St Anselm Development Company Ltd v Slaughter and May (A Firm)

This is an appeal against the summary dismissal of a claim in negligence against a firm of solicitors on the grounds that the claim was time-barred. Master Teverson held that the primary limitation period of six years had expired before the issue of the proceedings and that the claimant had no prospect of showing that its claim fell within the extended limitation period provided by section 14A of the Limitation Act 1980. The claim was accordingly dismissed under CPR Part 24. This appeal is brought with permission of the Master.

The claim arises out of the extension of the leases of two flats under Part I of Chapter II of the Leasehold Reform, Housing and Urban Development Act 1993 (the Act). The claimant was the immediate lessor of the flats but held under the terms of a head lease of the building containing the flats. Before the statutory extension, the claimant was entitled under the terms of the underleases of the flats to recover a proportion of the ground rent payable under the head lease. Following the extension, the claimant no longer had any such entitlement, nor did it receive any compensation for the loss of it. The defendant solicitors advised the claimant in respect of the extensions. The claimant alleges that, if the defendant solicitors had given correct advice, the new leases which replaced the underleases of the flats would have contained equivalent provisions entitling the claimant to recover the relevant proportions of the ground rent or the claimant would have received compensation under the Act from the lessee of the flats on the grant of the new leases.

The defendant solicitors denied negligence but there has yet to be any consideration of the merit of the claim. For present purposes, it is to be assumed that the claimant has an arguable case in negligence against them.

The events in issue occurred as long ago as 1999. The proceedings were commenced on 10 August 2005. By a consent order made on 6 October 2005, time for service of the claim form was extended generally. The claim form was served in July 2011 after the solicitors for the defendants called for service. The particulars of claim were served in July 2011 and amended in August 2011. In October 2011, the defendant solicitors applied for the summary dismissal of the claim on the limitation ground and time for service of the defence was extended. The application was heard over two days in March 2012 and the Master gave judgment on 12 June 2012.

The hearing and consideration of this appeal, and I dare say the hearing before the Master, was hampered by the lack of a chronological bundle of the documents. Instead, they were scattered through various parts of the appeal bundle.

It is convenient first to summarise the relevant provisions of the Act.

A tenant of a flat held on a long lease, who satisfies the requirements specified in section 39, may apply for a new lease of the flat at a peppercorn rent for a term expiring 90 years after the term date of the existing lease, in substitution for the existing lease. The tenant is required to pay a premium and other compensation in accordance with schedule 13 to the Act.

Where the tenant’s immediate landlord is a lessee with a leasehold interest of insufficient length to grant a new lease under the Act, section 40 provides that the freeholder or superior lessor with a sufficient reversion is to be “the landlord” for the purposes of the negotiation and the grant of the new lease. Section 56(2) and schedule 13 provide for payments by the tenant to an intermediate landlord, in respect of the loss of rent payable under the immediate lease and as compensation for any other loss.

The application by a tenant for a new lease is made by service of a notice on the landlord. The landlord is required to serve a counter-notice, stating whether the tenant’s right to acquire a new lease is accepted and whether the landlord accepts the tenant’s proposals for the terms of the new lease and the payments to be made. If the landlord and tenant are unable to reach agreement on any of these matters, the dispute is referred to Leasehold Valuation Tribunal (LVT) for determination. Although the new lease is granted in such circumstances by the “landlord”, in substitution for the tenant’s existing lease, any intermediate lease is not extinguished by the Act. The problem which would otherwise arise is avoided by the deemed surrender and re-grant of intermediate lease and the requirement that the terms of the new lease shall be framed and take effect accordingly: paragraph 10(1) of schedule 11. The effect in a case such as the present is that for the remainder of the term of the head lease, the tenant’s immediate landlord will be the head lessee.

The claimant is a substantial, privately-owned property investment company, with a mixed portfolio of residential and commercial property, mostly in Central London The portfolio had a total value of over £36 million as at 31 December 2001.

The claimant holds a leasehold interest in a block of 26 flats at 13-17 Clarges Street, Piccadilly, London W1. The lease, dated 29 October 1964, is for a term of 99 years from 29 September 1964 (the head lease). It was granted by Sir Richard Newton Rycroft, now deceased, to The Land Securities Investment Trust Limited, which underlet the property to the claimant in 1966 and assigned its interest in the head lease to the claimant in 1985. The freehold reversion has at all material times been vested in the trustees of the estate of the late Sir Richard Newton Rycroft (the freeholders).

A ground rent is payable under the terms of the head lease, initially fixed at £4,000 p.a., but subject to review in 1978, 2006 and 2034. It was increased to £18,250 p.a. in 1978 and to £161,000 p.a. in 2006.

The claim relates to the leases of two flats, flats 26 and 27. The claimant granted an underlease dated 15 May 1992 of flat 26 to Mr Gordon Speed. The underlease of flat 17 was also granted on 15 May 1992 and Mr Speed acquired it by assignment in September 1995. With the consent of the claimant and the freeholders, Mr Speed then combined the two flats into a single unit. However, each flat continued to be held under its respective underlease.

