Haward and Others v Fawcetts (a firm), House of Lords 1 March 2006
Subject: Limitation of Actions
Issue
Section 14 of the Limitation Act 1980 provides an extension of time for the bringing of negligence claims that are barred by the standard limitation provisions, the extension being 3 years from the date the claimant had the knowledge required to bring an action. How is that date of knowledge to be defined?
Summary
The date is the earliest point when the claimant knows the following: that he has suffered damage, that the damage is something of which prime facie he is entitled to complain ( i.e. that the damage is out of the normal course of expected events) and that there is a real possibility that the damage results from the act or omission of the defendant. It is not required that he knows that the act or omission was negligent.
Significance
The decision highlights the possibility of professional negligence claims being brought very late. Where a party enters into a transaction in accordance with negligent advice from a professional, he will not know that the advice was flawed and has caused him to undertake a disadvantageous transaction until something goes wrong. He will not know at the time of the transaction that he has suffered any damage, he will only know this when the problem emerges later. As knowledge that he has suffered damage is a prerequisite to “knowledge” under the Act, time will not begin to run until, at the earliest, the problem becomes apparent. This contradicts some earlier cases where it was held that the claimant has the necessary knowledge to start time running when he enters into a transaction on the basis of professional advice.
Background
Under the terms of the Limitation Act 1980 S2 an action in tort cannot be brought after the expiration of 6 years from date on which the cause of action accrues. By SS 11, 14 and 14A the Act establishes a further period for claims to be brought, which is 3 years from the date the claimant has “knowledge” of his right to bring a claim.
The Decision
The claimant purchased a company in 1994, relying on advice from the defendant accountants, who told the claimant that the investment of a further £100,000 after the purchase would make the company viable. The claimant in fact invested £1.5m into the company to cover deficits and yet in December 1998 the company became insolvent and the £1.5m was lost.
In December 2001 the claimant began an action in negligence against the accountants.
At issue was the claim for money invested by the claimant before December 1995. As the legal action was started in December 2001 this claim was time barred because the 6 year limitation period in both contract and tort had expired. But the claimant argued that he could take advantage of S14A of the Limitation Act to bring a claim in negligence as he did not have the requisite knowledge until May 1999: before then he had no reason to question the quality of the advice given by the accountants. Until May 1999 he reasonably believed that the losses of the business were due to a variety of factors such as agricultural recession, BSE and staff problems.
If that were correct then the claimant would have 3 years from May 1999 to bring his claim in negligence and the action commenced in December 2001 in respect of the 1995 and prior losses would not be time barred. The Court of Appeal sustained the claimant’s argument and held that the action was not time-barred.
The House of Lords overturned the Court of Appeal and held that the claim was time-barred.
There are three criteria that must be fulfilled before time starts to run; the Claimant must have knowledge of each of the following:-
1. The claimant must have suffered some damage, which may be physical injury or economic loss.
2. The damage must be something of which prime facie he is entitled to complain. This must be determined on the facts. If a patient undergoes amputation to excise disease he suffers damage, but there is no cause for complaint. But if the patient subsequently discovers that the amputated part was healthy the damage then becomes something of which prime facie he is entitled to complain.
3. The damage must be attributable to the act or omission alleged to constitute negligence.
“Attributable” means capable of being attributed to. It is not necessary that the claimant understands or believes that the act or omission actually is negligent. It is only necessary that the facts indicate a possible connection between the damage and the act or omission that the claimant eventually pleads as negligent. To follow the amputation example, once the patient realises that the amputated part was healthy he knows that the damage, the loss of the body part, is capable of being attributed to the act or omission of the surgeon. If he subsequently brings an action in negligence against the surgeon, time will have begun to run from the date on which he knew that the amputation was unnecessary.
Applying these rules to the present case, by December 1998 the claimant knew that he had suffered damage because large sums of money invested in the business had been irretrievably lost.
He knew that this was something of which prime facie he was entitled to complain because the amount lost was far greater than the amount he was initially advised would be necessary to put the business on a sound footing.
He knew that the loss was capable of being attributed to the acts or omissions of the defendant because he had invested the money on their advice.
Therefore, before December 1998 time had begun to run in respect of money lost before December 1995 and the present action brought in December 2001 was not brought within 3 years of acquiring “knowledge” as defined. The claim for money lost before December 1995 was time barred even under S14A.
The Court pointed out that, particularly in claims involving negligent advice, S14A could delay substantially the start of the limitation period because the claimant would not know initially that he had suffered any damage. An example is HF Pension Trustees v Ellison (1999) where pension trustees transferred money following negligent advice from the defendant advisers. The final invalid transaction took place in 1990. Only in 1996 did the claimant become aware that the transactions were invalid and that the professional advice might have been flawed. The action was brought in 1997. The case was decided on the basis the claim was time-barred even under S 14A because the claimant had the requisite knowledge in 1990 and time began to run.
The Court held that this case was wrongly decided. As of 1990 the claimant trustees knew the basic facts, that they had received advice and had acted on it, but they had no reason to believe that they had suffered any damage. Time began to run in 1996 when the 3 criteria were fulfilled; they knew they had suffered damage because the invalidity of the transactions came to light and gave rise to liability on their part, they knew they were prima facie entitled to complain because they were advised by the defendants that the transactions were valid and they knew that the damage was capable of being attributable to the defendants because they had acted on their advice. The action commenced in 1997 should not have been held to be time barred.
Brendan O'Keeffe
Claims Counsel, Swiss Re UK
