Limitation in professional negligence claims

The High Court recently allowed a solicitor negligence claim to be brought under section 14A of the Limitation Act 1980 on the basis that the Claimants did not acquire the relevant knowledge of their solicitor’s negligence until judgment had been given in related but separate proceedings. The judgment was borne out of two amended application notices first seen by Master Eyre in the Queen’s Bench Division.

Background

Mr and Mrs Chandra, the Claimants, owned a successful nursing home business. They decided to sell the business and invest in a new business venture developing and building hotels. The Chandras used BPC, a wholly owned subsidiary of one of their companies, to develop an existing building in Manchester into a hotel. Mr Lopeman, a partner at Brook North (“BN”) was instructed by the Chandras to advise on the development. The retainer with Mr Lopeman included all the necessary legal advice as to the terms and suitability of the entire range of financial documentation including the building contract, finance agreements, deed of warranty and guarantees. Mr Lopeman had acted for the Chandras several times in various business and company ventures and there was a degree of reliance and trust between the parties.

The project was funded by a £10 million bank debt and personal guarantees were secured against the Chandra’s home. The development did not go to plan; it was delayed and costs were running significantly high. In August 2003, the bank appointed receivers and the hotel was sold in March 2004. This resulted in a shortfall of £4 million. The bank sought to enforce the personal guarantees against the Chandra’s home by commencing possession proceedings.

Negligence Proceedings

The Claimants, facing the collapse of the project, the loss of the hotel and their home and owing huge debts to the bank, sought to pursue Mr Lopeman for negligent advice. They argued that he had given negligent advice in relation to step-in provisions in the Deed of Warranty and other financial documents. Proceedings were commenced on 18 May 2009, as they were concerned that the claims may become statute barred on 20 May 2009.

It was agreed that the negligence proceedings would be stayed until the outcome of the possession proceedings. The bank was granted possession of the Chandra’s home on 28 January 2010 and consequently the Claimants believed they had a viable claim for negligence against Mr Lopeman’s firm. By November 2011, they were concerned that new claims, which they may wish to bring, may soon become statute barred.

Master Eyre’s Orders

On 14 November 2011 the Claimants applied for permission to add new claims by way of an application notice and asked for the application to be dealt with at a hearing. However, using his powers under CPR 23.8(c), Master Eyre granted the application without a hearing. CPR 23.8 (c) allows the Court to use its case management powers in line with the overriding objective and Master Eyre, at this stage, felt a hearing was not appropriate. Master Eyre had given the Defendants liberty to apply under CPR 23.10 to vary the order.

On 16 January 2012, after some confusion as to who should have sealed the orders, Master Eyre emailed the parties stating ‘the orders will not be made without a hearing’.

In the present case, it was for HHJ Anthony Thornton QC to decide:

1) whether the Order made by Master Eyre on 15 November 2011 had been revoked by his email on 16 January 2012; and,

2) were the new claims that the Claimants wanted to add statute barred?

Had the Order been revoked?

This judgment reminds us of the Court’s power to change its mind. The judge referred to the judgement in L & B (Children), which states that a judge has jurisdiction to change his/her mind until an order is sealed. The order takes effect as soon as it is made but a judge may, in exercising the overriding objective of dealing with cases justly, revisit an earlier order. However, it was held that the Order had not been revoked by the subsequent email. Master Eyre was directing that the Order not be drawn up and sealed without a hearing. It was not a case of the Court changing its mind; rather he was directing the parties on an administrative issue.

Were the new claims statute barred?

The new claims were substantially different to the original claims and did not arise from similar facts which meant prima facie that primary limitation had expired and they were statute barred.

Limitation Act 1980

The judge held, however, that s.14A of the Limitation Act 1980 applied in that, at the time that the Chandra’s cause of action accrued, they did not have knowledge of all the material facts. Under s.14A(5) of the Limitation Act, a three year limitation period starts to run from the earliest date on which the claimant first had the knowledge required for bringing an action and a right to bring an action. S.14A (10) provides that knowledge can be acquired from facts observable or ascertainable by him or facts ascertainable by him with the help of expert. The judge held that the Claimants did not know about their right to bring a claim until they had ‘read & digested’ the judgment in the possession proceedings and under section 14A (10) the judge was an appropriate expert who helped them ascertain the knowledge. Therefore, the three year limitation period in respect of the new claims started running from 28 January 2010.

Comment

This is a highly fact specific case and these were certainly unusual circumstances where a judgement in related proceedings was deemed to be “expert knowledge”, meaning that the new claims were not stature barred. However, section 14A of the Limitation Act remains a useful provision in actions for damages in negligence where primary limitation may have expired.

For further information, please contact Georgina Squire or the Partner with whom you usually deal.