Both underleases were for a term of just under 73 years commencing on 29 September 1990 and expiring on 19 September 2063, 10 days before the expiry of the head lease.

The terms and conditions of the underleases were identical in all respects material to the present claim. In particular, by clause 4, the claimant as underlessor covenanted to pay the rent reserved by the head lease and to provide the services specified in schedule 4. By clause 3(2), the underlessee covenanted to pay the Service Charge in accordance with the Third Schedule. The Service Charge was defined in the Third Schedule as being the appropriate share of the Annual Maintenance Provision, which is itself defined as including

“a.

All costs, charges, expenses and outgoings expended or incurred by the Lessor in any financial year in complying with its obligations under clause 4 other than in paying each year the first four thousand pounds of the annual rent reserved by the Head lease.”

Accordingly, under the terms of the underleases, the claimant was entitled to receive from the underlessee, as part of the service charge, a percentage of the total ground rent less a fixed sum of £4,000. The balance of the service charge covered the costs of services. Rent was also reserved under the underleases. The underleases of the other flats in the building were, as I understand it, in similar terms. For convenience, I shall refer to the provisions for the recovery of a proportion of the ground rent under the head lease as the “indemnity provisions”.

Mr Speed was by 1997 entitled to exercise his rights under the Act in respect of flat 27. Because the term of the head lease was insufficient to enable the claimant to grant a new lease under the Act, the freeholders were the “landlord” for the purposes of the Act. On 5 December 1997 Mr Speed served a notice under section 42 on the freeholders, who served a counter-notice on 11 February 1998. The counter-notice accepted Mr Speed’s right to a new lease but joined issue on the proposed premium.

Negotiations followed between the agents and solicitors for Mr Speed and for the freeholders resulting in agreement on the terms of a new lease in about April 1999. By 2 August 1999, agreement was reached on the premium and other compensation payable by Mr Speed. A hearing due to take place before the LVT on 3 August 1999 was cancelled. The new lease for flat 27 was executed on 28 September 1999.

In February 1998, Mr Speed, as was inevitable, indicated that he wished also to extend his lease of flat 26. He did not at that time satisfy the residence qualification under the Act and somewhat complex proposals were made, directly involving the claimant, to achieve by different means the same result. The claimant rejected these proposals and suggested that Mr Speed should simply wait until he had satisfied the relevant requirements, which he would do later in the year.

On 1 December 1998, Mr Speed gave notice under the Act and the freeholders served a counter-notice on 8 February 1999, adopting the same position as in their counter-notice in respect of flat 27. Again negotiations proceeded between the agents and solicitors for Mr Speed and for the freeholders, lagging a few months behind those for flat 27.

A draft lease was circulated in May 1999 but not finally agreed until October 1999. The premium and other compensation was agreed in early November 1999 and the new lease was executed on 10 December 1999. It should be noted that there were material differences between the two flats. In particular, because their sizes were significantly different and there were different valuations dates, the premium fixed for each flat was different.

Although the negotiations for the new leases were conducted between the freeholders and Mr Speed, the claimant’s position was directly affected and it was kept informed and consulted by the freeholders’ solicitors and agents. In turn, the claimant instructed the defendant solicitors who had regularly acted for the claimant on matters including the property in Clarges Street.

The defendant solicitors were instructed in November 1997 in relation to a request for information made by Mr Speed. His notice under section 42 of the Act in relation to flat 27 was sent by the claimant to the defendant solicitors but little work was required in relation to it during 1998. During that year, the defendant solicitors advised in relation to the suggestions for dealing with flat 26. On receipt of Mr Speed’s notice under section 42 of the Act in respect of flat 26 in December 1998, the claimant wrote to the defendant solicitors asking them to “take any necessary action in respect of our interest”.

In March 1999, Wedlake Bell, the freeholders’ solicitors, sent to the claimant a copy of a draft lease for flat 27, showing amendments proposed by Mr Speed’s solicitors and counter-amendments proposed by Wedlake Bell. Wedlake Bell requested the claimants’ “early confirmation of your approval of the document so that matters can proceed with the minimum of further delay”.

Wedlake Bell’s letter and the enclosed draft lease were sent by the claimant to the defendant solicitors under cover of a letter dated 23 March 1999. The letter stated:

“I have told Wedlake Bell that I have asked you to check that our position is fully protected by the draft, and having done so, return to them and I shall be grateful if you will do this. Although we are to get only a nominal premium for our 9 day reversion, your fees for guarding our interests are I believe payable by Mr Speed, and you might like to touch on the subject when writing to Wedlake Bell”.

The defendant replied on 24 March 1999:

“I have had a look at the draft lease which has been copied to us but it is not necessary to dwell much on its detail because, by virtue of statute, there will be a deemed surrender and re-grant of your Lease. The re-grant has the effect of continuing your Lease in existence as far as Mr Speed is concerned, so that the arrangements as to (for example) service charge and repair are not compromised.”

