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England and Wales High Court (Queen's Bench Division) Decisions
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Cite as:  EWHC 1811 (QB)
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QUEEN'S BENCH DIVISION
BRISTOL DISTRICT REGISTRY
2 Redcliff Street, Bristol, BS1 6GR
B e f o r e :
(sitting as a Judge of the High Court)
| Annett Osborne
|- and -
|Follett Stock (a Firm)
Follett Stock LLP
Michael Bowmer (instructed by DWF LLP) for the Defendants
Hearing dates: 12-13 July 2017
Crown Copyright ©
HHJ Paul Matthews :
Limitation Act 1980
"2. Time limit for actions founded on tort.
An action founded on tort shall not be brought after the expiration of six years from the date on which the cause of action accrued.
[ … ]
5. Time limit for actions founded on simple contract.
An action founded on simple contract shall not be brought after the expiration of six years from the date on which the cause of action accrued.
[ … ]
[14A. Special time limit for negligence actions where facts relevant to cause of action are not known at date of accrual.
(1) This section applies to any action for damages for negligence, other than one to which section 11 of this Act applies, where the starting date for reckoning the period of limitation under subsection (4)(b) below falls after the date on which the cause of action accrued.
(2) Section 2 of this Act shall not apply to an action to which this section applies.
(3) An action to which this section applies shall not be brought after the expiration of the period applicable in accordance with subsection (4) below.
(4) That period is either—
(a) six years from the date on which the cause of action accrued; or
(b) three years from the starting date as defined by subsection (5) below, if that period expires later than the period mentioned in paragraph (a) above.
(5) For the purposes of this section, the starting date for reckoning the period of limitation under subsection (4)(b) above is the earliest date on which the plaintiff or any person in whom the cause of action was vested before him first had both the knowledge required for bringing an action for damages in respect of the relevant damage and a right to bring such an action.
(6) In subsection (5) above "the knowledge required for bringing an action for damages in respect of the relevant damage" means knowledge both—
(a) of the material facts about the damage in respect of which damages are claimed; and
(b) of the other facts relevant to the current action mentioned in subsection (8) below.
(7) For the purposes of subsection (6)(a) above, the material facts about the damage are such facts about the damage as would lead a reasonable person who had suffered such damage to consider it sufficiently serious to justify his instituting proceedings for damages against a defendant who did not dispute liability and was able to satisfy a judgment.
(8) The other facts referred to in subsection (6)(b) above are—
(a) that the damage was attributable in whole or in part to the act or omission which is alleged to constitute negligence; and
(b) the identity of the defendant; and
(c) if it is alleged that the act or omission was that of a person other than the defendant, the identity of that person and the additional facts supporting the bringing of an action against the defendant.
(9) Knowledge that any acts or omissions did or did not, as a matter of law, involve negligence is irrelevant for the purposes of subsection (5) above.
(10) For the purposes of this section a person's knowledge includes knowledge which he might reasonably have been expected to acquire—
(a) from facts observable or ascertainable by him; or
(b) from facts ascertainable by him with the help of appropriate expert advice which it is reasonable for him to seek;
but a person shall not be taken by virtue of this subsection to have knowledge of a fact ascertainable only with the help of expert advice so long as he has taken all reasonable steps to obtain (and, where appropriate, to act on) that advice.]"
Section 14A was added by the Latent Damage Act 1986. The period of limitation under ss 2 and 5 is usually referred to as the primary limitation period. That under s 14A is generally referred to as the secondary limitation period.
"It is accepted and acknowledged by the claimant that the limitation period in respect of the Attestation Negligence expired in or around February 2003, prior to the defendant's instruction. However, in relation to the Agreement Negligence, the negligence occurred in March 1997, but no damage occurred until Liza changed her mind and decided not to abide by the agreement in June 2005. Accordingly, by virtue of section 14A of the Limitation Act 1980, the limitation period for the Agreement Negligence did not expire until after the defendant's instruction by the claimant."
