Limitation : when time begins to run.
Preface
In order to be actionable (i.e. sustainable at law) all claims for legal remedies ( ie causes of action) must be must involve some element of breach and that breach in turn must cause loss. It follows that one cannot sue on a cause of action unless loss can be shown to have arisen. However English Law specifies periods in which causes of action have to be issued. Those periods are laid down in the Limitation Act 1980. Once any relevant limitation period has expired that is the end of the matter and no further legal claims will be entertained.
For the purposes of time running, at what point might it properly be said that the damage (an essential ingredient) has occurred?
This question was examined in the recently reported case of Hattens v. Elliott [2021] EWA TA Civ 720, a decision of the Court of Appeal.
Some helpful definitions now follow:
Glossary
| The Limitation Act 1980 which specifies clear time limits applicable to different categories of legal claim | : | The 1980 Act |
| Hatten’s solicitors the Appellants in this case | : | H |
| Kelly Elliott, former client of H and Respondent to H’ Appeal | : | Mrs Elliott |
| The Lease and Underlease of property at Stanley Road, Grays, Essex | : | The Lease and Underlease |
| The underlessee Mr Malster | : | Mr Malster |
| The execution date of the Lease and Underlease on 24 February 2012 | : | The Execution Date |
| The fire at the property which took place on 6 November 2012 and which destroyed buildings thereat | : | The Fire |
| The claims for damages for negligence issued by Mrs Elliott against H on 10 April 2018 | : | The Negligence Action |
- The brief facts:
On 24 February 2012 H prepared the Lease, Underlease and a Rent Deposit Deed which were all executed that day in favour of Mrs Elliott. The intention was that Mr Malster’s parents would guarantee his financial obligations under the Underlease. In addition both the Lease and the Underlease included covenants by Mrs Elliott to keep the property insured against damage by “Insured Risks”, save for one or two express exceptions.
- The Fire: negligence
There were two breaches of the professional duty of care by H. The first comprised a failure to name Mr Malster’s parents as parties to the Underlease. Accordingly they were not guarantors, contrary to Mrs Elliott’s instructions. The second related to H’ failure to advise Mrs Elliott to take out an appropriate insurance policy to provide for insured perils which might arise in relation to the property.
In the Negligence Action H accepted that they had failed to exercise reasonable skill and care in drafting the relevant documents and in advising Mrs Elliott.
- The question for the Court: The Negligence Action: in time or not?
The Negligence Action was issued on 10 April 2018. This was more than six years after the execution of the Lease and the Underlease. Accordingly and prima facie Mrs Elliott’s claims were out of time in that they had been issued outside the six year limitation period specified in the 1980 Act.
- Issue:
The short question for the Court was this: was Mrs Elliott was barred from bringing her claims in negligence by virtue of the 1980 Act?
- The 1980 Act:
An essential provision of The 1980 Act is that a claim in tort (here, professional negligence) will normally become time – barred six years after the date on which the cause of action accrued. Damage is an essential component in a negligence claim. Whether a limitation defence is available will accordingly depend upon when the negligence first caused actionable damage.
“Once real damage – as distinct from purely minimal damage – is sustained, the cause of action arises, even though greater loss may later eventuate from the negligence”. (Murray Stuart-Smith Khan v R.M. Falvey [2002] EWCA Civ 400.
- A No Transaction Case:
Negligence claims against professional advisers often relate to transactions on which advisers were instructed and which have turned out badly. In this context a Claimant may allege that either but for their solicitors’ negligence they would not have entered into the transaction at all (a No Transaction case) or, had it not been for the negligence, the transaction would have satisfied the client’s objectives and requirements (a Flawed Transaction case).
These differing concepts require distinct approaches when it comes to assessment of loss. In a “Flawed Transaction” case the enquiry is whether the value to the Claimant of the flawed transaction was measurably less than what would have been the value available to him of the flawless transaction.
In contrast, in a “No Transaction” case the enquiry is whether and if so at what point the transaction which the Claimant entered caused his financial position to be measurably worse than if he had not entered into it at all.
