Negligence — Solicitor — Complaint of failure to effect purchase of freehold — Action in contract time-barred — Whether action could succeed in tort — Authority of Groom v Crocker discussed — Preliminary issue — Appeal by defendant from county court decision in favour of plaintiffs
purpose of the preliminary issue the facts were taken to be as set out in the
statement of claim — Plaintiffs (present respondents) in 1975 instructed a
solicitor, since retired, and put him in funds, to purchase the freehold of a house
in which the plaintiffs were then living under a long lease — Defendant did not
carry out the instructions, but this was not discovered until 1984 — Purchase
price in 1975 was only £350, but in 1986, when plaintiffs issued their writ,
the freehold was worth just under £4,000 — County court judge held that
plaintiffs’ claim in contract was time-barred but that they could sue in
tort and he gave judgment in their favour — He held that the cause of action in
tort did not arise until 1984, as the loss could not be quantified until then;
he considered that until then the loss was not capable of assessment in money
terms save on a purely hypothetical basis
appealed and the Court of Appeal held that the judge had erred — It had been
established by Forster v Outred & Co that when a plaintiff claims in tort against his
solicitor his cause of action arises when he suffers actual damage — The judge
in the present case was wrong when he decided that it was impossible to
quantify the loss before 1984; it was a matter of the market value of the
freehold — The cause of action was time-barred in tort as well as in contract
it clear that it had been assumed for the purpose of the decision that a
client’s cause of action against his solicitor lay in tort as well as in
contract — This was, however, contrary to a 1938 decision of the Court of
Appeal in Groom v Crocker — This decision had never been overruled, although it had
been the subject of adverse comment, particularly by Oliver J in Midland Bank
Trust Co Ltd v Hett, Stubbs & Kemp — Perhaps Groom v Crocker should be looked at
in the light of Oliver J’s specific comment and the general observations of
Lord Scarman in Tai Hing Cotton Mill Ltd v Ltd Chong Hing Bank Ltd —
Sympathy expressed with the respondents, but appeal allowed
The following
cases are referred to in this report.
Baker v Ollard & Bentley (1982) 126
SJ 593
Forster v Outred & Co [1982] 1 WLR
86; [1982] 2 All ER 753, CA
Groom v Crocker [1939] 1 KB 194; [1938]
2 All ER 394, CA
Hedley Byrne & Co Ltd v Heller & Partners
Ltd [1964] AC 465; [1963] 3 WLR 101; [1963] 2 All ER 575; [1963] 1 Lloyd’s
Rep 485, HL
Mathew v Maughold Life Assurance Co Ltd
The Times, January 23 1985
Midland Bank Trust Co Ltd v Hett, Stubbs & Kemp
[1979] Ch 384; [1978] 3 WLR 167; [1978] 3 All ER 571
Moore (D W) & Co Ltd v Ferrier [1988] 1 WLR
267; [1988] 1 All ER 400, CA
Pirelli General Cable Works Ltd v Oscar Faber &
Partners [1983] 2 AC 1; [1983] 2 WLR 6; [1983] 1 All ER 65; [1983] EGD 889;
(1982) 265 EG 979, [1983] 1 EGLR 135, HL
Tai Hing Cotton Mill Ltd v Liu Chong Hing Bank Ltd
[1986] AC 80; [1985] 3 WLR 317; [1985] 2 All ER 947; [1985] 2 Lloyd’s Rep 313,
PC
This was an
appeal by Edward Thompson from the decision of Judge Ranking QC, at the Mayor’s
and City of London County Court, in favour of the plaintiffs, John Boniface Lee
and Geok Yin Lee, on a preliminary issue arising in an action for negligence
against the defendant (the present appellant).
J Stevenson
(instructed by Ince & Co) appeared on behalf of the appellant; R
Daniells-Smith (instructed by Kenwright & Cox) represented the respondents.
