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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