Moulas & Co P/L v Capelj
[2007] SADC 87
•24 August 2007
DISTRICT COURT OF SOUTH AUSTRALIA
(Civil: Minor Civil Review)
MOULAS & CO P/L v CAPELJ
[2007] SADC 87
Reasons for Decision of His Honour Judge David Smith
24 August 2007
LIMITATION OF ACTIONS
Limitation of Actions - action on simple contract - acknowledgment - sufficiency - implication of promise to pay.
Limitation of Actions Act 1936 (SA) s35(a), s42(1); Magistrates Court Act 1991 s38(7)(b); Lord Tenterden’s Act (9 Geo. 4, c.14), referred to.
Sykes v Midland Bank [1971] 1 QB 113; Hall v Foong (1995) 65 SASR 281; In re River Steamer Company Mitchell’s Claim (1871) LR 6 Ch App 822; Spencer v Hemmerde [1922] 2 AC 507; Bucknell v The Commercial Banking Company of Sydney Ltd (1937) 58 CLR 155; Hepburn v McDonnell (1918) 25 CLR 199; Hipworth v Mahar (1952) 87 CLR 335; Motor Terms Co Pty Ltd v Liberty Insurance Ltd (1966) 116 CLR 177; The Stage Club Ltd v Millers Hotels Pty Ltd (1981) 56 ALJR 113, considered.
MOULAS & CO P/L v CAPELJ
[2007] SADC 87
This is an application to review a minor civil decision made by Mr Newman SM on the 31st May 2007, whereby the Special Magistrate found that the applicant’s claim against the respondent for the balance of moneys allegedly owing for the supply of building materials, was statute barred.
On the day of the hearing of this application, namely the 14th August 2007, after taking evidence and hearing argument from the parties, I took the view that the respondent had acknowledged the debt within the meaning of s42(1) of the Limitation of Actions Act 1936 (SA) and that acknowledgment “took the case out of the operation of” the said Limitation of Actions Act 1936. Therefore, I rescinded the order of dismissal of the magistrate and substituted judgment for the applicant company for $1,500 and costs of $179. I reserved the right to publish reasons. I do so now.
The applicant company, which carried on business in Coober Pedy, claimed that, between October 1999 and April 2000, it supplied building materials to the respondent and that, despite demands, the respondent refused to pay the balance owing, namely $1,500.00. Accordingly, the applicant company instituted proceedings to recover that sum on the 14th February 2007.
The Special Magistrate concluded as follows:
This claim arises from the supply of goods, the last of which was supplied before April 2000. The six years provided in the statute of Limitations Act has expired. There are no good grounds which have been shown to me as to why there should be any extension granted of that time. The plaintiff believed some three or four years go that money was owed to him by the defendant. He has taken no action to institute proceedings until February of this year. The claim will be dismissed as it is out of time.
On the face of it, the action, being one founded upon a simple contract, had to be commenced “within 6 years next after the cause of action accrued and not after” (see s35(a) of the Limitation of Actions Act 1936 (SA)). A cause of action for breach of contract accrues upon the happening of the breach (see Sykes v Midland Bank[1]; Hall v Foong[2]). In this case, the cause of action would have accrued not upon the last supply of goods, but when the respondent was in breach of his obligation to pay for the goods. It was not clear that the Magistrate addressed this issue. There was however, a more straightforward issue which determined this application, namely the fact that the debt had been acknowledged pursuant to s42(1) such that the time limitation had no application. I now explain why I took the view that such was the case.
[1] [1971] 1 QB 113
[2] (1995) 65 SASR 281 per Debelle J at 301
Section 42(1) of the said Act provides as follows:
42 (1) In any action of debt or other action in the nature of an action founded upon simple contract no acknowledgment or promise by words only shall be deemed sufficient evidence of a new and continuing contract whereby to take any case out of the operation of this Act, or deprive any party of the benefit thereof, unless that acknowledgment or promise is made or contained by or in some writing to be signed by the party to be charged thereby or by his agent.
In order to determine whether the above section applied “to take the case out of the operation of ...” the time limitation provisions in the said Act, I needed to hear evidence about the dealings between the parties. There was no transcript of evidence from the court below, and so I reheard the evidence taken by the magistrate (see s38(7)(b) of the Magistrates Court Act 1991 (SA).
