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

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    35.  The Law Reform Committee in its 1974 Report on Limitation of Actions in Personal Injury Claims (Cmnd.5630) thought that the date of knowledge of material facts, when the applicable limitation period would start to run, should be the date "when the plaintiff has knowledge, actual or constructive, both of his injured condition and of its having been caused by acts or omissions of the defendant" (para. 55 and see para. 69(3)). This Report led to the 1975 Limitation Act which was later consolidated into the 1980 Act. Section 11 of the 1980 Act prescribes a three year limitation period for personal injury claims with the period commencing either when the cause of action accrued, i.e. when the damage occurred, or on "the date of knowledge" whichever be the later. Section 14 adopted the Law Reform Committee's recommendation in para.69 of the Report as to when "the date of knowledge" would occur (see s.s(1)). There is no reference in section 14 to knowledge of "material facts" as such. The facts of which knowledge is required are spelled out more precisely.

    36.  But neither section 1(3) and 7(3) of the 1963 Act nor their replacement in the 1975 Act (which became part of sections 11 and 14 of the 1980 Act) dealt with damage to property or with economic loss. Attention was drawn to this feature of the statutory regime by Pirelli General Cable Works Ltd v Oscar Faber & Partners [1983] 2 AC 1. Damage to a factory arose out of the use of a material in constructing a factory chimney that was unsuitable for the purpose. The chimney had been built in 1969 but the faulty condition of the chimney could not have been discovered with reasonable diligence until 1972 and was not in fact discovered until 1977. A writ was issued in 1978. The question was whether the six year period ran from the date the faulty chimney was built or from the date when the fault could have been or was discovered. This House, following Cartledge v Jopling, held that the former was the starting date. So the action was statute barred.

    37.  The Law Reform Committee took the problem under advisement again and recommended the adaptation of section 14 of the 1980 Act so as to provide an extension of time where the negligence complained of had led to the creation of a latent defect in property. The Committee's Report (Cmnd.9390) resulted in the Latent Damage Act 1986 section 1 of which incorporated section 14A into the 1980 Act. Just as Cartledge v Jopling had led to an extension of the limitation period in personal injury cases so the Pirelli case led to an extension in latent damage cases. Section 14A and its intended purpose are critical to the outcome of this appeal and it is helpful, in my opinion, to bear in mind some of the Law Reform Committee's comments in its Latent Damage Report that led to the enactment of that section.

    38.  In paragraph 4.2 the Committee formulated "three principles … of critical importance … ". They were:

    "(i)  that plaintiffs must have a fair and sufficient opportunity of pursuing their remedy;

    (ii)  that defendants are entitled to be protected against stale claims;

    (iii)  that uncertainty in the law is to be avoided whenever possible."

In para.4.4 the Committee commented that "a plaintiff who has no means of knowing that he has suffered damage should not as a general rule be barred from taking proceedings by a limitation period which can expire before he discovers (or could discover) his loss". This comment is clearly directed at Pirelli type cases of latent damage. In para.4.8 the Committee recommended "the adaptation of section 14 of the 1980 Act to cases of latent defect other than those of personal injury".

    39.  Section 14A applies to any action for damages for negligence other than personal injury actions (s.s(11)). So although the provenance of section 14A was the problem presented by cases of damage to property where the damage was not immediately apparent, the section applies also to cases, such as the present case, where the damage consists of economic loss. Here, too, it is reasonable to suppose that the mischief being addressed was that of loss that was not immediately apparent. Sub-section (4) of section 14A provides two alternative limitation periods, namely, the normal six year period from the accrual of the cause of action, or, alternatively, a three year period from "the starting date" as defined by sub-section (5). It is convenient to set out sub-sections (5) to (10) in full.

    "(5)  For the purposes of this section, the starting date for reckoning the period of limitation under subsection (4)(b) above is 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.

    (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."

    40.  It is to be noted that sub-sections (6)(a) and (7) refer to "material facts", an expression used in sections 1(3) and 7(3) of the 1963 Act but not found in sections 11 and 14 of the 1980 Act. In the 1963 Act, however, the reference was to the material facts "relating to that cause of action." (s.1 (3)). In section 14A(6)(a) the reference is more limited - "… the material facts about the damage". The limited character of the reference is underlined by the definition of the expression in sub-section (7). What is wanted is knowledge of "such facts about the damage" as would be expected to lead to the institution of a claim against a solvent defendant who had no defence to the claim. This demonstrates that the sub-section (6)(a) "material facts" of which knowledge is needed do not include any facts about the acts or omissions of the defendant that allegedly constitute the negligence.

