Negligence –– Limitation period –– Professional negligence –– Whether limitation period capable of being extended by section 32(1)(b) of Limitation Act 1980 –– Whether concealment of error and breach of duty must be deliberate
In January 1989 the appellant acquired a property from a company for £155,400 with the benefit of a loan from a building society secured by a mortgage. In April 1989, due to the appellant’s illness, it was agreed that the company would repurchase the property in consideration of the company obtaining the release of the appellant from his obligation to the building society. The defendant solicitor was instructed to act for both parties. The property was transferred to the company, but the solicitor failed to procure the appellant’s release from the mortgage. The company went into liquidation in 1990 and ceased to pay the instalments to the building society. The building society sold the property and brought proceedings against the appellant for its losses. Although that action was compromised, the appellant had to pay a sum of money and costs amounting to about £50,000.
In June 1997 he brought proceedings against the solicitor alleging that it was negligent in failing to secure the release of the building society obligations. Because the solicitor contended, inter alia, that the limitation period had expired, the appellant sought to rely upon a reply and an argument that there had been concealment of the negligent act by the solicitor so that the period of limitation was extended by section 32 of the Limitation Act 1980. The reply was disallowed by the judge in the court below as lacking sufficient particulars. The appellant appealed.
Held: The appeal was allowed. It is not necessary for the purpose of extending the limitation period, pursuant to section 32(1)(b) of the Limitation Act 1980, to demonstrate that the fact relevant to the claimant’s right of action has been deliberately concealed in any sense greater than that the commission of the act was deliberate, in the sense of being intentional, and that that act or omission, as the case may be, did involve a breach of duty, whether or not the actor appreciated the legal consequence. The appellant had given sufficient particulars in his reply, and the reply was allowed.
The following cases are referred to in this report.
King v Victor Parsons & Co [1973] 1 WLR 29; [1973] 1 All ER 206; [1973] 1 Lloyd’s Rep 189, CA
Sheldon v RHM Outhwaite (Underwriting Agencies) Ltd [1996] AC 102; [1995] 2 WLR 570; [1995] 2 All ER 558; [1995] 2 Lloyd’s Rep 197; (1995) 92(22) LSG 41, HL
This was an appeal by the appellant, James Brocklesby, from a decision of Judge Howarth, in Leeds District Registry, refusing leave to serve a reply out of time in proceedings by the appellant against the respondent, Armitage & Guest (a firm), for negligence.
Matthew Caswell (instructed by Lester Morrill, of Leeds) appeared for the appellant; Spike Charlwood (instructed by Beachcroft Wansbroughs, of Leeds) represented the respondent.
Giving judgment, MORRITT LJ said: This is the appeal of the claimant, Mr Brocklesby, brought with my leave from the order of Judge Howarth, sitting as an additional judge of the Chancery Division, made on 23 February 1998. By that order, in effect, the judge required Mr Brocklesby to give further particulars of the reply he sought to serve out of time, containing certain additional allegations of fact relevant to the question of whether his claim was barred by the Limitation Act 1980. The judge thought that if those additional facts were not alleged, then the claim that the Limitation Act did not apply was hopeless, and that leave to serve the reply out of time should not be given.
The defendant, Armitage & Guest, is a firm of solicitors practising in Wakefield in Yorkshire. Mr Brocklesby and a Mr Henry Tranter were its clients. Levelaction Ltd was a company controlled by Mr Tranter, in which Mr Brocklesby held one share.
Levelaction owned commercial premises at 22A Bond Street and 9 Croft Street in Dewsbury, West Yorkshire. On 20 January 1989 Levelaction sold that property to Mr Brocklesby for £155,400, which Mr Brocklesby borrowed from Alliance & Leicester Building Society on the security of the property. The loan was repayable by instalments over 25 years. The solicitor acted for all three parties, that is to say, the seller, the buyer and the building society.
In April 1989, due to the illness of Mr Brocklesby, Mr Tranter, acting for Levelaction, and Mr Brocklesby agreed that Levelaction would repurchase the property in consideration of Levelaction obtaining the release of Mr Brocklesby from his obligations to the building society. For the purpose of effecting that transaction, on 17 April the solicitor was instructed to act for both Mr Brocklesby and Levelaction. The appropriate contract and transfer was executed by Mr Brocklesby. Mr Brocklesby went out of possession of the property and stopped paying the instalments due to the building society. But, as it subsequently transpired, no steps were taken by the solicitor to procure Mr Brocklesby’s release from his obligations to the building society.
On 5 November 1990 Levelaction was put into compulsory liquidation, and, at that point, if not before, ceased to make the instalment payments to the building society.
