Negligence — Surveyors — Tort — Limitation — Negligent survey — Whether cause of action accrues at contract date or completion
In 1988 the plaintiffs were proposing to buy a
flat. The building society instructed the first defendant firm to provide a
valuation report. On 2 June 1988 the second defendant, a chartered surveyor
employed by the first defendant, inspected the flat and prepared a report. The
plaintiffs exchanged contracts to purchase the flat on 8 July and completion
took place on 22 July 1988. On 18 July 1994 the plaintiffs issued a writ
against the defendants pleading that they had relied on the report and claiming
damages for negligence in its preparation, as it had failed to report on
problems relating to condensation and water penetration. In the court below
Laws J, in allowing the defendants’ appeal from the district judge, decided
that the cause of action accrued on the date of exchange of contracts and that
the six-year period of limitation had expired before the writ was issued; he
ordered the action to be struck out under RSC Ord 18 r 19. The plaintiffs
appealed contending that the cause of action accrued on the date of completion.
dismissed. The issue relating to the correct date at which the cause of action
accrued was one that could be decided on an application to strike out under RSC
Ord 18 r 19. On exchange of contracts the plaintiffs became irrevocably
committed to acquiring the lease of the flat. The cause of action accrued when
contracts were exchanged. It was on this date that the plaintiffs acted on the
report and suffered damage.
The following cases are
referred to in this report.
Cartledge v E
Jopling & Sons Ltd [1963] AC 758; [1963] 2 WLR 210; [1963] 1 All ER
341, HL
First National Commercial Bank plc v Humberts [1995] 2 All ER 673; [1995] 1 EGLR 142; [1995] 14
EG 140
Horbury v Craig
Hall & Rutley [1991] EGCS 81
Forster v Outred
& Co [1982] 1 WLR 86; [1982] 2 All ER 753, CA
Nykredit Mortgage Bank plc v Edward Erdman Group Ltd (No 2) [1997] 1 WLR 1627; [1998] 1
EGLR 99; [1998] 05 EG 150, HL
Perry v Sidney
Phillips & Son [1982] 1 WLR 1297; [1982] 3 All ER 705; [1982] 2 EGLR
135; [1982] EGD 412; (1982) 263 EG 888, CA
Pirelli General Cable Works Ltd v Oscar Faber & Partners [1983] 2 AC 1; [1983] 2 WLR 6;
[1983] 1 All ER 65; [1983] 1 EGLR 135; [1983] EGD 889; (1982) 265 EG 979, HL
Secretary of State for the Environment v Essex Goodman & Suggitt [1986] 1 WLR 1432; [1986] 2
All ER 69; [1985] 2 EGLR 168; (1985) 276 EG 308
Smith v Eric S
Bush (a firm) [1990] 1 AC 831; [1989] 2 WLR 790; [1989] 2 All ER 514;
(1989) 87 LGR 685; [1989] 1 EGLR 169; [1989] 17 EG 68 & 18 EG 99, HL
Sparham-Souter v Town
& Country Developments (Essex) Ltd [1976] QB 858; [1976] 2 WLR 493;
[1976] 2 All ER 65; [1977] 1 EGLR 61; (1976) 241 EG 309, CA
Sullivan v Layton
Lougher & Co [1995] 2 EGLR 111; [1995] 49 EG 127
UBAF Ltd v European
American Banking Corporation [1984] QB 713; [1984] 2 WLR 508; [1984] 2 All
ER 226; [1984] 1 Lloyd’s Rep 258, CA
Westlake v Bracknell
District Council [1987] 1 EGLR 161; (1987) 282 EG 868
Williams & Humbert v W&H Trade Marks (Jersey) Ltd [1986] AC 368; [1986] 2
WLR 24; [1986] 1 All ER 129, HL
This was an appeal by the
plaintiffs, Mr and Mrs Byrne, against a decision of Laws J, who had allowed an
appeal by the defendants, Hall Pain & Foster and others, against a decision
of the district judge, who had dismissed an application by the defendants to
strike out the plaintiffs’ action.
