Professional negligence – Duty of care – Limitation period – Claimant victims of investment fraud suffering losses in consequence of failure of investment – Claimant seeking damages in negligence against defendant mortgage advisor – Whether defendant in breach of duty to claimants – Whether claimants entitled to rely on latent damage provisions of section 14A of Limitation Act 1980 – Claim dismissed
In March 2007, the claimants granted a mortgage over their home at 31 Stonehill Drive, Rochdale as security for an advance made to them by PHL for the purposes of discharging an earlier mortgage and providing further funds to pay a deposit for an “off plan” purchase of a property on a development in St Vincent in the West Indies.
The development was never completed in consequence of, amongst other things, the fraudulent misapplication of monies paid by way of deposit by investors such as the claimants, resulting in the total loss of the investment acquired using the monies advanced by PHL and paid by the claimants as a deposit, as well as earlier investments made using monies received from an inheritance used to pay deposits for the purchase of other properties on the same development.
The claimants sought to recover the losses they claimed to have suffered in consequence of having entered into the interest only mortgage by way of a claim in negligence against the defendant mortgage broker, whose representative arranged the mortgage on its behalf.
The claimants contended that the mortgage should not have been recommended to them before the defendant had ensured that they had obtained independent advice in respect of the proposed investment, and that had it done so, the relevant transaction would not have gone ahead.
The defendant denied, amongst other things, that it (or its representative) owed any relevant duty of care to the claimants. In any event, the claim was statute-barred.
Held: The claim was dismissed.
(1) Mortgage advisers such as the defendant owed a duty of care to the customer/borrower the scope of which would, at least to some extent, be informed by the requirements of the Mortgage Conduct of Business Rules (MCOB).
However, in the present circumstances, the focus of enquiry had to be upon whether the scope of the relevant duty was such as to require the defendant to decline to recommend any mortgage to the claimants until they had obtained independent advice in respect of the investment that they proposed to make.
The wording of the MCOB indicated that the harm sought to be guarded against was that of customers/borrowers being introduced to a mortgage that was unsuitable for them, either because the circumstances disclosed an unacceptable risk that they would not be able to meet their obligations thereunder, or because the mortgage was otherwise inappropriate to the needs and circumstances of the particular customer/borrower.
It followed that the scope of duty in any particular case, was likely to be highly sensitive to the particular needs and circumstances of the particular customer/borrower, “needs” in that context being primarily concerned with the particular requirements of the customer.
(2) On the present facts, having identified that the claimants were aware that what was proposed was not without risk, that they had a realistic fallback position in the event that the investment failed, and having advised the claimants that if they had any concerns with regard to reliance upon the investment for the repayment of the mortgage they should seek independent financial advice, the defendant was not under any obligation to go further and decline to recommend a mortgage unless and until that independent financial advice was obtained.
It followed that it had not been established that the defendant had acted in breach of duty or negligently as alleged.
(3) Any claim in contract was statute-barred, as was any claim in tort pursuant to section 2 of the Limitation Act 1980 Act, save to the extent that it might be open to the claimants to rely upon the latent damage provisions of section 14A of the 1980 Act. The primary limitation periods of six years in tort and contract would have begun to run in 2007.
An action to which section 14A applied was not to be brought after the expiration of either six years from the date on which the cause of action accrued; or three years from the earliest date on which the plaintiff or any person in whom the cause of action was vested before him had both the knowledge required for bringing an action for damages and a right to bring such an action.
The question was whether the claimants had the requisite knowledge that the relevant damage was attributable to the defendant given the tension between knowledge for the purposes for attribution under section 14A(8) and a knowledge of legal consequences deemed irrelevant under section 14A(9).
The claimant had to know the factual essence of what was subsequently alleged as negligence in the claim. There had to be knowledge of the act or omission allegedly constituting negligence, but there need not be knowledge that such act or omission involved negligence as that was a matter of law for the court: Haward v Fawcetts [2006] UKHL 9; [2006] PLSCS 56; [2006] 1 WLR 682 considered.
(4) In the context of professional negligence cases subject to section 14A, it might be
that, on the particular facts, a claimant might not know the loss or damage was attributable to the acts or omissions alleged until the point at which he was advised of a potential claim in negligence.
However, section 14A(10) required the court to have regard not only to the claimant’s actual knowledge, but to knowledge that the claimant might have been expected to acquire from facts observable or ascertainable by him with the help of appropriate expert advice which was reasonable for him to seek.
On the evidence, the claimants knew by the beginning of 2017 at the latest that there was a very real risk that their investment would be lost. In any event, prior to March 2017, it would have been reasonable for the claimants to have sought expert legal advice which would have led to ascertaining what duties the defendant owed to them. Thus, the claimants’ knowledge was, for the purposes of section 14A(8) to be treated, pursuant to section 14A(10), as extending to the knowledge that might have been expected to be gained in seeking such advice.
It followed that, even if they had had a good claim, it would have become statute-barred.
Chris Hegarty (instructed by High Street Solicitors, of Liverpool) appeared for the claimants; Tom Asquith (instructed by Clyde & Co LLP) appeared for the defendant.
Eileen O’Grady, barrister
Click here to read a transcript of Taylor and another v Legal and General Partnership Services Ltd