In mid-1992 the building society notified Mr Brocklesby of the default of Levelaction, and, at that stage, it came to Mr Brocklesby’s attention that the contract of repurchase had not been completed and that he had not been released from his obligations to the building society.
In September 1992 the building society sold the property charged to it as security for the loan to Mr Brocklesby for some £368,000 and sued Mr Brocklesby for the balance due of £212,895.
In February 1996 that action was compromised on terms that Mr Brocklesby pay the building society £25,000. There was no order for costs, but Mr Brocklesby’s costs of the action were some £24,941.
On 6 June 1997 Mr Brocklesby commenced these proceedings against the solicitor, claiming negligence on its part in failing to procure
On 16 July 1997 the solicitor served a defence to the effect that: Mr Brocklesby was not its client in respect of the resale; it was never advised as to the price of the resale; it told Mr Tranter that the sale could not be completed without the consent of the building society, but was not instructed by him on behalf of Levelaction or Mr Brocklesby and was not instructed by Mr Brocklesby otherwise to approach the building society.
Of more importance for present purposes is the defence put forward in para 1 of its defence that the claim of Mr Brocklesby arose more than six years before the issue of the writ, and was therefore barred by sections 2 and 5 of the Limitation Act 1980. On the same day, the solicitor issued a summons to strike out the statement of claim under Ord 18 r 19 as being frivolous or vexatious or an abuse of the process of the court.
In response to that application, Mr Brocklesby swore an affidavit on 17 September 1997, claiming that the facts and matters to which he deposed brought the case within the provisions of section 32(1)(b) of the Limitation Act 1980, so that time did not begin to run until mid-1992, when the building society told him that the sale as alleged by him had not been completed. He relied, among other things, upon the contents of a statement made to the police by the partner in the solicitor concerned, a Mr Nugent, in February 1990. The relevant part of that statement reads as follows:
I refer to a note on file dated 17th April 1989… The note explains that I was to prepare a contract and transfer for signature by Brocklesby transferring 21 Bond Street back to the limited company, and that the company had always paid the mortgage payments on behalf of Mr Brocklesby. The note explains that I was attending upon Mr Tranter who took the documents away for Mr Brocklesby’s signature and later returned them. This was the first intimation I had received that Levelaction had continued to have an indirect [interest] in the property after completion.
As far as I can recollect I was instructed by Brocklesby and Tranter to transfer this property back to Levelaction in April 1989… and then I started to raise the necessary paperwork. I believe this was to be a straight transfer with no funds being exchanged.
This transfer subsequently fell through, and the property remains in the ownership of James Brocklesby, who had become increasingly ill after completion of the purchase, with the result that I was never instructed further to prepare leases further for tenants.
On 27 October 1997 the district judge dismissed the solicitor’s application. He considered that there was a clear case of negligence. He found that the defence of limitation was not plain and obvious and refused to strike out the claim. Thereafter, on 4 November 1997, but without leave, Mr Brocklesby served a reply.
The matter came before Judge Howarth on 23 February 1998. He set out the facts of the case and the provisions of section 32. He noted that Mr Brocklesby needed leave to serve his reply out of time, but he held that the reply so lacked the necessary particulars that he would not grant such leave. Having indicated that that was his prima facie view during the morning session, the reply was redrafted by counsel over the midday adjournment so as to add at the end of para 3 certain particulars. The reply so redrafted, and giving effect to the somewhat confusing referential form, is as follows:
2. The Plaintiff denies that his claim is statute barred as alleged in paragraph 1 of the Defence or at all.
3. The breaches of which the Plaintiff complains and pleaded in paragraph 9 of the Statement of Claim were deliberately committed by the Defendants in circumstances in which they were unlikely to be discovered, and in fact not discovered by the Plaintiff, until about the middle of 1992 as pleaded and particularised in paragraph 8 of the Statement of Claim.
I interpolate to read para 8 of the statement of claim, in which particulars, under “A. Particulars”, are contained. It reads:
In fact the… sale-back was not completed.
A. PARTICULARS
(a) No step was taken to discharge the Plaintiff’s mortgage or other procure his release from his personal covenant as mortgagor.
(b) Instead, Levelaction kept up the instalment payments due under the Plaintiff’s mortgage until in or about 5 November 1990 when it was ordered to be wound up by the High Court upon the petition of the Secretary of State for Trade & Industry.
(c) The Plaintiff had no knowledge of the matters hereinbefore particularised until in or about the middle of 1992 when he received notice of a claim by Alliance & Leicester that there had been a serious default in keeping up the instalment payments.