On the same day, the defendant solicitors wrote to Wedlake Bell, making no comment on the draft lease but simply requesting them to contact the defendant solicitors when Wedlake Bell were close to engrossing the lease so that an invoice could be submitted.

On 25 March 1999, the claimant replied to the defendant solicitors, saying that they were “pleased to note what you say about our Lease to Mr Speed”.

Wedlake Bell wrote again to the defendant solicitors on 25 March 1999, requesting them “to confirm that you are happy to accept the form of Lease in its present form, i.e. as enclosed with our letter to your Client Company dated 22 March”. The defendant solicitors replied on 26 March 1999, with a few minor comments. In a letter dated 15 April 1999, Wedlake Bell informed the defendant solicitors that the form of lease had been agreed, subject only to confirmation of the final valuation.

On 25 May 1999, Wedlake Bell wrote to the defendant solicitors concerning flat 26, stating:

“The form of lease relating to Flat 26 has now been agreed and, although it is in a form identical (or mutatis mutandis) to that relating to Flat 27, as a matter of courtesy I enclose a copy for your perusal and approval.”

The defendant solicitors replied on 2 June 1999:

“Thank you for your letter of 25 May enclosing the proposed form of Lease for Flat 26. On the basis that it is substantially identical to the Lease for Flat 27 I confirm that it is approved.”

There was correspondence between the claimant and the defendant solicitors as regards flat 26 in October and November 1999, mainly concerned with the fees to be charged by each of them and payable by Mr Speed.

The subsequent events are relevant primarily to the issue under section 14A of the Limitation Act 1980 and I will summarise them when I come to that issue.

The defendant solicitors submitted an invoice dated 14 May 1999 to the claimant for their professional charges in relation to flat 27. It was for £400 and the narrative in the invoice read as follows:

“Engaged in relation to the exercise by the Tenant of the above premises of rights to claim an extended lease pursuant to the Leasehold Reform Housing and Urban Development Act 1993; including responding to the Tenant’s request for information; reviewing the deeds and previous correspondence to be able to do so; research re the provisions of the Leasehold Reform Housing and Urban Development Act 1993 to evaluate the Tenant’s entitlement to an extended Lease and reviewing the form of Lease to be entered into between the Superior Landlord and the Tenant prior to its completion.”

An internal file note of the defendant solicitors dated 2 June 1999 reads as follows:

“I should be grateful if you would prepare another draft bill for this file. You may recall we have recently submitted an invoice in relation to the work done for Flat 27, 17 Clarges Street. I think I mentioned to you at that time that there was other work on the file relating to Flat 26 and I have now had confirmation from the Superior Landlord’s solicitors that the Flat 26 Lease is now largely agreed. We should submit our invoice for the work done in relation to Flat 26 although, as we discussed, I do not think we will able to bill the whole balance of the time spent.”

An invoice was prepared and submitted to the claimant under cover of a letter dated 14 June 1999. It is for the same sum as the invoice in respect of flat 27 and the narrative on the invoice is identical to that on the invoice for flat 27, including “reviewing the form of Lease to be entered into between the Superior Landlord and the Tenant prior to its completion”, except that reference is also included to the advice given in 1998 as to alternative means by which Mr Speed could extend his lease of flat 26.

The new leases of the flats contained no equivalent of the indemnity provisions contained in the former underleases. It is common ground that the claimant could no longer recover from Mr Speed that proportion of the ground rent payable under the headlease formerly recoverable from him under the indemnity provisions. Nor could the claimant recover that proportion from any other tenant.

The claimant alleges that the advice given by the defendant solicitors in their letter dated 24 March 1999 was wrong. Its case is that it was necessary to scrutinise the detail of the new lease. It was entitled to insist on the new lease containing equivalent indemnity provisions, or alternatively it was entitled to require compensation for the loss of its indemnity rights. Without such provisions in the new lease, the claimant’s rights as regards the service charge so far as it included the indemnity provisions were compromised, contrary to what was stated in the letter.

In paragraph 27 of the amended particulars of claim, the claimant pleads that the advice contained in the letter dated 24 March 1999 was incorrect and in paragraph 28 pleads as follows:

“In acting for the Claimant, the Defendant was negligent (in the sense of breaching its duty of care aforesaid) in the following respects:

(i)

the Defendant gave incorrect advice as aforesaid;

(ii)

the Defendant failed to advise the Claimants that the draft leases were not materially in the same terms as the existing leases, in particular that they did not contain the indemnity clauses or provisions to the like effect;

(iii)

thereafter the Defendant failed to inform Wedlake Bell of the need to ensure that the new leases contained the indemnity clauses or provisions to the like effect;

(iv)

thereafter the Defendant failed to inform Cluttons that the new leases did not contain the indemnity clauses or provisions to the like effect;

(v)

the Defendant failed to inform the Claimant that if the new leases were executed in the form proposed, the Claimant, would potentially suffer a shortfall between (a) the rent they pay to the head lessee and (b) the service charge they were unable to collect in respect thereof from Mr Speed (or his successors in title).”

