This is an appeal from an order made on 5 July 2005 by Mr Justice Hart on the hearing of a preliminary issue in proceedings brought by 3M United Kingdom Plc and 3M UK Holdings Plc against Linklaters & Paines, the well known firm of solicitors. The claim in the proceedings is for damages for breach of duty under a retainer. The work in respect of which complaint is made was carried out in 1989. These proceedings were not issued until August 1999. In those circumstances the defendants rely upon the Limitation Act 1980 as a defence to the claim. The preliminary issue which the judge had to determine was whether the claimants had commenced the proceedings within any applicable period of limitation.

It was common ground before the judge that the only relevant period of limitation was that prescribed by section 14A(4)(b) of the 1980 Act; that is to say, the period of three years from the starting date as defined by section 14A(5). And further, given that the parties entered into a standstill agreement on 3 September 1998 (under which they agreed that questions of limitation should be determined on the basis that proceedings (if any) be treated as having been issued on 1 September 1998), it was common ground that the question whether or not a limitation defence is available turns on whether the starting date, for the purposes of section 14A(5) of the Act, was before 1 September 1995; or was on or after that date.

Section 14A(5) of the Limitation Act 1980 is in these terms:

The judge held that they did. He held that the claimants had the necessary knowledge for the purposes of section 14A(5) of the Act on 30 August 1995. It followed that the starting date for the purposes of section 14A was two days before 1 September 1995. So, when the proceedings were commenced, the claimants were out of time. It is the judge’s conclusion as to knowledge that the claimants seek to challenge on this appeal.

With that introduction, I now turn to the underlying facts. They are fully – and, if I may say so, most helpfully – set out by the judge at paragraphs 3 to 15 of his judgment [2005] EWHC 1382 (Ch). For the purposes of this judgment I can summarise those facts as follows:

The three leases were for terms of 25 years from 29 September 1987. But, in the course of negotiating those leases, the tenant had secured break clauses exercisable at the tenant’s option at the end of the tenth year (28 September 1997) on giving twelve months’ notice. Those options were personal to the original tenant, then (as I have said) known as 3M United Kingdom Plc. Clause 9(1) of the lease – which conferred the options – was in these terms:

In 1989 the 3M Group carried out a corporate restructuring . The effect (so far as material) was that the trading activities of the company then known as 3M United Kingdom Plc were transferred to a subsidiary, then known as 3M Manufacturing Ltd. That company, 3M Manufacturing Ltd, changed its name to 3M United Kingdom Plc. The former 3M United Kingdom Plc changed its name to 3M UK Holdings Plc.

The defendants, Linklaters & Paines, were retained to act as solicitors in the restructuring. As part of the restructuring, the three leases under which the CTC was held were assigned, by transfers dated 3 May 1989, from the old 3M United Kingdom Plc to the new 3M United Kingdom Plc. Licences to assign were granted by Provident Mutual.

The effect of the assignments was that the options to break conferred by clause 9(1) of the leases ceased to be exercisable. That was because the new tenant – although known as 3M United Kingdom Plc – was not the company of that name to which, alone, the options had been granted in 1987. That was not appreciated at the time; or, if it were appreciated by Linklaters, they did not advise the 3M companies that the assignments would have – or had had - that effect. It is accepted that failure to give that advice was in breach of the duties which Linklaters owed under their retainer. The judge found that the 3M companies did not know, in 1989 or at any time before August 1995, that the options had been lost.

In March 1992 the 3M Group purchased a thirty acre site at Amen Corner, Bracknell, with the intention of developing a new UK headquarters to replace both 3M House and the CTC. The new site was purchased in the belief that the existing leases of the CTC could be determined in 1997 by the exercise of the options to break.

In 1993 the 3M Group extended the contractual term of the lease of 3M House – which would otherwise have determined in December 1996 – to 2003; but with an option to break in 2001. That, plainly, gave rise to a need to align the options to break in the CTC leases (on the mistaken assumption that they remained exercisable) with the new option to break in the lease of 3M House. Negotiations were opened with Provident Mutual but they came to nothing at that time.

Negotiations to defer the options to break in the CTC leases were resumed in 1995. Agreement in principle for deferment of the options to 31 March 2001 was reached between Mr Bird (a chartered surveyor and property consultant to the 3M companies) and Mr Wilkes (the property manager for Provident Mutual). Provident Mutual instructed solicitors, Herbert Smith, to draft appropriate documentation. Mr Bird reported that outcome to Mr Samuel, a director of 3M United Kingdom Plc, on 2 August 1995. Mr Samuel passed the information to the internal 3M legal department, for the attention of Mr Herd.