There were two witnesses, namely Mr Nikolaos Moulas, a director of the applicant company, and the respondent Mr Mladen Capelj. I also received into evidence a number of documents and invoices.
I prefer the evidence of Mr Moulas to that of Mr Capelj where there is any conflict.
I find as follows:
·between October 1999 and April 2000 the applicant company, pursuant to a simple contract, supplied building materials to the respondent to the value of $9,555. The said supply of goods was evidenced in writing by an invoice which was probably made out on the 29th July 2000 since it records a part payment of $5,000 as having been made on that day (see Exhibit P1at 40, 41);
·as indicated above on the 29th July 2000 the respondent made a part payment of $5,000 which payment was recorded on the invoice as was the resultant balance then owing, namely $4,525 taking into account a credit of $30 (see Exhibit P1 at 41). The original of the invoice was given to the respondent;
·on the 31st May 2001 the respondent made a further payment of $3,000 and requested a receipt;
·on the 31st May 2001 Mr Moulas drew up another invoice (see Exhibit P2) which recorded:
-the date, namely 31.05.01
-the balance owing of $4,500 which Mr Moulas explained was rounded down from the previous balance of $4,525;
-the payment of $3,000 and the date of that payment, namely the 31st May 2001;
-the balance owing, namely $1,500; and
-the signature of the respondent;
·on that occasion, namely the 31st May 2001, the respondent told Mr Moulas that he would pay the balance owing, namely $1,500, later, as he did not have enough money at that time;
·some time passed and because the balance had not been paid the applicant company forwarded a statement dated the 31st March 2003 to the respondent (see Exhibit P3);
·in response to the said statement the respondent by letter to the applicant company dated the 9th April 2003 denied the indebtedness (see Exhibit P4). I do not accept the matters raised in the letter from Mr Capelj or the evidence given by him purporting to support it; and
·the respondent throughout the period up to the 9th April 2003 did not query the invoices and the claims of the applicant.
Such being the acceptable evidence, the issue for me was whether the proceedings issued in the Magistrates Court on the 14th February 2007 to recover the $1,500 were, as the Special Magistrate found, statute barred, or whether s42(1) applied so as to render the limitation period in s35(a) inapplicable.
Construction of s42(1) of Limitation of Actions Act 1936 (SA)
The said s42(1) in substance duplicates an 1828 United Kingdom enactment commonly referred to as Lord Tenterden’s Act[3]. The material part of that enactment provides as follows:
In actions of debt or upon the case grounded upon any simple contract no acknowledgment or promise by words only shall be deemed sufficient evidence of a new or continuing contract, whereby to take any case out of the operation of the said enactments or either of them, or to deprive any party of the benefit thereof, unless such acknowledgment or promise shall be made or contained by or in some writing to be signed by the party chargeable thereby.
[3] (9 Geo. 4, c.14)
The above enactment was the statutory implementation of a longstanding common law principle which held that an acknowledgement of, and promise to pay a debt, prevented the debtor relying upon a statute of limitations defence to defeat a claim for recovery of that debt. Using the language of the 19th Century cases the acknowledgment and promise to pay was said to be “... sufficient to take the case out of the statute ...”. This principle was definitively articulated by Lord Tenterden in the 1827 Queen’s Bench decision of Tanner v Smart[4]. A year later in 1828 Lord Tenterden’s act was passed. In addition to enacting the common law principle, the statute required that the acknowledgment or promise be made or contained by or in some writing “... signed by the party chargeable thereby ...”.
[4] (1827) 6 B&C 603 at 609
I turn to three key English authorities which canvassed the tests which should be applied to the construction of Lord Tenterden’s Act.