(d) Alliance & Leicester took possession of the property and sold the same in or about September 1992 for £368,000 leaving a shortfall of £212,895… for which Alliance & Leicester sued the Plaintiff.
Reverting to para 3 of the amended reply it continues as follows:
PARTICULARS
(a) Paragraph 9 and Particulars B of the Statement of Claim are repeated.
Para 9 of the statement of claim and particulars B are as follows:
The Defendants are in breach of the said contractual term and of their duty of care as aforesaid.
B PARTICULARS
(a) Particulars A are repeated [and those I have already read out].
(b) The Defendants failed to take any step to procure the release of the Plaintiff from his liability under the mortgage.
(c) The defendants having received the completed Contract and Transfer failed to do anything relating to them.
(d) The Defendants failed and neglected to inform the Plaintiff of the matters next hereinbefore particularised.
Then, reverting to the reply, particulars (b), it continues:
In or about April 1989 the Defendants knew that the sale by the Plaintiff to Levelaction was not proceeding. The Plaintiff is unable to specify a more precise date pending discovery. In support of his contention that the defendants acquired such knowledge as aforesaid the Plaintiff
(i) relies on the statement of Mr John Christopher Anthony Nugent constituting exhibit “JB2” to the Plaintiff’s affidavit dated 17 September 1997;
(ii) will invite the court to infer the same from the fact that the Defendants took no further step in the matter after in or about April 1989.
(c) In not informing the Plaintiff that the sale was not proceeding, the Defendants knew or ought to have known (the knowledge to be inferred from the facts pleaded) that the Plaintiff would or might be likely to wrongly believe and continue to believe (as was a fact) that the Defendants had taken all steps necessary to complete the sale;
(d) By reason of the matters aforesaid the fact that the Defendants were in breach was concealed from the Plaintiff.
The judge considered that, notwithstanding those amendments, the reply remained deficient in two respects, namely, first, particulars of the allegation of knowledge that the sale was not proceeding, as alleged in para 3B, and, second, the lack of any properly particularised allegation that the solicitor deliberately chose not to inform Mr Brocklesby that the sale was not proceeding. By his order made on 23 February 1998, he gave Mr Brocklesby until 23 March 1998 to serve a reply with the necessary particulars, in default of which the action would be struck out.
The terms of section 32 of the Limitation Act 1980, so far as relevant, provide:
(1)… where in the case of any action for which a period of limitation is prescribed by this Act, either ––
(a) the action is based upon the fraud of the defendant; or
(b) any fact relevant to the plaintiff’s right of action has been deliberately concealed from him by the defendant; or
(c) the action is for relief from the consequences of a mistake;
the period of limitation shall not begin to run until the plaintiff has discovered the fraud, concealment or mistake (as the case may be) or could with reasonable diligence have discovered it.
…
(2) For the purposes of subsection (1) above, deliberate commission of a breach of duty in circumstances in which it is unlikely to be discovered for some
Mr Brocklesby relies upon para (b) of section 32(1) as expanded by subsection (2). He contends that there were three breaches of duty, that is: the failure to take steps to procure Mr Brocklesby’s release from the obligations to the building society; the failure to do anything with the executed contract/transfer; and the failure to inform Mr Brocklesby of either of the first or second breaches of duty. He suggests that each of them was deliberate in the sense of being intentional, and each was committed in circumstances where, by their nature, they were unlikely to be discovered for some time.
In respect of section 32(1)(b), in the case of Sheldon v RHM Outhwaite (Underwriting Agencies) Ltd [1996] AC 102 at p145A, Lord Browne-Wilkinson, commenting upon the provisions of section 32(1)(b), said:
Even if, contrary to my view, it is legitimate to look at the legislative history, the immediate predecessor of section 32 of the Act of 1980 is not section 26 of the Act of 1939 but section 7 of the Limitation Amendment Act 1980, an Act which was not drawn to the attention of the Court of Appeal but surfaced for the first time during the argument before your Lordships. The Amendment Act of 1980 inter alia substituted what is now section 32(1)(b) of the consolidating Act of 1980 for the old section 26 of the Act of 1939, ie in an amending Act all references to concealment by fraud were deleted and there was substituted the concept of deliberate concealment of relevant facts. This was done deliberately because of the confused effect and misleading terminology of the old equitable doctrine of concealed fraud. In my judgment it is inconsistent with the plain Parliamentary intention lying behind the amendment of the Act of 1939 to continue to construe the Act of 1980 as if it were still a statutory enactment of the equitable doctrine of concealed fraud. The Act of 1980 is not. Section 26(1)(b) is a statutory provision setting out the circumstances in which the ordinary time limits will not apply and contains no reference to the old concealed fraud doctrine.
