Negligence - limitation of actions

Citation

Waterson, G. and Lee, R. (1999), "Negligence - limitation of actions", Property Management, Vol. 17 No. 3. https://doi.org/10.1108/pm.1999.11317cab.013

Negligence - limitation of actions

Bryne v. Hall Pain & Foster [1999] 12 EG 165 CA

This case raised an interesting point of law which, surprisingly, had never arisen before. In the purchase of a property relying on a negligent valuation, at what point in the transaction does the buyer's loss occur? Is it at exchange of contracts or at completion?

In this case the purchasers, Mr and Mrs Byrne, agreed in 1988 to purchase the lease of a flat in Portsmouth for £38,000. A surveyor employed by the first defendants carried out a valuation inspection for the Building Society. Relying on this report the purchasers exchanged contracts on 8 July and completion took place on 22 July 1988. On 18 July 1994 the plaintiffs issued a writ claiming damages for negligence by the valuer in failing to spot and report on problems of condensation and water penetration.

By S14A(1) Limitation Act 1980 the normal limitation period for an action in tort not involving personal injury is either six years from the date when the cause of action accrues or S14(1)(b) three years from the plaintiff's knowledge that there was a cause of action whichever is the longer, with an absolute long stop of 15 years from the defendant's breach of duty. However, in this case the plaintiffs could not avail themselves of the "knowledge" extension in S14(1)(b) because to do that they would have to have shown that they did not have "the knowledge required for bringing an action for damages in respect of the relevant damage" until at the earliest, 19 July 1991. But from their own evidence the plaintiffs admitted that they knew of the serious damp problems from the winter of 1988 onwards. Thus the critical question in this case was at what precise point in time did the plaintiffs, cause of action arise?

The defendants argued in the courts below that the plaintiffs' cause of action arose on exchange of contracts and consequently their action should be struck out under RSC Ord 18 r19. The plaintiffs claimed that since the law on this point was unclear it was inappropriate for it to be determined on an application to strike out under RSC Ord 18r19. This preliminary argument was rejected by their Lordships who agreed with the opinion of Laws J in the High Court that nothing would be gained by taking the case to trial on this issue as the "...question as to date is discrete and specific. I am clearly in as good position to decide it as would be the trial judge and it is in the parties' interests that I do so..."

As to the main point at issue, the precise date when the cause of action arose, neither the plaintiff nor the defendants could point to a single precedent case where this issue had been decisive. Both sides therefore had to resort to dicta in the various cases to support their view. Their Lordships rejected all of the arguments for the defendants based on dicta from the cases and a passage from Jackson and Powell on professional negligence as in none of these passages was it necessary to decide whether the cause of action arose at the time of exchange or completion.

The strongest support for the plaintiff's view appeared to come from the House of Lords decision in Nykredit Mortgage Bank plc v. Edward Erdman Group Ltd. (N. 2) [1997] 1 WLR 1627 in which Lord Nicholls was discussing the time at which damage occurs in a case of negligently caused economic loss. This case concerned lenders who had suffered loss as a result of a negligent valuation. By way of illustration, Lord Nicholls took the case of a purchaser of property who relied on a negligent valuation. Three times in his speech Lord Nicholls referred to the cause of action against the valuer accruing when the purchaser completes the purchase, which is when he suffers actual damage by parting with his money. However, according to Lord Simon Brown, the argument failed because for the purpose of Lord Nicholls' illustration in the Nykredit case, it did not matter whether time began to run from completion or exchange. Furthermore, this case and others cited by the plaintiffs concerned badly advised lenders and it is less certain when they will suffer loss than is the case with badly advised purchasers and thus the cases are treated differently. However, Lord Nicholls' illustration did prove useful as like the badly advised lender, the purchaser would not have bought but for the negligent valuation. Neither would he have exchanged contracts to buy. Lord Simon Brown argued that there is no distinction between parting with money and receiving on exchange property on completion, and paying a deposit and becoming committed to pay the balance on completion because at this point the purchaser obtains a real interest in the property and must, for example, insure it.

Thus in this case it is clear that on exchange of contracts the plaintiffs became irrevocably committed to acquiring the lease which was worth less than they reasonably believed and they would not have committed themselves to acquiring it but for the defendant's negligent report. Consequently, at that moment they had suffered actual rather than potential or prospective loss or damage. Thus the cause of action accrued when the contracts were exchanged. Lords Otton and Schiemann agreed and the appeal was dismissed.

Birmingham Midshires Building Society v. Wretham and others [1999] 07 EG 138

In this case a solicitor who was guilty of negligence argued in his defence that since the Building Society, the plaintiffs in the case, knew of an unrelated act of negligence by the defendants more than three years before issuing the writ concerning the act of negligence in this case, they were barred under the Limitation Act 1980 from proceeding with the action.

In 1990 the defendant solicitors had acted for the Building Society and the purchaser in the purchase of a house. The purchase price was £100,000 and the mortgage advance was £70,000. When the borrower defaulted on the loan the house was sold by the Building Society at a loss.

