Loans which are simply ‘repayable on demand’ – beware of the limitation period
Published on November 11, 2020 by Adrian O’Dea
Imagine you helped a family member experiencing financial difficulties and provided them with a loan of $100,000 and let’s assume this happened 7 years ago. Let’s say you drew up a simple written agreement at the time to say that the $100,000 was repayable to you ‘on request’ or ‘on demand’ or perhaps you didn’t bother to confirm the loan in writing at all but had a verbal agreement with your relative that the loan was repayable whenever you asked for it to be repaid.
Fast forward seven years and you now contact the family member and tell them that you need the funds to be repaid, thinking that there would be little difficulty from a strictly legal basis to pursue recovery of the loan. Right? Well this is where limitation periods come into play.
You might think that any limitation period (to the extent that you even turn your mind at all to the fact that there might be a limitation period) would only begin to run from the date you actually make the demand for repayment. However – and unfortunately in our example – the legal limitation period which might apply may in fact preclude you from successfully taking legal proceedings to recover that loan if it is six years or longer since you lent the money.
Limitation periods serve to prevent a person from taking legal action, for example to recover a debt, after the limitation period has expired. In our example the limitation period for a simple loan which is ‘repayable on demand’ will often begin to run from the time of receipt of the loan by the borrower. The limitation periods for actions to recover debts under a simple loan agreement ‘repayable on demand’ in many states (including New South Wales, Queensland, Victoria, Tasmania and South Australia) and in the ACT is generally six years from the date the loan funds are advanced to the borrower, being the date the cause of action arose. The limitation period in the Northern Territory is three years.
In Western Australia the situation is different because of section 59 of the Limitations Act 2005 (WA) which essentially provides that limitation period only begins to run from the time a demand is made and is not met and not from when the loan was first advanced. Thus, in Western Australia you may find that if you have not actually made a demand for the loan to be repaid until many years after you have advanced the loan, then you may have significantly more time than in other Australian states and territories to commence a legal action for recovery of the loan.
It is important to carefully assess whether there may be other factors which may assist you to still take legal action to recover the debt even if it may otherwise initially appear that you may be caught by a limitation period barring a legal claim. Some factors to consider include the following:
- If the loan agreement ‘repayable on demand’ is made by way of a deed executed by the parties, then the limitation period may be 12 years from the time the loan was made.
- If the agreement includes a term which provides that the loan is repayable within a certain time period (for example within 10 days) of a demand for repayment being made, as opposed to the loan simply being repayable immediately on demand.
- If the borrower makes a payment of part of the debt owing then that payment may constitute confirmation of the debt which may have the effect that the date from which the limitation period begins to run is reset.
- If the borrower provides to the lender a signed written acknowledgment to say that the debt is legally due, then this may constitute a confirmation of the debt and the limitation period may begin to run from the time of such an acknowledgment.
- If the loan agreement provides that the loan is repayable on a specific date then it may be that the loan is not ‘repayable on demand’ and the limitation period only begins to run from the date specified for repayment of the loan.
In 2004 the New South Wales Law Reform Commission published a report making recommendations for various changes to the law in this area to be made. This was based in part on the view that the law did not appropriately reflect the intentions and expectations of parties (such as family members or close friends) entering into informal loan arrangements without legal advice. The proposed reforms recommended by the New South Wales Law Reform Commission have not been adopted in New South Wales.
It is important to obtain legal advice when providing a loan to ensure that you are aware of when you may ultimately be time barred from making a legal claim for recovery of the funds advanced – this is even the case where loan agreements are being considered with other family members.
It is also important to obtain legal advice as soon as possible if you find yourself facing an argument from the borrower to the effect that you are time barred from recovering the loan. It may be that the facts and circumstances or nature and form of the agreement itself supports a counter legal argument that the limitation period does not actually begin to run from the time the loans were advanced.
The last thing you want if you assisted a family member many years ago by providing them with a loan is to discover that any legal right to recover the loan has all but been extinguished. Care needs to be taken to ensure that the agreement reflects your intentions including in relation to the application of any limitation period within which you must commence any legal proceedings to recover the loan. If you are in any doubt you should seek legal advice to ensure that appropriate protections are put in place.
Legal cases relevant to this topic which you may wish to consider include:
- Young v Queensland Trustees Ltd (1956) 99 CLR 560
- Ogilvie v Adams  VR 1041
- Gleeson v Gleeson  NSWSC 418
- Haller v Ayre  QCA 224
- Gray v O’Donnell  NSWSC 259.
This information contained in this article is not to be taken as legal advice. Please contact us if you require specific information or advice.
Adrian O’Dea is a partner of Carroll & O’Dea Lawyers and a NSW Law Society accredited specialist in Commercial Litigation.
 Section 14(1) Limitation Act 1969 (NSW);
Section 10(1) Limitations of Actions Act 1974 (QLD);
Section 5(1) Limitations of Actions Act 1958 (VIC);
Section 4(1) Limitation Act 1974 (TAS);
Section 35 Limitations of Actions Act 1936 (SA);
Section 11(1) Limitation Act 1985 (ACT).
 Section 12(1)(a) Limitation Act 1981 (NT).
 See Section 54 of the Limitation Act 1969 (NSW).
 See Section 54 of the Limitation Act 1969 (NSW).
 Recommendations included:
- The limitation period for a loan payable on demand should run from the date on which the demand is made.
- The limitation period for such loans should be 3 years from the demand.
- There should be ultimate bar of 30 years from the date of the loan was made.
- A demand for repayment need not be in writing before time starts to run.
- “Demand” should mean an unconditional demand for immediate payment, including a demand that allows the borrower a reasonable time to arrange payment.
- A demand for part only of the loan should not have the effect of barring future demands in respect of the loan.