Up to Sephton
"Although there is no more direct authority than those cases among those which have been cited to us, I would accept Mr. Stuart-Smith's statement of the law and would conclude that, on the facts of this case, the plaintiff has suffered actual damage through the negligence of her solicitors by entering into the mortgage deed, the effect of which has been to encumber her interest in her freehold estate with this legal charge and subject her to a liability which may, according to matters completely outside her control, mature into financial loss — as indeed it did. It seems to me that the plaintiff did suffer actual damage in those ways: and subject to that liability and with that encumbrance on the mortgage property was then entitled to claim damages, not, I would think, an indemnity and probably not a declaration, for the alleged negligence of the solicitor which she alleges caused her that damage. In those circumstances her cause of action was complete on February 8, 1973, and the writ which she issued on March 25, 1980, was issued too late to come within the six years' period of limitation."
"In this case, as soon as she executed the mortgage the plaintiff not only became liable under its express terms but also — and more importantly — the value of the equity of redemption of her property was reduced.
Before she executed the mortgage deed she owned the property free from encumbrances; thereafter she became the owner of a property subject to a mortgage. That, in my view, was a quantifiable loss and as from that date her cause of action against her solicitor was complete, because at that date she had suffered damage. The actual quantum of damages would, of course, depend on events between that date and the date when the damages had finally to be assessed, but the cause of action was complete when she executed the mortgage, without proof of special damage."
"30. In my opinion, therefore, the question must be decided on principle. A contingent liability is not as such damage until the contingency occurs. The existence of a contingent liability may depress the value of other property, as in Forster v Outred & Co  1 WLR 86, or it may mean that a party to a bilateral transaction has received less than he should have done, or is worse off than if he had not entered into the transaction (according to which is the appropriate measure of damages in the circumstances). But, standing alone as in this case, the contingency is not damage.
31. The majority of the Court of Appeal appear to have decided the case on the basis that the Law Society did not enter into any transaction giving rise to the contingent liability. It did nothing and the contingent liability was created by the misappropriations and the previous existence of the Compensation Fund and the rules which governed its administration. No doubt in most cases in which a party incurs a contingent liability as a result of entering into a transaction, that liability will result in damage for the reasons already discussed in relation to bilateral transactions. But I would prefer to put my decision on the simple basis that the possibility of an obligation to pay money in the future is not in itself damage."
"48. In all these cases the claimant has as a result of professional negligence suffered a diminution (sometimes immediately quantifiable, often not yet quantifiable) in the value of an existing asset of his, or has been disappointed (as against what he was entitled to expect) in an asset which he acquires, whether it is a house, a business arrangement, an insurance policy, or a claim for damages. Your Lordships have not, I think, been shown any case in which the imposition on a claimant of a purely personal and wholly contingent liability, unsecured by a charge on any of the claimant's assets, has been treated as actual loss. That would have been the position if the claimant in Forster  1 WLR 86 had given a personal covenant guaranteeing her son's debts (which she seems not to have done—she paid them simply to prevent enforcement of the security on her farm) and if she had not given any security over any of her own assets."
"70. In all these cases except Forster v. Outred  1 WLR 86 the defendant failed to preserve or procure for the claimant an asset (including a particular chose in action) which could and should have been preserved or protected by proper performance of the defendant's duty in relation to the transaction affecting the claimant's legal position. In Forster v. Outred the claimant's case was that, but for the defendant's negligence, she would never have entered into the transaction at all. But in that case, by doing so, she clearly depreciated the value of her house in a measurable way. However, while a defendant's failure to preserve or protect a particular asset by proper performance of his duty in relation to a particular transaction may readily be seen to have caused measurable loss, negligence causing a claimant to enter into a transaction which he would not otherwise have entered may not immediately, or indeed ever, cause measurable loss to any particular asset."
