A further limitation decision which is good news for professionals and their insurers has recently been made. The Court of Appeal in Lane v Cullens Solicitors & Others has again declined to follow Law Society v Sephton, which was a landmark decision in 2006 that delayed the commencement of the limitation period in a professional negligence claim.
The six-year primary limitation period in tort is six years from the date that actual, rather than prospective, damage was suffered. There have been a number of key cases on the question of when damage was suffered, the most well known of which is Law Society v Sephton.
In Sephton the Law Society was required to compensate clients affected by the negligence of a reporting accountant in failing to spot that a solicitor was misappropriating client funds during his examination of the firm's accounts. The House of Lords found that actual damage was only suffered when a defrauded client first presented the Society with a valid claim, and a risk of potential third party claims was a pure contingent liability generally insufficient to constitute damage.
However, none of the subsequent claimants seeking to take advantage of Sephton has been successful (most recent examples include the Court of Appeal decisions in Axa v Akther and Darby (2009) and Pegasus v Ernst & Young (2010)).
The claimant was the administrator of his sister, Mrs Eason's, estate from 2 August 2000, following her death intestate in January 1997. The various firms of defendant solicitors were appointed to act for the claimant in the administration of the estate. Mrs Eason had made a will leaving her entire estate to her niece, Mrs Hannah, but that had not been properly executed and was invalid. In 1998, Mrs Hannah had asserted a right based on an express or constructive trust in her favour or a proprietary estoppel over Mrs Eason's freehold property. In February 2001, the claimant paid £10,000 to each of himself and his brother by way of distribution, and made a further distribution of £10,000 each in March. In April 2001, Mrs Hannah issued proceedings against the estate. Her claim was on the basis that she had agreed to transfer the property from her name to Mrs Eason's, to enable Mrs Eason, who lived at the property, to get adjustments made to it by the local authority, on the basis that Mrs Eason would gift it back to Mrs Hannah on her death. Mrs Hannah obtained an order that the estate was held on trust for her, and when the claimant's brother refused to repay, an order was obtained against the claimant including to pay back the £20,000.
The claimant brought proceedings against the defendant solicitors alleging that, in the circumstances, he should have been warned not to make any distributions.
This judgment relates to whether the proceedings had been brought within the limitation period, as they were issued more than six years after the first payments were made. Relying on the position in Sephton, the claimant's argument was that he had not altered his legal position by making the payments, and that did not occur until Mrs Hannah established her adverse rights. He also argued that a proprietary estoppel claim is inchoate by its nature until the court decides what remedy to give, and so it was not known what rights Mrs Hannah would have against the estate until the claim was resolved.
The Court of Appeal rejected these arguments. It found that before the claimant made the payments he was exposed to a claim but had the funds to meet it, and after he did not, and so had altered his position significantly by making them. The loss had therefore been suffered, and the limitation period for the negligence claim started to run, as soon as the payments were made. The court also rejected the arguments relating to the discretionary nature of the relief for proprietary estoppel. Unless it could be proved that there was a real prospect that the court would grant no relief at all, it did not matter what form the relief would have taken. In this case, the claim was in any event very close to a contractual claim.
The case is another example of the court declining to delay commencement of the limitation period on the basis that, following Sephton, only contingent loss has been suffered by the claimant at the earlier date, and is therefore good news for professional advisers and their insurers.
Although, no doubt, there may be a factual scenario in the future where the courts would be prepared to find a pure contingent loss and delay the limitation period for a professional negligence claim, it appears clear that such a scenario will be rare. It is, however, also clear that claimants will continue to try to argue such points. In cases against professionals where there is a limitation issue of this nature, a preliminary issue trial could be the most cost-effective way to dispose of the action thereby avoiding the necessity of dealing with the matter in full at a costly trial.
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