On 18 August 1995 Herbert Smith wrote to Mr Herd with a draft deed of variation in respect of the Prisma 1 lease; on the basis that similar documents would be engrossed in respect of the other two CTC units when the draft had been settled. It is clear, from the terms of the Herbert Smith draft, that the draftsman did not appreciate that there had been a change of tenant since the grant of the lease in 1987. In particular, the draftsman did not appreciate that the tenant who was to execute the deed of variation – although having the name 3M United Kingdom Plc – was not the same company as the tenant of that name to whom the lease had been granted.

Mr Herd had decided to keep the task of reviewing the Herbert Smith draft deed of variation “in house” – that is to say, within the 3M department of legal affairs. He reviewed the draft himself: that appears from his endorsement, dated 30 August 1995. It is clear that Mr Herd did appreciate there had been a change of tenant. That appears from the amendments which he proposed. Those included a new clause, clause 3, in these terms:

Mr Herd returned the draft deed of variation to Herbert Smith, with his proposed amendments, under cover of a letter dated 31 August 1995. That letter drew attention to the assignment which had occurred, and the name changes; but it did not explain, in terms, the purpose of the new clause 3. The letter was received without comment; but it is clear that the significance of that change was noted by Herbert Smith and reported to their client, Provident Mutual.

The response of Provident Mutual to the report that it received from Herbert Smith appears from a letter dated 27 September 2005 from Mr Bird to Mr Herd:

It was in those circumstances that the judge had to decide whether the 3M companies (through Mr Herd) had the knowledge required, in the context of section 14A(5) of the Limitation Act 1980, before 1 September 1995. For the purposes of this appeal it is accepted that the 3M companies are to be treated as having, on 30 August 1995, the knowledge which Mr Herd acquired on that day in the course of his revision of the draft deed of variation.

The judge found, at paragraph 45 of his judgment, that Mr Herd knew, on 30 August 1995 “that the damage in respect of which the claimants now sue (namely damage attributable to the loss of the break clause) had occurred and that it had occurred as a result of the acts and omissions of the defendants”. He thought that conclusion “inescapable”.

It is pertinent to have in mind the damage in respect of which the claimants sue in these proceedings. Particulars of damage are set out under paragraph 15 of the amended particulars of claim served pursuant to an order dated 10 September 2004. The damage pleaded includes, at sub-paragraphs (i) and (v):

Those matters include the allegation (at paragraph 10 of the amended particulars of claim) that:

As I have said, it is clear from the terms of the draft document which Herbert Smith sent to Mr Herd on 18 August 1995 that the draftsman had not appreciated that there had been a change of tenant since the grant of the lease in 1987. That appears from the description of the proposed deed of variation as being: “Supplemental to a lease (hereinafter called ‘the Lease’) dated 4th December 1987 and made between the same parties as are parties hereto and in the same order.” The draftsman knew that the option to break in clause 9(1) of the lease was exercisable only by the original tenant, as he made clear in recital (3) to his draft, which is in these terms:

Mr Herd was aware of each of those matters on 30 August 1995. That appears from the amendments to the draft deed which he made on that day. Those included (i) the substitution for the words “the same parties as are parties hereto and in the same order”, in the description of the lease to which the deed of variation was to be supplemental, of the words at Rider A - “3M UK Holdings Plc (company number 241 888) formerly known as 3M United Kingdom Plc” - (ii) the introduction of a new recital in the terms of Rider B - “By a Transfer dated 3 May 1989 the interest of 3M UK Holdings Plc under the Lease was assigned to the Tenant.” - and (iii) Rider C - the new clause 3 which I have already set out. It is the third of those amendments – read in conjunction with what had been recital (3) in the Herbert Smith draft (in the terms to which I have already referred) which Mr Herd left unamended – which, to my mind, shows beyond argument that Mr Herd appreciated the effect that the change in tenant had had on the option to break conferred by clause 9(1) of the lease. The effect of that amendment – as Mr Herd must have intended – was to enable the tenant by assignment (then known as 3M United Kingdom Plc) to exercise the option to break confirmed by clause 9(1) of the lease. As the judge put it, in paragraph 45 of his judgment: “His drafting of Rider C is really only explicable on the basis of his having correctly identified the existence of the problem and of his wish to cure it at that point”.