In the case of In re River Steamer Company, Mitchell’s Claim[5], Mellish LJ in the Court of Appeal in Chancery said as follows of the meaning of the UK Act:
Now, it is perfectly settled law what is the description of letters which will take a case out of the statute. I will read what is laid down by Chief Justice Jervis on the subject, in his book called Jervis’s New Rules (1), which, in my early at the bar, we were constantly in the habit of quoting, and I find this passage, cited with approbation by Lord Campbell and Mr. Justice Wightman in Everett v Robertson (2): “Before this statute” (that is, 9 Geo, 4r, c. 14), “not only a verbal promise to pay a debt more than six years old, but a bare unconditional acknowledgment of it subsistence, made within six years before action brought, had been held sufficient to take this case out of the statute 21 Jac. c. 156, s.3. But now, in order to revive the liability of the debtor after the expiration of the six years by subsequent acknowledgment or promise, there must be a proof of some writing, signed by himself, either containing an express promise to pay the debt, or being in terms from which an unconditional promise to pay it is necessarily to be implied. If, therefore, the writer, although he admits the existence of a debt, refuses to pay it, or reserves the matter for future consideration, or refers the creditor to some third person for payment, or the like, this will not be sufficient to prevent the operation of the statute”. That being the rule, there must be one of these three things to take the case out of the statute. Either there must be an acknowledgment of the debt, from which a promise to pay is to be implied; or, secondly, there must be a conditional promise to pay the debt, and evidence that the condition has been performed.
[5] (1871) L.R. 6 Ch. App. 822 at 828
In 1882 the Court of Appeal in the case of Green v Humphreys[6] had occasion to consider whether a letter constituted a sufficient acknowledgment within the meaning of the UK enactment, to take a debt out of the statute of limitations. The members of the Court suggested a two stage approach to the construction of the provisions.
[6] (1882) 26 Ch D 474
Cotton LJ said at 477 and 478:
... It seems to me to be settled that the acknowledgment must be such as will lead the Court to infer (I use the word “infer” intentionally) a promise by the writer to pay the debt. The rule seems to be this, that if there is an absolute unconditional acknowledgment, not controlled by any other language in the letter, then the Court comes to the conclusion that by that acknowledgment the party intends a promise to pay that which he acknowledges to be due. It may be put in this way. If a man acknowledges by letter that a debt is due without anything more, the fair inference is that he intends to pay, and expresses by that writing his intention to pay the debt.
...............
What I think we must find from the writing is not merely an acknowledgment of such a state of circumstances as will throw a duty upon the writer to pay, but words of such a character that you may reasonably infer from the words a promise to pay. It may be put in this way, that on a fair construction of the language there must be an acknowledgment of the claim as one which is to be paid by the writer
Bowen LJ said at 479 and 480
Now, first of all, the acknowledgment must be clear in order to raise the implication of a promise to pay. An acknowledgment which is not clear will not raise that inference. Secondly, supposing there is an acknowledgment of a debt which would if it stood by itself be clear enough, still, if words are found combined with it which prevent the possibility of the implication of the promise to pay arising, then the acknowledgment is not clear within the meaning of the definition; because, not merely is there found in the words something that expresses less than a promise to pay (which, as Lord Bramwell pointed out in Lee v Wilmot (Law Rep. 1 Exhibit. 364, 367), will not necessarily put an end to the implication of the promise to pay), but because the words express the lesser in such a way as to exclude the greater
Fry LJ said at 481
Now what is an acknowledgment? In my view an acknowledgment is an admission by the writer that there is a debt owing by him, either to the receiver of the letter or to some other person on whose behalf the letter is received. It is not enough that he refers to a debt as being due from somebody. In order to take the case out of the statute there must upon the fair construction of the letter, read by the light of the surrounding circumstances, be an admission that the writer owes the debt
Finally, in 1922, Lord Tenterden’s Act was examined in considerable detail by the House of Lords in Spencer v Hemmerde[7]. In a lengthy opinion, Lord Sumner examined the many authorities which had built up on the doctrine of acknowledgment and the construction of the UK Act. The decision on the facts is also instructive. In 1915 the debtor, Mr Hemmerde, upon being pressed for payment of a loan which was granted to him in 1910 wrote the following letter:
‘My Dear Mr. Benson,
‘It is not that I won’t pay you, but that I can’t do so. It is important that I should see you and explain the situation, and I shall therefore ring you up to-morrow to make an appointment.
‘What I wrote was not that I saw no prospect at present of being able to repay the capital, but that I saw no prospect of being able to repay the capital at present. The condition of things at the Bar is such that the vast majority of us will be getting into debt rather than out of it.
‘I have a good deal to talk to you about, and nothing can be gained by flying to solicitors.
‘Yours truly,
‘Edward G. Hemmerde.’