The damages claimed in the amended particulars of the claim are for the loss of the entitlement to recover a due proportion of the ground rent or, if it was not possible to include indemnity provisions in the new leases, the loss of compensation to which the claimant would have been entitled under the Act.

The application for summary dismissal of the claim was made on the basis that the primary limitation period for any claim in negligence had expired before the claim form was issued on 10 August 2005. A cause of action in tort accrues on the occurrence of material damage and the limitation period of six years starts from that date: section 2 of the Limitation Act 1980.

The defendant solicitors’ case is that, if they were in breach of their duty of care, it was a single breach which occurred when the advice was given in the letter dated 24 March 1999 and that it caused two items of material loss, namely the binding agreements of the parties to the new leases, by 2 August 1999 in the case of flat 27 and by 2 November 1999 in the case of flat 26. In those circumstances, the cause of action accrued on the occurrence of the first item of material loss: see Khan v RM Falvey [2002] Lloyd’s Rep PN 369 (CA) at [23]. As agreement on the new lease for flat 27 occurred more than six years before the issue of the proceedings, the action was time-barred in its entirety.

Before the Master, the claimant submitted, first, that no material loss was suffered until the new lease of flat 27 was executed on 28 September 1999 and, secondly, that in any event there were separate breaches of duty of care in respect of each flat, so that the primary limitation period as regards flat 26 did not start until, at the earliest, November 1999.

The Master rejected both of the claimant’s submissions.

On this appeal, the claimant does not challenge the Master’s decision that the loss as regards flat 27 occurred on or before 2 August 1999. It does challenge the Master’s decision that there was only one cause of action in respect of both flats.

The Master dealt with the first of the claimant’s submissions in paragraph 15-25 of his judgment, at rather greater length than the second submission which he addressed in paragraphs 26-27.

In paragraph 26, the Master referred to the submission of counsel. Counsel for the defendant solicitors submitted that the loss on both flats flowed from the same alleged mistake, made in the letter dated 24 March 1999. Counsel for the claimant accepted that the alleged negligence in relation to both flats flowed from the same legal misunderstanding but submitted that the negligence consisted not only in the advice but also in approving the lease for each flat. In the case of flat 26, the loss flowed from the failure in June 1999 to require the inclusion of an indemnity provision in the new lease for flat 26 or to advise the claimant to seek compensation in respect of the loss of the indemnity provision.

The Master stated his conclusion and reasons in paragraph 27:

“In my view, the claim against the defendant is one and the same claim in relation to both Flats 27 and 26. The claimant’s letter of claim says exactly that. I think it would be artificial in the circumstances of this case to treat the causes of action as being separate or treat the formal approval of the lease of Flat 26 as giving rise to a new claim. There was, in my view, a single cause of action based on the alleged incorrectness of the advice contained in the defendant’s letter of 24 March 1999 to Mr Gillingham.”

The case advanced on this appeal, as before the Master, by Mr Small QC for the claimant was that the defendant solicitors were as much in breach of duty in failing to advise on the inclusion of indemnity provisions in the lease for flat 26 as they were in giving positively wrong advice in March 1999 in relation to flat 27.

Mr Flenley QC, on behalf of the defendant solicitors, supports the Master’s decision on the grounds which he gave. There was, he submits, only one instance of negligence, and that was the positive advice given in the letter dated 24 March 1999. The approval of both of the new leases without the inclusion of indemnity provisions resulted from that single piece of advice. If the defendant solicitors made a mistake on 2 June 1999, it was the same mistake which they had made on 24 March 1999.

In my judgment, the correspondence and other facts summarised above show that the defendant solicitors were instructed, and indeed separately instructed, in respect of each lease. Their duty was to use reasonable skill and care to safeguard the interest of their client in respect of each lease. The duty continued as regards the lease for flat 26 independently of the lease for flat 27. Agreement of the terms of the lease for flat 27 did not absolve the defendant solicitors from their duty as regards the other lease.

On the evidence, it appears clear that the defendant solicitors gave active consideration to the position on the indemnity provision only once, in March 1999. Quite naturally, having investigated it then and thought they had given the correct advice, they did not positively re-visit the issue in May/June 1999 when considering the terms of the lease for flat 26. But their duty to take reasonable care to ensure the protection of the claimant’s interests as regards the lease for flat 26 was not diminished because of advice previously given on the lease for flat 27.

It is possible to imagine circumstances in which a client seeks and obtains advice on an issue common to a number of proposed transactions, on the basis that the solicitors would not again re-consider the issue when dealing with the individual transactions. Whether even then there would be only one cause of action with loss arising when the first transaction was made, I need not consider. In this case, there is no basis on the evidence presently before the court to suggest that the defendant solicitors were instructed on any such basis. Equally, in the present case, the defendant solicitors might have been instructed to advise once on a draft lease to be used for both flats, but that was not what happened.

Mr Flenley QC for the defendant solicitors relied also on a number of additional features of this case.

First, he placed some stress, as did the Master, on the terms of a sentence in the claimant’s letter before action dated 29 July 2005. Having referred to the advice given in the letter dated 24 March 1999, the letter continued:

“This advice was taken by St Anselm to apply equally to flat 26, the extension lease for which was completed some time after that for flat 27.”

No doubt it was. In the absence of further advice, it would be surprising if the claimant did not regard the advice given as regards flat 27 as equally applicable to flat 26. But that is quite different from saying that as regards the indemnity provisions, the defendant solicitors owed no duty to protect the claimant’s interests when considering the draft lease for flat 26 in May/June 1999.

Secondly, Mr Flenley QC submitted that the claimant would not expect the defendant solicitors to re-consider the issue when dealing with the draft lease of flat 26 and to charge for it. A good deal of the wind is taken out of the sails of this point, when it is seen that the fee charged for each flat was the same and that the narrative stated that the defendant solicitors had considered both the Act and the terms of the draft lease in the case of each flat.

Even if Mr Flenley QC is right, the client would reasonably believe that the solicitors’ advice was right the first time and might well not expect to pay the solicitors for re-doing the same work, either to come to the same conclusion or to put right their earlier wrong advice. But again, I do not see that this consideration reduces the scope of the solicitors’ duty to protect their client’s interests when considering the second draft lease.

Thirdly, Mr Flenley QC relies on the terms in which the claimant’s case is pleaded. He points out that in paragraph 29 of the amended particulars of claim, the claimant pleads that “by reason of the said negligence” it suffered loss, including loss in relation to the lease of flat 26. He submitted that it followed that the claimant’s pleaded case is that the loss suffered in relation to flat 26 flowed from the negligent advice given in the letter dated 24 March 1999, even though that letter related to flat 27. This appears to me to be a mis-reading of the particulars of claim. I have earlier set out the pleading of negligence in paragraph 28 of the particulars of claim. The negligence pleaded is not only the incorrect advice given in the letter dated 24 March 1999 but is also the failure to advise the claimant that the draft leases did not contain indemnity provisions and the failure to inform Wedlake Bell of the need to ensure that they did so. Likewise, it is alleged that the defendant solicitors were negligent in failing to inform Cluttons, the freeholders’ agents, that neither of the new leases contained indemnity provisions. The pleaded negligence therefore includes a failure to advise in respect of each of the two leases.

Since the hearing, Mr Flenley QC has made a further submission in writing, raising a point not advanced by him at the hearing. It does not depend on any authorities or evidence not before the court at the hearing. I have decided to deal with it, but have not thought it necessary to request a submission in response from the claimant.

The new submission made by Mr Flenley QC is that, if the claimant is right that the defendant solicitors should have advised in June 1999 that the terms of the draft new lease for flat 26 were not satisfactory because they did not include an indemnity provision or should have advised the claimant to seek compensation in respect of the loss of the indemnity provision, it would have become immediately apparent that the same problem existed in relation to the lease for the new lease of flat 27 which was still then in draft form. Accordingly, Mr Flenley QC submits, the negligence of the defendant solicitors in June 1999 caused the claimant loss not only in respect of flat 26 but also in respect of flat 27. Therefore, the cause of action in respect of that negligence accrued on the occurrence of the first item of loss, the agreement to the terms of the lease of flat 27, in early August 1999 at the latest.

In my judgment, this submission is not sound. The defendant solicitors accepted instructions to protect the interests of the claimant in respect of the new lease of flat 26. In accordance with those instructions, it considered the terms of the draft lease in early June 1999 but did so negligently, as it must be assumed for present purposes. That breach of their duty of care led later in 1999 to the loss in respect of flat 26 against which it was their duty to protect the claimant. The fact that, incidentally, proper performance of their duty in June 1999 would also have led to the prevention of loss in respect of flat 27 does not change their duty as regards flat 26 into a duty as regards both flats. There are separate causes of action in respect of each flat, and the cause of action in respect of flat 26 was not complete until November 1999 when agreement was reached on the terms of the new lease for flat 26.

On this appeal the claimant need show only that it has a real prospect of showing that its claim as regards flat 26 was brought within the primary limitation period. I am satisfied that it does have a real prospect of doing so and that the Master was wrong to conclude otherwise. My own view on the evidence present before the court is that the defendant solicitors will not succeed on a limitation defence on this part of the claim.

The claimant needs still to rely on its case for the extended limitation period under section 14A(4)(b) of the Limitation Act as regards its claim in respect of flat 27.

Section 14A applies to any action for damages for negligence save for a claim in respect of personal injuries. The extended limitation period provided by sub-section 4(b) is “three years from the starting date as defined by subsection (5)”.

Subsection (5) defines the starting date as:

“the earliest date on which the plaintiff or any person in whom the cause of action was vested before him first had both the knowledge required for bringing an action for damages in respect of the relevant damage and a right to bring such an action.”

Subsections (6)-(10) provide:

“(6)

In subsection (5) above “the knowledge required for bringing an action for damages in respect of the relevant damage” means knowledge both -

(a)

of the material facts about the damage in respect of which damages are claimed; and

(b)

of the other facts relevant to the current action mentioned in subsection (8) below.

