Negligence claims against solicitors brought in tort usually become time-barred six years after the cause of action accrued. The litigation in Elliott v Hattens Solicitors [2021] EWCA Civ 720 concerned legal advice given in connection with the grant of a lease by a husband to his wife and the subsequent grant of an underlease to an individual whose parents were to guarantee the undertenant’s obligations under the underlease.
The law firm that prepared the documentation failed to advise Mrs Elliott to obtain insurance – which she had covenanted to do in both the lease and the underlease – and forgot to name the undertenant’s parents as parties to the underlease. So they did not become guarantors. To make matters worse, there was a fire at the premises and, although Mrs Elliott’s husband had insured on his own account, the insurer declined his insurance claim as a result of a breach of warranty of insurance. Meanwhile, the undertenant vacated the property and Mrs Elliott lost rent.
Mrs Elliott issued proceedings against the law firm for negligence – more than six years after the lease and underlease were executed but less than six years after the fire – for failing to ensure that the undertenant’s parents had entered into a guarantee and for failing to advise Mrs Elliott of her insurance obligations under the lease and underlease. The law firm accepted that it had failed to exercise reasonable skill and care. But it argued that the claim was statute-barred.
The trial judge upheld the claim, but the Court of Appeal has overturned the decision. Speaking on behalf of the court, Lord Justice Newey explained that the availability of a limitation defence will depend on when the negligence first caused actionable damage. Once real damage – as distinct from purely minimal damage – is sustained, a cause of action arises, even though greater loss may later flow from the negligence. Furthermore, a claimant cannot defeat the statute of limitations by claiming only in respect of damage that occurs within the limitation period, if it has suffered actual damage from the same wrongful acts outside that period.
The law firm had argued that Mrs Elliott suffered damage as soon as the lease and underlease were executed. Whereas Mrs Elliott argued that she did not suffer any actual loss or damage as a result of the absence of a guarantee until the undertenant defaulted on his obligations and that she did not suffer any actual loss or damage as a result of the omission to advise on insurance until the fire.
But the Court of Appeal ruled that Mrs Elliott had plainly expected a package comprising a lease and underlease that were both fully effective. And it was in no doubt that Mrs Elliott had suffered damage as soon as the lease and underlease were entered into and that her cause of action arose at that point because “the possibility of actual financial harm .. constitutes the loss”. Consequently, Mrs Elliott’s claim was now statute-barred in its entirety.
Allyson Colby is a property law consultant
