The limitation periods which apply in actions by
a purchaser of property against an allegedly negligent surveyor or valuer may
be summarised as follows. If the action is brought as a claim for breach of
contract it will be barred six years after the date of breach (ie when the
inaccurate report is given), irrespective, whether the purchaser has by then
suffered any loss or damage, let alone discovered it.
As for tort
claims, the basic period is six years from when loss or damage is suffered;
this, in the case of a negligent survey or valuation, means six years from when
the plaintiff acts on the report in question by entering into a contract to
purchase the property concerned: Secretary of State for the Environment
v Essex Goodman & Suggitt [1985] 2 EGLR 168. However, a claimant in
tort may nowadays be able to take advantage of an alternative period, first
introduced by the Latent Damage Act 1986 and inserted as section 14A of the
Limitation Act 1980. This period consists of three years from the date
on which the plaintiff first has actual or constructive knowledge of certain
material facts about his or her case. What this provision means in practical
terms has recently been explored by the Court of Appeal, in Hamlin v Edwin
Evans [1996] EGCS 120.
progressive knowledge
The Hamlin
case arose out of the purchase in November 1986 by the plaintiffs of a
mid-Victorian house in Deptford, with the aid of a building society mortgage.
Before committing themselves to buy, the plaintiffs commissioned a housebuyers
report and valuation from the defendants; this report drew attention to past
movement in the property, expressed the opinion that further movement was
unlikely and concluded that the proposed purchase price of £43,950 was a
reasonable one. In 1987 the plaintiffs discovered dry rot in the property,
which they eradicated at a cost of £4,000. The plaintiffs then complained to
the defendants who, while strenuously denying that they had been negligent,
made a ‘without prejudice’ offer of an ‘ex gratia‘ payment of £750. This
offer was accepted by the plaintiffs, who duly signed a document described as a
‘Form of Discharge’, which purported to release the defendants from any further
liability arising out of their report.
In 1992 the
plaintiffs became aware of an enlarging crack in one wall of the property and,
on calling in experts, discovered that the entire property had suffered serious
damage through subsidence. Some two years later the plaintiffs issued a writ
against the defendants, alleging negligence and claiming damages based on the
difference between what they had paid for the house and the mere £10,000 which
it was actually worth. The defendants argued that, even if the allegation of
negligence was true, the action was out of time, since it had been launched
more than three years after the plaintiffs had acquired the necessary
‘knowledge’; the judge agreed with the defendants on this point, whereupon the
plaintiffs appealed.
The crucial
question for the Court of Appeal was whether a plaintiff’s knowledge of one
item of damage (in this case the dry rot) operated after three years to bar a
claim in respect of all such items, or whether a plaintiff could always claim
in respect of any defect which had only been discovered within the last three
years, if necessary abandoning any claim in respect of defects discovered
earlier. Previous courts had differed on precisely this issue. In Horbury
v Craig Hall & Rutley [1991] EGCS 81 it was held that, since a
plaintiff’s claim is one single cause of action, any knowledge of the existence
of that claim would set time running for all parts of it. In Felton v Gaskill
Osborne & Co [1993] 2 EGLR 176, by contrast, it was held that, since
the Limitation Act requires knowledge of ‘the damage in respect of which
damages are claimed’, only knowledge of the particular defect in question would
cause the time bar to operate. The Court of Appeal in Hamlin preferred
the Horbury approach, so that the plaintiffs’ claim was held to have
been brought too late.
Surveyors
and valuers will give a warm welcome to the Hamlin decision. And, it is
clearly correct on the facts of the case, since the plaintiffs knew enough in
1987 to realise that the defendants had been negligent in their report. But, we
would suggest, with respect, that the reasoning in this case (and indeed in
both Horbury and Felton) misses the point. As shown at the start
of this note, the ‘damage’ in respect of which damages are claimed from a
negligent surveyor or valuer lies, not in the physical damage suffered
by the property, but rather in the overpayment which the purchaser makes in
reliance on the misleading report. (The Court of Appeal appears to have
recognised this point, but then to have been led astray by reference to Pirelli
General Cable Works Ltd v Oscar Faber & Partners [1983] 1 EGLR
135, which uses ‘date of damage’ in cases where a defendant has actually caused
physical damage to property.) It follows therefore that the crucial question
should be: when did the purchaser first have ‘knowledge’ that the report was
misleading and that he or she had consequently paid more for the property than
it was really worth? If this is correct, it means that the ‘starting date’, for
the purposes of the three-year period under section 14A, is the date on which
the purchaser becomes aware of some defect which has been overlooked by the
surveyor or valuer and which is of sufficient importance to have affected the
value of the property concerned. The emphasis given by the Court of Appeal to
the various items of physical damage is, it is submitted, wholly misplaced.
discharge
In view of
its decision on the limitation issue the Court of Appeal did not, strictly
speaking, have to consider the effect of the form of discharge signed by the
plaintiffs in return for the defendants’ ex gratia payment. However,
Waite LJ made clear that, had the point arisen, this document would have
provided a complete defence to the plaintiffs’ claim. No doubt surveyors and
their solicitors will take appropriate action.
