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When does the clock start ticking? Limitation and the Privy Council case of Maharaj v Johnson

Introduction

The majority of claims against professionals are framed in contract, the tort of negligence, or a combination of both.  As readers of this article will be aware, the Limitation Act 1980 provides the same limitation period for both causes of action: “six years from the date on which the case of action arose.”  But readers will also know that those periods frequently begin (and more importantly end) on different dates. This is because a breach of contract is actionable per se, i.e. without the need to prove damage, where as a claim in negligence requires proof of damage, which will often occur some time after the breach of duty, which is said to have caused it.  For this reason many claims which are out of time for a claim in contract, are nevertheless in time for a claim in the tort of negligence.

In many cases it will be easy to identify when the cause of action arises in both contract and tort.  If a surveyor provides his client with a report that negligently overvalues a property, the client’s claim in contract will arise at the date the report is provided, and his claim in tort will arise if and when he purchases the property in reliance upon the report.

But in many cases it is much harder to identify when the cause of action arises. The reasons for this difficulty are different for contract and tort.  In a claim for breach of contract, the issue that determines when the cause of action arises is the nature of the duty. By contrast, the issue in a claim for negligence is the nature of the damage.

The recent Privy Council case of Maharaj v Johnson [2015] UKPC 28, an appeal from the Court of Appeal of Trinidad and Tobago, is a useful source for reviewing the legal principles concerning these issues.  This article focuses on the Court’s approach to claims in tort.

The Facts

In 1976 Patrick Lambert, who owned what appears to have been a substantial area of land (“the Land”), died intestate.  For some reason it took nine years until the Land vested in his executrix: his widow Gwendolyn Lambert.  Not long earlier Mrs Lambert (who lived in Venezuela) executed a deed granting a power of attorney to Richard Inniss.

In 1985 the claimant contracted to purchase the Land, instructing the defendant to perform the conveyancing.  The contract was performed in February 1986 by Mr Inniss executing (or purportedly executing) a deed on behalf of Mrs Lambert.

Some time later, in 2008, the claimant contracted to sell the land to a Mr Sammy for the substantial sum of $20m.  Unfortunately, however, the sale did not proceed because an issue arose concerning the validity of the original conveyance by which the claimant had acquired the land, some 23 years earlier.  In short, all parties concerned were of the view that the deed of transfer was defective on the ground that the Land was not within the scope of the authority granted to Mr Inniss by the power of attorney.

Soon there after Mrs Lambert was located and her agreement obtained to execute a deed of rectification in order to regularise the perceived defect in the claimant’s title.  However, by then the sale to Mr Sammy had fallen through, and a fall in the property market meant that he suffered substantial losses.  The claimant therefore sued his solicitors for damages to compensate him for this loss on the basis that it was caused by their failure to acquire good title when he originally acquired the Land.

The issues

The defendant solicitors, unsurprisingly, pleaded limitation, saying that the causes of action in both contract and tort expired long before the claim was issued.

The question so far the claim in tort was concerned was whether the claimant suffered damage (i) back in 1986 when he acquired (what was assumed to be) a defective title to the Land, or rather (ii) on 29 February 2008 when Mr Sammy rescinded the contract for purchase of the Lane, thereby crystallising the claimant’s loss.

The Court’s analysis

The starting point for determining when the claimant suffered damage is to identify the nature of the rights he acquired when he purchased the property in 1986. In this regard, the Court noted that it was well established that upon the execution of a contract of sale, the buyer of land acquires a partial equitable title which matures into a full equitable title upon payment of the purchase price.  Thus when, on 6 February 1986, the claimant paid the full purchase price for the property, Mrs Lambert became a bare trustee whose obligation to transfer the legal title was susceptible to an order for specific performance.

The question for limitation purposes was therefore this: was the value of a full equitable interest in the land on 6 February 1986 measurably less than the value then of a full legal and equitable interest in it?

In considering this, the first case the Court referred to was DW Moore and Co Ltd v Ferrier [1988] 1 WLR 267.  In this case solicitors drafted a shareholders agreement which, owing to their negligence, failed properly to put into effect a term preventing a director from setting up a rival business if he ceased to be a director.  The Court of Appeal in that case held that it was as soon as the agreement was executed, rather than when the director was in fact able to set up a rival business, that damage was first suffered.

The Court then looked at Knapp v Ecclesiastical Insurance Group Plc [1998] PNLR 172.  In that case the defendant insurance brokers negligently failed to disclose on renewal material facts to insurers in relation to property damage cover.  This meant that when, six months later, the property was damaged by fire, the insurers were entitled to avoid the policy. As with DW Moore, the Court held that damage was suffered at the date of renewal, since it was then that the claimant was exposed to the risk of loss.

However, the Privy Council noted that in both cases the Courts did not go so far as to propound the view that damage will occur whenever the claimant did not get precisely what he bargained for (or what he thought he was bargaining for).  In Knapp, for example, Hobhouse LJ said that it was possible to visualise situations in which the fault could so easily remedied that the damage would be merely nominal.  The Court agreed with such qualifications:

“The fact that the transaction was flawed does not by itself mean that the claimant suffered actual damage on entry into it.” (para 26)

Importantly in this regard, the Privy Council expressly disapproved the dicta of Templeman LJ in Baker v Ollard and Bentley (unreported 12 May 1982), and Rimer LJ in Pegasus Management Holdings SCA v Ernst and Young [2010] EWCA Civ 181, to the effect it is enough merely to show that the claimant did not receive what he ought to have received, regardless of whether the claimant is financially worse off.

Having reviewed the authorities, the Privy Council had little difficulty in concluding that the claimant would indeed have suffered damage in 1986, if it is right that he acquired a mere equitable title to the Land but not a legal title.  Without legal title the claimant was exposed to significant risks: the risk of not being able to borrow against the security of the Land; the risk of a sale falling through (as in fact happened with Mr Sammy); and, fundamentally, the risk of not being able to locate Mrs Lambert and procure her signature to a deed of rectification.

Comment

While Maharaj certainly does not establish any new propositions of law, it is nevertheless a helpful review of the leading authorities in the area, and being a Privy Council decision will prove a useful authority to cite going forwards.  Furthermore, it is persuasive rather than binding while (being the Privy Council rather than the Supreme Court), it is likely that its express disapproval of the absolutist dicta in the Baker and Pegasus cases will serve as a death knell to the argument that the cause of action in tort accrues as soon as the claimant gets less than he bargained for, even if he didn’t suffer financial harm as a result.