"30. It follows from Sephton that there can be cases, like that of Mrs Forster, where a contingent liability is incurred but it does not crystallise into an actual liability until a future date but where damage occurs for the purposes of the commencement of the limitation period at the time when the transaction is entered into so that time starts running from that time. I will call this "the damaged asset rule". As a matter of outcome, this rule benefits the wrongdoer, but that is a policy decision made in Sephton and is the result whenever a cause of action becomes time-barred. The fact that the wrongdoer benefits and the claimant has no knowledge of his claim against him may partly explain why Sephton creates a rule for purely contingent liabilities. If the consequence of Sephton is that the result in Forster is to be translated into the world of insurance, it could mean that the mere underwriting of a policy of insurance would constitute damage, and start the running of the limitation period. The insurer would then be placed in the same position as Mrs Forster. The beneficiary would again be the alleged wrongdoer. In the case of longtail business (such as employers' liability), the insurer may not know that he has suffered a loss as a result of a wrong until the limitation period for bringing an action in respect of that wrong has expired. The exception to that would be where he is able to bring himself within the provisions of s 14A of the Limitation Act 1980 dealing with latent damage.
31. It is clear from the speeches in Sephton that there are other situations where loss is suffered immediately. The speeches refer to cases such as D. W. Moore v Ferrier  1 WLR 267. In that case, the plaintiff did not discover the deficiencies in a restrictive covenant in an employee's contract of employment until the covenant was challenged several years later. It was held that damage occurred when the agreement was executed since at that point in time the plaintiff received a worthless covenant rather than a valuable chose in action. Accordingly time began to run from this point. Likewise in Bell v Peter Browne & Co  2 QB 495, where the defendant solicitors failed to register the interest of a husband in a house following the terms of a separation agreement, time began to run from a failure to take the necessary steps and not from the time when the husband discovered that the house had been sold and the proceeds dissipated. In these cases, there was a bilateral transaction under which the claimant should have received certain benefits but owing to the negligence of his professional adviser did not do so. I will refer to this situation as "the package of rights rule". There is no reason in principle why this line of authority should not apply where what the claimant by virtue of the bilateral transaction places himself under a contingent liability. Lord Hoffmann at  of his speech in Sephton expressly contemplates that situation (see also the first sentence of the passage from the judgment of Saville LJ in Humberts which Lord Walker cited at  of his speech). The judge considered that what I have called the package of rights rule applied to this case.
32. In my judgment, the damaged asset rule and the package of rights rule are best regarded not as a series of independent qualifications on the basic rule in Sephton that the assumption of a "pure contingent liability" does not cause the limitation period to start to run, but as different cases in which the courts have tried to express a central idea. That idea has to be found by seeking the ultimate ratio in Sephton, that is, a ratio which expresses the reason for the decision on which, despite the differences in expression, all the members of the House in that case were agreed. As I see it, the concept on which all the members of the House agreed was that there had to be measurable loss before time began to be run, that is to say, loss which is additional to the incurring of a purely contingent liability. In my judgment, for this purpose, rights of contribution or subrogation must be ignored because those rights arise by operation of law, unless excluded by agreement or statute. If they were taken into account, they would undermine the basic rule which is clearly established in Sephton that a pure contingent liability is not damage.
33. In my judgment, the central idea in Sephton is that there has to be loss additional to that resulting from the incurring of a purely contingent liability. This reflects the formulation in Wardley with which Lord Hoffmann expressly agreed. That passage in particular held:
"Rather, it seems to us, the decisions in cases which involve contingent loss were decisions which turned on the plaintiff sustaining measurable loss at an earlier time, quite apart from the contingent loss which threatened at a later date … If … the English decisions properly understood support the proposition that where, as a result of the defendant's negligent misrepresentation, the plaintiff enters into a contract which exposes him or her to a contingent loss or liability, the plaintiff first suffers loss or damage on entry into the contract, we do not agree with them."
34. The central idea which I have identified is also consistent with the "simple basis" on which Lord Hoffmann puts his decision at the end of paragraph  of his speech: "...the possibility of an obligation to pay money in the future is not in itself damage" (emphasis added). Lord Walker expressly agreed with the passage cited in the last paragraph from Wardley. In addition, Lord Walker, cited with approval a passage from the judgment of Saville LJ in Humberts (see the passage cited in paragraph  above). This concentrated on the requirement for incurring of loss rather than the acquisition of less valuable rights under a bilateral transaction, which is the particular situation with which Lord Walker deals in paragraph  of his judgment. I do not read Lord Walker as rejecting any part of what Saville LJ had held. On this basis the acquisition of less valuable rights is to be regarded as a species of loss and not as describing the whole genus of loss. Lord Mance spoke of the necessity for a change in legal position and a diminution in value of a particular asset (see paragraphs  and  of his judgment). This also appears to be an acceptance of a requirement for additional loss, though arguably limited to damage to a particular asset. However, as Lord Mance agreed with Lord Hoffmann and Lord Walker I do not consider that his speech should be read as ruling out the incurring of additional loss in other ways.