Paul McCormick (instructed by Anderton & Co,
of Portsmouth) appeared for the appellants; Andrew Parsons (instructed by
Grindeys, of Stoke-on-Trent) represented the respondents.
Giving the first
judgment, SIMON BROWN LJ said:
This appeal raises a short point concerning the date of accrual of the cause of
action, for the purposes of the applicable six-year limitation period, in
relation to a claim in tort for damages for professional negligence brought by
a purchaser of property against a firm of valuers. More particularly, the
question raised is whether the cause of action accrues when contracts are
exchanged or when the purchase is completed. Laws J below held in the
defendants’ favour that time begins to run when contracts are exchanged, so
that the plaintiffs’ action fell to be struck out as statute-barred. The
plaintiffs now appeal by leave of the single lord justice.
With that brief introduction let me set out the
few material facts and indicate the circumstances in which the point comes
before the court.
The plaintiffs proposed to purchase a residential
flat in Portsmouth. Their mortgagees commissioned a valuation report from the
first defendant firm. On 2 June 1988 the second defendant, a chartered surveyor
employed by the first defendants, inspected the property and prepared a written
report. The plaintiffs did not seek an independent report for themselves. It is
pleaded on their behalf (and, for present purposes, their pleaded case must be
assumed factually correct) that they relied on the first defendants’ report
commissioned by the building society. So, relying on it, they exchanged
contracts to purchase the lease of the flat on 8 July 1988. Completion took
place a fortnight later on 22 July 1988.
Thereafter, defects in the property came to light.
They were defects that the plaintiffs say should have been detected when the
second defendant inspected the flat, and, accordingly, should have been
described in the report. That not having been done, the plaintiffs’ case is
that the defendants’ valuation report was negligently made, and in purchasing
the flat in reliance upon it they have suffered loss. Prominent among the
defects that they say should have been discovered and revealed by the report
were problems relating to condensation and/or water penetration. Although it is
difficult to discover from the plaintiffs’ pleadings precisely how they put
their claim for damages, Mr Paul McCormick tells us that the measure of damage
sought is the difference between the price paid for the property (£38,500) and
its value as it should have been described (which he asserts to have been some
£26,000).
The plaintiffs’ writ was issued on 18 July 1994,
that is to say more than six years after exchange but less than six years after
completion. The primary limitation period is all-important here. The plaintiffs
acknowledge that they cannot take advantage of the extended period under
section 14A of the Limitation Act 1980: all the relevant facts were known to
them well before 19 July 1991 (three years prior to the issue of the writ).
Having pleaded that the plaintiffs’ claim is
barred by section 2 of the 1980 Act, the defendants applied under RSC Ord 18 r
19 for the action to be struck out. On 15 January 1998 the district judge
refused the application, concluding that the law was not sufficiently clear to
justify striking out the claim as frivolous, vexatious or an abuse of process.
On 7 April 1998 Laws J allowed the defendants’ appeal. On the substantive issue
he held:
the plaintiffs’ cause of action in this case
accrued at exchange of contract. On that date the plaintiffs by their
irrevocable commitment to the purchase of the
sufficient to crystallise or complete their cause of action.
As to the procedural objection that the case is
not sufficiently clear to justify striking out the action under Ord 18 r 19 —
see para 18/19/11 at p349 of the Supreme Court Practice (1999 vol 1) — Laws J
said:
the argument would mean that merely because the
law is doubtful or difficult I should decline to decide the point on this
strike-out appeal. Were I to take that course, the case would go to trial and
the trial judge would have to decide it. That cannot possibly be right. The
question, from what date time runs in this case, is discrete and specific. I am
clearly in as good a position to decide it as would be the trial judge, and it
is in the parties’ interest that I do so. As I understand it, it has never been
the law that because a strike-out application may turn on a difficult legal
point, that itself requires the court to refuse the application. Indeed some of
the common law’s seminal cases, such as Donoghue v Stevenson and Dorset
Yacht, were decided on such applications or as preliminary points before
trial. The right approach is for the court to proceed on the footing that all
the factual allegations made by the plaintiff are true and then decide whether
the plaintiffs’ case is arguably sustainable. If at law it is doomed to
failure, it should be struck out.
