Manicaros v Commercial Images (Aust) Pty Ltd (in liq)

This case concerned a claim by a company, in liquidation, against a director for the recovery of a debt said to be owing. The debts would be statute barred unless the director had acknowledged the debts under ss 35 and 36 Limitation of Actions Act 1974. The Court upheld the trial judge’s findings that the director had acknowledged the debts to the company in two ways. First, by signing company financial accounts that recorded the debt. Second, by serving an affidavit on the company where that affidavit exhibited email correspondence that referred to the debt. In reaching these conclusion the Court extensively analysed authorities concerning the acknowledgment of debts.

Flanagan JA, Buss AJA and Kelly J

22 March 2024

The appellant was a director of the respondent’s company along with her brother, Mr Verschoyle. [7]. Between 2005 and 2009, the respondent made various unsecured loans to both directors. [15]. The net amount lent to the appellant totalled $631,276. [3]. The respondent went into liquidation in 2018. [13]. In the same year, the liquidator brought proceedings to recover those debts from the respondent. [15]. The debts would clearly be statute barred unless the liquidator could rely on ss 35 and 36 Limitation of Actions Act 1974 to extend the limitation period. The sole issue at trial was whether these provisions had been satisfied. [4]. On appeal, the leading judgment was given by Buss AJA, with Flanagan JA and Kelly J agreeing.

Under s 35, where “a right of action has accrued to recover a debt … and the person liable or accountable therefor acknowledges the claim … the right shall be deemed to have accrued on and not before the date of the acknowledgment”. [89]. Section 36(1) requires an acknowledgement to be signed and in writing. [90]. Section 36(2) requires, inter alia, that an acknowledgment be made to the person or an agent of the person to whom the debt is owed. [90]. The Court extensively considered the authorities relevant to these provisions and their predecessors. [92]–[145]. Two points are notable from that analysis.

First, an acknowledgment of a debt “involves an admission of the debt which on a fair appraisal is clear or distinct, having regard to the whole of the relevant text and the relevant surrounding circumstances”. [101]. Second, if an acknowledgement is not made directly to the creditor, the acknowledgment will not be made to the creditor for the purposes of s 36 unless the acknowledgment was made with the intention that it should be communicated to the creditor. [137].

The Court upheld the findings of the trial judge that two acknowledgments were made by the appellant.

First, the appellant signed the financial accounts (“the 2016 accounts”) of the respondent which showed the amounts owing. The 2016 accounts included a declaration by the appellant that the account presented fairly the financial position of the company. [150]. In addition, the notes to the accounts declared that in the opinion of the directors, the company was capable of meeting its debts when they became due. [160]. In addition, the accounts were expressed as being made to the members and directors of the company. [149]. The Court was satisfied that by signing these accounts the appellant had acknowledged the debts. [178]. In addition, the court was satisfied that the acknowledgment was made to the respondent given that the accounts were in the possession of the respondent on signing (being, in the possession of its directors), and because the accounts became part of the respondent’s books as its financial statements. [181].

Second, the appellant and Mr Verschoyle had exchanged correspondence concerning the debts. The Court was satisfied that that correspondence was sufficient to acknowledge the debt. [197], [202]. However, the trial judge held that the acknowledgment was not made to the company, and it was ultimately not necessary to consider that finding on appeal. The appellant, in winding up proceedings involving the respondent, swore an affidavit alleging that the correspondence evidenced oppressive conduct by Mr Verschoyle. [206]. The correspondence was exhibited, including the emails acknowledging the debt, and the affidavit was served on the respondent. [72]. The Court was satisfied that by serving the affidavit on the respondent, the appellant had acknowledged the debts to the respondent. [205]. In particular, the court noted that the affidavit was not made merely as proof, for example, that demands for repayment had been made by Mr Verschoyle. [206]. The admission of the debts was “unconditional and unrestricted”. [206].

On that basis, the court found that the debts had been acknowledged within the meaning of ss 35 and 36 Limitation of Actions Act 1974, and the debts were therefore not statute barred.

L Inglis