3M United Kingdom Plc & Anor v Linklaters & Paines

This is the trial of a preliminary issue in an action brought by the claimants against the defendant firm of solicitors in respect of negligent breach of duty. It is common ground that the defendant was negligent. It is also common ground that the damage resulting from that negligence occurred on 3^rd May 1989. The question raised by the preliminary issue is whether the claimants began this action within an applicable period of limitation. The action was in fact commenced on 17^th August 1999. That date can, however, be ignored for present purposes as a result of a standstill agreement between the parties which preserved their respective positions as at 1^st September 1998. The action can therefore be treated as having commenced at that date.

It is common ground that the short point which I have to decide turns on the application to the facts of section 14A of the Limitation Act 1980. That allows a limitation defence if the action is not commenced within 3 years of what the section defines as “the starting date”. The claimants say that the starting date was on or shortly after 25^th September 1995. The defendant says that it was prior to 1^st September 1995.

The negligence related to the acts and omissions of the defendant when acting for the claimants in and about the assignment of certain leases from the second claimant to the first claimant on 3^rd May 1989. Both claimants were then, and are still, members of the same group of companies (“the 3M group”), an ultimately US-owned mining and engineering conglomerate. The relevant assignments took place as part of the restructuring in 1989 of the UK subsidiaries of the 3M group. Prior to that re-structuring the UK subsidiaries were the second claimant (then registered with the name of 3M United Kingdom Plc), the first claimant (then registered with the name 3M Manufacturing Limited) and a third company which can be largely ignored for present purposes (“Products”). The re-structuring was designed to achieve the result that the first claimant should be the sole operating subsidiary in the UK, that its shares should be wholly owned by Products, and that Products’ shares should be wholly owned by the second claimant. As part of that process the second claimant was re-named as 3M UK Holdings Plc and the first claimant took over the second claimant’s old name of 3M United Kingdom Plc.

The leases with which I am concerned were leases of 3 buildings or ‘units’ in Bracknell, known as Prisma 1, Prisma 2 and Prisma 3, from Provident Mutual Life Assurance Association (“Provident Mutual”). These (“the Prisma leases”) had been granted in 1987 to the second claimant. The units concerned (together known as the Customer Technical Centre) were situated close to, but on a separate site from, the 3M headquarters building, a tower block, which was held by the second claimant under a lease from Bracknell Development Corporation granted in 1977 for a term of 20 years from 25^th December 1976 (“the HQ lease”). The restructuring in 1989 required (or so it appeared to all those concerned at the time) that the Prisma leases be assigned to the first claimant as the operating subsidiary.

When the Prisma leases were being negotiated in 1987 it had been important to the 3M group that they should expire, or at least be capable of being determined, at about the same time as the HQ lease would expire. The perception was that at that point in time the 3M Group might well want to be able to re-locate to a single site, either in Bracknell or elsewhere in the UK. Provident Mutual was, however, insistent that the Prisma leases should be for a 25 year term. Nevertheless Provident Mutual conceded in the negotiations that 3M should have an option to determine after 10 years. At a late stage in the negotiations Provident Mutual insisted that this option should be personal to the original tenant. This was initially resisted by 3M but eventually, as a trade-off for concessions by Provident Mutual on other points, conceded. As a result, the Prisma leases as granted each reflected the outcome of the negotiations on the critical point in a clause which read, in material part, as follows:

The defendant firm was not engaged by the claimants in the negotiation, or grant of, the Prisma leases in 1987. This process was undertaken by the independent surveyor to whom the 3M Group customarily resorted for its UK property matters, a Mr Bird, and, following agreement in principle between Mr Bird and his opposite number at Provident Mutual, by the 3M Group’s in-house legal department (the Department of Legal Affairs or “DLA”), then headed by Mr Ross. Provident Mutual’s insistence that the option be personal to the second claimant only in fact emerged after the matter had left Mr Bird’s hands and had fallen to be dealt with by Mr Ross. Mr Ross had found himself dealing with Herbert Smith, solicitors for Provident Mutual. His eventual concession of the point necessarily had to have the sanction of his “client” within the 3M organisation, namely the person at that time heading the property department, a Mr Roy Smith. Mr Smith would have been reporting to a main board director, who seems likely to have been a Mr Menzies.

All those people would have had a clear understanding at the time that the option was personal. For a variety of reasons that fact was overlooked when, for entirely unconnected reasons, the corporate re-structuring was undertaken in 1989. In December 1988 the DLA had decided in principle that it would be better for all concerned if it outsourced its property work. By that time, as it happened, Mr Ross had already decided to leave the organisation to go into private practice and had given the appropriate notice. His employment in fact terminated on 17^th March 1989. Mr Smith had also ceased to head the property department, his place having been taken by a Mr Cen Samuel in April 1988. The defendant firm was retained to deal with the property aspects of the re-structuring. They were instructed to that end by Mrs Heather Mandow of the DLA and supplied with all the relevant title deeds to all the 3M properties affected by the restructuring. These included many more than those comprised in the HQ lease and the Prisma leases. Mr Ross was not involved directly in the process at any stage, save that in the early stages he did raise the question whether the restructuring did require that there should be assignments from the second claimant to the first claimant, with all the attendant expense and potential complications which that route potentially involved. A decision was in due course taken, following consideration of the matter by the defendants that it was desirable that assignments should be effected. The defendants then undertook the work necessary to ensure that this happened by the target date set for the restructuring, in the event 3^rd May 1989. On that date, with appropriate licences dated 28^th April 1989 from Provident Mutual, the Prisma leases were, by transfer under the Land Registration Act 1925, assigned by the second claimant to the first claimant.

What nobody at 3M had told the defendants about, and what the defendants failed to spot, was the personal nature of the option to break in Clause 9 of each of the Prisma leases. The effect of the assignment was that the second claimant lost the option to break. That is the damage in respect of which the claimants now sue, and which the defendants concede was caused by their actionable negligence.

Neither the claimants nor Provident Mutual became conscious of this fact until 1995. By 1995 the 3M Group’s plans for the relocation of their operations in Bracknell had firmed up. A new site had been purchased at the end of 1991 which was to be re-developed so as to replace both the current HQ and the Customer Technical Centre. By 1995 it had become clear to 3M that it was going to be desirable for the break option to be deferred until March 2001. A proposal to that effect had been the subject of discussion between 3M and Provident Mutual in 1993 but nothing had come of it. Mr Samuel instructed Mr Bird in July 1995 to put a proposal to Provident Mutual that the option be deferred until March 2001 on certain terms as to rent, and on the representation that, if agreement could not be reached, the break option would be exercised the following year. This was duly done, and by a letter dated 28^th July 1995 Provident Mutual agreed the proposal subject to contract, and informed Mr Bird that Herbert Smith were being instructed to draft an appropriate agreement incorporating the terms agreed.

On 18^th August 1995 Herbert Smith wrote to Mr Ronald Herd, a commercial lawyer employed within the DLA, with a draft Deed of Variation for one of the Prisma Leases inviting his comments. That draft Deed, so far as material, was in the following terms:

Mr Herd worked on this document on 30^th August 1995. For that purpose he retrieved the title documents of the relevant unit from the safe in the DLA offices. He was principally a commercial, rather than a property, lawyer but he saw nothing in the task on which he was embarked that was likely to exceed his competence. From his examination of the title he could see that the Herbert Smith draft had proceeded in apparent ignorance of the assignment in 1989 and that both the parties to the draft Deed and its recitals were therefore incorrect. He therefore made amendments to the draft as follows:

He sent the draft to Herbert Smith under cover of a letter (which he had dictated on 30^th August) dated 31^st August 1995 which read

Herbert Smith replied on 5^th September enclosing a re-drafted version which took on board the point which had been made, saying

It can be inferred that Herbert Smith had at this stage drawn Provident Mutual’s attention to the fact that the second claimant no longer had the right to break. Mr Bird was told on 25^th September by Mr Wilkes, Provident Mutual’s property investment manager, that Provident Mutual had been so advised by counsel, and was going to take the point. Mr Bird so informed Mr Herd, following that up with a letter dated 27^th September 1995 which stressed the seriousness of the problem. Mr Herd reported on the same day to Mike Smith, the finance director of the first claimant, with an enquiry as to whether there was any financial objection to a re-assignment taking place. His memo explained:

That “simple way out” was not, however, available. It appeared from a very recent decision of Lightman J in Max Factor Limited v Wesleyan Assurance Society of July 13^th 1995 that, contrary to the assumption which had been made in the earlier case of Olympia & York Canary Wharf Ltd v Oil Property Investments Ltd (1994) 2 EGLR 48, a re-assignment to the original tenant would not revive the option. On May 3^rd 1996 Lightman J’s decision was upheld by the Court of Appeal (Auld and Aldous LJJ, Staughton LJ dissenting): see 74 P&CR 8. By letter dated 7^th November 1996 the claimants’ new solicitors were writing a letter before action to the defendants asking them to admit liability, identifying the telephone conversation between Mr Bird and Mr Wilkes of 25^th September 1995 as “the first indication that 3M had that the options to break were no longer exercisable.” These proceedings were not, however, commenced until (notionally) 1^st September 1998.

This section, introduced into the Limitation Act 1980 by section 1 of the Latent Damage Act 1986, provides as follows:

In Nash v. Eli Lilly & Co [1993] 1 WLR 782 at 796 (per Purchas LJ, giving the judgment of the Court of Appeal) it was said, in relation to the analogous provisions in sections 11 and 14, that

The claimants relied on the conversation between Mr Bird and Mr Wilkes on the 25^th September 1995 as the occasion on which they had acquired the relevant knowledge. On behalf of the defendants it was pleaded that the claimants had had the relevant knowledge, actually or constructively, either (1) as from 3^rd May 1989, or (2) as from 30^th August 1995.

The purpose of the section is to avoid the injustice which arises when a cause of action accrues without the claimant who is entitled to sue for damages ‘appreciating that the damage which gives rise to the cause of action has occurred’: Oakes v. Hopcroft [2000] Lloyd’s Rep. PN 946 at 947 (per Lord Woolf). It seeks, therefore, to ‘try to identify the moment when a claimant has such knowledge that he or she can reasonably be expected to start proceedings’: Oakes, at 952 (per Clarke LJ). The inquiry under section 14A must be approached in a broad common sense way in the light of the object of the section and the injustice that it was intended to mitigate, although a desire to be over-indulgent to claimants should be resisted: Spencer-Ward v. Humberts [1995] 1 EGLR 123 at 126 (per Sir Thomas Bingham MR). The authorities on section 14 are applicable by way of analogy to section 14A: Spencer-Ward v. Humberts [1995] 1 EGLR 123 at 125H-J (per Sir Thomas Bingham MR), Hallam-Eames v. Merrett Syndicates [2001] Lloyd’s Rep. PN 178 at 180 (per Hoffmann LJ).

In Halford v. Brookes [1991] 1 WLR 428 at 443 Lord Donaldson MR said of “knowledge” for the purposes of section 14:

Pursuant to section 14A(10), the claimant is deemed to have two forms of constructive knowledge: (1) knowledge which he ought reasonably to have acquired from facts which were observable or ascertainable by him; and (2) knowledge which he ought reasonably to have acquired from facts which were ascertainable by him ‘with the help of appropriate expert advice’, which it would have been reasonable for him to seek. The test for constructive knowledge under section 14A(10) is objective, having regard, at least, to the external surrounding circumstances: Gravgaard v. Aldridge [2004] EWCA Civ. 1529 at paragraph 20 (per Arden LJ, with whom May LJ and Black J agreed).

In the present case it is common ground that the relevant damage consisted in the loss by the second claimant of the right to break as a result of the assignments on 3^rd May 1989. The material facts about that damage (section 14A(6)(a) and 14(7)) which the claimants must know, either actually or constructively, for time to start running were accordingly:

The fact that the break clauses were personal to the original tenant;

The fact that an assignment had taken place so that the leases were no longer vested in the original tenant;

The fact that as a result of the assignment the break clause had ceased to be exercisable;

The fact that the loss of the break clause was important to the claimants having regard to their property strategy.

Mr Nugee submitted that the third of these facts was not really a “fact” at all, but simply a legal consequence of the first two facts. He submitted that it was unnecessary for him to show actual or constructive knowledge by any person of that legal consequence. I return to this point below. At this point I would merely observe that the third fact is only a legal consequence of the first two facts if it is assumed that no steps have been taken in connection with the assignment to avoid that consequence.

