When does a cause of action accrue?
26 Sections 236(2) and 237(3) require identification of when "the cause of action that relates to the conduct accrued". The provisions do not turn on whether loss or damage continues to be suffered within the period of six years before the action is commenced, but when the cause of action giving rise to actual loss or damage arose. A respondent's misleading conduct might give rise to continuing losses, as is alleged in the present case, but the question is when the cause of action accrued.
27 Nestle relied heavily on the decision of the High Court in HTW Valuers (Central QLD) Pty Ltd v Astonland Pty Ltd (2004) 217 CLR 640. HTW Valuers concerned a claim by an applicant who had purchased a shopping arcade relying upon what was said to have been misleading advice as to the effect of a competing shopping centre which was under construction nearby. The issue in the case was the correct measure of damages, not any limitation issue. The High Court held that the loss was suffered upon acquisition of the shopping centre because the market value of what was acquired was less than the price paid. The case was concerned therefore with the acquisition of property at a price which did not reflect its true market value. At [28], the Court explained that the limitation period under the predecessor to s 236(2) of the ACL (s 82(2) of the Trade Practices Act 1974 (Cth) (TPA 1974) which provided a limitation period of 3 years) had started to run from the date of the purchase (footnote omitted):
The plaintiff's endeavour to support the reasoning of the courts below must fail, because the first criticism of that reasoning made by the defendant is unquestionably correct and sufficient to undermine it entirely. If the plaintiff had learned the day after entering the contract to buy the Plaza, or the day after completing that contract, that the defendant's conduct had been misleading in the sense ultimately found by the trial judge, it could have started proceedings then and there. There was unchallenged evidence from Mr Dodds that on either of those dates the plaintiff was in fact worse off as a result of the defendant's breach, since the market value was less than the price. It was not necessary to wait for nearly two years to ascertain that some loss had been suffered. The plaintiff could have found out at once that it had bought something which was worth less than that which it had agreed to pay and did pay. It could have recovered at least the difference between the price paid for, and the market value of, the Plaza. The limitation period would have begun to run.
28 For reasons I will come to, it is important to note that the basis of the Court's decision is that it was possible to ascertain that loss had been suffered as soon as the acquisition occurred. That loss was the difference between the market value and the price paid. The Court expressly observed in the passage just set out that it was "not necessary to wait for nearly two years to ascertain that some loss had been suffered".
29 Nestle submitted that, for the purposes of s 236(2) and 237(3), the cause of action accrues when damage is first suffered, regardless of whether the damage is then discovered or discoverable. For this proposition, Nestle referred to Bodycorp Repairers Pty Limited v Holding Redlich [2018] VSCA 17 at [181], in which the Victorian Court of Appeal stated:
It seems to us that the High Court has set out the principles which are applicable here and that the other authorities relied upon should properly be seen as particular applications of those principles. The principles are:
1. The cause of action accrues when damage is first suffered, regardless of whether the damage is then discovered or discoverable: Hawkins v Clayton.
2. Where a detriment is suffered as a result of entering into an agreement:
(a) loss and damage may be suffered immediately in some circumstances, such as where an asset is acquired at a price above its true value: HTW Valuers;
(b) 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: Wardley, Murphy.
3. In determining when loss and damage is suffered it is necessary to:
(a) analyse the facts of the particular case: Wardley;
(b) identify the economic interest of the claimant which allegedly has been infringed: Hawkins v Clayton, Wardley; and
(c) have regard to the pleaded loss and damage claimed: Wardley.