Knowing the matters to which I have just referred, the inference that Mr Herd knew that, as at 30 August 1995, the options to break were no longer capable of being exercised – unless the problem could be overcome – and that he knew that the reason why those options were no longer capable of being exercised was that the leases had been assigned in 1989 without steps being taken to preserve the options, is, indeed, inescapable. As the judge put it in the passage which I have set out, Mr Herd knew, on 30 August 1995, that the damage in respect of which the claimants now sue had occurred and that the defendants had failed (in the manner of which complaint is now made) to give the advice which would have led the claimants to take steps to prevent that damage.

The question for the judge, given those findings of fact, was whether, on 30 August 1995, the claimants had the knowledge required “for bringing an action for damages in respect of the relevant damage” – section 14A(5) of the Limitation Act 1980.

Section 14A(5) of the Limitation Act 1980 must be read with the subsequent provisions of that section. Sub-section (6) is in these terms:

that the damage was attributable in whole or in part to the act or omission which is alleged to constitute negligence; and

the identity of the defendant; and

if it is alleged that the act or omission was that of a person other than the defendant, the identity of that person and the additional facts supporting the bringing of an action against the defendant.

Knowledge that any facts or omissions did or did not, as a matter of law, involve negligence is irrelevant for the purposes of subsection (5) above.

For the purposes of this section a person’s knowledge includes knowledge which he might reasonably have been expected to acquire –

from facts observable or ascertainable by him; or

from facts ascertainable by him with the help of appropriate expert advice which it is reasonable for him to seek;

The statutory provisions were considered recently by the House of Lords in Haward and others v Fawcetts (a firm) [2006] UKHL 9; [2006] 1 WLR 682. The claim, in those proceedings, was in respect of loss suffered as a result of investment advice given in December 1994. The action was not commenced until December 2001. The claimants relied on section 14A(4)(b) of the Limitation Act 1980, contending that the earliest date upon which they had had the requisite knowledge for the purposes of section 14A(5) of that Act was after December 1998. The House of Lords (reversing the Court of Appeal, [2004] EWCA Civ 240) rejected that contention. The central question on the appeal to the House of Lords was whether Mr Haward knew, before December 1998, that the damage was attributable in whole or in part to the advice given by the defendants in 1994 – section 14A(8)(a) of the Act. It is, perhaps, for that reason that section 14A(7) receives consideration only in the speech of Lord Mance. He said this (ibid, [106], [107]; 717B-H):

The claim in Dobbie v Medway Health Authority [1994] 1WLR 1234 – to which Lord Mance referred in the passage which I have just set out – was in respect of personal injuries. The decision turned on the provisions of sections 11(4)(b) and 14(1)(a) and (2) of the Limitation Act 1980. Those provisions are in terms which (although not the same) are very similar to those in section 14A(4)(b), 6(a) and (7) of the Act. The three year limitation period made applicable to personal injury claims by section 11(4) runs from “(b) the date of knowledge . . . of the person injured”. The date of knowledge, in that context, is the date on which the person injured first had knowledge of certain facts including “(a) that the injury in question was significant” – section 14(1). Section 14(2) is in these terms:

As I have said, there can be no dispute that the claimant companies knew on 30 August 1995, as a result of the work done by Mr Herd on the draft deed of variation, that the options to break conferred by clauses 9(1) in the leases of the three CTC units were no longer capable of being exercised unless the problem which arose from the assignments made in 1989 could be overcome. In those circumstances the only remaining question was whether a reasonable person, faced with that problem, would have considered it sufficiently serious to justify instituting proceedings against an acquiescent and credit-worthy defendant (to adopt the words of Sir Thomas Bingham, Master of the Rolls, in the Dobbie case).

It is said that the judge did not address that question adequately in his judgment. In particular it is said, in the appellants’ notice, (a) that the judge was wrong to treat the loss of the options to break the leases as relevant damage for the purpose of the knowledge required by section 14A(7) of the Act if the claimant companies were not aware that Provident Mutual could and would rely on the fact that the options had been lost, (b) that he failed to give proper consideration to the fact that Provident Mutual had agreed, in principle, to deferment of the options to break prior to 30 August 1995 and (c) that he failed to appreciate that it was not until the claimant companies knew that Provident Mutual had resiled from that agreement in principle (which occurred after 1 September 1995) that they had knowledge of damage sufficient to satisfy section 14A(7). In granting permission to appeal, on 17 August 2005, Lord Justice Lloyd observed:

The judge may be excused for failing to address the point at any length. It was not raised by the claimants in their pleaded case. It is pertinent to have in mind that, as Lord Mance pointed out in the opening sentence of paragraph 106 of his speech in the Haward case, the onus is on a claimant who seeks to rely on section 14A(4)(b) of the Limitation Act, “to plead and prove that he first had the knowledge required for bringing his action within a period of three years prior to its bringing”. In the present case, the defendants had raised the limitation defence at paragraph 5(d)(iv) of their amended defence, dated 29 December 2004:

It is the Claimants’ case that Mr Herd did not know, nor was it reasonable to have expected him to acquire knowledge, that the break clause was personal to the Second Claimant and had been lost on the assignment . . .”

