Elliott v Hattens Solicitors (a firm) [2021] EWCA Civ 720

In Elliott v Hattens Solicitors (a firm) [2021] EWCA Civ 720 the court considered the preliminary issue at trial of the question of whether or not the claim brought by Mrs Elliott (‘the Respondent’), against her solicitors, Hatten Solicitors (‘the Appellant’), was outside the limiation period for bringing a claim. The answer would depend upon when damage was sustained.

The parties.

The Respondent’s husband was the freehold owner of the property and granted a lease to his wife, the Respondent. In turn, the Respondent intended, at the same time, to grant an underlease to a third Party, Mr Jamie Malster (‘the tenant’). The tenant’s parents (‘the guarantors’) would guarantee his obligations within the underlease and this was communicated to the Appellant by the Estate Agent acting on behalf of the Respondent. A rent deposit deed was also to be drafted and executed.

The transaction

The lease, underlease and rent deposit were executed on the same date, 24th February 2012.

The Appellant failed to include the parents as guarantors and failed to advise the Respondent that she was required to take out insurance for the property. The lease contained covenants between the Respondent and the freeholder to insure the property and the underlease contained obligations upon the Respondent for the benefit of the tenant, to repair the property in respect of ‘insured risks’. The tenant, in turn, was required to keep the property in repair as well as pay the rent.

The property suffered a devastating fire on 6th November 2012 destroying the building. The Respondent had no insurance to cover the damage. The freeholder did have an insurance policy however it failed due to breach of warranty as the tenant had not carried out an effective waste management system at the property as required under the policy.

First Instance

The Respondent issued proceedings on 10th April 2018.

The Appellant admitted liability, accepting it did not advise the Respondent to obtain insurance for the property and that they failed to exercise reasonable skill and care in drafting the documents and advising the Respondent. However, the Appellant defended the action on the basis it was statute barred as loss was sustained upon execution of the documents and not when the fire caused damage to the property. The Respondent claimed damage was sustained when the fire occurred therefore was contingent.

The matter was listed for a trial on this preliminary issue in the interests of saving costs. The parties were able to produce a statement of agreed facts and no witnesses were required to determine the issue.

The court considered the case of The Law Society v Sephton & Co. [2006] UKHL 22 in which the House of Lords held that “the possibility of an obligation to pay money in the future is not in itself damage”. Further in the case of Axa Insurance Ltd v Akther & Darby [2009] EWCA Civ 1166 the Court of Appeal considered the case of Sephton in which it was observed by Longmore J that “a contingent liability does not ‘of itself’ constitute ‘damage’” and that there “there must be something more”. The judge, His Honour Judge Bailey, considered whether or not the Respondent intended to assign the lease, determining that she did not intend to do so. Considering the facts of this particular case, His Honour Judge Bailey determined that the damage was sustained only when the various contingencies occurred and not when the documents were executed.

The claim was therefore not statute barred and the defence failed; all contingencies took place after 10th April 2012 and there was no need for the court to consider their relevance.

The Appellant was granted permission to appeal the decision.

Appeal

The issue in front of the Court of Appeal was If Ms Elliott’s loss was suffered on the date of the fire, the proceedings would be within the limitation period.  If the loss occurred on the date of the underlease, they would not.

Damage is an essential part of the cause of action of the tort of negligence therefore it will accrue from when actionable damage is sustained. In the case of Khan v R.M. Falvey [2002] EWCA Civ 400 Sir Murray Stuart-Smith stated,

“Once real damage – as distinct from purely minimal damage – is sustained the cause of action arises, even though greater loss may be later eventuate from the negligence”.

A party may claim its solicitor firm’s negligence induced them to enter into the transaction and ‘but for’ that negligence they would not have done so. This is referred to as a ‘no transaction’ case. Whereas, when a party claims that the transaction they entered into as a result of their solicitors negligence was a less advantageous one, this is referred to as a ‘flawed transaction’ case.

This was determined as a ‘flawed transaction’ case. Damage can be suffered as soon as a party enters into a flawed transaction even though the value of the transaction is not objectively lower. Every case must be determined on a case by case basis as the outcome will turn of the specific facts.

It was determined that the value of the transaction was ‘measurably less’ than a flawless transaction would have been, as what the Respondent received was significantly less that what she had instructed the Appellant to effect on her behalf. The lack of guarantors rendered the transaction less valuable and which could only be remedied by the cooperation of the parents which was not certain.

The appeal court determined that the Respondent sustained damage when the documents were executed on 24th February 2012 and therefore the claim was statute barred.

Although the failure to insure the property by the Respondent could have led to the freeholder exercising his right to forfeit the lease, given that the freeholder and Respondent were married, it was considered unlikely this would take place. It was argued by the Respondent that there was no evidence before the court as to nature of the relationship. The case of Knapp v Ecclesiastical Insurance Group plc [1998] PNLR 172 considered insurance policies and Hobhouse LJ stated the party had “suffered loss as soon as they received an insurance contract which was not binding upon the insurers”.

In relation to the failure of the Appellant to advise the Respondent to obtain insurance, the appeal court determined that it failure was to be treated the same as the failure to secure the guarantors, that it took place when the documents were executed; therefore, all of the Respondent’s claim was statute barred.

Suite 205/206 Cotton Exchange
Bixteth Street, Liverpool L3 9LQ

T — 0151 541 2040
T — 0203 846 2862
info@carruthers-law.co.uk