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Judgments - Haward and others (Respondents) v. Fawcetts (a firm) (Appellants) and others




Haward and others (Respondents) v. Fawcetts (a firm) (Appellants) and others

[2006] UKHL 9


My Lords,

    1.  In this case the claimant Mr Haward invested money in a company on the advice of his accountant Mr Austreng. The company failed, and Mr Haward lost his money. The issue before the House concerns a defence of limitation. This was tried as a preliminary issue in the action.

    2.  Statutes of limitation seek to hold a balance between two competing interests: the interests of claimants in having maximum opportunity to pursue their legal claims, and the interests of defendants in not having to defend stale proceedings. Traditionally the limitation period for most claims is six years. This goes back to the Limitation Act 1623. On its face this period, with extensions in cases of fraud and mistake, is a generous, perhaps over-generous, period within which to be able to start court proceedings in respect of a wrong.

    3.  However, with certain types of claims this six year period would be far from generous or even reasonable. The starting date for the six year limitation period is when a cause of action accrues. In claims based on negligence a cause of action accrues when real damage, as distinct from minimal damage, is suffered. This principle has been applied in limitation cases even where, at the date of accrual of the cause of action, the claimant did not know he had suffered damage. The injustices to which this harsh approach gave rise are well known. They were high-lighted in decisions of your Lordships' House in appeals such as the pneumoconiosis case of Cartledge v E Jopling & Sons Ltd [1963] AC 758 and the defective chimney case of Pirelli General Cable Works Ltd v Oscar Faber & Partners [1983] 2 AC 1. There claimants were held to be statute-barred before they knew or could be expected to know they had suffered damage.

    4.  Considerable difficulty has arisen in finding a satisfactory formula remedying this deficiency in the law. The relevant statutory provisions now current are sections 11 to 14B of the Limitation Act 1980. Section 11 made provision for special time limits in respect of personal injuries. Sections 14A and 14B, inserted into the 1980 Act by the Latent Damage Act 1986, made similar provision for other negligence claims. The present appeal is concerned with these latter provisions.

    5.  Both sets of statutory provisions sought to remedy the deficiencies in the law by providing for an extended period of limitation to run from a date later than the date when the cause of action accrued. In the case of personal injuries claims the relevant later date, stated shortly, is when the person injured first knew his injury was significant, that the injury was attributable to the act or omission alleged to constitute negligence, and the identity of the defendant: section 14.

    6.  Parliament subsequently adopted a similar approach to other negligence claims. The extended three-year limitation period starts when the claimant first had both 'the knowledge required for bringing an action for damages in respect of the relevant damage' and a right to bring the action: section 14A(5). Section 14A(6)-(10) then defines what constitutes knowledge for this purpose. Essentially knowledge means knowledge of certain facts, of which two are relevant in the present case. These two facts are, first, 'the material facts about the damage in respect of which damages are claimed' and, second, 'that the damage was attributable in whole or in part to the act or omission which is alleged to constitute negligence': section 14A(6) and (8)(a). For convenience I shall henceforth confine my references to section 14A, but my observations apply equally to the corresponding provisions in section 14.

    7.  By these provisions Parliament sought to identify the knowledge a claimant needs to possess before it is fair and reasonable that time should run against him. That is their purpose. This is made explicit in section 14A by its introductory description of the requisite knowledge as 'the knowledge required for bringing an action [etc]'. The claimant is to have a reasonable period, set by Parliament at three years, in which to start proceedings after he has the knowledge he reasonably needs for that purpose.

    The degree of knowledge required

    8.  Two aspects of these 'knowledge' provisions are comparatively straightforward. They concern the degree of certainty required before knowledge can be said to exist, and the degree of detail required before a person can be said to have knowledge of a particular matter. On both these questions courts have had no difficulty in adopting interpretations which give effect to the underlying statutory purpose.

    9.  Thus, as to the degree of certainty required, Lord Donaldson of Lymington MR gave valuable guidance in Halford v Brookes [1991] 1 WLR 428, 443. He noted that knowledge does not mean knowing for certain and beyond possibility of contradiction. It means knowing with sufficient confidence to justify embarking on the preliminaries to the issue of a writ, such as submitting a claim to the proposed defendant, taking advice, and collecting evidence: 'suspicion, particularly if it is vague and unsupported, will indeed not be enough, but reasonable belief will normally suffice'. In other words, the claimant must know enough for it to be reasonable to begin to investigate further.

