When does the clock start ticking?

Transcription

1 When does the clock start ticking? Daniel Crowley looks at when time starts to run against a solicitor who has allowed a claim to be struck out for want of prosecution A Claimant s claim is struck out for want of prosecution or pursuant to CPR 3.4. From when does time begin to run (for limitation purposes), in an action for negligence against the Solicitor who had conduct of the action? From the date that the action was struck out? or from an earlier date when the claim could have been struck out or was vulnerable to being struck out? The recent Court of Appeal decision in Khan v. Falvey 1 is required reading for all professional negligence practitioners. It decided, contrary to previous Court of Appeal authority in Hopkins v. Mackenzie 2, that, in such circumstances, the cause of action arises (and time begins to run for limitation purposes) not from the date the action was actually struck out but from an earlier date when there is a serious risk that the original action could be dismissed for want of prosecution. 3 The issue The starting point is to ask : When does the Claimant s cause of action against his solicitor arise? In negligence, a cause of action arises when the Claimant has suffered actual damage. In Forster v. Outred 4, the Court of Appeal accepted Counsel s submission 5 as to what is meant by actual damage in a cause of action for negligence: it is any detriment, liability or loss capable of assessment in money terms and it includes liabilities which may arise on a contingency, particularly a contingency over which the plaintiff has no control; 1 [2002] EWCA Civ 400 ( ). 2 [2001] Lloyd s Rep PN Ibid n.1 at para.30 per Sir Murray Stuart-Smith. See also Chadwick LJ at para [1982] 1 WLR Counsel in Forster v. Outred was Murray Stuart-Smith QC who as Sir Murray Stuart-Smith gave the lead judgment in Khan v. Falvey.

2 things like loss of earning capacity, loss of a chance or bargain, loss of profit, losses incurred from onerous provisions or covenants in leases. They are all illustrations of a kind of loss which is meant by actual damage. It was also suggested in argument, and I would accept it, that actual is really used in contrast to presumed or assumed. Whereas damage is presumed in trespass and libel, it is not presumed in negligence and has to be proved. There has to be some actual damage. 6 Sir Murray Stuart-Smith said that a claim in tort is a chose in action. If, during the period prior to the actual Order of the Court striking the action out, there is an inevitability or at least a very serious risk that it would be struck out at any time then the Claimant has some suffered loss. At that stage, the chose is action is less valuable. Lord Justice Chadwick said if a case is struck out pursuant to CPR 3.4(2)(c) for failure to comply with a rule, practice direction or court order then time begins to run from the date of non-compliance with the relevant procedural requirement and not the date of actual strike out. 7 Hopkins v. Mackenzie The Court of Appeal disapproved Hopkins v. Mackenzie 8 to the extent that it said that the cause of action did not arise (and time did not begin to run) until the claim was actually struck out. 9 It was pointed out that such reasoning was contrary to Forster v. Outred 10 and had been doubted by Hobhouse LJ in Knapp v. Ecclesiastical Insurance plc 11. Further, it was 6 Ibid n.4 at p.94c-d per Stephenson LJ. This submission was also approved by the House of Lords in Nykredit Mortgage Bank plc v. Edward Erdmann Ltd [1997] 1 WLR 1627 at 1630D-F. 7 Ibid n.1 at para Ibid n.2. 9 Even if the only loss or damage claimed is the loss of the chance of recovery in the underlying action (which is not finally lost until that action is struck out). 10 Ibid n [1998] PNLR 172 at 187E-G and 187D. 2