    41.  In addition, however, to knowledge of the sub-section (6)(a) "material facts", knowledge is needed also of the sub-section (6)(b) "other facts". These "other facts" are specifically described. They are facts of the three types specified in paragraphs (a), (b) and (c) of sub-section (8). Nothing for present purposes turns on the "other facts" specified in (b) or (c) but (a) is critical. Knowledge is required of the fact "that the damage was attributable" to the act or omission alleged to constitute negligence.

    42.  Section 7(3) of the 1963 Act had required knowledge of the fact that the personal injuries were "attributable" to the negligence, nuisance or breach of duty constituting the cause of action. In Central Asbestos Co. Ltd v Dodd Lord Pearson examined the meaning of "attributable". He cited, at p.543, the definition of "Attributable" and "Attribute" given by the Oxford English Dictionary (1888) Vol.1 p.556, and continued:

    "Thus 'attributable to' refers to causation but it has to cover cases of dual or multiple causation …"

    43.  The statutory language in sub-section (8)(a) has been considered in a number of cases and raises the question whether a claimant, in order to obtain the extended period of three years, need show no more than a lack of knowledge of an allegedly negligent act or omission that is a link in the causation chain leading to the damage, and regardless of the importance of that link in the chain. In other words, a causative connection is a necessary part of attributability but is it necessarily sufficient to constitute attributability?

    44.  In Nash v Eli Lilly & Co. [1993] 1 WLR 782, a personal injuries case, Purchas LJ, giving the judgment of the Court of Appeal, said, at p.799, that

    "It was not … the intention of Parliament to require for the purposes of section 11 and section 14 of the [1980] Act proof of knowledge of the terms in which it will be alleged that the act or omission of the defendants constituted negligence or breach of duty. What is required is knowledge of the essence of the act or omission to which the injury is attributable." (emphasis added)

    45.  Dobbie v Medway Health Authority [1994] 1 WLR 1234 was a case in which a patient had had a lump on her breast. The surgeon, without first subjecting the lump to a microscopic examination in order to determine whether it was cancerous or benign, removed the breast. This was in 1973. The lump was subsequently found to be benign. The patient knew very soon after the operation that the lump was benign but did not know until 1988 that that meant her breast need not have been removed. She began proceedings for negligence in 1989. Sir Thomas Bingham M.R. (as he then was) referred to the "knowledge" test formulated by Lord Donaldson of Lymington M.R. in Halford v Brookes [1991] 1 WLR 428 at 443 and continued at 1240:

    "This test is not in my judgment hard to apply. It involves ascertaining the personal injury on which the claim is founded and asking when the claimant knew of it."

and, at 1243, expressed this conclusion

    "The personal injury on which the plaintiff seeks to found her claim is the removal of her breast and the psychological and physical harm which followed. She knew of this injury within hours, days or months of the operation and she at all times reasonably considered it to be significant. She knew from the beginning that this injury was capable of being attributed to, or more bluntly was the clear and direct result of, an act or omission of the health authority. What she did not appreciate until later was that the health authority's act or omission was (arguably) negligent or blameworthy. But her want of that knowledge did not stop time beginning to run."

And in Hallam-Eames v Merrett Syndicates [2001] LlR PN 178, in which a number of members of Lloyd's facing re-insurance underwriting liabilities were alleging negligence on the part of the active underwriter, their members' agents and their syndicates' managing agents and where limitation defences had been raised, Hoffmann LJ (as he then was) emphasised the statutory words "attributable… to the act or omission which is alleged to constitute negligence" and gave this explanation at 181 (left hand column)

    "In other words the act or omission of which the plaintiff must have knowledge must be that which is causally relevant for the purposes of an allegation of negligence … It is this idea of causal relevance which various judges of this court have tried to express by saying the plaintiff must know 'the essence of the act or omission to which the injury is attributable' (Purchas LJ in Nash v Eli Lilly & Co [1993] 1WLR 782 at 799) or 'the essential thrust of the case' (Sir Thomas Bingham M.R. in Dobbie [1994] 1WLR 1238) or 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' (Hoffmann LJ in Broadley [1993] 4 Med LR 328, 332)".

