Limitation—latent damage
Limitation—latent damage

The following Dispute Resolution practice note provides comprehensive and up to date legal information covering:

  • Limitation—latent damage
  • Background
  • General
  • The relevant knowledge
  • Degree of knowledge required
  • Constructive knowledge
  • The long-stop
  • Successive ownership and latent damage

Background

The limitation period for an action founded on tort is six years from the date on which the cause of action accrued pursuant to section 2 of the Limitation Act 1980 (LA 1980). For claims in negligence, the cause of action accrues when damage first occurs rather than the date (if later) on which it is discovered by the claimant. For further information, see Practice Notes:

  1. Limitation—tort claims

  2. Limitation Act 1980—general application

Such principles have the potential to cause injustice in certain cases (for example, in Pirelli v Oscar) where, through no fault of the claimant, the limitation period expired before the damage had become apparent. This problem was most ubiquitous and acute in building cases. To meet the problem, the Latent Damage Act 1986 (LDA 1986) was enacted and, significantly, LA 1980, ss 14A and 14B were added. LA 1980, s 14A provides an alternative limitation period calculated by reference to when the claimant has (or should reasonably have acquired) knowledge of the relevant facts. LA 1980, s 14B provides a long-stop date for negligence actions not involving person injury.

However, two subsequent decisions of the House of Lords (D&F Estates Ltd v Church Commisioners for England and Murphy v Brentwood District Council) effectively confined the recoverability of pure economic loss in negligence to cases of negligent misstatement (within the liability established by Hedley Byrne

v Heller

) with the result that the operation of LA 1980, s 14A is now confined almost exclusively to the sphere of professional negligence.

General

LA 1980, s 14A does not revive a cause of action which was already barred by the effluxion of time at the time LDA 1986 came into force on 18 September 1986.

Otherwise, note that LA 1980, s 14A only applies to negligence in tort and not therefore to claims for the breach of contractual duties to take reasonable care (Iron Trade Mutual Insurance Co Ltd v JK Buckenham Ltd and Société Commerciale de Réassurance v ERAS (International) Ltd). It also does not apply to:

  1. personal injury claims. See instead the special provisions contained in LA 1980, ss 11 and 14 and Practice Note: Date of knowledge—section 14 of the Limitation Act 1980

  2. claims for statutory misrepresentation under section 2(1) of the Misrepresentation Act 1967, because the taking of reasonable care is part of the defence rather than the cause of action (Laws v Society of Lloyds, as well as Thomas v Taylor Wimpey Developments at para [41] and the related News Analysis: No qualification to non-recovery for pure economic loss (Thomas v Taylor Wimpey and NHBC))

LA 1980, s 14A applies where, at the time the claimant’s cause of action accrues (ie from the point when real damage has been suffered), they do not know certain specified facts about their claim.

When the claimant has (or should reasonably have acquired) knowledge of the relevant facts then the ‘starting date’ occurs (LA 1980, s 14A(5)). It is from this starting date that the alternative three-year period prescribed by LA 1980, s 14A runs.

Where LA 1980, s 14A applies then LA 1980, s 14A(2) disapplies LA 1980, s 2 (tort claims generally), such that:

  1. a six-year period of limitation nonetheless runs from the date of accrual, but

  2. an alternative three-year period runs from the starting date

Although LA 1980, s 14A applies whenever the starting date occurs after the date of accrual, the alternative three-year period is of no use unless the starting date occurs more than three years after accrual.

The alternative limitation period in LA 1980, s 14A does not apply where there has been deliberate concealment by the defendant of facts relevant to the claimant’s right of action (under LA 1980, s 32(1)(b)—see LA 1980, s 32(5)). Where there has been deliberate concealment, the period of limitation will not begin to run until the claimant has discovered the concealment, or could with reasonable diligence have discovered it. For more information on ‘deliberate concealment’, see Practice Note: Limitation—fraud, deliberate concealment and mistake.

Once the claimant knows the relevant facts, the running of time is not suspended or commenced afresh by the discovery of further facts which may strengthen their case. Likewise, once a claimant acquires the requisite section, LA 1980, s 14A knowledge in respect of a claim, there is no scope for LA 1980, s 32 thereafter to operate so as to re-trigger the commencement of the limitation period (Sheldon v RHM Outhwaite (Underwriting Agencies)).

For further discussion on the interplay between LA 1980, s 14A and LA 1980, s 32, see the cases McCarroll v Statham Gill Davies and Davy, as well as News Analysis: Negligent pensions advice—when does a claim become statute barred? (Davy v 01000654 Ltd).

The relevant knowledge

In short, and pursuant to LA 1980, s 14A(5), the ‘starting date’ occurs on the earliest date when the claimant (or any person in whom the cause of action was vested before them) has both:

  1. ‘the knowledge required for bringing an action for damages in respect of the relevant damage’, and

  2. ‘a right to bring such an action’

In practical terms, the question is when did the claimant first have the requisite knowledge. In most cases the requirement that the claimant has ‘a right to bring such an action’ has no practical effect on the starting date.

However, LA 1980, s 14A(5) makes it clear that the starting date is the earliest date on which the claimant or ‘any person in whom the cause of action was vested before him’ had the necessary knowledge. As such, successive trustees of a pension scheme would, by way of example, be likely to be bound by the knowledge of their predecessors (see Capita ATL Pension Trustees Ltd v Sedgwick Financial Services Ltd and the related News Analysis: Equalisation, novation and limitation periods in pension schemes—further clarity?).