The “other facts relevant to the current action” which the claimants needed to know consisted of

The identity of the defendants (s. 14A(8)(b)); and

The fact that the defendants had neither advised against the assignment nor taken steps to prevent it having the legal consequence which it had (section 14A(8)(a)).

The defendants’ case that the starting date should be 3^rd May 1989 involved the following steps. First it was submitted that a number of persons within the claimants’ organisation knew in 1987 that the options were personal to the original tenant. These were identified by Mr Nugee in his submissions, albeit not in the defendants’ pleading, as Mr Ross, Miss Radford of the DLA, Mr Smith (the property manager), Mr Smith’s predecessor Mr Harborne who remained as a consultant, and the main board director Mr Menzies to whom Mr Smith reported. Of these I heard evidence only from Mr Ross and Miss Radford (now Mrs Beedham). It is clear that Mr Ross, who is a highly experienced commercial property lawyer (the author of Ross Drafting and Negotiating Commercial Leases) and who undertook the final negotiations over the terms of the leases with Herbert Smith, was well aware in 1987 of the precise terms of the break clause and the personal nature of the option. Miss Radford would also have become acquainted with the fact from a perusal of the file for which she had responsibility when Mr Ross was away. It is, however, less clear what knowledge may have been possessed by other personnel. Mr Ross thought it almost certain that the upshot of the negotiation would have been reported to Mr Smith and likely that it would have been reported to Mr Menzies. I do not, however, myself think it appropriate to attach much weight to this given the way in which the defendants pleaded this issue. Moreover, knowledge that Provident Mutual had successfully insisted that the break option should be “personal to 3M” (which is likely to have been reported upwards) is not the same as knowledge that the option was exercisable only by the second claimant to the exclusion of any other company in the 3M group.

The second step in the argument was to identify the persons within the claimants who knew about the fact of the assignments. These included Mrs Mandow in the DLA, and Mr Sims the company secretary who arranged for their execution. They probably also included Mr Samuel. He did not give oral evidence before me but his witness statement was admitted as hearsay. In that witness statement he said that he had had nothing to do with the reorganisation, but the documentary evidence did show some involvement. In addition the respective boards of the claimants, which held meetings to approve the sale and purchase agreement which formed the core of the restructuring, would have known (had they read the document) that assignments were involved.

Accordingly, it was submitted, there were responsible individuals within the claimants’ organisation who knew both of the first two material facts about the damage: the fact that there was not one single person who knew both those facts was immaterial. It was also clear, submitted Mr Nugee, that numerous persons within the claimants’ organisation knew that the defendants had been responsible for the fact and form of the assignments.

Those submissions assume that when addressing the question of whether, and when, a company has knowledge for the purposes of s 14A, the knowledge of particular individuals can be attributed to the company, and that different pieces of information in the possession of different individuals can be aggregated for that purpose. The question whether the knowledge of an individual employee or officer will “count” as knowledge of the company for the purposes of some substantive rule of law is addressed in the judgment of Lord Hoffmann in Meridian Global Funds Management Asia Ltd v Securities Commission [1995] 2 AC 500, Privy Council. He there explains (at p 507F) that the question has to be answered by applying the usual canons of interpretation, “taking into account the language of the rule (if it is a statute) and its content and policy.”

Mr Hofmeyr QC submitted that no cumulation, or aggregation, of individual knowledge was permissible for the purposes of s 14A if the result of that process was to attribute to the company a form of knowledge not enjoyed by any single individual within the company. I think that that is too sweeping a proposition. It seems to me quite consistent with the content and purpose of s 14A for there to be attribution to a corporate claimant of two separate pieces of individual knowledge if, in the particular context, it is reasonable to suppose that the relevant information would in fact have been aggregated within the organisation. That is to say no more than what is already spelled out in s.14A(10)(a).

In the present context, however, the defendants’ submissions in my judgment break down for another reason, or combination of reasons. The premise on which they are based is that the only knowledge which needs to be established is knowledge of what I have identified as the first, second and fourth of the material facts about the damage, and that there is no difficulty about establishing knowledge of the other relevant facts about the defendants’ involvement in the causation of the damage. In my judgment the fallacy here lies partly in the submission that the third material fact is not a “fact” at all, but rather a mere legal consequence, partly in the assumption that that consequence was a necessary consequence of the first and second facts and partly in the assumption made by the submission that the claimants had knowledge of the facts posited by s.14A(8)(a) (i.e. that the damage “was attributable to the act or omission which is alleged to constitute negligence.”)

Apart from authority, it would seem to me that a damage-causing legal consequence of other facts is potentially as much a “fact” for the purposes of the section as a damage-causing physical consequence of other facts. Take the case of a building negligently constructed from concrete made by a composition of material A and material B, whose properties when combined are such that the concrete is likely to crumble after a period of years. A claimant may know that material A and material B have been used but may not know that their combination in the concrete is inappropriate even though that is an ascertainable scientific fact. If it is reasonable for him not to know the latter fact and reasonable for him not to have ascertained it by resort to appropriate expert advice, the section will not treat him as having knowledge of that relevant damage-creating fact until he actually learns it. Where the context is one of legal professional negligence and the damage-creating consequence of other facts is itself a legal consequence, I see no reason in principle why the position should be any different. Indeed, where the negligence consists in the very failure by the professional defendant to advise the lay claimant of that consequence, the proposition that the claimant should nevertheless be treated as having knowledge of that consequence for limitation purposes (when his very complaint is that he should have been but was not told it by the defendant) is almost absurd. It is certainly counter-intuitive and unattractive.

The question is not, however, free from authority. In HF Pension Trustees v Ellison [1999] Lloyds Reports PN 489, the trustee of a pension scheme had, following advice from its solicitor, made payments from its scheme which were subsequently held to have been unlawful. Jonathan Parker J (as he then was) upheld a limitation defence, rejecting the claimant trustee’s contention that it did not have the requisite knowledge until it knew that the payment was unlawful. After referring to an earlier case on very similar facts (Bradstock Trustee Services Ltd and another v Nabarro Nathanson [1995] 4 AER 888) where HHJ Paul Baker QC had, at p. 898c, ruled that

That approach is clearly correct where the only missing piece of knowledge is the legal knowledge that the known facts give rise to actionable negligence on the part of the defendant. That is expressly laid down in section 14A(9). The dividing line between the (relevant) fact that the damage is attributable to an act or omission of the defendant (see s14A(8)(a)) and the (irrelevant) fact that that act or omission involves actionable negligence is not always easy to draw, and has been the subject of three decisions by the Court of Appeal in which first instance judges have been held to have taken too narrow a view: Hallam-Eames & ors v Merrett Syndicates & ors [2001] Lloyds Rep PN 178, Irshad Ali v Courtaulds Textiles Ltd [1999] Lloyds Rep Med 301, and Oakes v. Hopcroft [2000] Lloyds Rep PN 394. In Hallam-Eames Hoffmann LJ emphasised the importance of establishing knowledge of all the facts

These cases were all considered by the Court of Appeal in Haward & ors v Fawcetts [2004] EWCA Civ. 240. In that case the claimant’s loss consisted of monies he had invested in a company on the allegedly negligent advice (or lack of it) of an accountant. The defendant argued successfully at first instance that the case was governed by HF Pension Trustees Ltd, i.e. that the loss had occurred when the investment had been made, and that there was no other material fact to be known about the damage save for the irrelevant one that the accountant’s advice had been negligent. After a lengthy exposition of the authorities that argument was rejected by Jonathan Parker LJ (with whom Potter LJ and Charles J agreed) who held that the additional fact which the claimant needed to know for the purposes of s 14A(8)(a), but did not, was that the accountant’s acts or omissions were “causally relevant” to the damage claimed to have been suffered. In that case, unlike Bradstock and HF Pension Trustees Ltd, there were potentially competing causes of the damage (see paras 161 and 168-9 in particular). In the course of his judgment Jonathan Parker LJ did, however, repeat (at para 156) what he had said in HF Pension Trustees Ltd about matters of law in the following passage:

For the reasons which I have already indicated, while the second sentence in that quotation is plainly unexceptionable, I do not find the first sentence easy to accept as a bald proposition divorced from the context of s14A(9). My difficulty can be illustrated by comparing the facts in Oakes v. Hopcroft with an imaginary example drawn from legal, as opposed to medical, negligence. The facts in Oakes were essentially these:

I have found it impossible to persuade myself that there is a rational distinction between the two cases. But that there is such a distinction seems to me to be entailed by that first sentence of Jonathan Parker LJ unless it is confined to the context indicated by the second sentence.

