UK: For The Longest Time - Primary Limitation in Negligence

The Court of Appeal's decision in Williams v Lishman (April 2010) again saw a rejection of claimants' arguments on limitation issues. Building on recent authority concerning primary limitation in negligence, the judgment discusses how a new test, more favourable to claimants, may be needed in cases where the defendant has deliberately concealed the extent of the loss.

This case is likely to be of continuing relevance to professional defendants facing claims for losses resulting from advice dating back more than six years.

Background

Williams is only the latest in a series of cases in which claimants have sought to extend the six year primary limitation period in negligence, which runs from the date that actual (as opposed to potential or prospective) loss or damage is first suffered.

Law Society v Sephton (2006) appeared to widen the circumstances in which claimants may say that the loss suffered at or near the date of breach was only contingent loss such that time did not begin to run in tort, and opened the prospect of it becoming common for claims to be made in respect of advice given a decade or more previously. However, a number of later cases at Court of Appeal level have consistently held that on the facts of those particular claims, actual damage was suffered at or near the date of the breach of duty.

Nonetheless, claimants may be assisted by section 32(1)(b) of the Limitation Act 1980, which delays time running in tort where any fact relevant to the claimant's right of action has been deliberately concealed from him by the defendant, until such time as the claimant has discovered the concealment or could have done so with reasonable diligence. In those circumstances, section 14A of the Act does not apply, but otherwise section 14A itself provides that, where facts relevant to the cause of action are not known at the date of actual loss, there is a three year limitation period for negligence claims from the date when that knowledge was acquired or might reasonably have been acquired.

In Williams, the claimants alleged that they had issued their claim within six years of the date of actual loss, or within the periods permitted under sections 14A and 32.

Facts of Williams

Mr and Mrs Williams alleged that pension advice they had received from their accountants and financial advisers was negligent, in that a transfer in 1997 from one type of pension to a much riskier pension arrangement had left them ultimately worse off.

Following the transfer, their pension funds performed badly, and they complained about this in late 2003. Eventually, they issued proceedings on 16 October 2006, nine years after the relevant advice.

In addition, at the time of transfer but unknown to them, the Williams were charged a penalty fee of £38,000. However, this charge was concealed from the Williams and they only found out about it during the course of proceedings.

Decision in Williams

A similar factual scenario had occurred in Shore v Sedgwick (2008), and the Court followed that case in two respects.

First, the Court found that, if negligence could be established at all, the claimants would have first suffered loss at the time of the transfer of their pension fund in 1997, since that transfer in itself amounted to actual damage, rather than at any later point when the funds started to perform badly. Accordingly, primary limitation ran from 1997, and had expired before the issue of proceedings in 2006.

Secondly, the Court found that section 14A of the Limitation Act could not assist the claimants, since they had first had relevant knowledge by May 2003, more than three years before the issue of proceedings. By May 2003, the claimants knew or should have known that at retirement age they would receive a substantially lower income than if they had remained in their previous pension scheme, and further they knew that there was a real possibility that the loss suffered was caused by failures of the advisers. Proceedings were issued more than three years after May 2003, so section 14A did not help them.

However, the Williams had a further argument relating to the concealment of the £38,000 penalty fee. Although the Williams argued that the penalty was levied before the transfer of the pension was in fact made, the Court rejected this argument and found that loss caused by the penalty and the transfer occurred simultaneously. It followed that the cause of action was completed by the transfer, and the fact that the loss in fact sustained was greater than the Williams knew to be the case did not make any difference.

New test

The Court went on to consider what the outcome would have been if, as the Williams contended, the penalty had been levied before the transfer.

Section 32 delays time running in tort where any fact relevant to the claimant's right of action has been deliberately concealed from him. The Court had to consider how this test should be applied in circumstances where one aspect of the loss arising out of the negligence had been deliberately concealed and the other not. If the concealed loss was suffered first, would it mean time would not begin to run for both aspects of the loss, until the concealed loss was discovered?

Lord Justice Rix answered that question in the affirmative. He thought that time should not start to run until the concealed first loss was known to the claimant, even where the claimant had already known, for some considerable time, of a later loss which was not concealed. This would be the case even where the concealed first loss might be relatively minor and be used by the claimant as a way of bringing a claim for the later losses which would otherwise be out of time.

Lord Justice Elias felt that there were strong counter-arguments to the above analysis, but declined to reach a conclusion upon it. He was troubled however by the current law in this area. He put forward the example of a claimant suffering a small and unimportant first loss which is not worth litigating about, followed by a much larger concealed loss. In those circumstances, the existing caselaw suggested that the cause of action would be completed by the first loss, and time would run from that point whether or not there was further loss. However, Lord Justice Elias pointed out that this outcome would mean that the concealment had the effect of denying the claimant his rights, which would seem to defeat the whole purpose of section 32.

For these reasons, and in order to provide a more favourable outcome for claimants than under existing caselaw, Lord Justice Elias suggested that a new (diluted) test of "causative relevance" should be adopted. In essence that, for the purposes of determining when time should start to run under section 32, the court should ignore facts which would not be part of the "gist" of the final claim, and which may have been causatively irrelevant to the claimant's decision to commence proceedings.

Implications

This case follows the trend in recent cases of finding that the "damage" was suffered many years ago, and that therefore the claimant's case was statute barred. The message very much remains that if claimants delay in bringing claims, they do so at their peril.

Lord Justice Elias' suggestion of a new test will not be binding on subsequent courts, but reflects the ongoing judicial uncertainty in this area. A statute which was enacted 30 years ago remains a continued source of contention. The Law Commission's proposals for reform in this area remain dormant, and so, while the courts will no doubt continue to be troubled by "stale" claims, clarity will also be long in coming.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.