support the view that loss or damage under s 127 of the Real property Act 1990 is the gist of the statutory cause of action. An applicant can only recover compensation for actual loss or damage incurred as distinct from potential or likely damage.

20. In Tanna v Deutsche Bank (Asia) AG (unreported, NSW Supreme Court Equity Division, 5 September 1996), Hodgson J applied the conventional reasoning to hold that a Limitation Act defence did not lie, and observed that -

In some future case, it may be necessary to spell out in greater detail the relationship between the principle in Wardley and that in Sellars v Adelaide Petroleum_. It would seem that, if one can characterise an economic disadvantage suffered by the plaintiff as involving the loss of a commercial opportunity which has some value, then that will be enough to constitute actual damage and complete a cause of action (Sellars). However, if the economic disadvantage is no more than a contingency for future loss, then, unless and until the contingency occurs, there is no damage and no cause of action (Wardley)._

21. It seems to us that the learned trial judge correctly applied these principles in the present case, and that the conclusion he reached was the correct one. In an action for negligent misstatement, where what is complained of is advice that had the effect of keeping a plaintiff out of a superannuation fund, the cause of action accrues only when damage is suffered, and the nature of this fund, it seems to us, was that until a person reached a point in his or her life where he or she could be accepted for retirement by reason of age or disability, it would not be possible to show that damage had been suffered. His Honour noted that this was the same approach adopted by Heerey J in Mulcahy v Hydro Electric Commission (1998) 85 FCR 170, where the plaintiffs were complaining of a loss of a right to contribute to a pension scheme. In that case Heerey J said (at 245) -

All causes of action in the present case accrued when each applicant's employment was terminated. For causes of action for breach of statutory duty or in tort, it was only then that the applicant lost the right to elect to contribute to the RBF Scheme and thereby suffered damage.

22. We are satisfied that his Honour applied the appropriate test and came to the correct conclusion that this cause of action was not statute barred. We make the observation that in Murphy v Overton Investments Pty Ltd [2004] HCA 3, 204 ALR 26, the Court (Gleeson CJ, McHugh, Gummow, Kirby, Hayne, Callinan and Heydon JJ) noted that the onus of establishing that a claim is statute barred by reason of a Limitations Act defence lays on the party pleading the defence, in this case the appellant. We are not satisfied that this onus has been discharged, but find rather that the cause of action did not accrue until the respondent's retirement and, accordingly, would not be statute barred.

23. The appellant challenges the learned trial judge's findings of fact in relation to the statement that was said to amount to the negligent misstatement. His Honour at [6]-[7] found that after the respondent had been told by a fellow worker, a leading hand mechanic, that temporary industrial workers were not able to join the superannuation fund, he felt aggrieved. His Honour found that -

Consequently, he made an appointment to see Mr Simpson. He met with him at work during July 1965. He asked Mr Simpson,

I would like to know about the superannuation situation. I can't understand why we are not entitled to it.

That's right. You're not entitled to it because you are an industrial and temporary employee, but I will see what I can do.

That information was repeated several times at that meeting but Mr Simpson did not subsequently inform the plaintiff of any further developments.

24. There is of course no question that an intermediate appellate court such as this can overturn findings of fact by a trial judge, despite the advantage the trial judge undoubtedly has in relation to having seen the witnesses give their evidence at trial. As the High Court restated in Fox v Percy [2003] HCA 22, 214 CLR 118) at [27], 127, such an advantage -

did not, and could not, derogate from the obligation of courts of appeal, in accordance with legislation such as the Supreme Court Act applicable in this case, to perform the appellate function as established by Parliament. Such courts must conduct the appeal by way of rehearing. If, making proper allowance for the advantages of the trial judge, they conclude that an error has been shown, they are authorised, and obliged, to discharge their appellate duties in accordance with the statute.

(Per Gleeson CJ, Gummow and Kirby JJ) (see also CSR Ltd v Della Maddalena [2006] HCA 1 at [20]- [23].)

