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“I read it in the newspaper”: The current spate of ancillary relief negligence claims raising near identical section 14A arguments.

In ancillary relief proceedings, the largest assets are frequently the divorcing couple’s matrimonial home and pension rights. Whilst it is usually straightforward to ascertain the value of the former, accurately achieving this for the latter can be a highly technical exercise. Solicitors’ alleged failure to analyse pension transfer values is the subject of a spate of negligence claims currently being brought by former clients. No case is yet to be reported, but it is expected that a number will be during 2014.

Many of the cases follow settlements and decrees absolute that concluded more than six years ago, and as such the primary limitation period has expired. However, near identical arguments are put forward to rely on the extension potentially afforded by section 14A Limitation Act 1980. These arguments are the focus of this article.

In any given case, the claimant is the (usually female) member of the couple who had a smaller pension entitlement at the time of the divorce.

Usual factual matrix

A typical case follows this pattern: A client instructs her solicitors to act in relation to ancillary relief proceedings. She lists her financial assets and provides some information concerning the husband’s assets. Each side completes a Form E (i.e. the financial statement) and these are exchanged. The husband’s form discloses, amongst other things, that he is a member of a "defined benefit pension scheme". Correspondence is entered into concerning various matters including the proposed division of assets. The solicitor (and sometimes counsel) advises the client as to the potential outcomes following a final hearing. The matter is eventually settled.

As concerns the husband’s pension, generally a letter from the scheme’s trustees is served to provide evidence of this asset’s estimated value. At the time of most of these cases (i.e. circa 2000 to 2007), the figure provided was a "cash equivalent transfer value" (“CETV”). For various reasons, it is now believed that the actuarial assumptions used to calculate the CETV in fact understate the pension’s value.

However, the solicitors in these cases did not question the accuracy of the CETV nor, a fortiori, did they advise their client to obtain a report from an expert actuary.

The exact resolution of the pensions issue varies, but for ease in this case we shall assume that an offset was agreed (i.e. no part of the pension was earmarked for the wife or transferred into her name, but instead she received a greater proportion of other assets or a payment in cash in lieu of the pension entitlement foregone).

Some years after the settlement, the ex-wife happens upon an article in a magazine or newspaper alleging that CETVs are understate the present value of members’ future pension entitlements such that the overall size of matrimonial assets are frequently greater than divorcing couples appreciate, and because of this many ex-wives have ended up with a lower share of the matrimonial assets than they believed they had received.

The ex-wife then consults new solicitors who obtain the file, discover any number of alleged errors or shortcomings in the original solicitors’ conduct of the case, and issue a letter of claim.

Limitation

The question arises as to whether reading a newspaper article is a sufficient event to cause time to run for the purposes of section 14A Limitation Act 1980.

The operation of section 14A is not straightforward, particularly in relation to solicitors cases.

Section 14A(5) sets out the nub of the secondary limitation period, namely that time starts to run from the earliest date on which the claimant 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”. This secondary limitation period affords a claimant a cause of action in negligence only and runs for three years. Where the end of the three year period is still within six years of the cause of action accruing, the primary limitation period continues to apply (section 2). However, the secondary period is subject to a longstop provision, section 14B, which provides that it cannot expire more than 15 years after the act or omission in question.

Since 2006 the law has been relatively settled in this area, but it has proved difficult to apply section 14A in practice. As at the date of my colleague John de Waal QC’s article on this issue (25 January 2012) there were 173 decisions of the High Court and above on the effect of section 14A. This number has since risen to 193.

The cases divide broadly into two: Claims where the question is when the claimant acquired "actual knowledge" sufficient for time to start running under s14A, and claims where there was an element of delay on the part of the claimant such that the question becomes whether and when the claimant can be fixed with "constructive knowledge". Only the former category is relevant to the cases being discussed in this article.

The leading case on actual knowledge is Haward v Fawcetts (a firm) [2006] UKHL 9. There, an individual brought an action against a firm of accountants having purchased an agricultural machinery company in 1994 in reliance on the accountants’ advice that about £100,000 would need to be invested to make it profitable. The accountants continued to perform an advisory function for the claimant thereafter. Substantial additional capital was then injected before the company failed in 1998. In 1999, Mr Haward began to question the soundness of Fawcetts’ investment advice. He issued proceedings in late 2001. The House of Lords found that the claim was statute barred, as on the evidence Mr Haward had, by no later than early 1998, known in broad terms of the facts (that he had made a bad investment in reliance on Fawcetts’ advice) to justify preliminary investigations against his accountants.