Application of section 14A to the facts of this case

    46.  What was the "damage" allegedly caused by Fawcetts' negligence of which the respondents complain? The damage was the investment of the Haward money first in acquiring the Company and its business premises in 1994 and subsequently in trying to bring the Company to profitability. The damage, as I think was common ground, was the making of a bad investment. The measure of the loss depended on the eventual worth of the Company but the damage allegedly caused by Fawcetts' negligence was the making of the investment. Mr Haward plainly had knowledge that the investment of Haward money in 1994 and 1995 had taken place. He knew the exact amount of money that had been invested. But, on the footing that it was indisputable that Fawcetts' advice in respect of the investment had been negligent, at what date did Mr Haward know that the investment was a sufficiently seriously bad one to justify suing them? Mr Haward needs to establish that he did not have this knowledge until after 6 December 1998. This is the sub-section (6)(a) issue.

    47.  On this issue there cannot, in my opinion, be any doubt but that Mr Haward had the requisite knowledge well before 6 December 1998. He had made the initial investment in 1994 on the footing that a further £100,000 or thereabouts would need to be injected into the Company's business. But the Company had steadily made losses and £431,000 in 1995, £102,985 in 1996 and a huge £509,525 in 1997 had had to be put into the Company in order to keep it a going concern. The 1997 accounts showed a loss for the year of over £400,000 and an excess of liabilities over assets of £658,872. So far as the 1994 investment and 1995 investment are concerned it cannot, in my opinion, possibly be contended that there were any "material facts about the damage in respect of which damages are claimed" of which Mr Haward did not have knowledge by 6 December 1998.

    48.  The critical issue, therefore, is whether by that date Mr Haward lacked knowledge that the "damage", i.e. the investment of Haward money in 1994 and 1995, "was attributable in whole or in part" to the acts or omissions of Fawcetts alleged to constitute negligence. This is the sub-section (8)(a) issue.

    49.  As to this I would, for my part, accept and apply the opinions expressed in Nash v Eli Lilly, Dobbie v Medway Health Authority and the Hallam-Eames case that the requisite knowledge is knowledge of the facts constituting the essence of the complaint of negligence.

    50.  The particulars of the breaches of contract and of negligence that the respondents rely on in the present case are set out in the Amended Particulars of Claim in sub-paragraphs (a) to (q). It is not necessary, in my opinion, to refer to all of them, for the essence of the complaint can be distilled from just a few. Thus, paragraphs

    "(a)  failing to determine and to advise as to the proper value of the Company and the proper price to pay for a 60% shareholding in the Company",

    "(e) failing to advise as to the true financial state of the Company and its financial prospects for the future in the light of the true financial position of the Company",

    and

    "(g) failing to advise as to the extent of investment that it would be necessary to make to keep the Company trading"

constitute to my mind the essence of the respondents' complaint against Fawcetts, namely, that Fawcetts, their financial advisers, did not give them the advice that the true state of the Company's affairs warranted and that, if given, would have warned them against a disastrous investment of their money. The other particulars are, in my opinion, essentially reasons why the failings alleged in paragraphs (a), (e) and (g) were negligent failings.

    51.  As to knowledge, Mr Haward knew what advice had been given by Fawcetts and he knew what advice had not been given by Fawcetts. He knew by 6 December 1998 that the true financial state of the Company had required, if the Company were to keep trading, the very substantial additional investment that had to be made, and was made, to cover the losses incurred in the years 1995, 1996 and 1997. He did not know that the advice actually given or the pleaded failings involved negligence, but knowledge of that is not required (see s.14(A)(9)).

    52.  Judge Playford QC summed up the situation very well in paragraph 20 of his judgment:

    "… it is the basis of [the respondents'] claim that [Fawcetts] advised on-going investment and it is hard to see how [Mr Haward] could have failed to appreciate that he was spending money either on their advice or without their advice. So far as [Mr Haward] was concerned, there was nothing of a factual nature that was latent; all was patent. The only thing that he did not know was that Fawcetts had been, as he now alleges, negligent or that he had a claim against them but such matters are irrelevant."

In my opinion this summation was factually accurate and in accordance with the requirements of section 14A.