[7] [1922] 2 AC 507
The debtor Mr Hemmerde never paid any part of the principle or interest. In answer to an action bought against him in 1920 for payment of the debt, Mr Hemmerde pleaded the six year statute of limitations. It was held that the letter was sufficient acknowledgment to take the case out of the statute.
I set out a series of extracts from the opinion of Lord Sumner which explain the underlying principle as being a “revival”, “renewal” or “continuance” of the original contractual promise as opposed to a fresh cause of action.
At 524-528 Lord Sumner said:
I find that the great preponderance of the cases is against regarding the new promise as a new cause of action, and it seems to me that reason also is against it. Surely the real view is, that the promise, which is inferred from the acknowledgment and “continues” or “renews” or “establishes” the original promise laid in the declaration, is one which corresponds with and is not a variance from or in contradiction of that promise.
Then later at page 531 His Lordship referred with approval to the following note in the 3rd Edition of Bullen and Leake (p 642):
If at any time after a debt is due, the debtor renews his promise to pay it, or makes such an unqualified acknowledgment of the debt being due that a promise to pay it may be inferred therefrom, he renews his liability from the date of such promise or acknowledgment, and cannot avail himself of the Statute of Limitations in respect of the preceding lapse of time.
Then at 534 His Lordship concluded his analysis in the following terms:
I think the effect is this: the new promise revives the old debt, but does not create a new one; it revives it, however, not simpliciter, but subject to any conditions attached to the words, which operate the revival: Philips v Philips (2); and it may be inferred or not inferred according as it is or is not attended by other words, which leave it standing and unqualified or limit or destroy its effect.
Then finally at page 535, referring to the Statute of Limitations, Lord Sumner said:
The statute is in derogation of a common law right to sue for a debt, so long as it remains unpaid. It cannot therefore be so universal as its words import. What is its object? To prevent a debtor, who has paid, but has lost the evidence of the payment, from being made to pay again. What if the debtor himself says that he has not paid? Why, then he ought to pay, since he admits himself that he ought to pay. How is such an admission, firstly, to be evidenced, and, secondly, to be reconciled with the Act?
So it is clear that neither the pre-existing common law principle nor the statute embodying it intended that the acknowledgment and promise operate effectively as a separate contract from which a new time limitation should operate.
The High Court of Australia in a series of cases has endorsed the doctrine of acknowledgment either by applying it as part of the common law or by resorting to it as an aid in the construction of Australian statutes which have, like Lord Tenterden’s Act, enshrined the common law concept of acknowledgment.
In Bucknell v The Commercial Banking Company of Sydney Ltd[8] the Bank pursued Mr Bucknell for recovery of the amount of his overdraft. In response Bucknell pleaded the statute of limitations. The Bank relied upon a letter from Bucknell as being an acknowledgment of the debt. On appeal the High Court, Dixon and McTierman JJ (Evatt J. dissenting), held that the letter constituted a sufficient acknowledgment to take the case out of the Statute of Limitations in that it admitted liability in terms which were unqualified and did not contain anything inconsistent with the promise to pay implied by law from the acknowledgment of indebtedness, and further, there was nothing in the circumstances of the case to preclude the bank from relying on the letter as an admission of liability to the full extent of the amount claimed.
[8] (1937) 58 CLR 155
At 163 and 164, Dixon J, as he then was, said:
The rules of law and construction which govern the revival by acknowledgment of debts against which time has run or is running under 21 Jac. I., c. 16, sec. 3, have been fully explained in the House of Lords in Spencer v Hemmerde (1922) 2 AC 507. Hepburn v. McDonnell (1918) 25 CLR 199 contains an explanation to the same effect. To make it clear how they operate in the present case a very brief statement will suffice. An express promise in writing by the debtor to pay revives his liability. But the liability is revived only according to the tenor of the promise. If it is so expressed as to be conditional or subject to limitations, the conditions must be fulfilled before the liability becomes enforceable and the limitations must be observed. The letter upon which the plaintiff depends contains no express promise either conditional or unconditional, restricted or unrestricted. But, although a document relied upon as an acknowledgment contains no express promise, it may effect a revival of the debtor's liability if there is found in it a distinct admission of the debt. The law implies from an acknowledgment of the existence of the liability a promise to discharge it. Words clearly acknowledging that the writer is liable suffice to raise the implication. But although the promise is implied as an artificial legal consequence of the written admission of liability and is not the result of a search after the true meaning disclosed by the writing, yet if the document in which the admission occurs expresses an intention inconsistent with the making of such a promise or an intention consistent only with the making of a qualified promise, the implication will be rebutted or qualified accordingly. Thus, if the context includes a flat refusal to pay, the admission of liability cannot be made the foundation of an implied promise to discharge the debt. If the admission is accompanied by an express promise to which the writer has attached conditions or limitations in point of time or otherwise, an absolute promise cannot be implied from the acknowledgment of liability, because to imply it would involve an inconsistency, and the creditor obtains no more than a conditional or limited revival of the debt. In the same way if the document in which the admission of liability is found contains an expression of some qualification which is inconsistent with an unconditional or unrestricted promise to pay, the promise implied from the acknowledgment of the debt will be qualified by the condition or limitation expressed.