Although before this court the plaintiffs have
returned to the procedural point (which, indeed, they were given express leave
to argue), Mr McCormick has been content to rely upon his written argument and
not to press the matter in oral submission. His essential contention is that
the Ord 18 r 19 procedure is inappropriate to resolve a difficult and novel
point of law of general public interest. For my part, I would reject this
contention. No doubt it is more conventional to decide such points by way of
preliminary issue under Ord 33 r 3. However, given that no evidence was
required, that would have brought no possible advantage. In short, I find
myself in full agreement with Laws J’s view upon this question. It is also, I
believe, supported by what Lord Templeman said in Williams & Humbert
v W&H Trade Marks (Jersey) Ltd [1986] AC 368 at p436. I accordingly
turn to the central point at issue.
It is perhaps surprising that this point has not
previously been decided. While, however, both sides can point to various dicta
in the authorities suggesting one conclusion rather than the other, neither can
point to a case where the distinction between exchange and completion was, as
it is here, decisive.
It is convenient to start by noting what Jackson
and Powell on Professional Negligence (4th ed 1997) have to say upon the
issue. Para 1-146 reads:
Where a person purchases property in reliance on
a survey report which fails to disclose material defects, the courts have
repeatedly held that the measure of damages is the difference between the price
paid and the value of the property as it ought to have been described. Quite
consistently with this approach, Judge Hawser QC held in Secretary of State
for the Environment v Essex Goodman & Suggitt [1986] 1 WLR 1432
that the cause of action accrued when the plaintiffs acted in reliance on the
survey report (and became irrevocably committed to lease the property in
question). In the case of a house purchaser, the cause of action would normally
accrue when contracts are exchanged. This approach was adopted in Horbury
v Craig Hall & Rutley [1991] CILL 692.
Strongly though that paragraph appears to support
the defendants’ argument, there are these comments to be made about it. First,
and most obviously, neither of the cases there referred to binds us: both were
decided by official referees: Horbury v Craig Hall & Rutley
[1991] EGCS 81 by Judge Bowsher QC. Second, it appears from consideration of
the facts of those cases that, in any event, it probably mattered not whether
time started to run at exchange or completion: the real issue in Secretary
of State for the Environment v Essex Goodman & Suggitt [1986] 1
WLR 1432* was whether it started to run from some later date entirely, ie when
physical damage occurred, and in Horbury (where the proposition that
time ran from exchange went by concession) the issue was whether the plaintiffs
could rely on section 14A of the 1980 Act.
*Editor’s note: Also reported at [1985] 2 EGLR
168
Those comments notwithstanding, the defendants are
entitled to point to this passage in Judge Hawser’s judgment at p1439A:
In my judgment, [the submissions of counsel for
the third defendants] correctly state the law in cases where the duty is simply
that of taking reasonable care to ensure that the damage is reported to the
client. In my opinion, this is such a case. If the damage had not occurred at
the date of the report, the [third defendants] would not be liable at all. If it
was then in existence and reasonably discoverable, they would have been liable
immediately the plaintiff committed himself to the lease.
There, Judge Hawser was evidently accepting the
defendants’ central submission that the plaintiffs’ cause of action accrues at
the point when they become irrevocably committed to the lease.
Emmet on
Title (vol 1, release 34, para 1.065) adopts the same approach, also in
reliance on Essex Goodman:
In principle, time runs in respect of a negligent
survey as from the date of reliance on the report (eg by exchanging contracts)
not from the occurrence or discovery of damage or defects.
I next pass briefly to a small group of cases
relied on by Mr McCormick for the language in which the judgments are
expressed, the language of completion. Perry v Sidney Phillips &
Son [1982] 1 WLR 1297* was a Court of Appeal decision affirming a line of
authority to the effect that in ordinary cases involving the purchase of
property at a price in excess of its market value as a result of wrong advice,
the measure of damage ‘is simply the difference between what the plaintiff paid
for the property and its value at the date when he obtained it’: per
Oliver LJ at p1304. He ‘obtained it’ at completion, submits Mr McCormick.