    53.  In the Court of Appeal Jonathan Parker LJ reviewed the relevant authorities meticulously and correctly identified that the critical issue was whether by 6 December 1998 the section 14A(8)(a) requirement of knowledge of attributability was satisfied (para.148 of his judgment). But he went wrong in my respectful opinion in paragraph 168 of his judgment when he said that there were "on the evidence, a number of possible causes for the failure of the Company apart from Fawcetts' advice (or lack of it)" and that "[Mr Haward] did not know [in July 1998] that all or part of the damage was capable of being attributed to Fawcetts' advice (or lack of it)." The Lord Justice was, it seems to me, looking at the wrong event. The "damage" allegedly caused by Fawcetts' negligence was not the failure of the Company. The damage was the making by the respondents of loss-making investments. Fawcetts could not have been made responsible for the failure of the Company. The respondents were seeking in the action to make Fawcetts responsible for their losses consequent upon the making of the investments. Mr Haward needed to have knowledge that Fawcetts' acts or omissions were causative of the making of the investments. He plainly had that knowledge at the time the investments were made. And very soon thereafter, in relation to the 1994 and 1995 investments (which is all that this limitation issue is concerned with) he knew that the investments were loss-making. As Judge Playford QC said, all he did not know was that Fawcetts' advice (or the lack of it) had been negligent. But that lack of knowledge is irrelevant (sub-section (9)).

    54.  A decision of your Lordships in favour of the respondents, enabling the action to be brought within three years of the discovery by Mr Haward of why it was that the advice he had received from Fawcetts was negligent (if that is what it was), or why it was that Fawcetts had not given him the advice that he alleges they should have given, would expand section 14A to cover cases that had nothing whatever to do with latent damage or losses. It would expose those who give advice on financial matters to potential liability not simply until the expiry of three years after the loss-making consequences of the advice are known but until the expiry of three years after all the reasons why that advice was negligent are known. This, in my opinion, is an unjustifiable extension of the scope of section 14A, substantially altering the balance between claimant and defendant that Parliament has struck. For these reasons, and also for the reasons contained in the opinions of my noble and learned friends, with all of which I agree, I would allow this appeal and restore the order of Judge Playford QC.

LORD WALKER OF GESTINGTHORPE

My Lords,

    55.  Despite the best efforts of the Law Commission the law in this area still has many problems. Section 14A of the Limitation Act 1980, as inserted by section 1 of the Latent Damage Act 1986, is closely modelled on sections 11 and 14 of the Limitation Act 1980 (which apply to actions for damages for personal injuries based on negligence, nuisance or breach of duty). Whether a claimant has suffered personal injury is in principle a straightforward question of fact, and the fact that the claimant has suffered personal injury is a given once it comes to the application of section 14 (definition of date of knowledge).

    56.  Section 14A, by contrast, covers a much wider field ("any action for damages for negligence, other than one to which section 11 of this Act applies"). Moreover the word "damage" (as used in the expression "relevant damage" in subsections (5) and (6) and elsewhere in subsections (6), (7) and (8)) must cover both latent damage to tangible property (as in Pirelli General Cable Works Ltd v Oscar Faber & Partners [1983] 2 AC 1) and cases of pure economic loss, such as Hallam-Eames v Merrett Syndicates (1995) [2001] Lloyd's Rep PN 178 (and the present appeal). The wide range of claims to which section 14A may extend suggests that general observations made by the court in one type of case may not be directly apposite in a case of another type.

    57.  This appeal turns largely on the interpretation, and the application to a rather confused set of facts, of section 14A (8)(a). The effect of that provision is that the claimant must know, before time starts to run, that "the damage was attributable in whole or in part to the act or omission which is alleged to constitute negligence." It is to be noted that this provision may involve an exercise in hindsight spanning a considerable period of time. Its function is as part of the process of ascertaining the "starting date" defined in section 14A (5)—that is, the date from which the alternative limitation period in section 14A (4)(b) is to run. As numerous reported cases show, the starting date may occur at a time when a claimant's knowledge about his claim is far from complete. Inquiries and investigations may have to be made, and expert advice may have to be obtained as to how the claim should be pleaded, and how special damages should be quantified. A claimant may have the requisite knowledge (as Slade LJ said in Wilkinson v Ancliff (BLT) Ltd [1986] 1 WLR 1352, 1365)

    "even though he may not yet have the knowledge sufficient to enable him or his legal advisers to draft a fully and comprehensively particularised statement of claim."