That last reference to section 26(1)(b) must, I think, be a reference to section 32(1)(b) of the current 1980 Act.
Mr Brocklesby contends that the judge misapplied the new provisions. He relies in particular upon the passage in the transcript of the learned judge’s judgment at p9D where he said:
Of course, as with all other matters going to a party’s intention if there is an allegation that the concealment of certain facts was “deliberate,” the court at trial, if the case goes on along that basis, will be presented with certain facts and invited to draw an inference that the defendant did, in fact, deliberately conceal, to use the words of the 1980 Act, deliberately conceal facts relevant to the plaintiff’s right of action.
A little later he continued:
he could expect to be cross-examined along the lines of, “In the statement of claim or the reply or further and better particulars, as the case may be, there are these facts that are referred to, facts which are not in dispute, or facts which can be established independently in some other way. In the light of those facts, the natural inference will be that you did, in fact, deliberately make a conscious decision and conceal these facts from your client, the plaintiff.” The court will then be left to decide in the light of the totality of the evidence and on a balance of probabilities whether the concealment had been deliberate or not.
He submits that in those passages the judge betrayed an error of law, in that they are a misreading of section 32(2), which does not require deliberate concealment to be established, rather deliberate commission of a breach of duty. The words used by the judge would approximate to fraud, but only deliberate commission of breach of duty is required by para (a), and concealment by fraud or an action based upon fraud is what comes within para (a). Mr Brocklesby contends that para 3 of the reply is an adequate pleading of both the necessary deliberate commission and the circumstances in which it was unlikely to come to light for a period of time.
Mr Spike Charlwood, in his excellent argument, took issue with Mr Matthew Caswell as to whether the word “deliberate”, when used in subsections (1) and (2) as an adjective and in subsection (1)(b) as an adverb, requires not only that the act in question should be deliberate, but that the person committing it should know that the act he so commits involves the legal consequence of the breach of duty. He contends that if that is the correct construction of the Act, nowhere in the reply is there any sufficient allegation, let alone any adequate particulars, of the defendant’s knowledge that the breach of duty alleged to have been committed was indeed a breach of duty, and the firm deliberately committed it as such. On it being suggested to him that such an important point of construction was not appropriate to striking-out proceedings, he then submitted, by reference to the note in the White Book at 18/19/6, that in cases where the argument is not prolonged, but the consequence of a conclusion on the point of law will decide the case one way or another, the court is, in effect, bound to decide the point because it is not fact-sensitive, and is one that will be conclusive of the proceedings at least one way. I was not originally attracted by that proposition, but I think, in the light of his submissions on the proper construction of section 32(1)(b), it is one to which I ought to accede. Accordingly, I proceed to consider the questions of the proper construction of section 32.
Mr Charlwood took us to para 2.9 of the 21st report of the Law Reform Committee. In that paragraph, the authors of the report quoted the provision then contained in section 26, which provided:
Where, in the case of any action for which a period of limitation is prescribed by this Act, either ––
(a) the action is based upon the fraud of the defendant or his agent or of any person through whom he claims or his agent, or
(b) the right of action is concealed by the fraud of any such person as aforesaid, or
(c) the action is for relief from the consequences of a mistake,
the period of limitation shall not begin to run until the plaintiff has discovered the fraud or the mistake, as the case may be, or could with reasonable diligence have discovered it…
In para 2.10, the committee pointed out that it was unnecessary to refer in detail to the equitable doctrine as it existed prior to 1939, save to point out that there could be no fraud unless the defendant had been aware of the facts alleged to have been concealed. Even then, be it noted, awareness was required of the facts alleged to have been concealed, not that their concealment involved the legal consequence of a breach of duty.
In para 2.11, the committee referred to the judgment of Lord Denning in King vVictor Parsons & Co [1973] 1 WLR 29. They then considered, in para 2.21 and following, the possible approaches to the issue of concealed fraud. In para 2.23 they said:
It is evident from the judgment of Lord Denning, MR, quoted above [that is to say in King v Victor Parsons] that both the title and the wording of section 26 are misleading in that it:
(i) is not limited to fraud in the common law sense;
(ii) embraces recklessness; and
(iii) is not limited to cases of active concealment.
