The Supreme Court's decision in Smith v Cunningham & Others [2023] IESC 13 provides helpful direction on the sometimes difficult question as to the point from which a cause of action accrues in a claim for professional negligence.
Negligence Claims involving 'Pure' Economic Loss
Section 11(2) Statute of Limitations Act 1957 Act (the '1957 Act') states that "an action founded on tort shall not be brought after the expiration of six years from the date on which the cause of action accrued."
A previous Supreme Court decision, Brandley v Deane [2017] IESC 83, which involved a negligence claim for damage to property, held that the time begins to run, for the purposes of the 1957 Act, when the damage 'manifested' itself, which the Court has previously considered to be when the damage becomes capable of being 'discovered' and 'proved' by a plaintiff.
However, the difficulty in determining the point at which damage has manifested itself in, what are termed, 'purely' economic cases can make the application of the 1957 Act challenging. This includes claims for professional negligence. The Supreme Court acknowledged that the application of a single coherent test in such cases can be problematic, with issues including;
- the propensity in cases of this type for a cause of action to accrue without a prospective plaintiff being aware that a loss has been suffered; and
- the fact economic loss may be wholly or partially contingent, reversible, uncertain and/or the product of fluctuations in valuations.
Background
The plaintiff in this case claimed damages arising from his purchase of a property in 2006. An engineer engaged by the vendor executed a 'Certificate of Compliance with Planning Permission and Building Regulations' at the time of the purchase. However, it was later discovered that the property did not, in fact, comply with the planning permission granted by the relevant local authority in 2004. The plaintiff contended that the defendant solicitors should have conducted planning searches in advance of the purchase and should have advised on the necessity of engaging an engineer to establish compliance with planning permission.
The planning issues only came to light when a subsequent contract, entered into by the plaintiff to sell the property, was rescinded in October 2008 for this reason. The sale did not complete and although retention planning was subsequently obtained, the value of the property was by then significantly reduced on account of the economic downturn and it was ultimately repossessed by the mortgagee.
While the defendant solicitor firm submitted a defence to the claims, the question for the Supreme Court to consider was whether the claim in negligence, initiated by the plaintiff in 2014, was statute barred and in particular, whether:
- 'damage' was sustained by the plaintiff when he acquired the property in July 2006 (in which case the action would be statute barred); or
- whether it occurred after the subsequent contract to sell the property was rescinded in October 2008 (meaning the action was commenced in time).
High Court and Court of Appeal Decisions
The High Court held that the claim was not statute barred on the basis that when the property was purchased in 2006 with a flawed title, it amounted to a 'defect' but 'damage' did not occur until the 2008 contract was rescinded, at which point a cause of action accrued.
The Court of Appeal overturned this decision, holding the action was statute barred as the 'defect' was "an immediate and significant blot on title", so that the cause of action accrued when the plaintiff purchased the property in 2006.
Legal Principles
The Supreme Court considered a number of Irish authorities on the application of s.11(2) of the 1957 Act to negligence actions, including the Brandley decision (referred to above) and Cantrell & ors v AIB plc & ors [2020] IESC 71 (see our previous briefing here). In the Cantrell case, the Court held that "the test is when provable injury capable of attracting compensation occurred" with the need for "real actual damage which a person would consider commencing proceedings for".
The Supreme Court in these proceedings further clarified that:
- time does not run from the point at which a plaintiff might reasonably have known of his loss or cause of action but instead at the point at which real and meaningful loss was sustained;
- the starting line for assessing this is if there is any reduction in present value; and
- the tests that have been articulated previously in the Brandley and Cantrell decisions are not to allow for a subjective or unstructured inquiry but do allow for the need for flexibility.
Supreme Court Decision
Applying the principles above, the Supreme Court found that where a solicitor is retained for the purposes of obtaining good marketable title and does not do so, the point at which a client suffers actionable loss will generally be the point at which the property is conveyed to him or her. What the client has obtained in such circumstances will usually be materially less valuable than what was entitled to be acquired and there is a right to sue to recover the difference between the value of the right contracted for and that which was obtained.
In this case, it was held that the plaintiff had suffered an actionable loss from the point the property was purchased in 2006, with the Court identifying that the plaintiff, as owner and occupier of the property, became liable at this point to enforcement by the planning authority for the planning issues, the marketability of the property was adversely affected by the defect on title and the price paid for the property was for a house that was planning compliant but what was received was less valuable.
As such, the Supreme Court held that the plaintiff acquired something different and worth less in July 2006 to what had been contracted for and so real and actual damage, not de minimis in nature, was suffered at that point. The plaintiff could have maintained an action for damages against the defendant solicitors following completion of the purchase and the fact that it was unlikely that the plaintiff would discover this at that time did not alter the position.
Conclusion
The Supreme Court noted that while the test for the accrual of a cause of action in negligence is, in theory, the same for all forms of injury, in cases of 'pure' economic loss, the Court must undertake a pragmatic case by case analysis in line with the principles identified.
The Supreme Court acknowledged the difficulty with having a situation whereby damage has occurred (and with that the commencement of the 'clock') before a plaintiff could reasonably have become aware of loss caused by negligent performance of professional services and it was noted by Hogan J. that this is an area that the Oireachtas may wish to re-consider.
However, the Supreme Court, in finding that a cause of action accrued from the point at which an action for damages could be maintained, and in particular, when a property had been conveyed to a purchaser without good marketable title, has provided increased legal certainty for professional providers and their professional indemnity insurers.
The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.
