From: Neil Foster <neil.foster@newcastle.edu.au>

Sent: Wednesday 5 November 2025 01:01

To: obligations@uwo.ca

Subject: ODG: HCA on when damage accrues for negligent contract

Dear Colleagues;

The decision of the High Court of Australia in R Lawyers v Mr Daily [2025] HCA 41 (5 November 2025) deals with the question of when damage accrues for a negligence action based on a claim for economic loss. In an action brought against a firm of solicitors for careless preparation of a contract designed to protect the interests of a party to a marriage, when did the damage occur? The question of course is relevant to whether a limitation period has expired. In this case a 5-member bench of the court (Gageler CJ, Gordon, Edelman, Jagot and Beech-Jones JJ) unanimously holds that the damage only occurred at the point of separation of the parties (not when the agreement was first drafted) and hence the claim is not statute-barred. There are two sets of reasons (a 'plurality' decision of Gageler CJ,  Jagot and Beech-Jones JJ, and another judgment of Gordon & Edelman JJ) but they both agree in the outcome.

There were other issues on the appeal, including an attempt to frame the claim as one for "loss of a chance" with some passing comments on those issues, but I will just comment on the main point about accrual of damage.

In brief, the parties were about to be married and in 2005 entered into a "Binding Financial Agreement" (BFA) under the Family Law Act 1975 (Cth) which was designed to set out how their property should be shared out in the event of a later divorce. This agreement was drafted by "R Lawyers" (presumably a pseudonym, as of course are the names of the parties) and when separation occurred some years later in 2018 the agreement was set aside due to uncertainty and in light of changed circumstances (including the birth of children of the marriage.) The trial judge found that the lawyers were negligent in preparing the agreement (including in not advising clearly of the circumstances in which the agreement could be later overturned.) This ruling was not challenged. But the lawyers argued that, if the agreement was defective, then the harm had occurred on it being entered into, and hence any claim was statute barred (as being made more than 6 years later).

The High Court considered other cases where similar issues had arisen, including Wardley Australia Ltd v Western Australia (1992) 175 CLR 514 and The Commonwealth v Cornwell (2007) 229 CLR 519. The latter case was seen as similar, where an employee was poorly advised about whether or not to enter a superannuation scheme, and was held not to have suffered damage until actually retiring some years later when the damage crystallised. The plurality commented:

[66] Ultimately, the "interest" of Mr Daily that was infringed as a consequence of R Lawyers' negligence as found, namely Mr Daily's interest in securing a financial agreement not liable to be set aside under the FLA so that it was enforceable on and after separation, is of a kind similar to the interest of the employee in respect of the statutory scheme considered in Cornwell and is not of a kind similar to a party's interests in a bundle of contractual rights in a commercial agreement.

In effect there was a distinction between a contract which gave rise to certain rights at the time it was entered into, and a contract of this sort which would not come into effect until a later date. Here the legislation explicitly provided that a BFA did not come into effect until an actual separation agreement was entered into by the parties.

The minority agreed, but in passing were critical of the way that the Full Court below had approached the issue:

[132] The Full Court incorrectly addressed whether Mr Daily's claim was statute barred before addressing the question of loss. That was wrong. The proper order for the Full Court was to first identify what the claimed loss was and when that claimed loss was first incurred by Mr Daily, and then to address the question of causation .

They later said:

[176] In sum, in so far as the BFA in issue in this appeal made provision for the division of property on separation, the loss or damage from the solicitor's negligent conduct that rendered that BFA void did not and could not crystallise until separation. Put in different terms, it is not until separation that a party unprotected by a financial agreement is exposed to s 79 of the FLA.

The court distinguished what at first seemed a similar case from New Zealand, Davys Burton v Thom [2009] 1 NZLR 437. In that case a change in matrimonial property rights occurred at the outset of a marriage and a later claim failed for limitation reasons. But the court here said (at [176] again) "Section 79 does not operate like the legislation in New Zealand which identifies the property affected from the time of marriage."

The minority give a helpful overview from [145] of the type of claims that a client may make against a solicitor.

Regards

Neil

NEIL FOSTER

Associate Professor, School of Law and Justice

College of Human and Social Futures,

 The University of Newcastle
Hunter St & Auckland St, Newcastle NSW 2300

T: +61 2 49217430

E: neil.foster@newcastle.edu.au

Further details: http://www.newcastle.edu.au/profile/neil-foster

My publications: http://ssrn.com/author=504828

Blog: https://lawandreligionaustralia.blog

I acknowledge the Traditional Custodians of the land in which the University resides and pay my respect to Elders past and present.
I extend this acknowledgement to the Worimi and Awabakal people of the land in which the Newcastle City campus resides and which I work.

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