30 Nestle's submission that a cause of action accrues when damage is first suffered, regardless of whether the damage is then discovered or discoverable, is not accurate if intended as a universal proposition. The reference by the Victorian Court of Appeal in Bodycorp to Hawkins v Clayton (1988) 164 CLR 539 in the Court of Appeal's first proposition makes clear that the Court was intending to summarise the High Court's decision in Hawkins v Clayton. Hawkins v Clayton concerned the negligent failure of solicitors to locate the executor of a deceased person's will. During the period it took to notify the executor, the main asset of the estate, a house, fell into disrepair. The High Court accepted that, in the ordinary case of breach of duty to disclose, the cause of action in negligence accrues when damage is first suffered, regardless of whether the damage is then discovered or discoverable. But it was not said to be true of all cases and was not necessarily true in Hawkins v Clayton itself. Brennan J (at 562) held that, in the circumstance, the cause of action did not accrue until after damage was suffered; it was the nominated executor's assumption of office which was held to be the final temporal element for the cause of action to accrue. Gaudron J (at 599-602) held that, although the assets had diminished in value, it was not until the assets came under the executor's control that damage was suffered by him and the cause of action was complete. Deane J (at 589) held that, notwithstanding that the negligent failure to inform the executor of the existence of the will caused damage, the cause of action did not accrue until after the period in which the wrongful act itself precluded bringing the proceedings; the wrongful act precluded bringing the proceedings because the wrongful act effectively concealed the existence of the cause of action.
31 In Hawkins v Clayton, the High Court rejected a submission that there was an overriding qualification in tortious economic loss cases that the cause of action only accrues when loss is discovered or discoverable. The Court's rejection of the overriding qualification does not mean that there cannot be a case in which the cause of action only accrues when some actual adverse consequence is known or becomes manifest. Further, it has no relevance to a situation where damage is not in fact suffered until a contingency is fulfilled. These points about Hawkins v Clayton were explained by Deane J in Wardley at 540 in the following way (footnotes omitted):
In Hawkins v Clayton, a majority of the Court implicitly or explicitly rejected a submission that the Court should recognize a general overriding qualification of the prima facie position that a requirement of loss or damage as an ingredient of a cause of action is satisfied as soon as relevant loss or damage is in fact sustained. That suggested qualification was to the effect that, at least in the case of claims in negligence for damages for economic loss, time under a limitations provision does not commence to run until the stage is reached when the plaintiff discovers, or could on reasonable inquiry have discovered, that the loss has been sustained. If such a broad overriding qualification had been adopted in relation to such claims, reasoning by analogy would have lent strong support for the conclusion that, in a case such as the present where the action under s 82(1) is for damages for economic loss caused by misleading conduct in contravention of s 52 of the Act, time does not commence to run until the plaintiff knows or reasonably ought to know that the relevant conduct has in fact caused loss. The Court's rejection of such an overriding qualification does not, however, alter the fact that, in some of the cases where an action lies in negligence for pure economic loss, no relevant loss is actually sustained or suffered and no cause of action for damages accrues unless and until some actual adverse consequence of the negligence is known or becomes manifest. Nor does the rejection of such a qualification provide, by analogy or otherwise, a general answer to the question whether the mere incurring of a contingent liability to make a future payment of itself constitutes loss or damage for the purpose of determining when a cause of action of which loss or damage is a necessary ingredient accrues or arises.
32 In Wardley, the State of Western Australia gave an indemnity to a bank, but the cause of action did not accrue on the day the indemnity was given; rather, the loss was only suffered once a contingency was fulfilled, such as a claim being made on the indemnity. It was unnecessary for the Court to identify the precise time when the cause of action accrued because all of the potentially relevant dates after execution of the indemnity were within the three-year time limit.
33 Brennan J (at 536-7) made some general observations of some relevance to the present case. His Honour said that, in a situation where the question of whether loss or damage is actually suffered depends upon a transaction involving both potential benefit and detriment, it cannot be said that a loss has been suffered until events occur which mean that an 'adverse balance' has been struck (footnote omitted):
The cause of action created by s 82(1) has several elements, but it is a cause of action for the recovery of money representing loss or damage suffered by the plaintiff - "the amount of the loss or damage". The loss or damage includes, of course, economic loss or damage which the plaintiff suffers. A plaintiff may suffer economic loss or damage in a number of ways: by payment of money, by transfer of property, by diminution in the value of an asset or by the incurring of a liability. Whether loss or damage is actually suffered when any of those events occurs depends on the value of the benefit, if any, acquired by the plaintiff by paying the money, transferring the property, having the value of the asset diminished or incurring the liability. If the plaintiff acquires no benefit, the loss or damage is suffered when the event occurs. At that time, the plaintiff's net worth is reduced. And that is so even if the quantification of that loss or damage is not then ascertainable. But if a benefit is acquired by the plaintiff, it may not be possible to ascertain whether loss or damage has been suffered at the time when the burden is borne - that is, at the time of the payment, the transfer, the diminution in value of the asset or the incurring of the liability. A transaction in which there are benefits and burdens results in loss or damage only if an adverse balance is struck. If the balance cannot be struck until certain events occur, no loss is suffered until those events occur.
