A present danger: Secondary limitation in professional negligence

In this article we examine the secondary limitation period that applies to some professional negligence claims, as well as the dangers that it presents for potential claimants.

We have produced a separate article on the primary limitation periods that apply to most professional negligence claims, which may be read in conjunction with this article. This can be accessed here.

For those approaching the issue of limitation for the first time, or seeking brief answers to some of the frequently asked questions in this area, we have also produced a short guide to the time limits that apply to professional negligence claims. This can be accessed here.

A primary issue

The importance of limitation periods in professional negligence claims should not be under-estimated. Once the limitation period for a claim expires, the claim can no longer be commenced. This is so regardless of whether the financial loss suffered is substantial or the claim has considerable merit.

For this reason, limitation is one of the first issues that should be considered as soon as there is reason to believe that a mistake has been made by a professional adviser and/or that financial loss has occurred.

Secondary limitation period

If the primary limitation period for a professional negligence claim has already expired, it may still be possible to pursue a claim if it falls within the secondary limitation period. This can be found within section 14A of the Limitation Act 1980. It applies only to claims in negligence, where the facts relevant to the claim are not known at the date of accrual. It does not apply to, and cannot therefore save, any claim in contract.

Section 14A of the Limitation Act 1980 is a lengthy provision and not always easy to follow. In abbreviated form, it provides that:

(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)        …the starting date …under subsection (4)(b) above is the earliest date on which the plaintiff…first had both the knowledge required for bringing an action for damages…and a right to bring such an action.

(6)        In subsection (5) above…knowledge…means knowledge both:

(a)        of the material facts about the damage in respect of which damages are claimed; and

(b)        of the other facts mentioned in subsection (8) below.

(7)        …material facts about the damage are such facts…as would lead a reasonable person…to consider…instituting proceedings

(8)        The other facts…are:

(a)        that the damage was attributable…to the act or omission which is alleged to constitute            negligence; and

(b)        the identity of the defendant; and

(c)        …

(9)        Knowledge that any acts or omissions did or did not, as a matter of law, involve negligence is irrelevant…

(10)      …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…

As will be seen from the case examples that follow, the results of applying this section in practice are not always predicable.

Hayward v Fawcett

Here, on the advice of his accountants, the claimant had purchased an agricultural machinery business in 1994 and had invested heavily in it over several years. Before 6 December 1998 the claimant knew that his investment was lost and that the company was insolvent. However, it was not until December 1999 that the claimant first questioned the advice that he had received from his accountants in relation to the original purchase. In December 2001 the claimant commenced legal proceedings against his accountants, claiming damages for professional negligence.

For the purposes of section 14A the claimant alleged that he first acquired knowledge in 1999, when it was first suggested to him that his accountants had been negligent. In contrast, his accountants alleged that he had acquired actual knowledge prior to December 1998 and more than three years before the proceedings had been commenced. By then, they alleged, the claimant had known that his losses were attributable to their alleged acts or omissions.

On appeal the court held that for the purposes of section 14A (and section 14A(8)(a) in particular) and to start time running, it was sufficient that the claimant knew the facts which constituted the essence of his complaint. Here that was simply that it was his accountants who had recommended investing in the business from which his losses arose. That he had known more than three years before he had commenced proceedings. Therefore, the claim was not saved by section 14A and was time-barred.

Finance For Mortgages Ltd & Others v Farley & Company (A firm)

Here, upon valuation advice from the defendant chartered surveyors, the claimants loaned £380,000 to borrowers to purchase a residential property. After June 1989 no further repayments were made by the borrowers and in June 1990, the claimants were approached by the police who suspected mortgage fraud. The claimants obtained possession of the property in July 1991 and sold it in December 1993 for £170,000. In April 1994 they then commenced legal proceedings against the surveyors, claiming damages for professional negligence.

For the purposes of section 14A the claimants alleged that they first acquired knowledge in August 1991, this allowing for a reasonable period of time to revalue the property after possession was obtained. By contrast, the surveyors alleged that they had acquired constructive knowledge prior to April 1991 and more than three years before the proceedings had been commenced.

The court held that on the facts observable and observed by the claimants any prudent mortgagee would have commenced possession proceedings by January 1990. It further held that any prudent mortgagee could reasonably have acquired knowledge of the defendant’s overvaluation of the property by the end of March 1991. This was more than three years prior to the date on which proceedings had been commenced. Therefore, the claim was not saved by section 14A and was time-barred.

Jacobs v Sesame Limited

Here, on the advice of her financial adviser, the claimant invested £65,000 in a Legal and General Investment Bond in 2005. She surrendered the Bond in February 2012, by which time its value was approximately £53,000. In November 2012 she commenced legal proceedings against her financial adviser, claiming damages for professional negligence.

For the purposes of section 14A the claimant alleged that it was not until February 2012 that she knew either that she had suffered a loss or that she might have received inappropriate advice. In contrast, her financial advisers alleged that she had sufficient knowledge to commence a claim in July 2009 and more than three years before the proceedings had been commenced. By then, they alleged, the claimant had received four annual statements showing a catastrophic fall in the value of the Bond.

On appeal, the court considered that the claimant had acquired constructive knowledge by July 2009. By that date she could reasonably have been expected to learn, either herself or by seeking appropriate expert advice, that she had suffered damage as a result of the investment product having been defective from her perspective. Again therefore, the claim was not saved by section 14A and was time-barred.

Conclusion

As should be apparent from the above case examples, ascertaining the secondary limitation period for a particular claim can be a complicated and uncertain process. While this article seeks to provide an insight into some of the issues that can arise, it is no substitute for obtaining legal advice.

If you consider that you may have grounds for pursuing a professional negligence claim, you should seek legal advice from a specialist solicitor without delay. By doing so you should avoid the danger of your claim becoming inadvertently time-barred. You may also afford yourself the opportunity to resolve your claim without the need to incur the cost of commencing court proceedings which can, depending on the value of your claim, be considerable.

If you would like to arrange an initial consultation with us, free of charge or commitment, please do not hesitate to contact us on 0800 195 4983 or by email at mail@pnclegal.com.

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