In fact the purchase was a scam. The purchaser had recently bought the property with a co-owner for £44,500. The purchaser wanted to buy out his co-owner for £42,000 leaving the balance of the £70,000 advance to be applied for other purposes. The solicitor knew of this and also that the Building Society had made its offer of an advance on the basis that the purchaser wanted £100,000 to buy the house, that the money was to be used exclusively for that purpose with the purchaser supplying the balance of the purchase price.

The defendants admitted that they owed both tortious and fiduciary duties to the plaintiff but claimed that any claim for breach of them was statute barred under the Limitation Act 1980 because it had accrued more than six years prior to the issue of the writ on 28th February 1997.

The plaintiff claimed that they did not have the required knowledge to give rise to a claim until 28 September 1995, that is, less than three years before the issue of the writ. Thus under S14A of the 1980 Act it was not statute barred.

The defendants replied that, in breach of their duty of care to the plaintiffs they had failed to inform them that their search of the local land registry prior to completion of the mortgage had disclosed that the property was subject to a demolition order under S265 (1) Housing Act 1965 and that the plaintiffs had known of this more than three years before the issue of the writ. They asserted that the plaintiff's earlier knowledge of a potential claim, not sued upon, could debar the plaintiff from pursuing the claim on which it does sue and of which it admittedly did not have the knowledge until well within the relevant period set for the commencement of proceedings. The defendants supported their argument by reference to Hamlin v. Edwin Evan [1996] PNLR398, [1996 2 EGLR 106 and Horbury v. Craig Hall and Rutley [1991] EGCS 81.

Thus the question for the court was whether on a true construction S14A Limitation Act 1980 did have this effect.

Judge Hicks QC pointed out that when the solicitor acts for both purchaser and mortgagee he has a number of duties which can be categorised as being owed to both jointly or equally and those owed to the mortgagee alone because they concern the fulfilment of the purchaser's obligations to the mortgagee. Thus he argued, the two allegations in this case are distinguishable. The demolition order was a matter ascertainable by a proper search of the register but not forming part of the title proper. However, the purchaser's dealing with the property were a matter of title vis-a(c)-vis the mortgagee. It was in both the interest of the purchaser and the mortgagee that the demolition order be cleared, whereas the purchaser's dealings with the property were of concern only to the mortgagee. Furthermore the duties could be distinguished according to what the defendants should have done. They should have made urgent enquires as to the provenance and effect of the demolition order. A mere warning about its existence would have been insufficient. An enquiry would have shown that there was no insuperable problem and the purchase would have gone ahead. By contrast, in the case of the borrower's activities they should have made immediate disclosure to the mortgagee which would have led to its immediate withdrawal from the transaction.

Judge Hicks then turned to consider the cases of Hamlin v. Edwin Evans and Horbury v. Craig Hall and Rutley which the defendants had cited in support of their argument. He stated that at first sight they seem to conclude the issue in favour of the defendants. Readers may remember (1997 Property Management, Vol. 15 No. 2) that both cases concerned negligent surveyors reports in which it was held that there was a single indivisible cause of action despite separate allegation of omissions to report distinct defects discovered at very different dates. The defendants claimed that theirs was also a single report on title which omitted reference either to the demolition order or the plaintiff's activities. However, Judge Hicks pointed out that a surveyor's situation is different from that of the solicitor since his primary duty is to include all relevant matters in his report even though in practice he may have given advance oral warning of important defects. There is no breach unless and until material defects are omitted from the formal report. However, a breach of trust or fiduciary duty in respect of the mortgagee arose as soon as the solicitor failed to inform the Building Society of the purchaser's activities.

Finally Judge Hicks pointed out that if the defendant's arguments are accepted a plaintiff who had on the facts of this case sued promptly for failure to deal with the demolition order and obtained judgement or settlement before learning of the matters now complained of would have been stopped from pursuing them. That, he stated, would be a surprising and disquieting state of affairs.

Judge Hicks concluded that the matters now complained of by the plaintiff were a separate cause of action and knowledge of facts relating to the demolition order was to be disregarded for the purposes of S14A. However, the plaintiff's claim for breach of trust was statute barred.

A further interesting point to arise from this case is the interpretation of S14A. Judge Hicks stated that at first sight, and in the absence of any authority, he would have felt that the defendant's claims were contradictory to the words "relevant to the current action" in S14A(6)(b) and "alleged to constitute negligence" in S14A(8)(a) which clearly direct attention to the facts alleged, i.e. alleged by the plaintiff in the current proceedings. However, this interpretation was implicitly rejected by the Court of appeal in Hamlin v. Edwin Evans because the court rejected the plaintiff's submission that the relevant knowledge is that of the "particular head of inquiry ... of which the plaintiff is for the time being complaining.(pp. 406c-407c)". Judge Hicks pointed out that counsel for the plaintiff in Hamlin did not specifically rely on the words from ss(6)(b) and (8)(a) quoted above and that "...it would have been a very bold step to submit that for that reason a Judge of first instance could disregard the decision as having been reached per incuriam..." In any case Judge Hicks found it unnecessary to consider this as he had concluded that the plaintiff in this case succeeded for other reasons. As a result, the issue remains open for argument at some time in the future.