Happily, however, it seems to me unnecessary for me to decide whether or not that first sentence correctly expresses the law although I respectfully think that without some qualification it does not. Nor, even if I were to decide that it did not, would it render it necessary for me to dissent from the conclusion in HF Pension Trustees Ltd. In that case the plain fact was that everyone did know that the “damage”, namely the movement of the monies out of the pension scheme, had occurred at the date at which the event had taken place. In the present case, the plain fact is that the claimants did not know, through anyone whose knowledge was attributable to them, that the “damage”, namely the loss of the option, had occurred. The two cases are distinguishable on that basis alone. The real question is whether such knowledge should be presumed from the mere fact that the claimants knew, actually or constructively, that the options were personal to the second claimant and also knew that, under the advice of the defendants, assignments by the second claimant had taken place. The only arguable basis for presuming such knowledge is that the loss of the option was the inevitable legal consequence of those two facts. But it was not an inevitable consequence. The claimants (like the claimant in Oakes) were prima facie entitled to assume that the defendants were acting, and had acted, with due care and skill. If the defendants had done so they would either have advised the claimants that the effect of the assignments was to cause the options to cease to be exercisable or they would have taken such steps as were open to them to ensure that the assignments did not have that deleterious effect. Such steps might have been to seek the inclusion in the licence to assign of a provision having equivalent effect to the Rider C which Mr Herd was later to seek to include in the Deed of Variation. Had they sought to include such a provision it might or might not have been accepted by Provident Mutual. Had it been accepted, the matter of the assignments could have proceeded without further advice from the defendants to the claimants. If that is correct then the mere fact that assignments took place would not have had a damage-causing legal consequence. If it was legally possible for the assignments to have taken place without occasioning the damage, why should not the claimants have been entitled to assume that the defendants had done that which was legally possible to avoid the damage? Or, to put it another way, why should the claimants be presumed to know that the defendants had not done that which it was necessary for them to have done if they were to have done their job properly?

I do not therefore accept that the claimant had actual knowledge of the relevant matters as at 3^rd May 1989.

The defendants alternatively argued that the claimant should be treated as having had the relevant knowledge on the basis that there ought to have been a system in place for ensuring that all relevant personnel were aware by 3^rd May 1989 of the personal nature of the break clause. This was not an argument which was presaged in any way by the defendants’ pleading. In essence the argument was that the break clauses were so important to 3M, and so inherently likely to be lost by accident on an internal corporate reorganisation, that someone should have made a specific note about them so that they were not lost sight of in circumstances such as those which actually occurred.

I was not impressed by this point. The claimants had a perfectly sound system for storing the relevant documents of title. Any lawyer who might subsequently be asked to deal in any way with the titles could reasonably be expected to consult those documents. The suggestion that there should have been some “Noddy” guide annexed to the documents which would have relieved the relevant lawyer from considering the documents in a professional manner has only to be stated for its inapposite nature to be apparent. The “Noddy” guide would only have been useful if the particular negligence which in fact occurred, as opposed to the countless other possible acts of negligence which might have occurred, had been accurately foreseen. “Noddy” guides are inherently dangerous since they provide a temptation to the lazy not to explore beyond their confines. I agree with Mr Ross that it was enough that the relevant documents were satisfactorily collated and located in a place where they were accessible to the persons who might need to look at them.

Not content merely to advance that unpleaded case, Mr Nugee sought to make a further alternative case – one which was even more unheralded by his pleading. This was that the importance of the break clauses was such that it had been incumbent on the claimants to have checked their validity before embarking on the project of head office rationalisation which had resulted in the acquisition (at a cost of £20m) of the new site at Amen Corner. This suggestion was canvassed with some of the claimants’ witnesses, but, given that the claimants had had no reason to prepare their case on this issue, their evidence, unsurprisingly, simply confirmed that it had occurred to no-one to check that the break options were exercisable. That seems to me merely a consequence of the fact that everyone knew that break options had originally been negotiated and agreed, and no-one had any reason to imagine that the defendants had done anything with less than their usual professional competence. I reject the submission.

