Express law No. 53

30 April 2007

Damages claim for negligent advice given 34 years previously
not statute-barred

The High Court, by a majority of 6:1, held that a damages
claim for negligent advice on eligibility to join a Commonwealth
defined benefit superannuation scheme, given some 34
years previously, was, in the circumstances, brought
within time.

Commonwealth of Australia v Cornwell

High Court of Australia, 20 April 2007
[2007] HCA 16

Background

The respondent, John Cornwell, commenced employment as
a temporary employee in the Commonwealth's Department
of the Interior in 1962, as a spray painter at the Canberra
bus depot. Mr Cornwell claimed that in July 1965 his (deceased)
manager negligently advised him that he was not eligible
to join the Commonwealth Superannuation Fund established
under the Superannuation Act 1922 (the Fund).

The ACT courts below ruled in Mr Cornwell's favour,
holding that the negligent advice caused him to refrain
from commencing contributions to the Fund in 1965 or 1966.

Mr Cornwell only became a member of the Commonwealth Superannuation
Scheme (the CSS) established under the Superannuation
Act 1976 (Cth) in 1987, when his employment was reclassified
as permanent. He retired from Commonwealth employment on
31 December 1994.

Mr Cornwell commenced proceedings against the Commonwealth
on 16 November 1999, some 34 years after the negligent
advice.

The Commonwealth pleaded that Mr Cornwell's claim
was barred by section 11 of the Limitations Act 1985 (ACT),
as the action was commenced more than six years after the
date on which the cause of action first accrued. The ACT
courts rejected this defence.

The Commonwealth was granted special leave to appeal to
the High Court on the question of the point at which loss
was first sustained, such that time began to run for the
purposes of the Limitation Act defence.

Summary of decision

An appeal by the Commonwealth to the High Court was dismissed
by a 6:1 majority.

The majority agreed with the courts below that Mr Cornwell
suffered no actual loss until his retirement. He had no
entitlement to benefits under the Superannuation Act
1976 until he had satisfied any applicable statutory
criteria for the payment of benefits in the CSS, such as
ceasing to be an employee on or after attaining the specified
ages of 55, 60 or 65 years. Entitlements under the Commonwealth's
defined benefit schemes are prospective only until the
occurrence of a contingency. It is only then that an actual
loss is sustained.

The majority rejected the proposition that Mr Cornwell
had suffered either an actual loss prior to retirement,
or the loss of a chance. Consequently, Mr Cornwell had
six years from the date of his retirement to commence proceedings,
and he had commenced proceedings within time.

The majority considered speculative the question of whether
in 1976 Mr Cornwell would have been better or worse off
had he invested the money he would otherwise have paid
in contributions to the superannuation schemes. Their Honours
considered that it would not have been possible to calculate
Mr Cornwell's loss at any time prior to retirement
(or the happening of some other trigger for the payment
of benefits).

Mr Cornwell's damages remain to be assessed.

Dissenting judgment

In a strong dissent, Callinan J was of the view that Mr
Cornwell had as at 1977, at the latest, suffered both an
actual loss and the loss of a chance, stating that the
Commonwealth had proved its case 'beyond contradiction'.
His Honour noted that it has never been the law that damage
occurs only when the loss is ascertained or ascertainable.
Courts regularly estimate damages on the basis of likelihood
or probability. It was not only upon retirement, or the
happening of the other relevant triggers (or contingencies)
that Mr Cornwell became entitled to an ascertainable interest
in the scheme. It was always open to Mr Cornwell from at
least 1977 to prove the likelihood or otherwise of each
of the relevant statutory contingencies, and the statute
of limitations (the predecessor of section 11 of the Limitations
Act 1985) ran from then, expiring well before the commencement
of the current claim.

Implications

The precedent value of the High Court decision is that
similar claims involving negligent advice by management
about entitlements under the Commonwealth's defined
benefit superannuation schemes may be instituted within
six years of the date of retirement (or other relevant
statutory trigger), regardless of when the alleged advice
was given. There remains, however, no positive general
duty on the Commonwealth to advise employees of superannuation
entitlements (as opposed to an obligation not to misadvise),
and each individual claimant must prove all the elements
of the cause of action in his or her particular circumstances.

The Department of Finance and Administration is currently
considering how to process other claims and will provide
further information to potential claimants in due course.

Text of the decision is available at:
http://www.austlii.edu.au/au/cases/cth/high_ct/2007/16.html

AGS lawyers acted for the Commonwealth in all stages of
the litigation. The Commonwealth's counsel included
Kim Bennett, Special Counsel Litigation.

For further information please contact:

Kim Bennett
Special Counsel Litigation
T 02 6253 7404 F 02 6253 7381
kim.bennett@ags.gov.au

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