35. In my judgment, the true ratio of Sephton is that there has to be measurable loss as defined in Wardley for time to begin to run for limitation purposes. On this basis what has to be shown is additional loss, and that loss does not have to be of a kind previously considered in the case law. Types of damage considered in the case law thus far include damage to existing property (my damaged asset rule) or a failure to obtain the hoped-for benefits under a bilateral transaction (my package of rights rule)."
"73. … The fact that the flawed transaction has been entered into will usually be damage from the claimant's point of view. The fact that the recipient of the advice might have hoped for a better transaction or might have hoped to avoid any transaction makes no difference to the fact that he has entered into a flawed transaction which he would not have done if he had been competently advised. If such a flawed transaction has come into existence that will, in my view, usually be the damage which the recipient of the advice has suffered and that is more than the existence of a mere contingent liability."
"18. Mr Harris (for the defendant) submits this is not a contingency case like the case of Law Society v Sephton. He submits that from the outset the claimant, Mrs Russell, had a flawed interest in the property because it had been made clear that the husband's bankruptcy could affect her position and indeed it did as things turned out.…
28. In my judgment the submissions of Mr Harris that the transaction was vulnerable from the time that it was entered into succeed, and it seems to me that this case sadly is another example of the authorities to which I have referred and upon which he has relied. In my judgment the limitation period in some ways could have begun to run at the time of the transaction, it could begin to run at the time of the bankruptcy, but in my judgment it certainly began to run at a time when the defendant was instructed, and I need not, I do not think, say any more than that, so that in effect by the time the retainer was discharged on 14 February 2001 the limitation clock had begun running."
"15. … Quite apart from the desirability of reducing disparity between parallel causes of action, the law encourages prompt claims and should not to readily derail an early complaint of a breach of a duty of care on the basis that the breach has not, or not yet, caused what the law recognises as actual damage. On the other hand, take a case, such as the present, in which the breach of duty was unknown to the claimants for 22 years. In its wider and overarching function the law fails if in such circumstances it provides that the action is time-barred because the breach caused them actual damage 22 years previously. So a balance needs to be struck. Mr Casey on behalf of the claimants submits to the board that, in certain of its decisions during the last 33 years, the Court of Appeal of England and Wales has forfeited balance by discerning actual damage in circumstances where the damage was not actual at all.
[ … ]
19. It was Rimer LJ, in his judgment in Pegasus Management Holdings SCA v Ernst and Young  EWCA Civ 181,  PNLR 438, who, at para 28, drew a distinction in cases of professional negligence between "no transaction" cases and "wrong transaction" cases. Perhaps the latter are even better described by Longmore LJ in Axa Insurance Ltd v Akther and Darby  EWCA Civ 1166,  1 WLR 1662, at para 71, as "flawed transaction" cases. In his dissenting judgment in the same case Lloyd LJ suggested, at para 134, that a focus on the distinction might be an unhelpful distraction. Although the Board considers that the distinction can represent a helpful sign-post to the relevant principles, it is essential to bear in mind that the central concept behind the "no transaction" and the "flawed transaction" cases is different. For in the latter the claimant does enter into a "flawed transaction" in circumstances in which, in the absence of the defendant's breach of duty, he would have entered into an analogous, but flawless, transaction. In the former, however, the claimant also enters into a transaction but in circumstances in which, in the absence of the defendant's breach of duty, he would have entered into "no transaction" at all. The difference in concept dictates a difference in the inquiry as to whether, and if so when, the claimant suffered actual or measurable damage. In the "flawed transaction" case the inquiry is whether the value to the claimant of the flawed transaction was measurably less than what would have been the value to him of the flawless transaction. In the "no transaction" case the inquiry is whether, and if so at what point, the transaction into which the claimant entered caused his financial position to be measurably worse than if he had not entered into it: see the Nykredit case, cited above, at p 1631 (Lord Nicholls). The Nykredit case was a classic example of a "no transaction" case in that the claimants, who had lent money on the security of a property which the defendant valuers had negligently overvalued for them, would have declined to make the loan if the valuation had not been deficient.