However, the court’s analysis divided s14A arguments into two categories:

  • A category where the claimant needs no particular expertise to identify the damage and the act or omission constituting negligence. Haward itself fell into this category, as the claimant (an experienced businessman) knew the terms of Fawcetts’ retainer, the advice they had given, his reliance, and that he had the adventure had proved to be a bad investment. Accordingly, by the time he knew the investment was bad, he ought to have realised that there was a possibility that the damage was attributable to the acts or omissions of Fawcett.
  • Secondly, where the claim involves complex issues in circumstances where technical knowledge is required to realise that the basic facts (which are known to the claimant), add up to a trigger to commence investigations against the advisor in question. Lords Walker and Mance placed HF Pensions Trustees v Ellison & Others [1999] PNLR 894 into this category and considered it had been wrongly decided. There, a firm of solicitors advised a pension scheme’s trustees to transfer the pension fund, and the trustees relied on this advice. Years later, a second firm of solicitors advised that this transfer had been in breach of the rules. The court held that time ran from the date of the original transfer, and that knowledge of negligence was irrelevant pursuant to s14A(9).

Section 14A(9) is a potential trap when analysing solicitors cases. The subsection reads “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”. On one reading, this suggests that that the second category of cases does not apply to solicitors claims: Where a claimant knows the basic facts to be relied upon, he cannot argue that without a lawyer he didn’t realise the significance of these facts, as all that was missing was his knowledge that the advice was negligent – something which is expressly irrelevant pursuant to s14A(9).

However, Lord Walker in Haward was unambiguous that the above analysis was wrong. He considered that time did not start to run on the date on which the trustees knew they had been advised. Rather, the critical date was the date they gained knowledge of the erroneous nature of the advice (para 61). Lord Mance arrived at a similar conclusion (para 117). In other words, until a claimant realises something has gone wrong, he has not acquired the relevant knowledge: A claimant who has a leg amputated is not in the same position as the claimant who knows that his healthy leg was amputated.

Applying Haward to the current case

Returning to the question of the relevance of the newspaper article, it is apparent from the above that the archetype claimant in these current claims (assuming she is not a lawyer nor has any special knowledge of pensions) may well be able to satisfy the burden of proof necessary to surmount the s14A defence.

There is no question that defined-benefit pension calculations are complex and, without further relevant surrounding circumstances, a client may not have any cause to query her solicitors’ failure to doubt the CETV. In the circumstances, a court may well decide that s14A(5) was not triggered until the claimant in question read the newspaper article.

It is useful to distinguish the recent case of Schumann v Veale Wasbrough [2013] EWHC 3730 (QB). There, the claimants were advised not to pursue a personal injury action in a conference with counsel and allowed a claim form to expire. At the time they received this advice, they already knew that the hospital trust had failed to diagnose their child’s disability before birth and were “dumbfounded” by this. Dingemans J held that they were time-barred as, at the relevant time, they knew that the loss of their action against the trust was due to the advice given in conference. Accordingly, the claimants were able to draw a causal link between the advice and its effect at the time their cause of action accrued. This was perhaps made easier as the case concerned a negligent action rather than an omission. The claimants in the ancillary relief claims mostly lack a contemporaneous trigger event to query the accuracy of the advice they received concerning the global matrimonial assets.

But... negligence not established

Whilst the s14A may well be surmountable, I am not suggesting that these claims are likely to succeed.

First, other aspects of the allegations may well remain time barred, as different limitation periods apply for distinct causes of action: See Birmingham Midshires Building Society v Wretham [1999] PNLR 685.

Second, claimants will need to establish that their former solicitors were negligent in failing to investigate the pension issue at the time, and that by doing so a materially different result would have been obtained through the ancillary relief proceedings. This will be a complex and difficult task. The sheer number of these cases implies that many solicitors did not conduct detailed investigations into pension values. It would be a bold finding that there was, in essence, an industry-wide malaise amounting to negligence concerning these cases. As such, many claims may well fail at this juncture.

Finally

For a general outline on section 14A I recommend interested readers refer to John de Waal QC’s article "Timing is everything - Section 14A in practice".