Dixon J then suggested two steps in applying the principles
·firstly determine whether the document contains a “sufficiently clear or distinct acknowledgment of the existence of the liability ...” (165) and
·secondly interpret the writing “for the purpose of determining whether it expresses a meaning inconsistent with a promise to pay or a meaning inconsistent with an unqualified promise to pay ...” (166).
(See also Hepburn v McDonnell[9]; Hipworth v Mahar[10]; Motor Terms Co Pty Ltd v Liberty Insurance Ltd[11]; The Stage Club Ltd v Millers Hotels Pty Ltd[12]).
[9] (1918) 25 CLR 199
[10] (1952) 87 CLR 335
[11] (1966) 116 CLR 177 at 186, 188, 193
[12] (1981) 56 ALJR 113 at 127
Before I leave the legal principles, I indicate that though no time limitation is applicable where a debtor acknowledges and promises to pay a debt, it may be that if the creditor allows an inordinate time to elapse before seeking to recover an acknowledged debt, that the equitable doctrine of Laches will apply to deny the creditor a remedy. Further, in my view neither the doctrine nor the proper construction of the statute here in South Australia supports the view that the “acknowledgment” must occur before the expiration of the period of limitation (eg 6 years) (see In re River Steamer (supra) at 828; Hepburn v McDonnell (supra) at 207).
In Hepburn v McDonnell (supra) at 207 Isaacs J said:
The passage from the judgment of WigramV.C. in Philips v. Philips [3 Ha., at p. 300] states the law so finally settled. The liability of the debtor by reason of the acknowledgment is a new one, arising from his new promise to pay the debt, a promise supported by the consideration of the old debt, which though unenforceable exists until it has been replaced by the new promise. The liability henceforth is what the Statute calls “a new or continuing contract,” since the acknowledgment may be made “before or after the expiration of the period of limitation”.
With those principles and approach to construction in mind, I turn to the application of s42(1) to this case.
Applying law to the facts
The signing, on the 31st May 2001, of the invoice recording the balance owing of $1,500 and the oral promise, made by the respondent to Mr Moulas, to pay it at a later time, constituted an acknowledgment of the debt and a promise to pay it. That acknowledgment and promise was sufficiently “made or contained by or in some writing”. The writing was the signed invoice. The history of the part payments, together with the oral promise at the time of the last part payment and the signature explains the signature and supports the conclusion that the signature to the invoice is an acknowledgment of the debt. The promise to pay implied by the signature on the invoice is confirmed by the oral promise to pay which I find was uttered. It is parol evidence which explains the document and in particular the signature on the document. To use the words of Fry LJ in Green v Humphreys (supra) the signed invoice of the 31st May 2001 “... read by the light of the surrounding circumstances ...” is an admission that the writer owes the debt.
Accordingly, there was an acknowledgment and promise which took the case “out of the operation of the Limitation of Actions Act”.
Thus I concluded that the respondent had admitted the indebtedness and pursuant to the doctrine of acknowledgment as enshrined in s42(1) of the said Act, he was precluded from invoking the limitation period. Therefore, I concluded that the action herein was not statute barred. Accordingly, pursuant to s38(7)(d)(ii) of the Magistrates Court Act 1991 I rescinded the judgment of the Magistrate made on the 31st May 2007 and substituted therefore judgment in favour of the applicant against the respondent in the sum of $1,500 plus costs being the cost of filing the summons in the Magistrates Court, namely $109, together with a fee of $70 for the appeal being a total judgment of $1,679.
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