In para 2.24 the committee suggested a reformulation that would, if adopted, have gone as follows:
Subject to subsection (2) below, where in the case of any action for which a period of limitation is prescribed by this Act ––
(a) the action is based on the fraud of the defendant or his agent or any person through whom he claims or his agent; or
(b) the action is for relief from the consequences of a mistake; or
(c) the action is based on a deliberate or reckless breach of duty (whether or not arising under a contract); or
(d) the right of action is concealed by the dishonest conduct of any such person as is mentioned in paragraph (a);
the period of limitation shall not begin to run until the plaintiff has discovered the fraud or mistake…
For my part, I do not find any assistance in the provisions of that report. It is plain from the terms of section 32 that parliament did not adopt the suggested formulation proposed by the Law Reform Committee. It is equally plain that the formulation that it did adopt has a less stringent test for deliberate concealment, as now provided for in section 32(1)(b), than that that would have prevailed had the Law Reform Committee’s proposal been adopted. Likewise, as indicated by
The word “fraud” here [in section 26(b) of the Limitation Act 1939] is not used in the common law sense. It is used in the equitable sense to denote conduct by the defendant or its agent such that it would be “against conscience” for him to avail himself of the lapse of time. The cases show that, if a man knowingly commits a wrong (…); or a breach of contract (…), in such circumstances that it is unlikely to be found out for many a long day, he cannot rely on the Statute of Limitations as a bar to the claim:… In order to show that he “concealed” the right of action “by fraud,” it is not necessary to show that he took active steps to conceal his wrong-doing or breach of contract. It is sufficient that he knowingly committed it and did not tell the owner anything about it… If the defendant was, however, quite unaware that he was committing a wrong or a breach of contract… then he could avail himself of the Statute of Limitations.
It seems to me that that passage also leaves open the question of whether, in addition to knowledge and intention to do the act, it is necessary that the actor should also know and appreciate and intend that the act is, and should be, a breach of contract or other duty.
When one turns to the terms of section 32 itself, under section 32(1) there is a clear contrast between the action based on fraud and para (b) (the concealment of any fact relevant to the plaintiff’s right of action being deliberate). The requirement is that the fact relevant to the cause of action has been deliberately concealed from him by the defendant. But subsection (2) amplifies what is meant by deliberate concealment and requires that, for the purposes of subsection (1), deliberate commission of a breach of duty etc amounts to deliberate concealment of the facts involved in the breach of duty. Generally speaking, and I do not say that there may not be exceptions, the civil law and, so far as I know, the criminal law, does not require that a person should know the legal consequences of the act that he commits. Generally speaking, if he knows of the act and he intends the act, but is unaware of the legal consequences, his unawareness is immaterial, for it is trite law that ignorance of the law is no defence. It appears to me that had parliament intended in the case of a deliberate concealment under section 32(1)(b), as amplified by subsection (2), that there should be both deliberate commission of an act in the sense of knowingly and intentionally committing the act and also knowledge that such commission gave rise to a particular legal consequence, then it required clearer words to spell that out than are to be found in subsection (2) or subsection (1).
Accordingly, the conclusion I reach is that it is not necessary, for the purpose of extending the limitation period pursuant to section 32(1)(b), to demonstrate that the fact relevant to the claimant’s right of action has been deliberately concealed in any sense greater than that the commission of the act was deliberate, in the sense of being intentional, and that that act or omission, as the case may be, did involve a breach of duty whether or not the actor appreciated that legal consequence. Accordingly, for my part, I would not accept the extremely lucid and well-argued submission made by Mr Charlwood.
Given that conclusion on the question of law, the question then arises whether the particulars given in the amended reply are adequate. For my part, with one exception, I think they are. The exception arises from the inclusion of the words in para 3(c) “or ought to have known”. It seems to me that when one is considering the question of deliberateness or knowledge, the words “ought to have known” are not adequate because there is no indication that constructive knowledge, in so far as knowledge is required, is sufficient. But, that apart, it seems to me that the particulars contained in the amended reply are quite adequate, for the purpose of setting out a sufficiently pleaded case, for the purpose of giving leave to serve a reply out of time.
I take the view that we are entitled to interfere with the exercise of the judge’s discretion, first, because in the passage of his judgment from which I quoted earlier it seems to me that he misunderstood the import of the section. Second, because there is a point of law involved that I have attempted to explain and resolve. But, in addition to that, I am concerned that the judge imposed too high a standard of particularity for the reply to be served at the stage that the action had reached. Discovery of documents had not yet taken place. Most of the relevant facts were inevitably in the knowledge of the solicitor rather than Mr Brocklesby. There was no imminent trial such that than an insufficiently particularised pleading might be embarrassing. In my view, quite enough had been alleged to warrant Mr Brocklesby being given the leave that he sought. It may be that in the light of what is disclosed on discovery he will be able to supplement the particulars already given, but without such supplementation I do not consider that his case, as pleaded, is so thin that the court is justified in, in effect, striking it out.
For those reasons, I would allow the appeal.
WILSON J agreed and did not add anything.
Appeal allowed.
