When does time start to run for limitation in tort where a transaction has gone wrong?

27 mai 2021

The Court of Appeal (CA) decision in Elliott v Hattens Solicitors [2021] has been handed down. This dispute relates to a negligence claim against a firm of solicitors and whether or not the claim was time-barred by the time that proceedings were commenced.

In this article, we review the judgment and analyse the key points.



Background

  1. In 2011, Kelly Elliott (KE) instructed Hattens in a transaction relating to a workshop in Grays, Essex owned by her husband. The plan was that Mr Elliott would grant a lease to KE and in turn, she would grant an underlease of the premises to Mr Jamie Malster. It was intended that Mr Malster's parents would guarantee Mr Malster's obligations under the underlease.
  2. Hattens prepared a lease, underlease and rent deposit deed, which were executed on 24 February 2012. Unfortunately, Hattens negligently failed to name Mr Malster's parents as parties to the underlease meaning that they did not execute the underlease, nor did they otherwise become guarantors. Additionally, Hattens did not advise KE to insure the property, even though she was obliged to do so under the lease and the underlease.
  3. On 6 November 2012, the workshop burned down; Mr Malster then vacated the premises without undertaking any repairs. KE was left without a rental stream, and her losses were uninsured. Mr Elliott had insurance but cover was declined by the insurer on the basis of breach of warranty.
  4. KE commenced proceedings against Hattens on 10 April 2018 seeking damages in negligence. This was more than six years after the lease and underlease were executed, but less than six years after the fire.
  5. Hattens accepted that they had been negligent in drafting the documents and in failing to advise KE to get insurance; they did however plead a limitation defence, as set out below.

Hattens' limitation case

In the tort of negligence, time starts to run for limitation purposes on the date of "actionable damage" and proceedings must be commenced within six years of that date, after which the claim will be time-barred. The damage in this context must be more than minimal and this will turn on the facts of each particular case.

  • It was argued on behalf of Hattens that that the lease documentation had been executed more than six years prior to the issue of proceedings (on 24 February 2012), meaning that KE's action in tort was time-barred.
  • KE's case was that the cause of action in tort had not accrued until she suffered damage, which was the date of the fire - as the loss was purely contingent up to the fire.

A preliminary issue trial was ordered on the limitation defence.

Preliminary issue hearing - first instance

Following a preliminary issue hearing, HHJ Bailey held in favour of KE that:

  • prior to the fire, any loss was 'purely contingent';
  • in accordance therefore with the House of Lords' decision in Law Society v Sephton & Co [2006] (Sephton), this meant that there was no actionable damage sufficient to crystallise a cause of action in tort until the date of the fire; and
  • KE issued proceedings less than six years after the date of the fire and so her claim was not statute-barred.

The court gave permission for a 'leapfrog' appeal to the Court of Appeal.

Court of Appeal

Hattens won on appeal - the CA held unanimously that KE's claim was statute-barred in its entirety. We set out below the key points from the leading judgment of Lord Justice Newey.

The transaction point

  • Negligence claims against solicitors often relate to transactions, alleging that, but for the solicitors' negligence, either:
    • the transaction would not have been entered into at all (a "no transaction" case); or
    • the transaction would have been a better transaction (a "flawed transaction" case). KE's claim against Hattens is a flawed transaction case - if Hattens had not performed negligently, KE would still have entered into the transaction but, as described by Privy Council in Maharaj v Johnson [2015] (Maharaj), it would have been "an analogous, but flawless, transaction" [emphasis added].
  • As stated by Lord Wilson (delivering the lead judgment) in Maharaj, where the transaction is flawed, this does not necessarily mean that the claimant suffered actual damage immediately on entry into that transaction - each case will turn on its facts. If the flawed transaction is objectively less valuable from the outset (the date of the transaction), that is when the cause of action accrued.

Not a contingent liability

This was not a case where KE had a contingent liability from the date of the transaction - in Sephton (House of Lords), Lord Hoffman stated "[a] contingent liability is not as such damage until the contingency occurs". In other words, contingent liability (merely incurring a possible future liability) does not count as immediate damage for the purposes of a claim in tort, so the time for limitation does not start to run until there is actual loss.

As Lord Justice Newey said: "Hattens' negligence did not cause Mrs Elliott to assume any liability: the position is rather that she obtained less advantageous rights".

When did KE's cause of action in tort accrue?

The CA held that Hattens' failure to ensure that Mr Malster's parents were guarantors caused KE damage as soon as the lease and underlease were entered into in February 2012 - therefore, her cause of action accrued at that point (the date of the transaction) and was statute-barred by the time the proceedings were commenced.

Commentary

Whilst the CA Hattens is not new law, it is a reminder to be vigilant about limitation dates. One of the dangers lies in making assumptions about when the cause of action accrued - each case needs to be carefully considered on its particular facts. Always err on the side of caution by working to the earliest possible date that the limitation period could end.

If you have any queries about this or any other issue related to dispute resolution, contact Emma Carr or Sean Adams.


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