Giving the
first judgment at the invitation of Slade LJ, LLOYD LJ said: This is an appeal
from a decision of Judge Ranking QC on February 19 1989 whereby he decided a
preliminary issue in favour of the plaintiffs, John Boniface Lee and Geok Yin
Lee. The issue arises in an action brought by them against the defendant,
Edward Thompson, a solicitor who was in practice in south London. He retired
from practice in August 1977. Two years before that, in November 1975, he had
been retained by the plaintiffs in connection with the purchase by them of the
freehold of the house in which they were living at 53 Romberg Road, Tooting,
London SW17, under a long lease. According to para 7 of the solicitor’s
defence, their instructions were subsequently withdrawn. But, for the purposes
of the preliminary issue, we take the facts as stated in the statement of
claim, together with certain further facts which have been the subject of
admissions.
The purchase
price of the freehold was a modest £350. The plaintiffs put the defendant in
funds for the purposes of effecting the purchase. It was not until May 1984
that the plaintiffs discovered that they had not secured the freehold, as they
had supposed, after all.
By 1986, when
the plaintiffs issued their writ, the freehold was worth just under £4,000. So
they brought this action against the defendant claiming various items of
damage, amounting to just under £5,000 in all. They put their claim in contract
and in tort. I will say a word more about that a little later in this judgment.
In para 1 of his defence the defendant pleads that any claim against him is now
statute-barred. It is that plea which has been made the subject of the
preliminary issue now before the court.
The judge, in
a careful judgment, held that the claim in contract was time-barred. The breach
must have occurred long before 1980. There is no cross-appeal in respect of
that part of the judge’s judgment. But the judge went on to hold that the claim
in tort was not time-barred. The plaintiffs’ loss could not be quantified until
May 1984. Accordingly, the cause of action in tort did not arise until May
1984. Until then, the loss was not capable of assessment in money terms, save
on a purely hypothetical basis. In support of that conclusion he relied on a
decision of Leonard J in the case of Mathew v Maughold Life Assurance
Co Ltd*, a decision which was subsequently reversed on a different point by
the Court of Appeal.
*Editor’s note: Reported in The Times,
January 23 1985.
With great
respect to the learned judge, I find that I have reached a different
conclusion. It is now well established by a number of cases in this court that
when a plaintiff claims in tort against his solicitor his cause of action
arises when, but not before, he suffers actual damage.
That was
established in the case of Forster v Outred & Co [1982] 1 WLR
86. In that case the plaintiff had executed a mortgage in the presence of her
solicitors in favour of a company who had lent money to her son. Her son went
bankrupt and the company then demanded repayment from the plaintiff under the
mortgage. She sued her solicitors in negligence for allowing her to enter into
such a disadvantageous transaction. The solicitors relied on the statute of
limitations. The question was whether the plaintiffs suffered actual damage
when the mortgage was executed or only when the company demanded repayment. The
Court of Appeal held that actual damage was suffered and, therefore, the cause
of action accrued at the earlier of those two dates. Stephenson LJ said, at p98
of the report:
. . . I . . . would conclude that, on the
facts of this case, the plaintiff has suffered actual damage through the
negligence of her solicitors by entering into the mortgage deed, the effect of
which has been to encumber her interest in her freehold estate with this legal
charge and subject her to a liability which may, according to matters
completely outside her control, mature into financial loss — as indeed it did.
It seems to me that the plaintiff did suffer actual damage in those ways; and
subject to that liability and with that encumbrance on the mortgage property
was then entitled to claim damages, not, I would think, an indemnity and
probably not a declaration, for the alleged negligence of the solicitor which
she alleges caused her that damage.
The court held that she suffered actual
damage when the property was encumbered. The financial loss was quantifiable
when the mortgage was executed, even though the loss was not in fact quantified
until later.
Forster v Outred & Co was followed again in Baker v Ollard
& Bentley (1982) 126 SJ 593. In that case the plaintiff sued a firm of
solicitors, again in negligence, because they allowed her to become the
occupier of the first floor of a house under a trust for sale. The transaction
gave her no security. She only obtained security two years later, after court
proceedings. The question in that case, as in Forster v Outred
was whether the cause of action accrued at the time of the original conveyance to
the plaintiff on trust for sale or whether it accrued when she obtained the fee
simple. The court held that she had suffered actual damage on the earlier of
the two dates, that is to say the date of the original conveyance. The court
referred to the decision in Forster v Outred and then said:
In our judgment the plaintiff suffered
damage on 12 April 1973. On that date, if the solicitors were not [sic]
negligent, she should have received a long lease of the first floor and an
interest as joint tenant of the freehold of the house subject to a long lease
of the first floor in her own favour and subject to a long lease of the ground
floor in favour of the Bodmans. The plaintiffs did not receive that which the
solicitors ought to have obtained for her. She received something different.