*Editor’s note: Also reported at [1982] 2 EGLR
135
Westlake v Bracknell
District Council [1987] 1 EGLR 161
court judge that in a surveyor’s negligence case time started to run when the
property was purchased, and not some eight years later when the plaintiffs
issued their writ. He held at p163E:
It is clear that the plaintiffs have suffered
damage by reason of this negligence because they have bought a house which has
proved to be unsaleable by reason of the defective floor. This state of affairs
came into existence as soon as they completed their purchase in July 1975,
which is the date at which I find that the cause of action accrued.
Sullivan v Layton
Lougher & Co [1995] 49 EG 127† was another Limitation Act case
concerning an eight-year delay between purchase and writ. The negligence there
was that of the plaintiff’s solicitor in failing to advise him that the lease
in question, having already been extended under the Leasehold Reform Act 1967,
could not be further extended. Leggatt LJ said at p112E:
time ran from completion and not from any
subsequent date, with the result that it had run in favour of the defendants by
the time the writ was issued.
†Editor’s note: Also reported at [1995] 2 EGLR
111
In none of these three cases did any issue arise
requiring the court to determine, as between exchange and completion, the date
at which the cause of action accrued.
I come finally to two decisions of the House of
Lords, which, it is suggested, contain important conflicting dicta on
the point. First, Smith v Eric S Bush (a firm) [1990] 1 AC 831‡
where at p852B Lord Templeman said:
Mr Hague [counsel for the surveyors] also
submitted that there was no contract between a valuer and a purchaser and that,
so far as the purchaser was concerned, the valuation was ‘gratuitous,’ and the
valuer should not be forced to accept a liability he was unwilling to
undertake. My Lords, all these submissions are, in my view, inconsistent with
the ambit and thrust of the Act of 1977. The valuer is a professional man who
offers his services for reward. He is paid for those services. The valuer knows
that 90 per cent of purchasers in fact rely on a mortgage valuation and do not
commission their own survey. There is great pressure on a purchaser to rely on
the mortgage valuation. Many purchasers cannot afford a second valuation. If
the purchaser obtains a second
Moreover, he knows that mortgagees, such as building societies and the council,
in the present case, are trustworthy and that they appoint careful and
competent valuers and he trusts the professional man so appointed. Finally, the
valuer knows full well that failure on his part to exercise reasonable skill
and care may be disastrous to the purchaser. If, in reliance on a valuation,
the purchaser contracts to buy for £50,000 a house valued and mortgaged for
£40,000 but, in fact worth nothing and needing thousands more to be spent on
it, the purchaser stands to lose his home and to remain in debt to the building
society for up to £40,000.
‡Editor’s note: Also reported at [1989] 1 EGLR
169
Smith
v Bush, of course, is the very case that established the potential
liability in tort of the mortgagee’s valuers to the purchaser — the foundation
of the plaintiffs’ claim in the present action — and, submits Mr Andrew
Parsons, for the defendants, Lord Templeman can be seen pointing to exchange
rather than completion as the stage when the cause of action arises. Not so,
argues Mr McCormick: Lord Templeman was there using the term ‘contracts to buy’
as an omnibus expression encompassing either exchange or completion; it
mattered not which it was: what mattered was that a duty of care should be held
to exist because of the purchaser’s likely reliance on the mortgagee’s
valuation. I accept Mr McCormick’s submission: essentially, the case was
concerned with the duty of care rather than damage; certainly, it was not
directed to the question of when, as between exchange and completion, damage is
first sustained.
The second House of Lords’ decision is the authority
upon which Mr McCormick principally relies, Nykredit Mortgage Bank plc v
Edward Erdman Group Ltd (No 2) [1997] 1 WLR 1627*, and, in particular,
the following passage from Lord Nicholls’ speech at p1630B:
Accrual of a cause of action: actual damage
As every law student knows, causes of action for
breach of contract and in tort arise at different times. In cases of breach of
contract the cause of action arises at the date of the breach of contract. In
cases in tort the cause of action arises, not when the culpable conduct occurs,
but when the plaintiff first sustains damage. Thus the question which has to be
addressed is what is meant by ‘damage’ in the context of claims for loss which
is purely financial (or economic, as it is sometimes described).
