The Court of Appeal has determined, by way of an appeal from the hearing of a preliminary issue, that proceedings brought against a firm of solicitors were commenced out of time and have therefore failed in their entirety. It found that the underlying transaction was flawed and that that flaw objectively reduced the value of the asset that formed the subject matter of the transaction from the outset so that damage was suffered and the cause of action in tort accrued when the transaction was entered into. It also found that the solicitors' former client (the Claimant) could not defer expiry of the limitation period by demonstrating that she did not intend to sell that asset. Damage would have been suffered regardless of what the Claimant intended to do with the asset.
The Defendant solicitors drafted a lease and sub-lease for the Claimant over a workshop in Grays, Essex (the Property). Pursuant to these agreements, the Claimant let the Property from her husband and sub-let it to a third party mechanic (the Third Party). The lease included a covenant for the Claimant to insure the Property against fire. The Defendant did not inform the Claimant of that responsibility. In the sub-lease, the Third Party covenanted with the Claimant to pay rent and to keep the Property in good repair.
Prior to execution, the Claimant had specified that she wanted the Third Party's parents to act as guarantors, although the Defendant failed to introduce provisions for this within the sub-lease. Both the lease and sub-lease were executed in February 2012 for a term of 2.5 years.
In November 2012, a fire caused considerable damage to the Property. The Third Party vacated the Property without undertaking repairs and stopped paying rent. The Third Party's parents, who had not legally committed to guaranteeing his sub-lease obligations, did not pay anything either.
In proceedings issued in April 2018, the Claimant alleged that the Defendant had been negligent for failing to:
- (a) procure legally binding guarantees in respect of the sub-lease from the Third Party's parents, thus minimising the prospect of a recovery in the event that he reneged on his commitments (the Guarantee Failure); and
- (b) inform her of her obligations to insure the Property against fire, which, had it done so, she claimed would have caused her to obtain insurance, an eventuality which the Court accepted (the Insurance Failure).
The Claimant claimed lost rent, as well as clearance and re-building costs as a result. The Defendant accepted liability for both failures, but argued that proceedings had been brought out of time for the purposes of the Limitation Act 1980. It asserted that the six year time period for claims in tort had started to run for limitation purposes in February 2012, when the lease and sub-lease were executed and damage was suffered. The Claimant disagreed, arguing that limitation only started running when the fire caused damage in November 2012, crucially less than six years before proceedings were issued.
Preliminary Issue Trial
At a trial of preliminary issue on the subject, HHJ Bailey, sitting in the County Court at Central London, agreed with the Claimant's analysis and found in her favour that the proceedings were issued in time. He concluded that no loss or damage had been suffered until the fire occurred at the Property in November 2012.
The Appeal Decision
In its judgment handed down on 18 May 2021, the Court of Appeal overturned the first instance decision. It emphasised that findings in relation to limitation periods (and in particular as to when damage had been suffered under section 2 Limitation Act 1980) were fact specific to each case. It distinguished between cases in which:
- immediate, actual and measurable loss had been sustained at the time the transaction was entered into, but whose full extent was not necessarily known at that time; and
- possible financial loss could be incurred at some future date Law Society v Sephton & Co  UKHL 22 .
The Court of Appeal decided that the present case fell within category 1 above from February 2012 onwards: damage was suffered when the lease and sub-lease were executed. In his leading judgment, Lord Justice Newey had little difficulty in concluding that the lease and sub-lease must have been less valuable in light of the guarantee failure and the insurance failure, than if they had been executed without these failures.
The Claimant received a package of rights that was worth less than she intended and had bargained for. The lack of guarantee would have reduced the lease's value, which reduction an expert would have been able to quantify.
Similarly, a valuer would have attributed a lower value to a lease whose insurance obligations had not been met with than one whose obligations had been. In the circumstances, the transaction's flaws made it objectively less valuable than it should have been at the outset and damage was suffered at that time .
The Court of Appeal decision, whilst emphasising that each case turns on its facts, is not surprising in finding that damage (for the purposes of s2 Limitation Act 1980) was suffered and therefore the cause of action in tort arose as soon as the Claimant entered into the Lease and Sub lease as she acquired a package of rights worth less than she had bargained for. It is however a salutary reminder to Claimants and their lawyers of the risks involved in the time period before which claims must be issued and the consequences of the Claimant's remedy being completely barred if the correct time period is not identified.
Fort further information please contact the authors: