Elliott v Hattens Solicitors (a firm)

The issue on this appeal is whether the claim is barred by the Limitation Act 1980. It turns on when damage was first sustained.

The appellants, Hattens, are a firm of solicitors. In 2011, they were retained by the respondent, Mrs Kelly Elliott, to act for her in connection with a transaction pursuant to which her husband was to grant her a lease and she would grant an underlease to a Mr Jamie Malster. The lease and underlease were to be of premises in Stanley Road, Grays, Essex of which Mr Elliot was the freehold owner. As was explained to Hattens by estate agents acting for Mrs Elliott, the intention was that Mr Malster’s parents should guarantee his obligations under the underlease.

In pursuance of their instructions, Hattens prepared a lease, underlease and rent deposit deed which were executed on 24 February 2012. The lease in Mrs Elliott’s favour was to last until 30 June 2014 and the underlease to Mr Malster was for a term expiring a

By mistake, Hattens failed to name Mr Malster’s parents as parties to the underlease, and Mr Malster’s parents neither executed the underlease nor otherwise became guarantors. Further, Hattens did not advise Mrs Elliott to obtain insurance. In the circumstances, Hattens accept that they failed to exercise reasonable skill and care in drafting the documentation and advising Mrs Elliott.

On 6 November 2012, there was a fire at the premises which effectively destroyed the buildings there. Mr Malster subsequently vacated the property without undertaking repairs. Mrs Elliott also lost rent.

Mrs Elliott had not taken out any insurance. Her husband had, on his own account, but the insurer declined cover. Hattens’ defence asserts that this was “as a result of a breach of warranty whereby the freeholder warranted that all waste would be swept up at the end of each working day, deposited in metal receptacles with metal lids and removed from the premises at intervals not exceeding one week” and that the breach of warranty was “as a result of the failure of Mr Malster to implement a system of waste management that met the terms of the warranty (the terms of which he was aware and understood)”.

The present proceedings, seeking damages for negligence, were issued by Mrs Elliott on 10 April 2018, more than six years after the lease and underlease were executed but less than six years after the fire. Hattens are said to have been negligent in essentially two ways: failing to ensure that Mr Malster’s parents entered into a guarantee and failing to advise Mrs Elliott of her insurance obligations under the lease and underlease. A schedule of loss and damage includes items relating to both (a) the costs of clearing the site and rebuilding and (b) loss of rent.

Hattens pleaded in their defence that the claim was statute-barred. In the circumstances, an order was made for the trial of a preliminary issue, viz. “Whether the Claimant’s claim is barred by virtue of the Limitation Act 1980?” Directions were given for the preparation of an agreed statement of facts and exchange of witness statements in relation to facts which were not agreed. In the event, the parties agreed a statement of facts and neither side called any witnesses.

His Honour Judge Bailey (“the Judge”) heard the trial of the preliminary issue on 17 May 2019 and answered the question in the negative. The core of his reasoning is to be found in paragraphs 19 and 20 of the extempore judgment he gave:

In the circumstances, the Judge held that Mrs Elliott’s claim was not statute-barred. Hattens, however, now challenge that conclusion in this Court, the Judge having granted permission to appeal.

A claim in tort will normally become time-barred six years after the cause of action accrued. With the tort of negligence, damage is an essential ingredient of the cause of action. The availability of a limitation defence will thus depend on when the negligence first caused actionable damage. “[O]nce real damage – as distinct from purely minimal damage – is sustained the cause of action arises, even though greater loss may later eventuate from the negligence” (per Sir Murray Stuart-Smith in Khan v R.M. Falvey [2002] EWCA Civ 400, [2002] PNLR 28, at paragraph 11), and “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 that period” (per Sir Murray Stuart-Smith in Khan v R.M. Falvey,at paragraph 23).

Negligence claims against solicitors often relate to transactions, on which the solicitors were instructed, which have turned out badly. In that context, a claimant may allege either that, but for the solicitors’ negligence, he would not have entered into the transaction at all (a “no transaction” case) or that, had it not been for the negligence, the transaction would have been a better one (a “flawed transaction” case). The Privy Council referred to the distinction between the two situations in Maharaj v Johnson [2015] UKPC 28, [2015] PNLR 27 (“Maharaj”). Lord Wilson (with whom Lady Hale, Lord Carnwath and Lord Hodge agreed) said in paragraph 19:

Maharaj was itself a “flawed transaction” case. The claimants had contracted to buy some land and a conveyance in their favour had subsequently been executed on the vendor’s behalf by someone with a power of attorney on 6 February 1986. More than two decades later, the claimants’ title was queried on the basis that the conveyance had not been within the scope of the power of attorney. A deed of rectification was obtained from the vendor, but the claimants nonetheless brought proceedings against solicitors who had acted for them in the original purchase. The claim was struck out as statutebarred.

In paragraph 22, Lord Wilson identified the relevant issue as “was the value of a full equitable interest in the land on 6 February 1986 measurably less than the value then of a full legal and equitable interest in it?” He answered the question in the affirmative, explaining as follows in paragraphs 27 and 28:

The claimants’ failure to obtain a legal interest in the land on that date subjected them to significant risks which were present from then onwards.

Just as in 2008 the claimants discovered that their lack of a legal interest obstructed their attempts both to borrow on the security of the land and to sell it, they would be likely to have met similar obstruction in the event that at any earlier time after 6 February 1986 they had attempted either to borrow on the security of it or to sell it. Their equitable interest was therefore significantly less valuable to them than a legal interest would have been.

It was not even in the power of the claimants or of the defendants to remedy the flaw by themselves. For it was necessary to procure the participation of Mrs Lambert [i.e. the vendor]. In 2008 it so happened that she was quickly located and that she cooperated in a swift execution of the Deed of Rectification. Even in those circumstances costs, for which in the first instance the claimants were liable, must have been incurred in procuring its execution and in registering it. But from 6 February 1986 onwards there were risks that Mrs Lambert would not be able to be located or would be found to have died: were either risk to have eventuated, there would have been significant extra complications—and extra costs. There was also a risk that, if located, Mrs Lambert would not willingly execute the Deed: were that risk to have eventuated, it would have been necessary to take costly legal steps in order to oblige her to do so.

In Law Society v Sephton & Co [2006] UKHL 22, [2006] 2 AC 543 (“Sephton”), Lord Hoffmann commented at paragraph 21 that, in cases where plaintiffs had entered into bilateral transactions as a result of defendants’ negligence and “liability is for the difference between what the plaintiff got and what he would have got if the defendant had done what he was supposed to have done, it may be relatively easy, as Bingham LJ pointed out in D W Moore & Co Ltd v Ferrier [1988] 1 WLR 267, to infer that the plaintiff has suffered some immediate damage, simply because he did not get what he should have got”. “Thus,” Lord Hoffmann continued, “in Knapp v Ecclesiastical Insurance Group plc [1998] PNLR 172, where the plaintiff paid a premium for a voidable fire insurance policy because his insurance broker had failed to disclose material facts, the Court of Appeal held that he had suffered immediate damage because he ‘did not get what he should have got’, namely a policy binding on the insurers”. In the next paragraph, Lord Hoffmann said:

On the other hand, Lord Wilson noted in Maharaj at paragraph 26, “The fact that the transaction was flawed does not by itself mean that the claimant suffered actual damage on entry into it”. There is, Lord Wilson said, “no substitute for attending to the particular facts and deciding whether … an inference [that there was immediate damage] is properly to be drawn from them”.

Maharaj was a case in which the problem which had emerged was capable of remedy. Issues as to the significance of remediability also featured in Bell v Peter Browne & Co [1990] 2 QB 495 (“Bell”) and Knapp v Ecclesiastical Insurance Group plc [1998] PNLR 172 (“Knapp”). In Bell, the plaintiff agreed with his wife following the breakdown of their marriage that he would transfer the matrimonial home to her on the footing that he would receive a sixth of the proceeds of sale when it was sold. The transfer was effected, but the plaintiff’s solicitors, who were the defendants, failed to ensure that his interest was protected either by a declaration of trust or mortgage or by the lodging of a caution at the Land Registry. The wife having sold the house and spent the proceeds, the plaintiff sued the defendants, but the claim was held to be statutebarred. Nicholls LJ distinguished at 502 between “(a) the solicitors’ failure to see that the parties’ agreement was recorded formally in a suitable declaration of trust or other instrument and (b) their failure to protect the plaintiff's interest in the house or the proceeds of sale by lodging a caution”. As to failure (a), Nicholls LJ said that “the damage, such as it may have been, was sustained when the transfer was executed and handed over” when “the plaintiff parted with title to the house, and he became subject to the practical inconveniences which might flow from his not having his wife’s signature on a formal document”. While the extent of the prejudice depended on the attitude adopted by his wife, “the uncertainty surrounding her future intentions goes only to the quantum of the loss the plaintiff sustained when the transfer was executed without him having the same degree of protection as would be provided by a formal document”, Nicholls LJ said at 502. Turning to failure (b), Nicholls LJ observed at 503 that this “stands on a different footing from failure (a) in that it was within the plaintiff's own power to remedy failure (b) so long as the house continued to belong to his former wife”. Nicholls LJ was, however, “unable to accept that remediability puts failure (b) on the other side of the line from failure (a)”. He explained at 503:

Bell was the subject of extensive discussion in Knapp. In the latter case, the plaintiffs had arranged insurance cover through the second defendant insurance broker, but when they invoked it following a fire the insurers elected to avoid the policy for nondisclosure. A claim against the insurance broker was held to be statute-barred on the basis that his alleged negligence had first become actionable when the cover was effected, and that although Hobhouse LJ said at 179 that he was prepared to assume that, had the non-disclosure been realised, the second defendant “would, on the instructions of the plaintiffs, have been able, within a very short period of time—a matter of hours not days, to have arranged for the plaintiffs to be held covered either by the insurance company or some other insurer, maybe at an increased premium”. Noting that the ability to remedy the failure to lodge the caution had not been treated as making any difference in Bell, Hobhouse LJ discerned three elements in Nicholls LJ’s reasoning in relation to “failure (b)” as to which Hobhouse LJ said this at 185-186:

Hobhouse LJ concluded at 186:

In Shore v Sedgwick Financial Services Ltd [2008] EWCA Civ 863, [2009] Bus LR 42 (“Shore”), Dyson LJ, with whom Buxton and Keene LJJ agreed, said at paragraph 42 that the “essence of the reasoning” in cases such as Bell was that “the fact that the risk to which the claimant was exposed by the defendant’s negligence might not eventuate did not mean that the claimant did not suffer loss as a result of being exposed to that risk”. “It is the possibility of actual financial harm that constitutes the loss”, Dyson LJ said in paragraph 42.

It is also relevant to refer to an aspect of Shore on which Mr Daniel Crowley, who appeared for Mrs Elliott, placed reliance. In Shore, the claimant had been advised by the defendant financial advisers to transfer his pension from a final salary scheme (“the Avesta scheme”) to an income withdrawal scheme (“the PFW scheme”). The pension having fallen in value, the claimant alleged that the defendants ought to have advised him to remain in the Avesta scheme. The claim was held, however, to be statute-barred on the basis that the claimant had first suffered loss when he invested in the PFW scheme; the fact that the price paid for the investment might not have exceeded its then current market price did not matter. Dyson LJ, with whom Buxton and Keene LJJ agreed, said on the subject:

The analogy with the investor who is negligently advised to buy shares rather than Government bonds does not assist [the claimant’s counsel]. In my judgment, an investor who wishes to place £100 in a secure risk-free investment and, in reliance on negligent advice, purchases shares does suffer financial detriment on the acquisition of the shares despite the fact that he pays the market price for the shares. It is no answer to this investor’s complaint that he has been induced to buy a risky investment when he wanted a safe one to say that the risky investment was worth what he paid for it in the market. His complaint is that he did not want a risky investment. A claim for damages immediately upon the acquisition of the shares would succeed. The investor would at least be entitled to the difference between the cost of buying the Government bonds and the cost of buying and selling the shares.

In any event, the analogy with the share purchase transaction breaks down on the facts of the present case. Mr Egerton produced an expert’s report dated 29 March 2007 on behalf of Mr Shore. At para 4.1.25, he said that the benefits of deferring taking the Avesta benefits until the age of 60 were so large ‘that they exceeded any reasonable estimate of benefits that could have been provided by a pension fund withdrawal arrangement’:

The same sentiment was expressed by Mr Waddingham (SFS’s [i.e. the defendant’s] expert). He said in relation to the figures produced by SFS in January 1997 that the PFW figures would only match the benefits under the Avesta scheme (on the footing that Mr Shore deferred taking his benefits until the age of 60) if there was a growth in the fund of 14.5% pa. He described this as a ‘racy objective’ and ‘something for the adventurous’.

In these circumstances, in my view it is not possible to say that Mr Shore did not suffer financial loss on 28 April 1997 when he invested in the PFW scheme.”

Cases such as Bell, Knapp, Shore and Maharaj v Johnson need to be distinguished from those in which the claimant merely assumed a contingent liability. In Sephton, the House of Lords held that “the possibility of an obligation to pay money in the future is not in itself damage”, to quote Lord Hoffmann at paragraph 31. In the previous paragraph, Lord Hoffmann had said:

For his part, Lord Walker, having referred to, among other cases, Bell and Knapp, said at paragraph 48:

The Court of Appeal considered the implications of Sephton in Axa Insurance Ltd v Akther & Darby [2009] EWCA Civ 1166, [2010] 1 WLR 1662 (“Axa”). Longmore LJ observed in paragraph 70 that “a contingent liability does not ‘of itself’ constitute ‘damage’”, “[t]here must be something more”. In a similar vein, Arden LJ, the other member of the majority of the Court, observed at paragraph 33 that “the central idea in the Sephton case is that there has to be loss additional to that resulting from the incurring of a purely contingent liability”. The speeches in Sephton, Arden LJ said in paragraph 27,“draw a distinction between contingent liabilities which affect particular assets of the person subject to the liability as well as his legal position, and contingent liabilities which have little or no effect on his legal position or assets”. Thus, “if a claimant gave a personal guarantee, unsecured on any property of his, time would not begin to run for the purposes of any claim against his solicitor for negligent advice at the time he entered into the transaction until a call was made on him as guarantor” (to quote Arden LJ at paragraph 17; see too paragraphs 22, 25, 27 and 28).

Mr Simon Goldstone, who appeared for Hattens, argued that Mrs Elliott suffered damage as soon as the lease and underlease were executed. She was immediately in a measurably less advantageous position than she should have been. Hattens’ negligence served to deprive her of certain of the benefits which she should have obtained from the transaction (in particular, the right to a guaranteed rental stream and a property that was insured) and so they were at once vulnerable to a tortious claim. Mrs Elliott’s loss was not purely contingent and the Judge was mistaken in attaching importance to whether she wished to assign. The package of rights which Mrs Elliott received was objectively less valuable and the cause of action therefore accrued regardless of her intentions as to assignment.

In contrast, Mr Crowley supported the Judge’s decision. There was, he submitted, no measurable loss before the fire. Every case has to be determined on its own facts and, here, Mrs Elliott did not suffer any actual loss or damage as a result of the absence of a

This is a “flawed transaction” case. Mrs Elliott would still have taken a lease of the Stanley Road premises and granted an underlease to Mr Malster if there had been no negligence. Had, however, Hattens not been negligent, Mr Malster’s parents would have guaranteed his obligations and, it is to be assumed, Mrs Elliott would have been warned of the need to insure and would have done so.

The question then arises whether “the value to [Mrs Elliott] of the flawed transaction was measurably less than what would have been the value to [her] of the flawless transaction” (to adapt slightly words of Lord Wilson in Maharaj). On the face of it, the answer is obvious: apart from anything else, Mrs Elliott’s lease must have been less valuable because there was no guarantor in respect of the underlease she had granted and, for good measure, it was not within her power to remedy the deficiency without the cooperation of Mr Malster’s parents. While it would not have been possible to say how far, if at all, Mrs Elliott might have wished to call on a guarantee, there can be no doubt that, looking at matters objectively, what she received from the transaction was significantly inferior to what she should have received. The reversion to an underlease with the benefit of Mr Malster’s parents as guarantors would plainly have been of measurably greater value than that to the unguaranteed underlease which Hattens’ negligence led Mrs Elliott to grant. An expert could doubtless have put a figure on the difference.

The present case does not resemble Sephton. As Longmore LJ noted in Axa, Sephton shows that “a contingent liability does not ‘of itself’ constitute ‘damage’”: there must be “something more”. Here, Hattens’ negligence did not cause Mrs Elliott to assume any liability: the position is rather that she obtained less advantageous rights. More importantly, perhaps, there was “something more”. The fact that the underlease had no guarantor affected property of Mrs Elliott, viz. her lease. Mrs Elliott was “disappointed

The Judge, however, drew attention to the fact that Mrs Elliott had not wished to assign her lease, and Mr Crowley argued that that fact was highly relevant. In this respect, he relied particularly on Shore. That decision, he argued, shows that what matters is value from the claimant’s point of view. In Shore, damage was held to have accrued because, regardless of whether the investment in the PFW scheme was objectively worth what was paid for it, it was inferior from Mr Shore’s point of view as what he wanted was a secure scheme. In Shore, focusing on the claimant’s intentions meant that damage was held to accrue earlier than might otherwise have been the case, but the same principle, Mr Crowley contended, can delay the accrual of a claim. In the present case, Mr Crowley submitted, Mrs Elliott did not wish to assign her lease and so the mere fact that the absence of a guarantee might have reduced its assignable value is unimportant. It was not, Mr Crowley said, part of the purpose or object of the transaction to produce an assignable lease.

I cannot accept this argument. In the first place, the simple fact is that Mrs Elliott did not obtain the package of rights that she subjectively desired. As Mr Crowley accepted in submissions, she wanted to have the benefit of a guarantee from Mr Malster’s parents from the outset, but that was not provided. True it may be that she did not envisage assigning her lease, but it does not follow that she did not want the lease to be assignable or that it was not part of the purpose or object of the transaction to produce an assignable lease, let alone that she did not wish the underlease to be supported by a guarantee from Mr Malster’s parents.

Secondly, Shore indicates that a claimant can potentially suffer relevant damage as soon as a flawed transaction is entered into even though the value of that transaction is not objectively lower than that of the intended transaction. Where, on the other hand, a flawed transaction is objectively less valuable from the start, it seems to me that the cause of action accrues at the outset. If negligence on the part of a solicitor served to reduce the market value of an asset, the claimant cannot, in my view, defer the expiry of the limitation period by pointing out that he was not intending to sell it. It is one thing to say that someone suffered damage because he did not get what he wanted regardless of whether what he got was objectively as valuable; it is another to say that someone who, looking at matters objectively, has sustained a financial loss has not yet suffered relevant damage and so could not bring a claim. In Sephton, Lord Walker thought the formulation “financially worse off” preferable to either “worse off” or “detriment” because “worse off” and “detriment” were “imprecise”: see paragraph 43. Where a claimant can be seen to be “financially worse off”, because an asset has a lower market value, relevant damage will, I think, have been suffered whatever the claimant was intending to do with the asset.

In the circumstances, I am in no doubt that Hattens’ failure to ensure that Mr Malster’s parents were guarantors caused Mrs Elliott damage as soon as the lease and underlease were entered into and, hence, that her cause of action accrued at that point and is now statute-barred.

I have considered whether the position is different as regards Hattens’ failure to advise Mrs Elliott to insure the premises. An argument to this effect would proceed on the basis that, until the fire, the deficiency could have been remedied easily. While Mrs Elliott’s failure to insure might theoretically have rendered her lease vulnerable to forfeiture, there was no real possibility of the landlord, her husband, seeking to take that course, nor any reason to believe that insurance would have cost more then than it would have done if taken out when the lease and underlease were first executed.

However, Mr Crowley did not present his case on this basis. He did not suggest in his skeleton argument for the appeal that any distinction could be drawn between the absence of insurance advice and the want of guarantors. Nor, so far as I can see, did he put matters that way before the Judge and, although that hearing involved the trial of a preliminary issue rather than merely an application to strike out or for summary judgment, no evidence was adduced as to the unlikelihood of the right to forfeit being exercised or Mrs Elliott’s ability to solve the problem without incurring additional expense.

In any event, what Mrs Elliott plainly wanted Hattens to achieve for her was a package comprising a lease and underlease which were fully effective. On Mrs Elliott’s case, however, Hattens’ failure to advise her of the need to insure put her in breach of her obligations under both the underlease and lease and provided a ground for forfeiting the latter. Mrs Elliott was thus exposed to a risk which, there being no evidence as to, for example, her relationship with her husband or the chances of his transferring the freehold, cannot be dismissed as negligible, the more so since Mrs Elliott stood to remain in ignorance of the relevant provisions of the lease and underlease. Further, it was foreseeable that, were an attempt to be made to forfeit the lease, Mrs Elliott would have to incur expense in connection with it even if she ultimately retained the lease.

As Dyson LJ noted in Shore, cases such as Bell proceeded on the basis that “the possibility of actual financial harm … constitutes the loss”. In Knapp, Hobhouse LJ held that the plaintiffs “suffered loss as soon as they received an insurance contract which was not binding upon the insurers”, going on to observe that the Court could if necessary have put a monetary value on the loss “exclud[ing] the possibility at that time of remedying the deficiency because the plaintiffs were in fact unaware of it and their state of knowledge arose from the breach of duty”. In a similar way, a valuer asked to value Mrs Elliott’s lease as at the date of its grant on the footing that she would not be complying with her insurance obligations could be expected to arrive at a lower figure on that account.

The upshot is that I do not think that the failure to give advice as to the need to insure falls to be treated any differently from the failure to ensure that Mr Malster’s parents became guarantors. I respectfully differ from the Judge and would hold Mrs Elliott’s claim to be statute-barred in its entirety.

I would allow the appeal.

I agree.

I also agree.