(7)

For the purposes of subsection (6)(a) above, the material facts about the damage are such facts about the damage 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.

(8)

The other facts referred to in subsection (6)(b) above are –

(a)

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

(b)

the identity of the defendant; and

(c)

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.

(9)

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

(10)

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

(a)

from facts observable or ascertainable by him; or

(b)

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

but a person shall not be taken by virtue of this subsection to have knowledge of a fact ascertainable only with the help of expert advice so long as he has taken all reasonable steps to obtain (and, where appropriate, to act on) that advice.”

The knowledge required by subsection (6) may be either actual or, in the sense described in subsection (10), constructive.

As regards determining whether the facts about the damage of which the claimant had actual or constructive knowledge are “material facts” the court is required to apply the objective test specified in subsection (7).

The other facts of which the claimant must have actual or constructive knowledge before the extended limitation period starts to run are set out in subsection (8). No point arises on paragraphs (b) and (c) but paragraph (a) is in point.

The requirements for knowledge that the damage was attributable in whole or in part to the act or omission which is alleged to constitute negligence have been considered in a number of authorities, culminating in the decision of the House of Lords in Haward v Fawcetts [2006] UKHL 9; [2006] 1 WLR 682.

Where the claim rests on an allegation of negligent advice, the claimant must “know that the advice may be flawed, though he need not know that it was negligent”: Haward v Fawcetts at [18]–[19] and subsection (9). Lord Nicholls said:

“20.

This feature of the advice cannot be brushed aside as a matter of detail. Nor can it be treated, as it was by the judge, as a matter going only to particulars. Far from it. This feature is the very essence of Mr Hawards’s claim. Stated in simple and broad terms, his claim is that Mr Austreng did not do his job properly. Time did not start to run against Mr Haward until he knew enough for it to be reasonable to embark on preliminary investigations into this possibility.

21.

There may be cases where the defective nature of the advice is transparent on its face. It is not suggested that was so here. So, for time to run, something more was needed to put Mr Haward on inquiry. For time to start running there needs to have been something which would reasonably cause Mr Haward to start asking questions about the advice he was given.”

The degree of knowledge need not be as much as certainty but must be more than mere suspicion. As Lord Nicholls said at [9], “the claimant must know enough for it to be reasonable to begin to investigate further”. The claimant need not know all the facts. It is sufficient if he has, in broad terms, knowledge of the essential facts on which his complaint is based: ibid at [10]. As to whether he has knowledge that the damage is attributable to these facts, it is sufficient to know that it is a real, not a fanciful, possibility, a possible cause of loss as opposed to a probable one: ibid at [11].

Haward v Fawcetts was concerned only with actual knowledge by the claimant of the requisite acts. There was no reliance on constructive knowledge under subsection (10): see [104]-[105].

The relevant matters known to the claimant in the present case can be taken in stages. It had actual knowledge of the advice given by the defendant solicitors in their letter dated 24 March 1999. The advice was that they need not be concerned with the detailed terms of the draft lease because the effect of the Act was such as not to compromise the arrangements as regards the service charge, which included the indemnity provisions. In July and November 1999, the claimant was sent Cluttons’ breakdown of the amount payable to the claimant for each of the new leases. From the correspondence, it is clear that Mr Combes, one of the executives at the claimant dealing with this matter, read at least Cluttons’ covering letters. Either he read the enclosed breakdowns or it is reasonable to expect him to have done so, as they directly concerned the claimant. The breakdowns showed that the amounts payable to the claimant compensated it for the loss of the rent reserved under the underleases but took no account of the indemnity provisions.

The claimant’s practice was to send quarterly invoices to the tenants of the flats. The invoices included the forthcoming quarter’s rent reserved under the underleases and an interim account of the service charge, including the relevant proportion of the ground rent payable under the head lease. From 1978 to 1993, the claimant had in fact overlooked its entitlement to require the tenants to pay their due proportion of the ground rent above £4,000. It was in 1978 that the ground rent increased above £4,000. From 1993 or 1994 onwards, the claimant invoiced for the due proportion of the ground rent and the tenants, including Mr Speed, paid it.

The claimant sent invoices dated 29 November 1999 to Mr Speed in respect of his two flats. The invoices included sums of £64 per quarter for the quarters commencing in September and December 1999 in respect of rent under the underleases (described as ground rent) and also included interim service charges. The interim service charge for flat 26 was £514.71 for the quarter beginning on the 29 September 1999 and £607.92 for the following quarter. Schedules were provided showing the breakdown of those interim service charges but they are not in evidence. There is no reason to suppose that they did not include the relevant proportion of the ground rent payable under the head lease. Mr Speed challenged these invoices. In a letter dated 10 December 1999 he stated that under his new leases “ground rent is no longer payable, so these charges need not only to be remitted but refund is due on each flat in the amounts paid for the fourth quarter of this year, based on the actual date of completion of the lease extension”.