- Nykredit:
A classic example of a “No Transaction” case is Nykredit Mortgage Bank Plc v Edward Erdman Group Limited (Round) No. 2) [1997] 1WLR 1627. In this case the Claimant had loaned sums on the security of property which the Defendant valuers had negligently overvalued. The Claimants contended that they would have declined to have made the loan had the valuation not been deficient.
- Maharaj:
The separate reported case of Maharaj v Johnson [2015] UKPC 28 is an example of a “Flawed Transaction” case. The Claimants agreed to purchase some land. A conveyance in their favour was subsequently executed by a third party with the Vendor Mrs Lambert (under a Power of Attorney on her behalf). The conveyance took place on 6 February 1986.
Some 20 years later the Claimants’ Title to the land was disputed. It was contended that the Conveyance of the land to them had not been within the scope of the Power of Attorney and accordingly no valid transfer of land to them had taken place.
Happily, to remedy this difficulty, a Deed of Rectification was obtained from the Vendor and this put matters right. The Claimants nonetheless issued legal proceedings against their former solicitor for additional loss. The claim however was struck out on the grounds that it had become statute barred.
In its reasoning the Court concluded that the Claimants had suffered actual damage on the day of execution of their Deed 6 February 1986. And so saying the Court drew the following inferences as to the types of damage which had caused:
- The Claimants had failed to obtain the correct legal interest in the land. On 6 February 1986 onwards they were under significant risk in relation to Title.
- Just as in 2008 – when the Claimants discovered that their defective Title was a prohibition upon borrowing – they would be most likely to have met with a similar difficulty trying to borrow at any time after 6 February 1986 and
- It was not within the gift of the Claimants (or indeed their solicitors) to remedy this flaw by themselves. For this to happen it was necessary to obtain the participation of Mrs Lambert, the Vendor.
In summary the Court concluded that the risks attendant upon execution of the document on 6 February 1986 was such as to generate a quantifiable reduction in the value of the asset which the Claimants should otherwise have received.
- The Court’s Judgment and reasoning:
Mrs Elliott’s case was a Flawed Transaction case. She would still have taken a Lease of the property and granted an Underlease to Mr Malster even if there had been no negligence by her solicitors.
Had the solicitors not been negligent, Mr Malster’s parents would have guaranteed his obligations as Tenant and (it was assumed) had Mrs Elliott been duly advised of the need to obtain an insurance policy she would have done so.
- Loss
The question then arose as to whether “the value to Mrs Elliott of the flawed transaction was measurably less than what would have been the value to her of a flawless transaction”.
On the face of it the Court answered in the affirmative; apart from anything else, Mrs Elliott’s Lease must have been less valuable because there was no guarantor (in respect of the financial obligations in Underlease that she had granted). It was not within her power to remedy this deficiency without the co-operation of Mr Malster’s parents.
The reversion to an Underlease with the benefit the Malster’s parents as guarantors would plainly have been of measurably greater value than that of an unguaranteed Underlease which the solicitors’ negligence had led Mrs Elliott to grant.
Put shortly Mrs Elliott’s expectations had been disappointed. She had been entitled to obtain assets whose values would not be subject to depreciation or put at risk by respectively having no guarantors nor insurance policy.
On the facts the Court were in no doubt that H’ failures to ensure that Mr Malster’s parents were guarantors caused Mrs Elliott damage from day one (ie as soon as the Lease and Underlease were entered into). Equally Mrs Elliott was at risk without a proper policy in place.
It followed that Mrs Elliott’s causes of action had accrued as at 6 February 1986 and her claims against her former solicitors were now statute barred because they had been issued more than six years later in time.
Accordingly H’ appeal was allowed and on this footing.
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This Article contains views founded upon the interpretation of current legal practice and procedure. However, each case is fact-specific and much may turn upon the individual nature of the case or changes in the law or differing judicial interpretations.
Richard Peter Tymkiw LLB (Hons) 