There are perhaps very few absolutes in litigation, but one thing that can be said with some certainty is that even the best case in the world will fail if it is not commenced within the required "limitation period". If a claim is not issued at Court within the relevant "limitation period", then the Defendant will have a complete defence to the claim, regardless of the underlying merits of the Claimant's case.
The relevant "limitation periods" for most types of claims are set out in The Limitation Act 1980, and the general rule for negligence claims (including professional negligence claims) is that the claim must be brought before "the expiration of six years from the date on which the cause of action accrued". However, in many professional negligence cases it is not always clear precisely when the loss is suffered as a result of the Defendant's negligence (i.e. when "the cause of action accrued").
Transactional Cases
In some cases, a loss will be suffered as soon as the negligence occurs (or at least very soon afterwards). This is often true in so-called "transactional cases", where the Claimant enters into a transaction in reliance upon the Defendant's negligent advice. In such cases, the Courts often rule that the Claimant suffered a loss as soon as it entered into a transaction that was less advantageous to it than its previous position (even though this may not have been apparent to the Claimant at the time of the transaction).
For example, in Shore v Sedgwick Financial Services [2008] the Court of Appeal confirmed that a Claimant who had transferred his pension benefits from one scheme to another based on negligent advice had suffered a loss immediately upon the transfer of benefits. This decision was given on the basis that the "bundle of rights" obtained under the new scheme were less advantageous to the Claimant than the rights he had had under the previous scheme, even though the Claimant argued that at the time of the transaction it was possible that he could have been financially better off in the future had the investment performed well.
However, one must be careful not to assume that simply because a transaction would not have been entered into but for the Defendant's negligent advice, it means that the Claimant has a valid claim against the Defendant. In the 2010 Court of Appeal case of Haugesunde Kommune v Depfa ACS Bank, Lord Justice Gross specifically stated that "...merely because in one sense it can be said that the transaction would not have taken place but for [the solicitors'] negligence ... it does not follow that [the solicitor] is liable for the whole of [the bank's] loss" (see our earlier article Cause and Effect in Professional Negligence Claims (Part Two) – Update from Court of Appeal).
Purely Contingent Liabilities
Transactional cases can normally be distinguished from "purely contingent liabilities", i.e. liabilities that may potentially arise in the future as a result of the Defendant's negligence. In such cases, the loss will not normally be deemed to have been suffered until such time as it actually occurs.
The leading case on purely contingent liabilities is the House of Lords case of Law Society v Sephton & Co [2006]. In that case, the Claimant was deemed not to have suffered a loss at the time that the Defendant's actions had given rise to the "possibility" that a claim for compensation might be made against the Claimant at some point in the future, rather the Claimant has only suffered a loss several years later when the claims for compensation were actually made.
A Fine Line...
Perhaps the easiest way to reconcile the apparently contradictory decisions in Shore v Sedgwick Financial Services and Law Society v Sephton & Co (given that it could be argued that in both cases the extent of the Claimant's potential loss was not known at the time of the Defendant's negligence) is to remember that in Shore v Sedgwick Financial Services (and similar transactional cases) the Claimant entered into a transaction whereby the rights he acquired were immediately less valuable than they should have been, whereas the case in Law Society v Sephton & Co did not involve the acquisition of rights, and instead concerned a potential liability that the Claimant may or may not incur in the future.
For Mortgage Lenders and Property Investors with potential claims arising from negligent valuations, it is therefore likely that they will be deemed to have suffered a loss at the time that they entered into the transaction and accepted security that was less valuable than it should have been. Given that the property market began to collapse in around 2008, this could mean that potential claims based upon loans made during 2007 prior to the collapse will be likely to become time-barred during 2013 (unless exceptional circumstances apply).
Err on the Side of Caution
The above examples only touch upon some of the most common issues that arise in relation to limitation in professional negligence cases. Parties may also have to consider, for example, whether there are grounds for extending the limitation period on the basis that the Claimant was unaware of the relevant facts at the time the damage is suffered (in which case then the time period for bringing a claim may be extended to 3 years from the date when the Claimant knew, or ought reasonably to have known, those relevant facts). Equally, if the defendant has deliberately concealed facts from the Claimant then there may be grounds for arguing that the limitation period will not start to run until the Claimant discovers (or ought reasonably to have discovered) that concealment. Neither of these issues are necessarily straightforward ones to assess.
One thing that is clear, however, is that there is no margin of error when it comes to limitation periods. If a Claimant brings a claim one day after the end of the limitation period, then that claim will fail.
It is therefore always advisable for Claimants to assume that limitation will expire 6 years after the earliest possible date upon which the Defendant's negligence could have caused the Claimant a loss, and to carry out a full case assessment and (if there is a claim worth pursuing) issue the Claim well in advance of the earliest potential limitation deadline, in order to get a foot in the door. If this has to be done in a hurry, it may be possible for matters to be deferred with the consent of the Defendant (for example, by an agreed Stay or by entering into a Standstill Agreement) whilst matters are investigated further. Equally, the need to comply with a limitation deadline is one of the few valid reasons a party can use to justify non-compliance with the Court's pre-action conduct rules.
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.