In a letter dated 9 December 1999, Mr Combes on behalf of the claimant wrote as follows to the defendant solicitors:

“I refer to our recent conversation, and I believe that Mr Speed has only effectively purchased a longer Leasehold interest. Therefore, to my mind, he is still liable for Ground Rent. We have invoiced him accordingly, and he had claimed that he no longer pays Ground Rent!

Could you please advise me specifically as to whether:-

1.

Is he liable to St Anselm for future Ground Rents until the end of his extended term?

2.

Is he liable to the Freeholders directly if not to us for Ground Rent?

In the circumstance, I should be grateful for your urgent advices.”

The defendant solicitors replied on 14 December 1999. They enclosed a copy of the counterpart new lease of flat 27 and referred to completion of the new lease of flat 26 which had occurred on 10 December 1999. They continued:

“You will see that the only ground rent payable is a peppercorn. The Superior Landlord advises that the changes in the ground rent regime were factored into the calculation of the premium payable by the Tenant.”

There was further correspondence between Mr Speed and his solicitors and the claimant and the defendant solicitors in 2000 in relation to payments due to the claimant. In a letter dated 16 March 2000, Mr Speed’s solicitors stated that “the rent paid by my client is of course linked to the rent paid by your client to the freeholders and I am not sure what these figures are”. In a letter dated 19 June 2000 from Mr Combes on behalf of the claimant to the defendant solicitors, he explained the calculation of the sums charged to tenants under the indemnity provisions.

It is common ground that the claimant did not seek to charge Mr Speed for any proportion of the ground rent under the head lease from late 1999 or early 2000 to date. It did however continue to invoice the tenants of other flats for their proportion of the ground rent under the head lease, as appears from invoices which are in evidence.

The precise reason why the claimant did not charge or seek to charge Mr Speed for a proportion of the ground rent under the head lease is not entirely clear. Having charged Mr Speed for his proportion of the ground rent up until the end of 1999, the possibility that the claimant simply then forgot to do so can in my view be discounted. The claimant has put forward two suggested reasons. The first derives from the correspondence with the defendant solicitors in December 1999. It is submitted on behalf of the claimant that the reference to ground rent in that correspondence is likely to have been a reference not only to the rent reserved under the underleases but also, or perhaps exclusively, to the relevant proportion of ground rent payable under the indemnity provisions. That is certainly a possible reading of the correspondence, in which case the claimant was informed in the defendant solicitors’ letter dated 14 December 1999 that the loss of the indemnity provisions had been factored into the calculation of the premium payable by the tenant on the grant of the new leases. In other words, the claimant had been compensated for the loss of the indemnity provisions.

An explanation is provided in the witness statement of Andrew Kennard, a director of the claimant, filed on this application. Mr Kennard was not a director of or otherwise connected with the claimant at the material times. He has, however, read the relevant correspondence and discussed the matter with Mr Combes. He records that Mr Combes’ understanding was that:

“Any differences that there might be between Mr Speed’s previous leases and the new extended leases were changes which St Anselm were obliged to accept and had been properly reflected in the negotiations.”

The Master’s reasons for concluding that the claimant had no realistic chance of establishing an extended limitation period under section 14A, as they appear from paragraphs 32-36 of his judgment, were as follows. First, if, as Mr Small QC submitted, the claimant was put on notice in 2005 when Mr Kennard investigated the position and realised that the claimant could not recover a proportion of the ground rent under the new leases from Mr Speed, there was no reason why the claimant could not reasonably have discovered the true position before August 2002. Secondly, the Master took the view that the advice given by the defendant solicitors in December 1999 was restricted to the rent reserved under the underleases and did not extend to the indemnity provisions. Thirdly, the Master rejected Mr Small’s submission that in order to have knowledge of the relevant facts for the purposes of section 14A, the claimant needed to know not only that it could not recover any part of the ground rent under the head lease but also that this was not a position which was required by the Act. This submission had been developed on the basis of the evidence given by Mr Kennard as to Mr Combes’ belief, to which I have referred.

On this appeal, Mr Small QC has challenged each of these reasons. He points out that Mr Kennard states that one of the factors which led him to investigate the position of the recovery of ground rent payable under the head lease was that tenants of other flats in 2005 were also seeking to extend their leases. I accept that the circumstances in 2005 do not sufficiently parallel the circumstances between 1999 and 2002 for it to be safe to say on a summary judgment application that, because Mr Kennard made those investigations in 2005, it is reasonable to have expected the claimant to have made the same investigation and discover the same facts before August 2002.

