Professional Negligence: Pinpointing the date on which the damage occurred

Identifying the date on which the limitation period begins to run in a professional negligence claim is notoriously tricky.  Over recent years there have been various cases dealing with the issue but the case law remains convoluted and contradictory.  Now that the Jackson reforms and the case of Mitchell v News Group Newspapers Ltd [2013] EWCA Civ 1537 have pushed in a stricter regime of compliance with the Civil Procedure Rules, it is ever more important to identify the correct date on which the Claimant suffered damage since this is when the limitation period begins to run.

Submitting a claim form before expiry of the limitation period

The Limitation Act 1980 restricts a cause of action once the limitation period applicable to the particular claim has expired.  Therefore, at the start of any claim, it is standard practice that a solicitor identifies whether the claim can be commenced before the limitation period expires.   The clock will begin to tick at the relevant date.  For a contract claim, this is the date of the breach, but in a tort claim it is the date on which the damage occurred.  The claim will become statute barred if proceedings are not brought within the limitation period.  As a result, the Defendant will be able to plead the defence of limitation, and unless the Claimant can prove that the claim was indeed commenced before the end of the limitation period – the claim will be struck out.

When was the loss suffered?

In a negligence claim, if the negligent act or omission did not occur recently then it will be necessary to calculate the date on which the Claimant suffered damage.  In some circumstances, this will be the same date as the negligent act or omission, while in others there can be a substantial period of time between the date of the negligent act and the date the damage accrued.

This is shown by the case of Forster v Outred & Co [1982] 1 W.L.R 86, where in 1973 a firm of solicitors negligently advised the Claimant in relation to the placing a security over her property in order to obtain a loan for her son.  Two years later the lender demanded repayment of the loan.  The Claimant issued proceedings in 1980, arguing that she had suffered loss when she repaid the loan in 1975.  However, it was ruled that the limitation period had expired because the claimant actually suffered loss when the security was placed on the property since it would have instantly reduced its value.

This case established that in a negligence case the start of the limitation period is essentially a factual question i.e. when did the Claimant suffer actual damage as a result of the negligence?

Diminution in value of the claim 

A professional negligence claim often arises in circumstances where a solicitor has allegedly failed to pursue a client’s claim on time.  In these circumstances the damage actioned in the professional negligence claim is either the diminution in value of the original claim or a strike out of the claim.  In these types of claims it is imperative that the date on which the damage occurred due to the negligence is identified.

In the case of Hopkins v Mackenzie [1994] P. I. Q. R. 43 it was held that a Claimant had not suffered loss until the claim was struck out.   However, the judgment of Khan v Falvey [2002] P. N. L. R 28 complicated the rule.  In Khan once it is inevitability, or it is extremely likely, that a claim will be struck out, then that is the point in time that a diminution in the value of the claim causes the damage to the Claimant.  Therefore, a Court must make a decision as to the date on which the claim is substantially reduced in value since it will be the relevant date on which the limitation period begins.

A recent case that demonstrates the complexity of determining the start date of the limitation period is the Court of Appeal case of Susan Berney v Thomas Saul (t/a Thomas Saul & Co) [2013] EWCA Civ 640Mrs Berney’s professional negligence claim arose against Thomas & Saul Solicitors when they were negligent when acting on her behalf in relation to a personal injury she had suffered.  In 2002 Thomas & Saul Solicitors filed the claim form within the limitation period but they failed to file particulars of claim.  Over the next two years Thomas & Saul Solicitors were unresponsive and consequently in 2004 Mrs Berney terminated their retainer and instructed new solicitors.  In early 2005 the new solicitors took advice from Counsel and advised Mrs Berney that there was an 80% chance that her claim would be struck out due to the two year delay in filing the particulars of claim.  As a result, on 1 November 2005 Mrs Berney accepted a figure of £25,000 in settlement of her personal injury claim.  On 10 January 2011, she issued a claim for negligence against Thomas & Saul alleging that she would have received far more than £25,000 if they had properly managed her case.

The Court was required to work out the date on which the damage was suffered:

  • Mrs Berney advanced that she suffered loss when she settled her claim on 1 November 2005.
  • Thomas Saul & Co advanced that 2 June 2004 was the latest date on which Mrs Berney could have suffered loss since this was the date on which Mrs Berney was informed by her new solicitors that she was vulnerable to having her claim struck out.