    10.  Questions about the degree of detail required have mostly arisen in the context of the need for a claimant to know 'the damage was attributable in whole or in part to the act or omission which is alleged to constitute negligence': section 14A(8)(a). Consistently with the underlying statutory purpose, Slade LJ observed in Wilkinson v Ancliff [1986] 1 WLR 1352, 1365, that it is not necessary for the claimant to have knowledge sufficient to enable his legal advisers to draft a fully and comprehensively particularised statement of claim. Where the complaint is that an employee was exposed to dangerous working conditions and his employer failed to take reasonable and proper steps to protect him it may well be sufficient to set time running if the claimant has 'broad knowledge' of these matters. In the clinical negligence case of Hendy v Milton Keynes Health Authority [1992] 3 Med LR 114, 117, Blofeld J said a plaintiff may have sufficient knowledge if she appreciates 'in general terms' that her problem was capable of being attributed to the operation, even where particular facts of what specifically went wrong or how or where precise error was made is not known to her. In proceedings arising out of the manufacture and sale of the drug Opren Purchas LJ said that what was required was knowledge of the 'essence' of the act or omission to which the injury was attributable: Nash v Eli Lilly & Co [1993] 1 WLR 782, 799. In Spargo v North Essex District Health Authority [1997] PIQR P235 Brooke LJ referred to 'a broad knowledge of the essence' of the relevant acts or omissions. To the same effect Hoffmann LJ said section 14(1)(b) requires that 'one should look at the way the plaintiff puts his case, distil what he is complaining about and ask whether he had in broad terms knowledge of the facts on which that complaint is based': Broadley v Guy Clapham & Co [1993] 4 Med LR 328, 333.

    11.  A similar approach is applicable to the expression 'attributable' in section 14A(8)(a). The statutory provisions do not require merely knowledge of the acts or omissions alleged to constitute negligence. They require knowledge that the damage was 'attributable' in whole or in part to those acts or omissions. Consistently with the underlying statutory purpose, 'attributable' has been interpreted by the courts to mean a real possibility, and not a fanciful one, a possible cause of the damage as opposed to a probable one: see Nash v Eli Lilly & Co [1993] 1 WLR 782, 797-798. Thus, paraphrasing, time does not begin to run against a claimant until he knows there is a real possibility his damage was caused by the act or omission in question.

    Irrelevance of knowledge that the act or omission involved negligence

    12.  Difficulties may sometimes arise over the interaction of these 'knowledge' provisions and the statutory provision rendering 'irrelevant' knowledge that, as a matter of law, an act or omission did, or did not, amount to negligence: section 14A(9). By the latter provision Parliament has drawn a distinction between facts said to constitute negligence and the legal consequence of those facts. Knowledge of the former (the facts) is needed before time begins to run, knowledge of the latter (the legal consequence of the facts) is irrelevant. As Sir Thomas Bingham MR said in the clinical negligence case of Dobbie v Medway Health Authority [1994] 1 WLR 1234, 1242, knowledge of fault or negligence is not necessary to set time running. A claimant need not know he has a worthwhile cause of action.

    13.  A linguistic point, which can give rise to confusion, should be noted here. Sometimes the essence of a claimant's case may lie in an alleged act or omission by the defendant which cannot easily be described, at least in general terms, without recourse to language suggestive of fault: for instance, that 'something had gone wrong' in the conduct of the claimant's medical operation, or that the accountant's advice was 'flawed'. Use of such language does not mean the facts thus compendiously described have necessarily stepped outside the scope of section 14A(8)(a). In this context there can be no objection to the use of language of this character so long as this does not lead to any blurring of the boundary between the essential and the irrelevant.

    14.  This point is exemplified in Dobbie v Medway Health Authority [1994] 1 WLR 1234. The judge held the claimant had 'broad knowledge of sufficient facts to describe compendiously [1] that her breast had been unnecessarily removed, [2] that something had gone wrong, and [3] that this was due to the defendant's negligence': [1994] 1 WLR 1234, 1243. In the Court of Appeal this part of the judge's reasoning was criticised. These matters, it was said, were irrelevant. In my respectful view the Court of Appeal's criticism was well directed so far as it related to the third of these three matters, but not so far as it related to the other two. The essence of the claimant's case was that she had suffered injury by the removal of a healthy breast, that is, her breast had been removed unnecessarily and something had gone wrong. These were the acts and omissions she alleged constituted negligence. Under the statute time did not begin to run until she knew of these acts or omissions. Until she was aware of these matters she could not know her injury was attributable to them. I agree with the observations to this effect made by the Court of Appeal in Hallam-Eames v Merrett Syndicates Ltd [2001] Lloyd's Rep PN 178, 181.