The quantification of the diminution in value of an asset or of a liability incurred or the value of any benefit acquired may not be ascertainable at the time when the burden of the transaction is borne. In that event, the suffering of any loss cannot be said to occur before it is reasonably ascertainable (not before it is ascertained) that the burdens which the plaintiff has borne are greater than the value of the benefits that the plaintiff has acquired or will acquire. In other words, 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".
34 Brennan J observed that a loss could be suffered upon entry into an agreement if loss was inevitable regardless of extrinsic circumstances, but if the loss depends on extrinsic circumstances, the loss will not be suffered until those circumstances have occurred. His Honour said at 537-8 (footnotes omitted):
There is a sense in which it is right to say that, when a misrepresentation induces a plaintiff to enter into a transaction in which the plaintiff suffers a loss, the loss is suffered once the plaintiff becomes bound to the transaction. The die is then cast and what follows can be viewed as evidence proving the extent of the loss suffered when the first binding step was taken. That may be the correct analysis when the first binding step is such that, whatever extrinsic circumstances may transpire, a loss must be suffered. For example, when an asset is purchased for a price and, by reason of an inherent defect, it is worth less than the price paid, a loss may be said to be suffered when the plaintiff pays the price or becomes bound to pay the price. Similarly, when an agreement imposes on a plaintiff an obligation to pay an amount of money without acquiring a benefit and the amount to be paid is quantified by no factors extrinsic to the agreement save the passing of time, it is right to say that the loss is suffered when the agreement to pay becomes binding on the plaintiff. But when the actual loss that a plaintiff suffers depends not only on the making of an agreement but also on circumstances extrinsic thereto, the loss is not suffered until those circumstances have transpired and, in benefit and burden cases, not until the loss is ascertainable.
35 An example of the kind of situation about which Brennan J was speaking in Wardley is presented by the decision of the Full Court in Karedis Enterprises Pty Ltd v Antoniou (1995) 59 FCR 35. Mr and Mrs Antoniou (the lessees) had leased premises from which they intended to conduct a cafe. They traded a little over two years. The lessees claimed damages under s 82(1) of the TPA 1974, amongst other things for misrepresentations as to the likely takings. The trial judge found the lessors had contravened s 52 of the TPA 1974 and awarded damages. The damages included trading losses. The trial judge held that the lessees were obliged to wait at least 12 months to see if the takings forecasts were realised before they could show misrepresentations which might found their action, such that the actions did not accrue until 12 months after the lessees had started trading. The lessors appealed on bases which included that the trial judge should have found the proceeding to be statute barred.
36 Burchett and Hill JJ (with whom Sackville J agreed) remitted the matter to the trial judge to determine when loss or damage was first suffered, observing that it was not necessarily when the contract was entered into but concluding that the trial judge was also not correct to conclude that it was necessarily 12 months after trading commenced. Their Honours found that, when the lease was entered into, there was the potential for loss and damage, but that the lessees could only have suffered actual loss and damage when the disadvantageous character of the lease was ascertained or ascertainable by reference to the receipts and outgoings of the business over time. Their Honours said at 42:
The present is a case where the mere entry into the lease produced only a situation where the Antonious had the potential to suffer loss. That loss could only be calculated by reference to receipts and outgoings of the business over time. Certainly it could not be said at the time the lease was entered into that they had actually incurred loss or damage as distinct from potential or likely damage. In the language of the majority in Wardley:
"... the disadvantageous character or effect of the agreement [could not] be ascertained until some future date when its impact upon events as they unfold[ed] [became] known or apparent ... It was only when their loss was ascertained or ascertainable that it could be said that they had suffered loss."
