Sections 2, 14A and 32 of Limitation Act 1980 – Claimant executing numerous mortgages during 1980s while acting as sleeping partner in property business operated by M – M obtaining further loans from mortgagee bank for non-partnership business – Claimant relying at all times on approval of documentation by defendant solicitor – Defendant negligently failing to advise that mortgage provisions rendered claimant liable for all indebtedness incurred by M – Claimant assuming that liability limited to partnership debts – Bank first alleging wider liability in December 1997 – Claimant issuing writ against defendant in March 1999 – Defendant relying on Limitation Act 1980 – Whether damage sustained before 1997 – Whether relevant facts known to claimant more than three years before issue of writ – Whether relevant facts deliberately concealed by defendant
From the early 1980s, a bank (AIB) maintained a number of accounts relating to the business of M, who was engaged full-time in the refurbishment and letting of residential properties. One of the accounts (the MA account) had been established for transactions that M conducted in partnership with the claimant (A), a dentist by profession, who participated as sleeping partner in numerous acquisitions, each financed by mortgages (the old mortgages) executed by M and A in favour of AIB. Provisions standard to all the old mortgages included a clause (the liability clause) that declared the liability of the “mortgagor”, as defined. At all material times until 1993, A entrusted the approval of all legal documentation to his brother, H, who was a partner in the defendant firm of solicitors. Documents so approved were signed by A without further examination.
In 1992 AIB, which then held 78 mortgages in which M was involved, made restructuring proposals that included the replacement of 46 mortgages relating to the MA account with a single mortgage (the new mortgage). In February 1993 A put his signature to a facility letter that mentioned a total indebtedness of £1.71m to be secured on the new mortgage. In July 1993, A, having obtained the approval of H, signed the formal restructuring documents. These included the new mortgage, which contained a liability clause identical to the corresponding clauses in the old mortgages.
In February 1995 AIB made a formal demand for the repayment of £1.73m said to be due under the MA account, following which A, acting upon the advice of H, appointed a different firm of solicitors. In December 1997 AIB, having already commenced proceedings against A and M for the amount demanded, realised that the liability clause was worded so as to make A liable for all moneys owed to AIB by M regardless of whether they were partnership debts. It therefore enlarged the claim, and obtained judgment on this in March 1999*.
Later that month, A issued a writ against the defendant, claiming that it had negligently failed to advise him of the effect of the liability clause, as contained in both the old mortgages and the new mortgage. The defendant admitted negligence, but contended that the claim was barred by the provisions of the Limitation Act 1980. A disputed the limitation defence upon four grounds: (i) no damage had occurred before the making of the formal demand in 1995; (ii) alternatively, the claim had been brought within the three years allowed by section 14A of the 1980 Act, for which the relevant starting point was the making of the enlarged claim in December 1997, when A first obtained the knowledge required for bringing the present action; (iii) alternatively, the beginning of the ordinary six-year period was suspended by section 32 of the Act, because the effect of the liability clause had been concealed by H and had not come to light before the making of the enlarged claim; and (iv) in any event, a fresh cause of action had arisen when H approved the new mortgage, as he should then have advised A that he had been negligent in relation to the old mortgages.
Held: The limitation defence failed for the second and third reasons advanced by A
1. For the purpose of the ordinary six-year limitation period, time began to run when A first sustained damage. Rejecting A’s first ground, which occurred when he signed the first of the early mortgages, as from that moment, he became worse off than he would have been had he signed the mortgage without the clause in question: see Forster v Outred & Co [1982] 1 WLR 86, as approved in Nykredit Mortgage Bank plc v Edward Erdman Group Ltd (No 2) [1998] 1 EGLR 99. The fourth ground was also untenable. The fact that, following his negligence, a solicitor was instructed in the same matter by the same client, did not, of itself, put him under a duty to discover or advise upon his negligence on the earlier occasion: see per Oliver J in Midland Bank Trust Co Ltd v Hett Stubbs & Kemp [1979] Ch 384 at p403. It was otherwise where the later negligence concealed the earlier negligence: cf Costa v Georgiou unreported 2 May 1984.
2. A was, however, entitled to succeed on his second ground. As nothing had come to his notice before the making of the enlarged claim, that could fix him with “knowledge that he might reasonably have been expected to acquire” within the meaning of section 14A(10), as considered in Johnson v Chief Constable of Surrey The Times 23 November 1992 and C v Mirror Group Newspapers [1997] 1 WLR 131. A’s third (section 32) ground was also upheld, as H had chosen to conceal from A the effect of the liability clause. On the present state of the authorities (hopefully to be reconsidered by the Court of Appeal in the near future), it was immaterial that: (i) H did not appreciate the legal consequences of the concealment; and (ii) what was concealed was the very fact upon which H had failed to advise : see Brocklesby v Armitage & Guest [2001] 1 EGLR 67 and Liverpool Roman Catholic Archdiocesan Trustees Inc (No 1) v Goldberg [2001] 1 All ER 182.
* Editor’s note: Subsequently affirmed on appeal: see [2000] PLSCS 152
James Bonney QC and David Ainger (instructed by Mark Gilbert Morse, of Newcastle) appeared for the claimant; Nicholas Davidson QC and Anthony de Freitas (instructed by Crutes, of Newcastle) appeared for the defendant.
Alan Cooklin, barrister