    15.  In many cases the distinction between facts (relevant) and the legal consequence of facts (irrelevant) can readily be drawn. In principle the two categories are conceptually different and distinct. But lurking here is a problem. There may be difficulties in cases where a claimant knows of an omission by say, a solicitor, but does not know the damage he has suffered can be attributed to that omission because he does not realise the solicitor owed him a duty. The claimant may know the solicitor did not advise him on a particular point, but he may be totally unaware this was a matter on which the solicitor should have advised him. This problem prompted Janet O'Sullivan, in her article 'Limitation, latent damage and solicitors' negligence', 20 Journal of Professional Negligence (2004) 218, 237, to ask the penetrating question: unless a claimant knows his solicitor owes him a duty to do a particular thing, how can he know his damage was attributable to an omission?

The present case

    16.  This particular difficulty does not arise in the present case. The facts are set out fully by my noble and learned friend Lord Mance. Once Mr Haward knew enough for it to be reasonable for him to investigate whether Mr Austreng's advice was flawed, he would thereupon have known his losses might well be attributed in whole or in part to that flaw. He would have known this, because he had relied upon Mr Austreng's advice when investing money in the company.

    17.  On the contrary, the present case calls simply for a careful application of section 14A(8)(a) as interpreted as summarised above. The judge's approach was that Mr Haward knew all the material facts as they occurred. He knew the terms of Mr Austreng's retainer, he knew the advice Mr Austreng gave him, and he relied on that advice, with the consequence that he lost his money. The causal connection between the advice and the damage was patent and obvious. The only thing Mr Haward did not know was that Mr Austreng's firm was (allegedly) negligent, or that he had a cause of action against the firm; but those matters are irrelevant.

    18.  This approach treats knowledge that Mr Austreng's advice might well be flawed as irrelevant. The Court of Appeal held that in so doing the judge fell into error.

    19.  I agree with the Court of Appeal. I agree with the Court of Appeal that the judge in the present case fell into the same error as the first instance judge in Hallam-Eames v Merrett Syndicates Ltd [2001] Lloyd's Rep PN 178. The language and intent of section 14A(8)(a) are clear. As already noted, in addition to having knowledge of the material facts about the damage, a claimant must know there was a real possibility the damage was caused by ('attributable to') the acts or omissions alleged to constitute negligence. The conduct alleged to constitute negligence in the present case was not the mere giving of advice. The conduct alleged to constitute negligence was the giving of flawed advice: Mr. Austreng did not give the advice appropriate to the true financial state of the company's affairs.

    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 Haward'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.

    22.  The judge made no specific finding about when that was in this case. The judge did express a view on a different question, namely, when Mr Haward first knew he had a 'claim' against Mr Austreng's firm. On this question the judge held that Mr Haward had not discharged the burden of proving he first acquired this knowledge after 6 December 1998.

    23.  On the latter question the judge's reasons were subject to forceful criticism by Mr Haward's counsel. But that is beside the point. The relevant date was not when Mr Haward first knew he might have a claim for damages. The relevant date was an earlier date, namely, when Mr Haward first knew enough to justify setting about investigating the possibility that Mr Austreng's advice was defective. Mr Haward had the burden of proving that this date was after 6 December 1998. Mr Haward, it seems, did not attempt to discharge this burden. His evidence was not directed at this anterior issue. His evidence was directed at the date when he first knew he might have a claim for damages.

    24.  Accordingly, although the judge made no finding on this point, it is evident that, not having directed evidence to the relevant issue, Mr Haward failed to discharge the burden of proof resting on him. It may well be that an investigation into a possible causal link between the losses and Mr Austreng's advice, or the lack of it, did not begin until May 1999. Jonathan Parker LJ so held (paragraph 147). But it by no means follows from this that until then Mr Haward lacked sufficient knowledge for it to be reasonable for him to set about investigating the possibility that Mr Austreng had slipped up when giving his advice. After all, the disparity between Mr Austreng's advice and the company's disastrous losses stared Mr Haward in the face long before December 1998. And Mr Haward was an experienced businessman. In these proceedings Mr Austreng's firm did not rely upon section 14A(10). But this does not preclude the House from finding that this disparity confirms, if confirmation is needed, that Mr Haward failed to discharge the burden of proof resting on him. I would allow this appeal and restore the judge's order.