I have already set out in some detail in paragraphs 10 to 12 the steps taken by Mr Herd in relation to the draft Deed sent to him by Herbert Smith. The question which was much debated before me (and with Mr Herd in cross-examination) is what knowledge this process gave him of the relevant matters. He had no distinct recollection of his thought processes on 30^th August, and accepted that his evidence on the point was necessarily reconstruction. Given the passage of time that is hardly surprising. In cross-examination he accepted that he had checked the accuracy of the recitals in the draft Deed, and that he would be likely to have looked at Clause 9(1) of the Lease. It seems to me highly probable that he did. Since the draft Deed made amendments to the remaining sub-clauses of Clause 9 it is likely also that he read these as well in order to ensure that the draft Deed correctly reflected the agreement which had been reached between the surveyors. He obviously noted that Herbert Smith had proceeded on the mistaken assumption that the relevant Lease remained vested in the original tenant whereas he knew of the assignment. He accepted in cross-examination that it was clear from Clause 9(1) that the break option was personal to the original tenant. He also accepted that he knew that the existence of the break option was of great importance in the context of the claimants’ property strategy.

What he did not in terms accept was that he was conscious on 30^th August that the effect of the assignment had been to cause the break option to be lost. He did, however, concede that he would have appreciated that the effect of the clause was that an assignee could not exercise the break option (Day 1, p.61 line 15-62, line 11), and that “on 30^th August the underlying problem was there and to some extent I could have seen it”. He continued, however, to maintain that it was not until later, when Provident Mutual actually took the point, that he became conscious of the reality of the problem. His approach on 30^th August was, he suggested, essentially one of tidying up the drafting in the belief that his amendments were likely to be accepted by Herbert Smith. I suggested to him at the conclusion of his evidence that it might be fair to summarise his answers as to what was in his mind on 30^th August as being that “there was a legal problem but you had no reason to suppose it was ever going to be a commercial issue?”. His answer was:

Mr Herd also sought to suggest, in various passages in his evidence, that he had assumed that the defendants would in some way have covered the point by what they had done in 1989.

Accepting that Mr Herd genuinely cannot recollect what was in his mind on 30^th August, one must do one’s best by way of reconstruction. I think that he must have appreciated that, as matters stood, the effect of the assignment had been to cause the loss of the break clause unless some remedial action was taken. Mr Hofmeyr submitted that that could not have been the case for, if it had been, he would never have written the letter of 31^st August which flagged the point up for them. However, I do not think that there was really any other course open to him than to write as “quiet” a letter covering his curative amendments as was possible. I do not think that he can have supposed that the defendants had, by some earlier action, somehow covered the point. Had he thought that, he would have made further inquiries to discover how they had dealt with it before exposing to Herbert Smith the fact of the latter’s apparent error and the consequent availability of a point which Provident Mutual might take. It had clearly not been dealt with in the obvious place, which would have been in the licence to assign, which he had before him. 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. It may be that he hoped that the point would not be seen by Herbert Smith or, if seen, not taken by Provident Mutual, but that would in my judgment have been a matter of hope rather than rational expectation. Once Provident Mutual was alive to the point it would have no commercial incentive to agree to the deed of variation. It may also be that he hoped that, if the point were taken, the solution of a re-assignment could be activated but, as he accepted in cross-examination, he would have expected the defendants to pick up the costs occasioned by that. It seems to me inescapable that Mr Herd did know on 30^th August 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. Even if I am wrong about his actual state of mind on that date, it seems to me that he ought reasonably to have appreciated these matters.

One can test the matter (although it may be that it only puts the same question in a different way) by asking what would have been the position if for some completely extraneous reason negotiations had been broken off after Mr Herd had done his amendments and dictated the letter dated 31^st August, but before that letter had actually been sent. It seems to me inconceivable that, knowing what he then did, he would not have reported internally on the existence of the problem which he had come across. Unless and until a cure could be devised for the problem, it was not something which could be ignored. It was not something which could have been left to be dealt with when Provident Mutual might at some time in the future take the point.

It does not appear to me that there is any reason why Mr Herd’s knowledge should not be attributed to the claimants for the purposes of section 14A. The defect which he discovered was plainly one which in the circumstances he had a duty to report to his employer.

In my judgment therefore the claimants did have the necessary knowledge for the purposes of the section on 30^th August 1995. The claimants had three years from that date in which to start an action but did not do so. Their claim against the defendants is accordingly barred.