Elliott v Hattens Solicitors – Ahoy the rocks of limitation!

On the high seas of litigation, careful navigation and a bird’s eye view can be required if claimants are to avoid the rocks of limitation, against which many a good claim has been dashed.

In the recent case of Elliott v Hattens Solicitors [2021] EWCA Civ 720, it fell to the Court of Appeal to determine whether or not the claimant’s claim against her former solicitors, for damages for professional negligence, still had wind in its sails or, having weighed anchor all too late, was now to be consigned to the deep.

Background

In 2011 the claimant instructed the defendant firm of solicitors to act on her behalf in relation to (i) the grant to her of a lease for a residential property; and (ii) the simultaneous grant by her of an underlease for the same property to Mr Jamie Malster.

The freehold owner of the property was the claimant’s husband and it was the intention of the parties that Mr Malster’s parents would provide a personal guarantee for his obligations under the underlease.

On 24 February 2012, a lease, underlease and rent deposit deed prepared by the defendant were executed. Amongst other matters, both the lease and underlease required the claimant to insure the property against fire.

Unfortunately, the defendant failed to name Mr Malster’s parents as parties to the underlease or to seek a guarantee for them. The defendant also failed to draw to the claimant’s attention the need for her to obtain insurance for the property.

On 6 November 2012 a fire broke out at the property. This caused significant damage and as there was no insurance available to cover the costs of repairs, and a loss of rent, the claimant sought to recover her losses by commencing a professional negligence claim against the defendant.

Court proceedings were issued on 10 April 2018, being within six years of the date of the fire, but more than six years from the date on which the lease and underlease were executed.

Limitation issues

In its Defence, the defendant pleaded that the claim was time-barred under section 2 of the Limitation Act 1980. This was on the basis that the claimant had suffered damage as soon as the lease and underlease were executed, at which time the package of rights that the claimant had received was objectively less valuable than intended.

In response, the claimant argued that time did not start to run for the purposes of her claim in negligence until the fire had occurred. This was on the basis that she did not suffer any actual loss or damage as a result of the absence of a guarantee until after Mr Malster had defaulted on his obligations. Furthermore, she did not suffer any actual loss or damage as a result of the defendant’s failure to advise on insurance until after the fire had necessitated a policy claim.

In turn, and because it had the potential to provide a complete defence to the claim, the court ordered that limitation be tried as a preliminary issue.

Decision at first instance

Sitting in the Central London County Court, His Honour Judge Bailey concluded that the claimant had commenced her claim within the permitted time limits.

On his analysis, and relying on the decisions of Law Society v Sephton & Co [2006] UKHL 22 and Maharaj v Johnson [2015] UKPC 28, each case had to be assessed on its own facts and that in this case, damage did not occur, and the time period for limitation purposes did not start to run, until after 10 April 2012. That was because prior to this date, which itself was six years prior to date upon which court proceedings had been issued, the claimant’s financial loss was possible but not certain, and that was not sufficient to make good a claim in negligence.

Nevertheless, and despite his conclusion, the Judge agreed to grant permission to appeal to the defendant, which asserted that his decision was unsustainable and based on an error of law.

Court of Appeal decision

In giving the leading judgment in the Court of Appeal, with which the other Lord Justices concurred, Lord Justice Newey observed that:

  • A claim in negligence will normally become time-barred six years after the cause of action accrued;
  • In Khan v R.M. Falvey [2002] EWCA Civ 400 Sir Murray Stuart-Smith had stated that “A claimant cannot defeat the statute of limitations by claiming only in respect of damage which occurs within the limitation period, if he has suffered actual damage from the same wrongful acts outside that period”;
  • This was a “flawed transaction” case viz. the claimant would still have taken a lease and granted an underlease even if there had been no negligence;
  • That being so, the question that had to be decided was whether the value to the claimant of the flawed transaction was measurably less than what would have been the value to her of the flawless transaction;
  • Where a claimant can be seen to be “financially worse off”, because an asset has a lower market value, relevant damage will have been suffered regardless of what the claimant was intending to do with the asset;
  • There could be no doubt that the defendant’s failure to ensure that Mr Malster’s parents were guarantors caused damage to the claimant;
  • The defendant’s failure to advise the claimant of the need to insure put her in breach of her obligations under both the underlease and lease and provided a ground for forfeiting the latter which could not be dismissed as negligible;
  • If any attempt had been made to forfeit the lease, the claimant would have had to incur expense in connection with it, even if she ultimately retained the lease.

Accordingly, the Court of Appeal held that actual damage had occurred as soon as the lease and underlease were entered into and the claim, having been commenced outside the permitted time-limits, was now statute-barred.

Comments

While this decision does not create any new law, it does offer a salutary reminder to potential claimants of the navigational risks that surround limitation. In particular, it highlights that the limitation can start ticking at a much earlier stage than might first be thought and that the potential to avert a limitation defence can be a real incentive for acting swiftly, whenever professional negligence is suspected.

It has been recognised for some time that the general policy of the law is to advance, rather than retard, the statutory limitation deadlines and in our opinion this decision by the Court of Appeal, which exemplifies this approach, comes with relatively little surprise.

However, the fact that a different decision was reached by the learned judge at first instance goes some way to demonstrating to potential claimants how complicated and difficult the provisions of the Limitation Act 1980 can be to apply in practice and, in turn, the real uncertainty that they can create.

For a more detailed account of the time limits that apply to professional negligence claims, please see our related articles:

Further legal assistance

As professional negligence solicitors we act for clients nationwide, to resolve claims against a wide range of professionals.

If you would like to arrange a telephone 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.

As you can discover here, at PNC Legal there is much more than just the fact that we specialise exclusively in resolving claims for professional negligence that sets us apart from most other solicitors.

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