37 Of the trial judge's view that the cause of action could not accrue for a period of 12 months, their Honours stated at 43:
His Honour's conclusion as expressed seems to have depended upon an obligation that the Antonious wait at least 12 months to see if the projections regarding takings were realised. With respect to his Honour it is difficult to see how any such inflexible rule could be applied. The question for determination in a case such as the present, consistent with the views expressed by their Honours in the High Court in Wardley, will be when was it that the loss which the Antonious ultimately suffered (or a more than negligible part of it) was either ascertained by them or reasonably ascertainable? No question in the present case arises as to the point of time at which the loss was in fact ascertained. Essentially therefore the question was an objective one, namely, at what time could it be said that it was reasonably ascertainable that the Antonious would suffer loss. This was a question of fact to be determined by reference to the trading figures of the cafe business. It is not a question which could be resolved by reference to an arbitrary period of 12 months.
On the figures prepared by counsel for the Antonious, it would seem likely that by some time before December it was reasonably manifest that the cafe business would never take anything like the represented weekly takings and that each week losses would continue to be incurred which were unlikely ever to be made up. However, it would also be necessary to take into account both the advice given by the accountant and the fact that from at least June rental ceased to be paid.
38 Sackville J agreed with Burchett and Hill JJ and made some further observations of potential relevance to the present case. At 45-46, his Honour set out the following passage from the majority judgment in Wardley at 527:
The reasoning of the Court does, however, support the proposition that, at least in the case where the disadvantageous character of a transaction cannot be ascertained at the outset, a loss is not sustained until the plaintiff or applicant ascertains, or has the means available to ascertain, that he or she has been prejudiced by entry into the transaction. Potential loss is not enough. The judgment of the majority says this (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 …"
39 At 46, Sackville J observed:
This passage suggests that, where the applicant has been induced by misleading and deceptive conduct to enter a lease, as in the present case, no loss is sustained unless and until the existence of the loss is ascertained or ascertainable by the applicant. The significance of "events as they unfold" is that they bring home, or should bring home, to the lessee that the obligations imposed by the lease exceed the value of any offsetting benefits, such as the lessee's entitlement to conduct a business on the leasehold premises. It would seem that a loss is not sustained simply because evidence given at a subsequent hearing demonstrates, with the benefit of hindsight, that the prejudice or disadvantage in fact sustained by the lessee after taking possession and paying rent outweighed any offsetting advantage.
40 At 48, Sackville J said:
Whatever the position in relation to the acquisition of an asset, the present is a case where the Antonious obtained both advantages and disadvantages from the lease transaction, which they were induced to enter by the appellant's misleading conduct. It was not the entry into the lease which of itself produced the loss. The lease may have enabled the lessees to pursue a profitable undertaking. The losses claimed by the Antonious flowed from the pursuit of a particular business which they were encouraged to undertake by the appellants' representations. Only when the course of events allowed the lessees the opportunity to ascertain that the business could not succeed was loss sustained in the relevant sense.
In a case of this kind, in order to determine whether loss had been sustained at a particular stage after the lease had been entered into, I think it is necessary to inquire whether the lessees had ascertained, or could reasonably have ascertained, that they were worse off than if they had not entered into the transaction. In the circumstances of the present case, it is difficult to see how the Antonious, acting reasonably, could have failed to ascertain by the second half of 1989 that they had sustained losses in the relevant sense. However, I agree that the matter should be remitted to his Honour to make findings of fact on the issue.
41 These observations emphasise that, in cases of which the present is a potential example, the cause of action for losses arising from misleading or deceptive conduct does not necessarily accrue on entry into the relevant contract or on commencement of trading.