As to the Master’s reading of the correspondence in December 1999, Mr Small QC submitted that it was unsafe to reach the conclusion that references to “ground rent” were meant as references only to the rent reserved in the underleases. He submitted that in all likelihood the claimant was concerned with its ability to recover under the indemnity provisions rather than Mr Speed’s liability for the rent reserved under the underleases. In the circumstances, he submitted, it was the claimant’s case that when concerns were raised in 1999, the defendant’s solicitors led the claimant to believe that everything was as it should be as required by the Act. While not abandoning this approach and indeed continuing to maintain it as his primary submission, Mr Small QC qualified the submission in his oral submissions, by saying that alternatively the Master’s reading of the correspondence could be right, and the question of recoverability of a proportion of the ground rent under the head lease was not a matter which was raised by or occurred to the claimant in December 1999. Mr Small QC continues to maintain, as his primary submission, that for the claimant to have the knowledge required by section 14A it needed to know that the lack of any indemnity provisions in the new leases was not required by the Act.

In my judgment, it is key to bear in mind the advice expressly given by the defendant solicitors to the claimant in their letter dated 24 March 1999. They advised that it was not necessary to dwell on the detailed terms of the new lease, because the effect of the Act was that the service charge arrangements would not be compromised.

The evidence as to what the claimant was told or understood in December 1999 is clearly inconsistent with that advice. If the correspondence with the defendant solicitors in December 1999 did refer to the indemnity provisions, then the explanation that the changes in the ground rent regime were factored into the calculation of the premium payable by Mr Speed could not stand with the earlier advice. However, as is clear from the breakdown of compensation for flat 27 prepared by Cluttons, the claimant did not receive compensation for the loss of the indemnity provisions. Equally, if Mr Combes understood in December 1999 that the lack of indemnity provisions in the new leases was a requirement of the Act, then that too was inconsistent with the advice given by the defendant solicitors in March 1999.

On any credible analysis of what occurred in December 1999, it appears that the claimant realised, for whatever reasons, that it could not recover from Mr Speed a rateable proportion of the ground rent of the head lease. In my judgment, that was at least sufficient to give the claimant reasonable cause to start asking questions about the advice it had been given. The loss for which it now claims is either the absence of an appropriate indemnity provision in the new lease for flat 27 or the loss of compensation if it was to be deprived of the existing provision. It was reasonable to have expected the claimant to appreciate at least the possibility that each of those alternative losses were caused by the act or omission of the defendant solicitors. If it was possible to include in the new lease a provision which gave the claimant the same or equivalent protection to the indemnity provision, its absence stemmed from the defendant solicitors’ advice that it was unnecessary to dwell on the detail of the new lease as the service charge arrangement would not be compromised. If, on the other hand, such provision could not be included in the new lease, the loss of compensation resulted from the defendant solicitors’ incorrect advice and their failure to advise the claimant to seek such compensation.

In my judgment, it follows that well before August 2002 the claimant had actual knowledge or the knowledge imputed to it by reason section 14A(10) of (a) of the material facts, as defined in section 14A, about the loss in respect of which it claims damages and (b) the fact that the damage was attributable in whole or in part to acts or omissions of the defendant solicitors which are alleged to have been negligent.

Mr Small QC submitted that it was unsafe to decide these issues at this stage, when in particular there has not been disclosure. In fact, the defendant solicitors have provided the claimant with its entire file in respect of flats 26 and 27 and have confirmed it has no further disclosable documents. The claimant has also received a copy of, as I understand it, the complete file so far as it relates to these two flats of Wedlake Bell. If there has not on this application been full disclosure of relevant documents, it can only be because the claimant itself has not put all relevant documents before the court. As to the understanding of the executives of the claimant who were at the time dealing with these matters, Mr Kennard records that he has spoken to Mr Combes and he states Mr Combes’ recollection of the matter. Mr Combes was responsible for property matters from November 1999 and was therefore the responsible officer at the critical time in and following December 1999. I have earlier recorded the recollection of Mr Combes of his understanding that an indemnity provision could not be included in the lease because of the provisions of the Act. In these circumstances, there is no reason to suppose that Mr Combes has any further recollection of the relevant events.

The court is, of course, cautious about reaching conclusions on issues of fact before a trial. However, where as here it appears that all the relevant evidence is before the court and it is mere speculation that there may possibly some further evidence, I think it right that the court should come to a final conclusion, given the lack of any relevant conflict in the evidence.

Mr Small QC submitted that in the circumstances as they existed in 1999 it would not in any event have been reasonable for the claimant to consider the loss suffered as sufficiently serious to justify instituting proceedings even if liability were admitted. He relies on the facts that, first, the proportion of ground rent at that time recoverable under the indemnity provision for flat 27 was only £695 p.a. and, secondly, the review date for the ground rent under the head lease was more than six years in the future. I do not accept this submission. The claimant cannot deny that it knew or that it ought reasonably to have known in December 1999 that there would be a rent review in 2006. The previous rent review had been in 1978 and it is reasonable to expect that the claimant, as a substantial property investment company with holdings concentrated in Central London, would appreciate that there was likely to be a significant increase in the ground rent when the rent review occurred.

I therefore conclude, for the reasons which I have given, that the Master was right to hold that there was no reasonable prospect of the claimant establishing an extended limitation period under section 14A.

It follows that I allow the appeal so far as it relates to the primary limitation period for the claim in respect of flat 26, but dismiss the appeal so far as it relates to the application of section 14A to the claim in respect of flat 27.