Nevertheless, the case which the 3M companies now wish to advance was raised by the judge during the closing submissions of counsel then instructed on their behalf. The judge said this (transcript, 11 May 2005, page 20, lines 15-25):

It was that response, perhaps, which led the judge to say, at paragraph 45 of his judgment:

I turn, therefore, to the points raised in the appellants’ notice. In my view they cannot be sustained. First, it is impossible to contend that the loss of the options to break the leases was not relevant damage for the purpose of the knowledge required by section 14A(7) of the Act until the claimant companies were aware that Provident Mutual could and would rely on the fact that options were not exercisable by the current tenant. The “relevant damage” in the context of sections 14A(5) and (7) of the 1980 Act is the “damage in respect of which damages are claimed” – section 14A(6)(a). The relevant damage, in the present case, is the damage alleged in paragraph 15 of the particulars of claim. As I have said, earlier in this judgment, the damage in respect of which damages are claimed (as pleaded) is the loss of the right to break the three leases in September 1997. It was the loss of the right to break in September 1997 which gave rise to the loss of the opportunity to negotiate an extension of that right to March 2001 or to March 2003. That loss was sustained when the leases were assigned in 1989; not when Provident Mutual broke off negotiations in September 1995. That point was accepted by Mr Herd in his oral evidence before the judge (transcript, 9 May 2005, page 71, lines 5-10):

The second point fails for much the same reason. It is impossible to contend that the fact that Provident Mutual had agreed, in principle, to deferment of the options to break prior to 30 August 1995 – at a time when it thought that the options were exercisable in September 1997 – could be taken as any indication that it would be willing to affirm that agreement in principle once it knew that the options were not exercisable at that date or at all. That is the thrust of Mr Herd’s answer, to which I have just referred. If both parties had not entered negotiations in the (mistaken) belief that the options remained exercisable “they would have been wasting their time”. The point was made clearly by Mr Bird, in paragraphs 20 and 21 of the witness statement which he signed on 22 March 2000:

Nor can the third point raised in the appellants’ notice be sustained. The claimant companies knew, on 30 August 1995, what damage had been sustained: they no longer had a right to break in September 1997 and, without that right, they had lost the opportunity to negotiate an extension. There was nothing to extend. As Mr Bird recognised, deferring an existing option is one thing: granting a new option is quite another. Provident Mutual had no incentive to negotiate. It was inevitable that it would resile from the agreement in principle once it became aware that that agreement had been negotiated on a false basis. As the judge put it, if Mr Herd hoped that the point would not be seen by Herbert Smith or, if seen, not taken by Provident Mutual, that would be “a matter of hope rather than rational expectation”.

The true position on 30 August 1995, as the judge appreciated, was that the claimant companies (through Mr Herd) well knew what they had lost by the assignments in 1989. And they knew that that loss was serious, unless the problem could be solved. The hope that Provident Mutual would not receive informed advice as to the strength of its position has not been advanced: there could be no basis for a suggestion that the landlord would not be properly advised by its solicitors. The hope that there could be a solution to the problem by negotiation was founded on sand: there was no basis for negotiation. The suggestion (canvassed by the judge, but not advanced on this appeal) that the problem could be solved by a reassignment of the leases to the original tenant was based on a misunderstanding of the law – as Mr Justice Lightman had pointed out in Max Factor Limited v Wesleyan Assurance Society (1996) 74 P & CR 8, decided some three and a half months earlier. And, in any event, the landlord could not have been required to consent to a reassignment for that purpose – as this Court had held in Olympia & York Canary Wharf Ltd and another v Oil Property Investments Ltd [1994] 2 EGLR 48.

In those circumstances, as it seems to me, it is impossible to contend that the claimant companies did not have the knowledge required by section 14A(7) of the Act on 30 August 1995: that is to say, knowledge of such facts about the damage which they had suffered as would lead a reasonable person who had suffered such damage to consider it sufficiently serious to justify his instituting proceedings for damages against a defendant who did not dispute liability and was able to satisfy a judgment. That does not mean, of course, that the claimant companies knew enough to commence proceedings by issuing a writ on 30 August 1995 – it means that they knew enough and with sufficient confidence “to justify embarking on the preliminaries to the issue of a writ, such as submitting a claim to the proposed defendant, taking advice, and collecting evidence: . . . In other words, the claimant must know enough for it to be reasonable to begin to investigate further.” - per Lord Nicholls of Birkenhead in the Haward case at [9], ([2006] 1 WLR 682, 685F).

