The Court of Appeal’s judgment in Kelly Elliott v Hattens Solicitors (a firm) [2021] EWCA Civ 720; [2021] PLSCS 93 is a prime example of how nuanced and tricky decisions about when limitation does and does not expire can be.
In 2011, Kelly Elliott instructed Hattens to act for her in relation to the grant of a lease of premises in Grays, Essex, from her husband, which she then underlet to Jason Malster. The relevant agreements were entered into on 24 February 2012. There were two problems with the work done by Hattens. Malster’s parents were supposed to guarantee his obligations in the underlease, but Hattens failed to name them as parties or otherwise take steps to ensure that they became guarantors. And, in the lease granted to her by her husband, Elliott covenanted to insure the property against fire. Hattens did not advise Mrs Elliott to take out insurance and she did not do so.
On 6 November 2012, the premises were destroyed by fire. Malster vacated the premises (owing rent) and there was no insurance policy for Elliott to claim against (her husband had in fact also insured the property, but the insurer declined cover).
Elliott commenced proceedings against Hattens for negligence. Hattens admitted that it had breached its duty of care to Elliott in relation to the lack of both guarantor and insurance. The issue for the courts to decide arose from the fact that the proceedings were commenced more than six years after the date of the lease and underlease, but less than six years after the fire. And, in order for there to be a cause of action in negligence, the breach(es) of duty have to cause actionable loss. So did Elliott suffer loss the moment the documents were signed on 24 February (if so, her claim was out of time) or did loss not actually occur until the fire of 6 November (meaning that her claim would be in time)?
At first instance, HHJ Bailey decided that 6 November was the relevant date. However, he appreciated that the decision was nuanced and gave permission to Hattens to appeal.
The appeal
Newey LJ (with whom Asplin and Stuart-Smith LJJ agreed) stressed, citing the judgment of Sir Murray Stuart-Smith (who, by quirky judicial coincidence, is the father of the Stuart-Smith LJ sitting in judgment in this instance) in Khan v RM Falvey [2002] EWCA Civ 400 that the cause of action in negligence accrues once real (as opposed to purely minimal) damage is sustained. As explained in Khan: “A claimant cannot defeat the statute of limitations by claiming only in respect of damage which occurs within the limitation period, if he has suffered actual damage from the same wrongful acts outside of that period.”
The judge also referred to the Privy Council’s judgment in Maharaj v Johnson [2015] UKPC 28 to highlight the common distinction in negligence cases against solicitors providing transactional advice. Claimants can argue that, but for the solicitor’s negligence, either (i) they would not have entered into the transaction at all (a no-transaction case) or (ii) the transaction would have been a better one for them (a flawed transaction case). This was a flawed transaction case. The question was whether or not, following Khan, Elliott had suffered real damage when the transaction was completed.
The law
Perhaps unsurprisingly, there is a rich vein of cases on this issue. A number of principles emerge.
First, as noted in Maharaj, “the fact that the transaction was flawed does not by itself mean that the claimant suffered actual damage on entry into it”. Rather, the decision as to when damage occurred has to be assessed by the facts. And, on the facts, the Privy Council held that the value of land negligently transferred so that only the equitable title passed was ”measurably less” than would have been the case had the claimants received legal title as well. As such, the damage happened at the time of the transaction.
Second, in some cases, “it is relatively easy… to infer that the [claimant] has suffered some immediate damage, simply because he did not get what he should have got” (Lord Hoffmann in Law Society v Sephton & Co [2006] UKHL 22).
Third, the fact that the problem could be cured does not mean the claimant did not suffer loss when the negligent act occurred (see, for example Bell v Peter Browne & Co (a firm) [1990] 2 QB 495).
Finally, a liability which is purely contingent does not constitute actual damage until the contingency occurs (Sephton and Axa Insurance Ltd v Akther & Darby [2009] EWCA Civ 116).
Decision
Applying those principles, Newey LJ decided the damage occurred when the documents were executed in February 2012. Elliott received an underlease of less value than she should have because it was not supported by a guarantee from Malster’s parents. Nor could that defect be corrected unilaterally. That needed the assistance of the parents. And the fact that Elliott did not intend to assign the underlease (which would have resulted in a financial loss) did not mean that she had not suffered loss when the documents were signed. The judge also held that the failure to advise about taking out insurance put Elliott in breach of the lease and underlease. The value of a lease where the lessor was in breach of covenant was less than it should have been. This was actual, and not contingent, loss.
The claim was statute-barred.
Stuart Pemble is a partner at Mills & Reeve