In Forster v Outred & Co [1982]
1 WLR 86, 94, Stephenson LJ recorded the submission of Mr Stuart-Smith QC:
‘What is meant by actual damage? Mr Stuart-Smith
says that it is any detriment, liability or loss capable of assessment in money
terms and it includes liabilities which may arise on a contingency,
particularly a contingency over which the plaintiff has no control; things like
loss of earning capacity, loss of a chance or bargain, loss of profit, losses
incurred from onerous provisions or covenants in leases. They are all
illustrations of a kind of loss which is meant by ‘actual’ damage. It was also
suggested in argument… that ‘actual’ is really used in contrast to ‘presumed’
or ‘assumed’. Whereas damage is presumed in trespass and libel, it is not presumed
in negligence and has to be proved. There has to be some actual damage.’
Stephenson LJ, at p98, accepted this submission.
I agree with him. I add only the cautionary reminder that the loss must be
relevant loss. To constitute actual damage for the purpose of constituting a
tort, the loss sustained must be loss falling within the measure of damage
applicable to the wrong in question.
Take first a simple case which gives rise to no
difficulty. A purchaser buys a house which has been negligently overvalued or
which is subject to a local land charge not noticed by the purchaser’s
solicitor. Had he known the true position the purchaser would not have bought.
In such a case the purchaser’s cause of action in tort accrues when he
completes the purchase. He suffers actual damage by parting with his money and
receiving in exchange property worth less than the price he paid.
In the ordinary way the purchaser in this example
will not know of the negligence of his valuer or solicitor when completing the
purchase. Despite this his cause of action arises at the date of completion and
time begins to run for limitation purposes.
*Editor’s note: Also reported at [1998] 1 EGLR 99
There, submits Mr McCormick, Lord Nicholls is in
terms addressing the question as to when damage is first sustained by a
purchaser so that his cause of action in tort accrues against the negligent
valuer, and his answer is ‘when he completes the purchase’, which is when he
‘suffers actual damage by parting with his money’.
This, to my mind, is undoubtedly the high-water
mark of the appellants’ argument. Completion rather than exchange is the
concept three times referred to by Lord Nicholls at the conclusion of that
passage.
In my judgment, however, the argument fails. For
the purposes of Lord Nicholls’ illustration in Nykredit it mattered not,
any more than in all the other cases cited, whether time ran from completion or
exchange. The issue in Nykredit was when the plaintiff bank’s cause of
action had arisen, and the decision was that it arose when a relevant and
measurable loss had first been revealed. There, since the borrower had
defaulted at once and the amount lent had at all times exceeded the value of
the property, that had been at or about the time of the loan transaction. The
critical point to note, however, is that the action there was by a lender
complaining that in reliance on the defendant’s negligence he had made a bad
loan, whereas the present action is by a purchaser the essence of whose
complaint is that he bought a bad property. Because it is altogether less
certain whether and when loss will be suffered by badly advised lenders than in
the case of badly advised purchasers, the cases are treated differently. The
contrast was, indeed, struck by Lord Nicholls himself at p1631B shortly after
the passage above quoted:
More difficult is the case where, as a result of
negligent advice, property is acquired as security. In one sense the lender
undoubtedly suffers detriment when the loan transaction is completed. He parts
with his money, which he would not have done had he been properly advised. In
another sense he may suffer no loss at that stage because often there will be
no certainty he will actually lose any of his money: the borrower may not
default. Financial loss is possible, but not certain. Indeed, it may not even
be likely. Further, in some cases, and depending on the facts, even if the
borrower does default the overvalued security may still be sufficient.
This is also the answer to such submissions as Mr
McCormick makes in reliance upon passages in the judgments of the Court of
Appeal in UBAF Ltd v European American Banking Corporation [1984]
QB 713 and First National Commercial Bank plc v Humberts [1995] 2
All ER 673*. Both of those were lending cases and both, indeed, were discussed
as such in Nykredit.