My Lords,

Background to section 14A of the Limitation Act 1980

    25.  This is a case in which professional negligence is alleged. The defendant, appellant before your Lordships, is a firm of accountants, Fawcetts. Mr J. H. Haward, the first respondent in the appeal, was a client of theirs. In October 1994 Mr Austreng, a partner in Fawcetts, gave professional advice to Mr Haward regarding the proposed acquisition by Mr Haward of a company, then called Kings Stag Engineering Ltd but later re-named Haward Agriculture Ltd (henceforth "the Company"). On 9 December 1994, and in reliance on the advice of Mr Austreng, Mr Haward (or his family company W. J. Haward Ltd, the second respondent) subscribed for 60,000 newly issued £1 shares in the Company at par. This shareholding constituted a controlling interest. In addition a Haward family Trust (the third respondent) acquired the freehold of the leasehold premises from which the Company carried on business for a price of £100,000. Fawcetts were appointed auditors to the Company.

    26.  It was contemplated at the time of this acquisition that additional money, £100,000 or thereabouts, would need to be put into the business in order to bring the Company to a state of reasonable profitability and so as to allow a reasonable return to be had from the Haward money that had been invested.

    27.  But the notion that the Company could be brought to profitability by the injection of the originally contemplated sums turned out to be mistaken. The Company's Balance Sheet and Profit and Loss Account for the year ended 31 December 1994 showed a loss for the year of £46,049 and net assets of £34,806. The accounts for the year ended 31 December 1995 showed a loss for the year of £266,340 and an excess of liabilities over assets of £231,534. And in the course of 1995 one or other of Mr Haward, the family company and the family Trust invested a further £431,000 in the Company. But this substantial investment, too, failed to bring the Company to profitability. The accounts for the year ended 31 December 1996 show a loss of £27,276 for the year and an excess of liabilities over assets of £258,810, and those for the year ended 31 December 1997 show a loss of £400,062 for the year and an excess of liabilities over assets of £658,872. These continuing losses were financed by further investment from either Mr Haward, the family company or the family Trust of £102,985 in 1996, £509,525 in 1997 and £208,950 in 1998. The yearly accounts were all prepared by Fawcetts. All were signed by Mr Haward. The only reason the Company was not put into liquidation, for it was plainly insolvent in a balance sheet sense, was that the bulk of the family investment to which I have referred had taken the form of loans and the lenders, via Mr Haward, controlled the Company.

    28.  In 1998 Mr Haward asked a Mr Peter Hughes, who specialised in corporate rescues, to look into the matter of the Company's ever-mounting losses. The involvement of Mr Hughes and associates of his in the Company's business affairs and fortunes led eventually to a claim for damages for professional negligence being made against Fawcetts. The proceedings were commenced on 6 December 2001.

    29.  The professional negligence claim was both a contractual claim and a claim in tort. Fawcetts' defence denied the alleged negligence but raised also the defence that the claims based on breaches of contract prior to 6 December 1995 were statute barred and that tortious claims for losses accruing prior to 6 December 1995 were likewise statute barred. If this were so the negligence claim could proceed in respect of the 1996, 1997 and 1998 investments but not in respect of the initial £160,000 invested in 1994 nor in respect of the £431,000 invested in 1995.

    30.  On 26 November 2002 a direction was given by Master Leslie that the issues of limitation be tried as preliminary issues.

    31.  It has, of course, been common ground throughout this litigation that the basic period of limitation for both the contractual claims and the tortious claims brought in these proceedings is six years from the date on which the causes of action accrued. The respondents, however, rely on the three year extended time limit provided by section 14A of the Limitation Act 1980. The question is whether, in relation to the 1994 and 1995 investments, their action is saved by section 14A.

