Time is fleeting in professional negligence cases

When it comes to professional negligence claims, one of the most important aspects for a Claimant is establishing when the limitation period for a claim will expire to ensure that any protective proceedings are issued in a timely manner.  A recent decision on this point has highlighted some of the considerations which can arise in calculating the expiry of a limitation period.

On 18 May 2021, the Court of Appeal handed down judgement in Elliot v Hattens Solicitors [2021] EWCA Civ 720. This was a case in which the issue was whether a claim for professional negligence against the Claimant’s former Solicitors was barred by Section 2 of the Limitation Act 1980. The appeal turned on whether the Claimant had suffered actionable damage when executing a lease and an underlease.

Hattens, a firm of Solicitors, were retained by the Claimant in a transaction in which her husband was to grant her a lease of the property and she would grant an underlease to a tenant, whose parents would guarantee it.  

A lease and underlease were executed on 24 February 2012. In error, Hattens failed to name the tenant’s parents as parties to the underlease and they were not bound as guarantors. Further, Hattens did not advise the Claimant to obtain fire insurance as required by the lease.

On 6 November 2012, there was a fire at the property. The tenant subsequently vacated the property without undertaking repairs. The Claimant’s husband had fire insurance but was unable to claim due to the tenant’s failure to implement an effective waste management system.

A claim was issued on 10 April 2018 for professional negligence against Hattens who accepted that they failed to exercise reasonable skill and care in drafting the documentation and advising the Claimant. However, they argued that the claim was statute-barred because the Claimant suffered damage as soon as the lease and underlease were executed and therefore, the limitation period expired 6 years after the lease and underlease were granted. The Claimants argued that there was no measurable loss before the fire thus the claim was not barred.

The Court of Appeal, citing Maharaj v Johnson [2015] UKPC 28, categorised the case as a “flawed transaction” case as opposed to a “no transaction” case, meaning that in the absence of the Defendant’s breach of duty, she would have entered an analogous but flawless transaction. Further differentiation was made between flawed transactions cases where the loss was purely contingent, which of itself does not constitute damage, and cases involving the possibility of actual financial harm. The Claimant argued that her lack of desire to assign the lease was an important factor in determining the measurable loss.

The Court of Appeal asked whether the value of the “flawed transaction was measurably less than what would have been the value to [her] of the flawless transaction”. The Court ruled that Hattens’ failure to obtain the guarantee caused the Claimant measurable damage, namely the value of the lease being less, consequently her cause of action accrued at the point of execution of the lease and was statute-barred.

Further, the claim about advice on insurance was also time barred. This was because Hattens’ failure to advise the Claimant of the need to insure put her in breach of her obligations under both the underlease and lease and provided a ground for forfeiting the underlease.

This case serves as an important reminder that limitation periods in professional negligence cases can be earlier than Claimants may expect. Where, in the property context, the Claimant’s asset is measurably less in value due to a breach caused by drafting or advice, limitation will almost certainly start from the execution of the transaction.

If you would like to know more about professional negligence or our wider Real Estate Disputes expertise, please contact Joe, Harry or your usual Charles Russell Speechlys advisor.