Therefore she suffered damage. The quantum of damage depends, and would in any
event depend, on the attitude of the Bodmans. . . . But the fact that the
quantum of damages suffered by the plaintiff on 12 April 1973 could immediately
thereafter, or at any time thereafter, only be established by ascertaining the
attitude and intentions of the Bodmans only goes to quantum of damages and does
not affect that fact that the damages were suffered on 12 April 1973. Damages
were suffered on that date because the plaintiff did not receive the long lease
and joint tenancy which the solicitors should have secured for her. She secured
instead some other and different interest. She suffered damage because she did
not get what she should have got. . . .
A little later, Templeman LJ said:
Damage was sustained at the date of the
conveyance, when
the plaintiff
received a precarious interest in the
first floor different in nature from the
ought to have received.
In D W
Moore & Co Ltd v Ferrier [1988] 1 WLR 267 the court held that
the authority of Forster v Outred and Baker v Ollard
had not been affected or shaken by the subsequent decision of the House of
Lords in Pirelli General Cable Works Ltd v Oscar Faber & Partners
[1983] 2 AC 1.
The present
case is close on the facts to Baker v Ollard. Just as the
plaintiff suffered actual damage in that case, when the defendant failed to
secure for her what he ought to have secured, so here the plaintiff suffered
actual damage when the defendant failed to secure for the plaintiffs the
freehold title which they thought they had secured in 1975. I do not understand
why the judge said that it was impossible to quantify the loss before 1984.
Supposing, as Mr Stevenson suggested, the writ had been issued in 1979 or
indeed at any time between 1976 and 1980. It would have been as easy to
quantify the loss then as it was in 1986. In each case it would depend upon the
market valuation of the freehold at the time in question. Nor do I understand
why it was said by the judge that until 1984 the loss was purely hypothetical.
It was no more hypothetical in this case than it was in Forster v Outred
or Baker v Ollard. It is true that the loss was never quantified
in money terms until after 1984, but it was actual loss none the less.
The case on
which the judge relied, Mathew v Maughold Life Assurance Co Ltd,
may well have been right on the facts of that case, but it does not represent
an inroad on the principles established in Forster v Outred and Baker
v Ollard.
If it be said
that there was no evidence of any increase in the value of the freehold between
1976 and 1980, the answer is that it was the subject of an express agreement
between the parties for the purposes of the preliminary issue. Perhaps for the
record I should just refer to that. Para 3 of the schedule of admitted facts
states:
That the value of the freehold of no 53
Romberg Road, Tooting, London SW17 increased substantially between December
1975 and October 1980.
We asked Mr
Stevenson, in the course of argument, whether Forster v Outred
and the other cases could be distinguished on the ground that in each of those
cases the solicitors had done something wrong, such as settling a negligent
document or giving negligent advice, whereas here they failed to do anything at
all. In the old out-worn terminology, it was a case of nonfeasance rather than
misfeasance or malfeasance. But we accept Mr Stevenson’s answer that there is
really no distinction to be drawn in these cases between negligent omission on
the part of a solicitor and negligent commission.
It might also
perhaps have been argued that the defendant’s breach of duty here was a
continuing one. But the judge rejected that argument in relation to the claim
in contract, in my view correctly. Nor has Mr Daniells-Smith sought to revive
the argument before us. Questions of continuing breach and continuing duty
always, in my experience, give rise to confusion. In the present case it would
be highly artificial to ask oneself whether the solicitors were still in breach
of duty after October 1980, five years after they were given their instructions
to purchase the freehold. There was here a complete cause of action in tort
before October 1980. That is therefore the date from which the limitation
period runs.