25. The respondent does not cavil with these propositions, but submits that the learned trial judge's findings were correct and appropriate on all of the evidence, and that there is nothing that would justify this Court intervening.

26. The respondent's evidence at the hearing was subject to cross-examination, but he maintained the thrust of his evidence that he was told that he was not "entitled", or, at one point in response to counsel for the Commonwealth's introduction of the word, "eligible" for superannuation, but that Mr Simpson would "see what I could do". Clearly, the trial judge accepted the respondent as a witness of truth, as he was entitled to do.

27. However, even honest witnesses can be mistaken, and this conversation occurred nearly 40 years before the evidence was given at the hearing in August 2004. His Honour had before him, however, a document found on the respondent's personnel file that, it was common ground, seemed to be a note on the back of a "bunch of dates" style desk top calendar bearing the date Monday 12 July 1965. The note appears in the Appeal Book and reads -

Superannuation

John Griffith Cornwell

No 6960. Spray Painter

45 Elizabeth Cres

Queanbeyan

Married

Age 26 Years ( born 12-4-39)

Started May 1962

28. In cross-examination the respondent said that during the interview he saw Mr Simpson writing on a desk calendar. The note certainly bears his correct date of birth, home address at the time, and his then work telephone number.

29. This material, it seems to us, is consistent with the respondent's assertion that he had a meeting with Mr Simpson in mid 1965 to discuss the topic of superannuation entitlements.

30. There is also a letter dated 27 July 1965 found on the respondent's personnel file and reproduced at 409, which reads:

The Staff Clerk

Personnel Sub Section

Superannuation:- John Griffith CORNWELL

No 6960 - Spray Painter

Mr Cornwell, of 45 Elizabeth Crescent Queanbeyan, commenced duty in May 1962 and is the only Spray Painter employed by this Section. There is every indication that he will be thus employed for an indefinite period.

He is 26 years of age (date of birth 12.4.39) and is married.

NA Simpson

31. This letter, it seems to us, is entirely consistent with the respondent's recollection that Mr Simpson (who died some years ago and so was unable to give evidence), did say words to the effect, "I'll see what I can do", because it seems that he did in fact initiate a process that, had it been carried through, could have lead to the respondent's acceptance into the Fund.

32. It was the respondent's evidence, uncontradicted by any oral evidence or contemporary documents, that he was never told of this letter.

33. It seems to us that the findings of fact by the trial judge were not only open to him but, on all the evidence, were clearly the correct findings on the balance of probabilities. The respondent's evidence was uncontradicted and was consistent with contemporary records that indicated that he had had a meeting with Mr Simpson at which superannuation was discussed, and that Mr Simpson did in fact initiate a process to advance a case for the respondent to join the Fund which is entirely consistent with his recollection that Mr Simpson said he would see what he could do.

34. We are satisfied that there was no error in the learned trial judge's findings of fact.

Did the statement amount to a negligent misstatement

35. His Honour found, correctly in our view, that the statement by Mr Simpson that the respondent was not entitled to join the Fund, but that he (Mr Simpson) would see what he could do, amounted to a negligent misstatement.

36. The true position, under the relevant legislation as it then stood, was that, while permanent members of the Australian Public Service were required to join the Fund, other employees could make application to the appropriate authority to be deemed an eligible employee. If refused, they could make application to the Commonwealth Treasurer. There was abundant evidence before the learned trial judge to show that, through the late 1940s, 1950s and 1960s up to the relevant time, many such applications were made, and accepted.

37. Moreover, there was evidence referred to by the trial judge of the various efforts made over those years by Commonwealth authorities to bring this to the attention of both individual employees and agencies. His Honour referred to efforts by Mr Ben Chifley, then Commonwealth Treasurer, to permit suitably qualified industrial employees to join the Fund and also referred to a notification by the Treasury Department in June 1949 to other Departments requesting them to notify all temporary employees of their rights after five years of continuous employment. There were similar circulars and notifications over the years.