[ … ]
22. The present case is an obvious case of a flawed transaction: it was flawed because it did not convey to the claimants a legal interest in the land and, in the absence of the defendants' breach of duty, they would have entered into an analogous transaction in which it was conveyed to them. The inquiry then becomes: was the value of a full equitable interest in the land on 6 February 1986 measurably less than the value then of a full legal and equitable interest in it? If so, the claimants then suffered actual damage and their action in tort is time-barred. The claimant's second ground of appeal, to which the Board now turns, involves criticism of some of the guidance given by the Court of Appeal of England and Wales in relation to this type of inquiry.
[ … ]
26. In the opinion of the Board the observations of Templeman LJ in the Baker case and of Rimer LJ in the Pegasus case go too far. The fact that the transaction was flawed does not by itself mean that the claimant suffered actual damage on entry into it. Although in the words of Lord Hoffmann in The Law Society v Sephton & Co  UKHL 22,  2 AC 543, at para 21, "it may be relatively easy … to infer that the plaintiff has suffered some immediate damage, simply because he did not get what he should have got", there is no substitute for attending to the particular facts and deciding whether such an inference is properly to be drawn from them.
27. In respectful agreement with the brief judgment of the Court of Appeal in the present case, the Board concludes that the claimants suffered actual damage upon their execution of the Deed on 6 February 1986. An inference to this effect is properly to be drawn from the following.
(a) The claimants' failure to obtain a legal interest in the land on that date subjected them to significant risks which were present from then onwards.
(b) Just as in 2008 the claimants discovered that their lack of a legal interest obstructed their attempts both to borrow on the security of the land and to sell it, they would be likely to have met similar obstruction in the event that at any earlier time after 6 February 1986 they had attempted either to borrow on the security of it or to sell it. Their equitable interest was therefore significantly less valuable to them than a legal interest would have been.
(c) It was not even in the power of the claimants or of the defendants to remedy the flaw by themselves. For it was necessary to procure the participation of Mrs Lambert. In 2008 it so happened that she was quickly located and that she cooperated in a swift execution of the Deed of Rectification. Even in those circumstances costs, for which in the first instance the claimants were liable, must have been incurred in procuring its execution and in registering it. But from 6 February 1986 onwards there were risks that Mrs Lambert would not be able to be located or would be found to have died: were either risk to have eventuated, there would have been significant extra complications – and extra costs. There was also a risk that, if located, Mrs Lambert would not willingly execute the Deed: were that risk to have eventuated, it would have been necessary to take costly legal steps in order to oblige her to do so."
"The agreement in that document was in effect a purchase by one of the executors of the beneficial interest in the will under intestacy of Mrs Benakovic for the sum of £25,000. Effectively Mrs Benakovic was selling whatever interest she had in residue to Mrs Osborne for that sum."
"If the quantification of the plaintiff's damage had fallen to be considered shortly after the execution of either agreement, problems of assessment would undoubtedly have arisen. It might have appeared that Mr Fenton was unlikely to leave, taking much of the first plaintiff's business with him, to establish a competing business. If so, the plaintiff's damage would have been assessed at a modest figure. But the risk of his doing so could not have been eliminated altogether, and so long as there was any risk that one of the first plaintiff's two directors might leave, taking much of the first plaintiff's business with him, to establish a competing business, there must necessarily have been a depressive effect on the value of the first plaintiff's business and on that of the second and third plaintiff's derivative interests. In making his assessment the judge would have had to attach a money value to a possible future contingency; but judges do this every day in awarding claimant's damages for the risk of epilepsy, the risk of osteoarthritis, the risk of possible future operations, the risk of losing a job and so on. The valuation exercise is, of course, different, but the difference is one of subject matter, not of kind."
Discussion and decision