Michell v Onroad Offroad Pty Ltd [2018]: A Case Study

Michell v Onroad Offroad Pty Ltd [2018]: A Case Study

Under Section 5(1)(a) the Limitation of Actions Act 19578 (Vic) (“the Act”) a party is barred from bringing an action in contract, including contract implied in law, more than six years after the date on which the cause of action arose.

A cause of action for breach of contract arises at the date on which a party to a contract commits the breach. By way of example:

  1. A and B enter into a contract (“the Contract”);
  2. B breaches the Contract on 20 November 2019 (“Breach Date”);
  3. A’s cause of action arises on the Breach Date; and
  4. A’s entitlement to bring an action against B for the breach terminates on 20 November 2025, exactly six years after the Breach Date.

The restriction imposed by Section 5(1)(a) is, in most cases, fatal to the claim of a potential litigant seeking to bring an action after the limitation period has elapsed. Using the above example, A would be barred from bringing an action against B as of 21 November 2025.

An exception to the restriction imposed by Section 5(1)(a) is contained in Section 24(3)(b) of the Act which states as follows:

“Where any right of action has accrued to recover any debt or other liquidated pecuniary claim or any claim to the personal estate of a deceased person or to any share or interest therein and the person liable or accountable therefore acknowledges the claim or makes any payment in respect thereof – the right shall be deemed to have accrued on and not before the date of the acknowledgement or the last payment”

To illustrate, if B breaches their contract with A on 20 November 2019,  but, in acknowledgment of their debt to A, makes a part payment to B on 20 November 2022, A’s cause of action will arise on the date of that payment and their entitlement to bring an action against B will then expire on 20 November 2028.

In Stephen John Michell v Onroad Offroad Pty Ltd [2018] VSC 648 (“Michell v Onroad”), Justice Digby of the Victorian Supreme Court provides important guidance on the circumstances in which a party is entitled to rely on this exception.

Facts

  1. Hill was the sole director of Onroad Offroad Pty Ltd (“Onroad”) in the period from 1998 to 2014.
  2. Hill was declared bankrupt in 2014 and Michell was appointed as her trustee in bankruptcy.
  3. Michell alleged, based on his review of Onroad’s books and records, that on or about 17 June 1998 Hill made a loan to Onroad of approximately $1,292,005.88.
  4. Michell commenced proceedings against the Company in 2017 seeking to recover the Loan funds.
  5. Michell was unable to adduce any documentary evidence of the Loan, however he argued that an agreement should be inferred from Onroad’s books and records.

Limitation Defence   

As part of its defence, Onroad argued:

  1. Michell’s cause of action arose on the date of the Loan; and
  2. Michell was barred by Section 5(1)(a) as almost 19 years had elapsed since that date.

Michell sought to rely on Section 24(3)(b) and to that end, adduced evidence of payments made by Onroad to Hill in 2013. Michell argued that:

  1. the payments were loan repayments;
  2. the payments were an admission that the Loan was due and payable to Hill by Onroad;
  3. his cause of action arose in 2013, not 1998 as a result of the alleged loan repayments; and
  4. he was entitled to bring proceedings in 2017, as only four years had elapsed since his cause of action arose.

Decision

Justice Digby rejected Michell’s argument with respect to Section 24(3)(b) and offered the following commentary:

  1. to trigger the operation of Section 24(3)(b), a Plaintiff must “establish a causal link between the payments and the alleged debt”;
  2. it was insufficient for Michell to merely identify payments made by Onroad to Hill and assert that these were tantamount to an admission;
  3. Michell was required to establish that the payments were specifically and/or identifiably made by Onroad in respect to, and in reduction of the Loan, only then would they be construed as admissions for the purposes of the Act; and
  4. Michell was unable to establish that the payments were made specifically for that purpose; as such, his action was barred as of 17 June 2004.

Discussion

The implications of this case are clear with respect to Section 24(3)(b); it is insufficient for a party to rely on mere inference, rather, they must be able to clearly establish that payment from a debtor is made in connection with and in reduction of the debt the subject of the dispute.

Written by Joshua Flory 

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NSW Security of Payment reforms – what you need to know

The New South Wales government has announced the Building and Construction Industry Security of Payment Amendment Act 2018 (NSW) (the Amendment Act) commenced on 21 October 2019.

The Amendment Act only applies to construction contracts entered into after the commencement date.

The amendments are broad and include the following significant reforms:

  1. The ‘reference date’ concept has been abolished:

The most significant amendment has been the simplification of the progress payment and payment claim provisions through the removal of the ‘reference date’ concept which was previously used to determine the date on and from which a claimant could claim a progress payment.

A claimant is now entitled by default to serve a payment claim on and from the last day of each month in which they first commenced construction work or supplied related goods and services, with each subsequent payment claim being able to be served on and from the last day of each subsequent month. The amendment serves to prevent respondents from delaying a progress payment by providing for a different regime of reference dates under their contracts.

If, however, a construction contract expressly provides a payment claim can be served on an earlier date in any particular month, then the claimant may serve the payment claim on and from that date.

  1. Payment claims after termination

If a construction contract is terminated, the Amendment Act now provides a claimant with a statutory entitlement to serve a payment claim on and from the date of termination of the construction contract.

  1. The re-introduction of endorsement

Importantly, the Amendment Act once again requires claimants to endorse payment claims expressly stating they are made under the Building and Construction Industry Security of Payment Act 1999 (NSW) (the Act).

  1. The reduction in the due date for payment to subcontractors

Under the Amendment Act, the maximum payment period by which a head contractor must make a progress payment to a subcontractor has been shortened from 30 business days to 20 business days.

There is no reduction to the time for payment of 15 business days from a principal to a head contractor.

  1. The ability to withdraw an adjudication application:

A claimant is now able to withdraw an adjudication application at any time after its lodgement, but before the appointment of an adjudicator.

If a claimant seeks to withdraw an adjudication application after lodgement and after an adjudicator has been appointed, a claimant will not be able to withdraw its application in circumstances in which the respondent objects to the withdrawal and the adjudicator considers it to be in the interests of justice to uphold the objection and proceed with the determination of the adjudication application.

  1. An adjudication determination may be partly severed

Historically, the Supreme Court of NSW held an adjudicator’s determination was wholly invalidated if a jurisdictional error had been made by the adjudicator.

The Amendment Act now provides the Supreme Court of NSW with new powers enabling it to sever and set aside any part of an adjudication determination which it deems to have been affected by jurisdictional error. The amendment ensures the enforceability of an adjudication determination is not affected in its entirety and removes the incentive for minor jurisdictional errors to be challenged in an attempt to set aside an entire adjudication determination.

  1. Corporations in liquidation

Consistent with recent case law, the Amendment Act now prohibits a claimant corporation in liquidation from taking steps to recover payments under the Act. The Amendment is a policy consideration to prevent a respondent which has made a payment to a claimant in liquidation under the Act from not being able to recover the payment on the basis it has formed part of the liquidation distribution pool for all creditors of the claimant.

How we can help you

JHK Legal can provide expert advice with regards to the above topics. If Kathleen’s article may be relevant to your circumstances and you would like further information, please call us on
02 8239 9600 to discuss how we may be able to assist.

Written by Kathleen Faulkner

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