    But by the time, often years later, that the limitation issue comes to be decided, whether as a preliminary issue or at trial, the claimant's case will have been pleaded, and the defendant's "act or omission which is alleged to constitute negligence" will (or at any rate should) have been clearly identified.

    58.  There are, as Charles J recognised in the Court of Appeal in the present case, tensions arising from the juxtaposition of subsection (8)(a) with subsection (9), which is in the following terms:

    "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.".

    Nevertheless section 14A (8)(a) requires, as already noted, something of an exercise in hindsight, looking back from the pleaded particulars of negligence. The Court of Appeal has made clear that section 14A (9) excludes not only considerations of negligence in the technical sense but also the vaguer concept of fault (first put forward, in relation to section 7(3) of the Limitation Act 1963, by Lord Pearson in Central Asbestos Co Ltd v Dodd [1973] AC 518, 543): see Broadley v Guy Clapham & Co [1993] 4 Med LR 328, 333 (Hoffmann LJ); Dobbie v Medway Health Authority [1994] 1 WLR 1234, 1242-1243 (Sir Thomas Bingham MR); and Hallam-Eames v Merrett Syndicates (1995) [2001] Lloyd's Rep PN 178, 181.

    59.  I shall come back to these cases. But considering the matter for the present simply by reference to the statutory text, I think that it is clear that although section 14A(9) has the effect just mentioned, it cannot go so far as to free the section entirely of any hint of legal technicality. There are three pointers to this, all of which I have already mentioned: the word "damage" (which must in this context mean actionable damage, or at any rate what the claimant believes to be actionable damage, the cause of action being negligence); the words "attributable to" which are concerned in some way with causation, in the context of what becomes (once proceedings have been commenced and the claim pleaded) an allegation of negligence; and the words "acts or omissions alleged to constitute negligence." So although the claimant need not, at the starting date, know anything about the tort of negligence (not even its name) his or her state of knowledge cannot be assessed, with hindsight, without some reference to legal concepts, including what is causally relevant in the context of a negligence action.

    60.  This point can be illustrated by the facts of a reported case which was discussed before your Lordships, HF Pension Trustees Ltd v Ellison [1999] Lloyd's Rep PN 489. The background to the case appears from the judgment of Knox J in Hillsdown Holdings Plc v Pension Ombudsman [1997] 1 AER 862. The matter arose from the takeover in 1983 of Fatstock Marketing Corp Ltd (FMC) by Hillsdown Holdings Plc (Hillsdown). The trustees of one occupational pension scheme (the FMC scheme), acting on the advice of solicitors, transferred the entire assets of the scheme to another occupational pension scheme (the HF scheme). Soon afterwards the trustees of the HF scheme made a transfer of funds to the principal employer, Hillsdown. That company received about £11.1m and a further sum of about £7.4m (that is 40% tax on the gross sum) was paid to the Inland Revenue. The Pension Ombudsman's decision, upheld by Knox J, was that the first transfer was an improper exercise of a fiduciary power and was therefore invalid. Hillsdown repaid the sum transferred to it but recovery of the tax was uncertain. The trustees of the FMC scheme sued the solicitors for damages for professional negligence. The first transfer was made in November 1989 in reliance on advice given in May 1989. The second transfer was made in two tranches in December 1989 and June 1990. The writ was issued in October 1997. On a striking-out application it was accepted that the claim was statute-barred unless the plaintiff trustees could rely on section 14A. The solicitors argued that the last date on which damage occurred was in June 1990 (when the second tranche of the second transfer was paid) and that the plaintiff trustees then knew all the facts relevant to the pleaded case in negligence. They knew the advice that the solicitors had given, and that they had acted in reliance on it. It was not necessary, the solicitors' counsel argued, for them to know that the advice was wrong. The case seems to have been decided on a concession, recorded (after a reference to Perry v Moysey [1998] PNLR 657) at p 495:

    "In the instant case, by contrast, the plaintiff made the payments and thereby (to its knowledge) incurred the damage. The fact that at the time it did not realise that in making the payments it was suffering damage (in the sense of damage recoverable by legal action) is, as [counsel for the trustees] accepted, nothing to the point for present purposes."

 
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