3 inconsistent with the reasoning of the House of Lords in Nykredit Mortgage Bank plc v. Edward Erdman Group Ltd (No.2). 12 Comment The reasoning in Khan v. Falvey has logical force where the original action has gone to sleep for many years and the actual order striking the action out is a mere formality and so for a substantial period of time prior to the actual strike out order the cause of action against the original tortfeasor is worthless. 13 However, Khan v. Falvey makes the Court s task in the determination of the expiry of limitation periods in these type of cases very difficult. There is uncertainty as to the correct test to apply. Sir Murray Stuart-Smith said: a claimant does not suffer real damage in the form of diminution of the value of his chose in action until there is a serious risk that the original action could be dismissed for want of prosecution 14 (emphasis added) Lord Justice Chadwick said 15 : Although it may be possible to say, in such cases, that before a certain date, the claim was not vulnerable to being struck out and that after another, and later, date it was so vulnerable, there will usually be a period of some months in respect of which there is room for a legitimate difference of view. But what can be said with some confidence, is that during that period the value of the claim is diminishing as its vulnerability to strike out increases. It seems to me that once the action has entered that period, it is impossible to say that damage has not occurred, as a consequence of the previous delay. 12 [1997] 1 WLR 1627 at 1632B-H. Hopkins v. Mackenzie has been held not to establish any general principle: see Gordon v. J B Wheatley & Co [2000] Lloyd s Rep PN 605 at 610 Col.2 per Kennedy LJ and Havenledge Ltd v. Graeme John & Partners [2001] Lloyd s Rep PN 223 at 233 col.1 per Pill LJ. 13 Ibid n.1 at para.29 per Sir Murray Stuart-Smith and see Jackson & Powell on Professional Negligence 5 th Edn. at para Ibid n.1 at para Ibid n.1 at para

4 Lord Justice Schiemann did not lay down any test but said 16 : circumstances can exist when a claimant, who has an action against a tortfeasor which is not pursued with due diligence by his solicitor, suffers loss as a result of that lack of diligence before the underlying action is struck out. Indeed, it is not a condition precedent for any claim against the solicitor that the underlying action be struck out. (emphasis added) Sir Murray Stuart-Smith talks of the cause of action arising and time beginning to run when there is a serious risk that the action could be dismissed. Therefore, if there is an argument about limitation there would have to be a minute and detailed analysis of the history of the underlying action to see what had happened and what was happening in the action to determine whether there was such a serious risk. There is the further problem that an action may be vulnerable to being struck out at a particular point in time but not so vulnerable at a later date due, for example, to a flurry of activity or key witnesses being found. Does limitation run from the first period of delay or from any subsequent periods of delay after the flurry of activity? 17 However, Lord Justice Chadwick s test makes the assessment of limitation much less certain as on his test the cause of action against the solicitor arises and time begins to run once the underlying action enters a period in respect of which there is room for a legitimate difference of view as to whether the claim was vulnerable to being struck out. So, on this view, even when there is a legitimate difference of view as to whether it was vulnerable to being struck out, the cause of action arises and time begins to run. This seems to start the 16 Ibid n. at para The problem may be solved by the core regime proposed by the Law Commission: Limitation of Actions Item 2 of the Seventh Programme of Law Reform (Law Com 270). The Claimant may not have the requisite knowledge before the action is struck out because prior to strike out she would not know that the loss or damage was significant as she does not have knowledge of the full extent of the loss or damage. It is only in rare circumstances that a Claimant s claim against her solicitors should be barred by the 10 year long stop. For a commentary on the Law Commission s proposals see David Turner, Overhauling the statutory limitation regime [2001] NLJ

5 clock running from an earlier stage than would be the case if Sir Murray Stuart-Smith s test is applied. As adverted to by Lord Justice Schiemann, 18 a logical consequence of the Court of Appeal s reasoning is that prior to the action actually being struck out the Claimant could turn around and sue his solicitor for negligence for the diminution in value of his cause of action (by allowing it to become vulnerable to being struck out). However, a Claimant who did that would be met with the argument that he had not mitigated his loss by pursuing the original tortfeasor. Conclusion Parties involved in claims against solicitors where an action has been dismissed for delay or pursuant to CPR 3.4(2)(c) have to make a detailed assessment of the history of the action to assess when the cause of action arose and limitation begins to run. In light of Khan v. Falvey they cannot rely on the date of the Court Order. This is an area where there can be a legitimate difference of view. Daniel Crowley is a member of the 2tg Professional Negligence Group. (Copyright 2002 Daniel Crowley. All rights reserved.) 18 Ibid n.1 at para.63. 5