The main point
made by Mr Daniells-Smith is that the plaintiffs did not become aware of the
defendant’s negligence until May 1984, whereas in the other cases the
plaintiffs may be taken to have been aware of what the solicitors had done,
rightly or wrongly, from the start. Mr Daniells-Smith asked us, in those
circumstances, to look on the present case with sympathy. That, of course, we
do. But this was not a case of fraud or concealment on the part of the
solicitors. Nor was it a case to which the Latent Damage Act 1986 applies. The
date when the plaintiffs became aware of their cause of action is, as a matter
of law, immaterial to the question when their cause of action arose.
For all those
reasons, though with great sympathy for the plaintiffs, I am driven to the
conclusion that the judge reached the wrong conclusion on the question of
liability in tort. In my judgment, the cause of action here is time-barred in
tort as well as in contract.
Before leaving
the case, I should make clear that it has been assumed throughout that a
client’s cause of action against his solicitors lies in tort as well as in
contract. In the well-known case of Groom v Crocker [1938] 2 All
ER 394 it was decided by the Court of Appeal that this was not the law and that
a client’s cause of action against his solicitor arises in contract only.
In Midland
Bank Trust Co Ltd v Hett, Stubbs & Kemp [1979] Ch 384, Oliver J
(as he then was) held that the authority of Groom v Crocker had
been shaken by the subsequent decision of the House of Lords in Hedley Byrne
& Co Ltd v Heller & Partners Ltd [1963] 2 All ER 575. In Forster
v Outred Dunn LJ said that he found the reasoning of Oliver J wholly
convincing. But as Stephenson LJ pointed out, the point was conceded in Forster
v Outred.
So far as I
know and so far as Mr Stevenson knows, Groom v Crocker has never
been overruled. It may be that the time is now ripe for Groom v Crocker
and Oliver J’s decision in Midland Bank Trust Co Ltd v Hett, Stubbs
& Kemp to be looked at together in the light of subsequent cases and in
particular the decision of the Privy Council in Tai Hing Cotton Mill Ltd
v Liu Chong Hing Bank Ltd [1986] AC 80. In that case Lord Scarman,
giving the opinion of the Privy Council, said [at p 107]:
. . . Though it is possible as a matter
of legal semantics to conduct an analysis of the rights and duties inherent in
some contractual relationships including that of banker and customer either as
a matter of contract law when the question will be what, if any, terms are to
be implied or as a matter of tort law when the task will be to identify a duty
arising from the proximity and character of the relationship between the
parties, their Lordships believe it to be correct in principle and necessary
for the avoidance of confusion in the law to adhere to the contractual
analysis: on principle because it is a relationship in which the parties have,
subject to a few exceptions, the right to determine their obligations to each
other, and for the avoidance of confusion because different consequences do
follow according to whether the liability arises from contract or tort, eg in
the limitation of action
. . . Their Lordships do not, however,
accept that the parties’ mutual obligations in tort can be any greater than
those to be found expressly or by necessary implication in their contract.
Of course, the Privy Council were there
dealing with the relationship between banker and customer. But that passage,
with its reference to the different dates when an action may become time-barred
in tort and contract, would appear to be appropriate also to the case of
solicitor and client. Parliament has provided that, in the case of a
contractual action against a solicitor the period of limitation is six years.
It may seem odd at first sight that a client can, as it were, circumvent that
contractual limitation period by suing in tort. If the client’s action against
his solicitor were confined to claims for breach of contract, then these
difficult and, in some ways, artificial questions as to when actual damage is
suffered would not arise. But, as I say, the point has not been argued in this
case. I merely reserve it for another.
SIR GEORGE
WALLER agreed that the appeal should be allowed for the reasons given by Lloyd
LJ.
Also agreeing,
SLADE LJ said: I share the sympathy expressed by Lloyd LJ with the plaintiffs.
They have undoubtedly suffered damage through the defendant’s defaults, and it
would appear that they neither knew nor could reasonably have discovered those
defaults until 1984. Nevertheless, for the reasons given by Lloyd LJ, I think
no choice is open to this court as a matter of law but to allow this appeal. It
appears to me that the proper order for us to make would be an order that the
judgment of Judge Ranking be set aside and for us to substitute an order that,
on the preliminary issue, the plaintiffs’ claim in negligence is statute-barred
and that their action should stand dismissed.
The appeal was allowed with costs;
defendant to have costs of action below including costs of preliminary issue on
High Court scale up to date of transfer, thereafter on scale 3.