*Editor’s note: Also reported at [1995] 1 EGLR
142
Let me return to Lord Nicholls’ illustration of
the house purchaser. The central point that I apprehend was being made there is
that the purchaser is, on any view, damaged by purchasing in reliance upon a
negligent overvaluation. But for that he ‘would not have bought’. No more would
he have exchanged contracts to buy. ‘He suffers actual damage by parting with
his money and receiving in exchange property worth less than the price he
paid.’ But I can see no distinction in principle between ‘parting with his
money and receiving in exchange property’ at completion and, as will generally
occur on exchange, paying a deposit and becoming committed to pay the balance
on completion. True, it is not until completion that the purchaser receives the
property in the sense of the legal estate in the property. On exchange,
however, he obtains a very real interest in the property, and, for example,
must insure it.
In the last analysis, Nykredit, to my mind,
assists the defendants’ argument rather than the plaintiffs’. Lord Nicholls,
like Stephenson LJ in Forster v Outred & Co [1982] 1 WLR 86,
accepted Mr Stuart-Smith’s formulation of the meaning of actual damage. One
looks, therefore, for ‘any detriment, liability or loss’, including
‘liabilities which may arise on a contingency’ and ‘losses incurred from
onerous provisions or covenants in leases’, subject only to the loss being ‘a
relevant loss’, ie one ‘falling within the measure of damage applicable to the
wrong in question’. Here, I repeat, the plaintiffs, on exchange, became
irrevocably committed to acquiring the lease, a lease worth less than they
reasonably believed, and one that they would not have committed themselves to
acquire but for the defendants’ negligent report. That, as it seems to me,
plainly resulted in ‘actual (as opposed
as Saville LJ expressed it in First National Commercial Bank plc v Humberts
at p676.
In my judgment, it is no answer to this to say
that not every exchange results in completion, so that the plaintiffs might perhaps,
in the event, have escaped from their commitment without loss. The fact is that
they did not do so, and there was no reason to suppose that they would. Nor
does it seem to me any answer to say that property prices could have increased
between exchange and completion sufficiently to outweigh the depreciating
effect of the unrevealed defects. Mr McCormick submits that the loss
crystallises only at completion, and it is the market value of the property at
that date that one must compare with the price paid. I see no good reason why.
By the same token that he would ignore any movement in the property market
after completion, I would ignore it after exchange. The valuation in the report
will necessarily relate more closely to that of the property at exchange than
at completion; by exchange the purchase price will be fixed and agreed; and by
his commitment to the transaction at exchange the purchaser will effectively
have locked himself into the property market at that point.
In advancing this appeal Mr McCormick took the
court to a great range of further authorities dealing with speculative damage,
physical damage, recurrent damage and many other aspects of damage. Suffice it
to say that none of them, to my mind, provide the least help in resolving the
point presently at issue. This is a case of tortiously induced economic loss.
For the reasons given, which, in substance, are the same as those given by the
judge below, I too would hold that the cause of action in these cases accrues
when contracts are exchanged. I would accordingly dismiss this appeal.
Agreeing, OTTON
LJ said: A tort is only actionable on proof of damage; there is no
cause of action and time does not begin to run for limitation purposes until
some damage actually occurs. Thus, in cases of negligence, time runs from the
date of damage, not from the negligent act or omission. However, the cause of
action ‘accrues’ when the damage occurs not when it is discovered by the
plaintiff. In Cartledge v E Jopling & Sons Ltd [1963] AC 758
the plaintiff was exposed over a number of years to noxious dust caused by
breach of statutory duty and, as a result, contracted pneumoconiosis. The
plaintiff could not prove that a breach had occurred during the six years (the
then limitation period) preceding his writ. Although the disease had not
revealed itself until later the plaintiff had in fact suffered actionable
injury to his lungs within the six-year period. The House of Lords held
that his claim was statute-barred.