A limitation defence

    32.  It seems to me desirable, before attempting to apply section 14A to the facts of this case, to review the nature of a limitation defence and the intended purpose of section 14A. It is important, in my opinion, to keep in mind that limitation defences are creatures of statute. The expression "statute-barred" makes the point. And, in prescribing the conditions for the barring of an action on account of the lapse of time before its commencement, Parliament has had to strike a balance between the interests of claimants and the interests of defendants. It is a hardship, and in a sense an injustice, to a claimant with a good cause of action for damages to which, let it be assumed, there is no defence on the merits to be barred from prosecuting the cause of action on account simply of the lapse of time since the occurrence of the injury for which redress is sought. But it is also a hardship to a defendant to have a cause of action hanging over him, like the sword of Damocles, for an indefinite period. Lapse of time may lead to the loss of vital evidence; it is very likely to lead to a blurring of the memories of witnesses and to the litigation becoming even more of a lottery than would anyway be the case; and uncertainty as to whether an action will or will not be prosecuted may make a sensible and rational arrangement by the defendant of his affairs very difficult and sometimes impossible. Each of the various statutes of limitation that over the years Parliament has enacted, starting with the Limitation Act 1623 (21 Jac.1.c.16) and coming down to the 1980 Act, represents Parliament's attempt to strike a balance between these irreconcilable interests, both legitimate. It is the task of the judiciary to identify from the statutory language and the purpose of each amending enactment the balance that that enactment has endeavoured to strike and to apply the enactment accordingly. It is emphatically not the function of the judges to try to strike their own balance, whether as a response to the apparent merits of a particular case or otherwise. In 1825 in A'court v Cross (3 Bing.329) Best CJ, commenting on the 1623 Act, said that he was "sorry to be obliged to admit that the courts of justice [had] been deservedly censured for their vacillating decisions" (p,330) and went on

    "When by distinctions and refinements, which, Lord Mansfield says, the common sense of mankind cannot keep face with, any branch of the law is brought into a state of uncertainty, the evil is only to be remedied by going back to the statute …" (p.331)

I think these strictures need to be borne in mind in the present case.

    33.  In reviewing the development of the statutory regime it is not necessary to delve deeper into history than the Limitation Act 1939. This Act prescribed a six year limitation period for both contract and tort actions but allowed an extended period for actions based on the defendant's (or his agent's) fraud or for relief from the consequences of a mistake (s.26). In fraud and mistake cases the six year period did not begin to run until the fraud or mistake had been, or with "reasonable diligence" could have been, discovered by the claimant. There was no extended period for cases where the damage had been suffered but had been undetectable by, and therefore unknown to, the claimant until after the six year limitation period had expired. Cartledge v Jopling & Sons Ltd [1963] AC 758 drew attention to this feature of the statutory regime and confirmed that the six year limitation period ran from the time the cause of action accrued, that is to say, in tort cases when the damage happened. Lord Reid at p.772 said:

    "If this were a matter governed by the common law I would hold that a cause of action ought not to be held to accrue until either the injured person has discovered the injury or it would be possible for him to discover it if he took such steps as were reasonable in the circumstances. The common law ought never to produce a wholly unreasonable result … But the present question depends on statute, the Limitation Act, 1939, and section 26 of that Act appears to me to make it impossible to reach the result which I have indicated."

Cartledge v Jopling was a personal injury case and all their Lordships advocated amendment of the 1939 Act to cover the case of undetectable physical injury that only becomes apparent years later.

    34.  Parliament was swift to respond and the Limitation Act 1963 was enacted. Section 1(3) of the 1963 Act enabled an action for personal injuries to be brought

    "… if it is proved that the material facts relating to that cause of action were or included facts of a decisive character which were at all times outside the knowledge (actual or constructive) of the plaintiff until a date which … was not earlier than 12 months before the date on which the action was brought."

The meaning of "material facts relating to that cause of action" was defined in section 7(3):

    "… any reference to the material facts relating to a cause of action is a reference to any one or more of the following, that is to say -

    (a)  the fact that personal injuries resulted from the negligence, nuisance or breach of duty constituting that cause of action;

    (b)  the nature or extent of the personal injuries resulting from that negligence, nuisance or breach of duty;

    (c)  the fact that the personal injuries so resulting were attributable to that negligence, nuisance or breach of duty, or the extent to which any of those personal injuries were so attributable."

In Central Asbestos Co. Ltd v Dodd [1973] AC 518 a majority of this House rejected the proposition that knowledge of "material facts" for section 1(3) purposes included knowledge that the defendant's conduct entitled the plaintiff to a legal remedy.