The Court held unanimously that Mrs Berney’s claim was in time.  Ultimately, the majority view was that the claim could not have been struck out before 25 January 2005 since that was the last date on which the Defendant’s solicitors had said that they would not take a procedural point over the delay.  The claim however was at risk of being struck out between the date of the withdrawal of the assurance and the settlement of the claim.  Gloster LJ differed in her reasoning, stating that there had been no real risk of a strike out before the date of the settlement.

Nonetheless, the ruling in Mitchell v News Group Newspapers came after the ruling in Berney v Saul. If it had been vice versa then perhaps Mrs Berney would have lost her case.  The Jackson reforms were brought in to make the Courts more efficient.  Therefore, when considering professional negligence cases, the Court may take this new ethos and start striking out claims which they feel should have been commenced earlier.  In addition, the judges may have decided that the damage occurred six years before Mrs Berney submitted her claim form.  Since, post-Jackson and post-Mitchell, the personal injury claim would have been struck out sooner due to non-compliance with the Civil Procedure Rules, again warranting a strike out of the professional negligence claim.

Purely contingent liabilities

So far we have considered a transactional case and several diminution in value of a claim cases, however the law is slightly different in a situation where there is only a possibility that damage may occur.  In the case of Law Society v Sephton and Co and others [2006] UKHL 22 an accountancy firm negligently approved the accounts of a solicitor who appropriated client money between the years of 1990 and 1996.  When the theft was eventually discovered the solicitor’s former clients made claims against the Solicitors Compensation Fund, a fund maintained by the Law Society to compensate those who have suffered financial loss due to a solicitor’s dishonesty.   The Solicitors Compensation Fund paid out between 1996 and 2003 and brought a claim against the negligent accountants in 2002.

During the case the House of Lords approved the High Court decision in Wardley Australia Limited v State of Western Australia (1992) 175 CLR 514 where it was held that, in circumstances where there is a contingent loss, a claimant:

“Suffers no actual damage until the contingency is fulfilled and the loss becomes actual; until that happening the loss is prospective and may never be incurred.”

Accordingly the Law Society had not suffered damage when the appropriations were made; rather on each appropriation a possibility had arose that in the future a claim for compensation could be made against the Law Society.   The damage was actually suffered when the claims for compensation were made.

It is important to note that in Law Society v Sephton the damage was only a possibility – until the client made a claim it may never have occurred.  This principle was later confirmed in Axa Insurance Limited (formerly known as Winterthur Swiss Insurance Company ) v Akther & Darby Solicitors and others [2009] EWHC 635 (Comm).  In this case 79 solicitor firms had purchased After the Event Insurance policies from AIG (the assignor of the accounts to Axa).  Axa claimed that the solicitor firms had owed a duty of care to AIG and had breached it when they failed to vet claims to ensure that they had prospects of success of at least 51% and were for a minimum of £1,000.  It was held that policies which were taken out more than six years before commencement of the proceedings were time-barred under the Limitation Act 1980. The Court reasoned that when AIG entered into policies they were exposed to a greater amount of risk than they would have been if the solicitors had vetted the claims correctly.  The increase in the amount of risk constituted the actual loss.

Understanding the case law  

The case law demonstrates that calculating the date on which the Claimant suffers damage for the purposes of the Limitation Act 1980 is very much dependent on the facts of the case.  Many of the cases have narrow rules that are only applicable in particular situations.  Furthermore, guarantees from the other side that a point on limitation will not be taken may not be rubber stamped by the Court post-Mitchell.  Instead of calculating the date on which the damage occurred perhaps it would be safer to consider whether the Claimant had knowledge of the damage within the six year limitation period.  Since in circumstances where the Claimant did not have knowledge of the damage or the right to make a claim, there may be an additional limitation period of three years from the earliest date the Claimant acquired knowledge of the damage.  However, claims for latent damage are subject to a longstop date of 15 years from the date of the negligent action.  Concluding from this, it is crucial that a claim form is submitted before questions on the limitation period begin to arise.