Until 1983 the courts proceeded on the basis that
economic loss occurred at (and the limitation period began to run from) the
date when the damage was reasonably discoverable: see Sparham-Souter v Town
& Country Developments (Essex) Ltd [1976] QB 858*, CA. However, in Pirelli
General Cable Works Ltd v Oscar Faber & Partners [1983] 2 AC 1†
the House of Lords held that a cause of action in tort for negligent advice
given by an engineer in relation to the design of the chimney accrued (and the
limitation period began) when the damage occurred, ie when there were cracks in
the chimney, rather than when the damage was reasonably discoverable. Thus, the
action became time-barred even though the plaintiff owner neither knew of the
cracks nor could reasonably have been expected to discover them within the six-year
period.
*Editor’s note: Also reported at [1977] 1 EGLR 61
†Editor’s note: Also reported at [1983] 1 EGLR
135
Their lordships recognised that their rejection of
the discoverability test for when time started to run could cause injustice to
plaintiffs, who could be deprived of their cause of action before they knew of
its existence.
They were not prepared to overrule Cartledge
v Jopling. They indicated that this unsatisfactory situation could only
be remedied by statute, so as to remove the injustice of plaintiffs being
statute-barred before they had the means of knowing of their causes of action
for personal injury, death or other negligently caused damage such as economic
loss. They called for a legislative solution.
Sections 1 and 2 of the Latent Damage Act 1986
amended the Limitation Act 1980, so that by section 14A(1) of the 1980 Act the
limitation period for negligent latent damage (other than for personal injury)
was made more favourable to plaintiffs by extending it to either six years from
when the cause of action ‘accrues’ or three years from the date of the
plaintiff’s ‘knowledge’, whichever is the longer (with an absolute long-stop of
15 years from the defendant’s breach of duty). Unlike the regime for personal
injury and death, there is no discretion to disapply any of these time-limits.
This reform was not confined to defectively
designed or constructed buildings. Latent pure economic loss caused by the
negligent advice of a solicitor falls within its provisions: see Forster
v Outred & Co [1982] 1 WLR 86.
In the instant case, the plaintiffs could not
avail themselves of the ‘knowledge’ protection. To bring themselves within
section 14A(b) they had to show that they did not have ‘the knowledge
required for bringing an action for damages in respect of the relevant damage’
until, at the earliest, 19 July 1991 (three years prior to the date of issue of
the writ). From their own evidence, they were aware of serious defects in the
flat well before July 1991; they began to suffer problems with damp and water
penetration from the winter of 1988 onwards.
Thus, the critical question arose as to when their
cause of action arose. There can be little doubt that the negligent act or
omission occurred on the occasion of the inspection on 2 June 1988. The
plaintiffs were informed of the valuation shortly afterwards. The communication
of the valuation to the plaintiffs still did not amount to a tort. Their cause
of action arose when they acted on it and thereby suffered damage. This
occurred, in my judgment, when they signed and then exchanged contracts. For
all intents and purposes they were irrevocably bound to complete the purchase
whenever that event took place, whether immediately after exchange or at the date
agreed between them. From the moment that they exchanged the plaintiffs
acquired an interest in the property (it matters not for the purposes of this
case whether this was technically an equitable rather than a legal interest).
They acquired an immediate and binding obligation to insure the property.
None of the remote events that might have led to
rescission of the contract of sale, or completion not to take place occurred.
Thus, completion was only a formality. Both the seller and the plaintiffs could
have held the other to the deal and enforced their rights by a suit for
specific performance. On exchange they acquired a lease that was worth less
than they were led to believe by the report and upon the strength of which they
agreed to purchase.
I can find no inconsistency between this approach
and the previous decisions where lenders have sued in negligence for negligent
valuation. Applying the principles set out above, the tort is not complete
until the lender suffers damage. This can occur (for example) when the borrower
defaults. Until then the lender had not suffered any ‘actual (as opposed to
potential loss or damage of a kind recognised by the law’: per Saville
LJ in FNCB plc v Humberts [1995] 2 All ER 673 at p676.
Accordingly, I, too, would dismiss the
appeal.
SCHIEMANN LJ agreed and did not add anything.
Appeal dismissed.