38. The learned trial judge set out this history in [14]-[21] of his reasons.

39. It is clear that guidelines were developed within the Commonwealth for the exercise of the discretion pursuant to s 4(5)(b) of the Superannuation Act 1922 (Cth) to permit temporary employees to join the Fund. His Honour noted that when first introduced in 1942, it applied only to employees who had been employed for a period of five years, and who were likely to continue to be so employed for an "indefinite period". As his Honour noted at [27] of his reasons, the reference in Mr Simpson's letter of July 1965 stating that the respondent was likely to remain employed for an "indefinite period" was probably written with this in mind.

40. The learned trial judge found that, following this letter, a questionnaire dated 6 September 1965 was apparently generated by the Assistant Director (Establishments) and sent to the Transport Manager, which was Mr Simpson's position. This refers to an "application" by the respondent to join the Fund, and requests answers to a series of questions. There is no record of this ever being filled in or brought to the respondent's attention. His uncontradicted evidence was that he had no knowledge of this document.

41. It seems to us that his Honour's findings that the advice given was wrong and amounted to a negligent misstatement is correct. The respondent was a junior employee, a recently qualified tradesman. He sought an interview with the Transport Manager to seek advice about his entitlement to join the Fund. The correct position, as evidenced by various letters and circulars from Treasury to Departments, was that he could apply and join the Fund if certain criteria were established. He was not told this. He was not referred to the appropriate agency within the Commonwealth Public Service (either Treasury or the Public Service Board) to take advice. He was not referred to the Staff section within the bus depot. Counsel for the appellant at one point suggested that it was outside Mr Simpson's authority to advise on such matters, and the respondent should have asked the staff clerk. He may well have got better advice, but it seems to us that it was entirely appropriate for the respondent to have sought an interview with the Transport Manager, his overall supervisor, to seek advice on a matter relating to his terms and conditions, and to have relied on the erroneous advice given.

42. It was clear that, had Mr Simpson made appropriate enquiries, he could have obtained the clear information to advise the respondent of his rights. Instead, on the findings of the trial judge, which we endorse, he told the respondent that he was not eligible or entitled to join the Fund because he was a temporary industrial employee, but that he, Mr Simpson, would see what he could do. In reliance on this advice, the respondent did nothing, and assumed that, because Mr Simpson never came back to him, the original assertion, that he could not join the Fund because of his employment status, remained the case.

43. It seems to us on all of the evidence that the statement was misleading, and that, given the material showing efforts made to inform agencies of the entitlements of employees, it was negligent of Mr Simpson as the manager of this section, to have given the misleading advice.

44. Accordingly, we would dismiss the appeal.

45. Although the issue of contributory negligence was pleaded it was not agitated on the appeal. It seems to us that issues may arise during the damages assessment as to whether the respondent failed to mitigate any loss by reason of either not taking up alternative superannuation arrangements, or failing to make any further enquires, but this will of course be a question to arise on the evidence at the assessment hearing.

46. Given that we are satisfied that the appeal should be dismissed, it is unnecessary and inappropriate to determine the contention by the respondent that the learned trial judge erred in failing to hold that there was a general duty on a supervisor to fully explain an employee's terms and conditions of employment. Such a contention was also dismissed by Heerey J in Mulcahy v Hydro Electric Commission.

47. The appeal should be dismissed with costs.

I certify that the preceding forty-seven (47) numbered paragraphs are a true copy of the Reasons for Judgment herein of the Court.

Counsel for the appellant: Mr P Hanks QC and Dr C Ward

Solicitor for the appellant: Australian Government Solicitor

Counsel for the respondent: Mr B Walker SC, with Mr J Gordon

Solicitor for the respondent: Snedden Hall & Gallop

At a glance

Court

Decision date

Before

Source

Judgment (43 paragraphs)

Parties

Cases Cited (6)