I would dismiss this appeal.

I have had the advantage of reading in draft the judgments of Chadwick and Moore-Bick LJJs. I agree with both and have nothing I can usefully add.

I agree that the appeal should be dismissed for the reasons given by Chadwick L.J. and venture to add a few words of my own only in deference to the argument of Mr. Pooles Q.C. for the appellants.

When Mr. Herd examined the leases and the documents which accompanied them, which of course included the assignments, he realised that the break clauses were personal to the original tenant and did not survive for the benefit of the assignee. He immediately became aware, therefore, that the 3M Group had lost a valuable right as a result of the assignments, but it was apparent from the draft deed prepared by Provident Mutual’s solicitors that they had not appreciated that the company entitled “3M United Kingdom Plc” was not the original tenant and so were probably not aware of their consequences. However, Mr. Herd realised that there was a problem because he drafted a new recital referring to the assignment and a new clause which was intended to cure it by providing that all references to 3M United Kingdom Plc in the lease should be treated as references to the assignee.

Mr. Pooles Q.C. did not seek to challenge any of that, but he submitted that at that stage Mr. Herd did not know whether the loss of the break clauses would give rise to any practical consequences and therefore did not know whether the situation was one in which it would be reasonable to issue proceedings. He was aware that the parties had reached agreement in principle and thought that the deeds of variation might still be executed as planned. If they were, the 3M Group would be no worse off. It was only on 25^th September when Provident Mutual made it clear that it intended to resile from the agreement because the break clauses had ceased to have effect that it became obvious to him that the loss was sufficiently serious to justify proceedings. Accordingly, it was only then that Mr. Herd knew such facts about the damage as, in the words of section 14A(7) of the Limitation Act 1980,

In my view the flaw in this argument is that subsection (7) is directed to a narrow question. It is not concerned with whether the claimant has such knowledge of the facts generally as would cause a reasonable person to commence proceedings there and then, or even such knowledge as would cause him to embark on the preliminaries to the issue of proceedings, but simply with whether he has such knowledge of the material facts about the damage as would cause a reasonable person to consider it sufficiently serious to justify proceedings against a solvent defendant who did not dispute liability. In other words, by its own terms subsection (7) is concerned only with the claimant’s knowledge of the seriousness of the damage. Support for that conclusion is to be found in the speech of Lord Mance in Haward v Fawcetts [2006] UKHL 9, [2006] 1 W.L.R. 682, 717E-H, in the judgment of Sir Thomas Bingham M.R. in Dobbie v Medway Health Authority [1994] 1 W.L.R. 1234, 1241H-1242A and in the judgment of this court in Nash v Eli Lilly & Co [1993] 1 W.L.R. 782, 799C-D (these last two being decisions on the corresponding provision of section 14).

It was accepted in this case that the claimants had suffered damage as a result of their solicitors’ negligence at the time of the assignment in May 1989 because at that point they had lost valuable rights in the form of the break clauses and it was the loss of those rights which came to Mr. Herd’s attention on 30^th August 1995. I am prepared to assume for present purposes that he thought there was a chance that the situation could be retrieved, either because Provident Mutual and those advising it would not spot the problem or because, if it did, it would decide not to rely on the point, although I find it difficult to believe that in the circumstances either could be reasonably be regarded as at all likely. Even so, I am unable to accept that Mr. Herd did not already have sufficient knowledge to satisfy the requirements of subsection (7). The fact is that valuable rights had been lost and damage had been suffered. There was a possibility, albeit a remote one, that it might be made good, but that does not detract from the fact that the damage already existed. The only question, so far as subsection (7) is concerned, is whether it was known to be sufficiently serious to justify instituting proceedings against a defendant who did not dispute liability and was able to satisfy a judgment. In a commercial context damage does not have to be very substantial to satisfy those requirements in view of the limited cost of issuing proceedings and whatever figure was to be put on the damage suffered by the 3M Group in this case, it clearly exceeded that amount. Mr. Pooles did not seek to argue the contrary. This is not a case, therefore, in which it was uncertain whether significant damage had occurred; the only uncertainty, if indeed there was any, was whether that damage would be made good.