Pursuant to LA 1980, s 14A(6)–(8), the ‘knowledge required’ means knowledge of both:

  1. the material facts about the damage in respect of which damages are claimed, which are:

    1. such facts about the damage as would lead a reasonable person who had suffered such damage to consider it sufficiently serious to justify their instituting proceedings for damages against a defendant who did not dispute liability and was able to satisfy a judgment. This relates to matters of quantum (Haward v Fawcetts at para [107]). The courts have not considered it to be a high bar, but instead it is intended to filter out cases concerning losses that are ‘so minor that no one would contemplate instituting proceedings’ (Haward at para [106])

    and

  2. the following ‘other facts’ relevant to the current action, which are:

    1. that the damage was attributable in whole or in part to the act or omission which is alleged to constitute negligence (LA 1980, s 14A(8)(a))

    2. the identity of the defendant (LA 1980, s 14A(8)(b)), and

    3. if it is alleged that the act or omission was that of a person other than the defendant, the identity of that person and the additional facts supporting the bringing of an action against the defendant (LA 1980, s 14A(8)(c))

In respect of the ‘other facts’ referred to in LA 1980, s 14A(6)(b) and listed in LA 1980, s 14A(8)(a)-(c):

  1. the requirement in LA 1980, s 14A(8)(a) is the most often cause of difficulty. It means that the claimant needed to know, by way of example, that the damage was attributable to the advice it was given by the defendant (see Haward at para [122]). This issue has been the focus of many of the authorities considered below

  2. the effect of LA 1980, s 14A(8)(b)-(c), is that the claimant needed to know ‘...the identify of the defendant and, in a case of vicarious liability, the identity of the person whose act or omission is in question, and the facts making the principal liable’ (Cole v Scion Ltd at para [15])

Pursuant to LA 1980, s 14A(9), the claimant does not need to know that the relevant acts or omissions constituted negligence. Finally, LA 1980, s 14A(10), in effect extends a claimant’s knowledge from their actual knowledge to include their constructive knowledge, ie what a reasonable person might have been expected to understand based on the information available. Again, this has been a source of some difficulty, discussed in a number of the authorities considered below.

The burden of proof Is on the claimant to establish that they brought the claim in time (Haward at paras [23]–[24]). As with all limitation defences, it is incumbent on the defendant to raise the issue by pleading it but, once raised, it is for the claimant to prove that they only had the requisite knowledge three years or less before the proceedings are brought—see Practice Note: Limitation Act 1980—general application—Effect of a limitation period expiring.

In applying LA 1980, s 14A, a claim is either statute barred or it is not and there is no question of addressing the fairness of the decision, since Parliament gave the courts no discretion in the application of the section (Orchard (Developments) v National Westminster Bank at para [47], applying Haward at para [7]).

Degree of knowledge required

As indicated above, the knowledge requirements of LA 1980, s 14A have been the subject of significant litigation over the years.

In short, knowledge means knowing enough with sufficient confidence to justify embarking on the preliminaries to issuing proceedings. It does not require knowing with certainty, but needs more than suspicion. The key authority is Haward, in which the claimant (an experienced businessman) had invested in a company on the advice of an accountant and lost money. The House of Lords held that time began to run from the point when the claimant had sufficient information to make it reasonable to commence investigations into a potential claim (which is what the three-year period then permits time for (see also Shore v Sedgwick)).

The claimant need therefore only know the essence of the acts or omissions to which their damage is attributable. For example, while it was considered common ground that there is no cause of action without breach in Munroe v Bank of Scotland, the court made clear (applying Haward) that LA 1980, s 14A does not work to extend the limitation period until every last particular of breach is identified. In addition, it is not necessary for the claimant to be aware that they have a legal claim, just that they are aware of the primary facts, as in the acts or omissions of the defendant on which the complaint is based (Booker v RT Financial Services). As indicated in Dobbie v Medway, it is only necessary to ‘look at the way the claimant puts his case, distil what he is complaining about and ask whether he had in broad terms knowledge of the facts on which that complaint is based’.

In Taylor v Santander, the claimant brought proceedings for the mis-selling of PPI policies, claiming that Santander had not told her that taking out the policies was optional at the time she entered into them. Shortly after entering into the polices, the claimant was sent a Certificate of Cover which contained provision for a ‘cooling off’ period when she could cancel the policies, should she decide she did not want/need them. Although the claimant may not have read the certificates at the time, the information in them as to the cooling off period, combined with her own belief that the bank had told her she had to take out the policies, was sufficient ‘knowledge’ that something was ‘not right’ and so time started from that point for the purposes of LA 1980, s 14A. For further information, see News Analysis: Successful limitation defence in PPI mis-selling claim (Taylor v Santander).

In another leading authority, Jacobs v Sesame Ltd, the Court of Appeal concluded that it was ‘beyond sensible argument’ that a claimant had acquired the relevant knowledge regarding her claim in negligence against a financial advisor when she had received annual financial statements showing the decline in her savings. This and the fact that the relevant facts were ascertainable by the claimant by making simple enquiries of the defendant (which she had failed to do) or by reviewing the documentation which the defendant had provided at the outset, rendered her having acquired the relevant knowledge under LA 1980, s 14A more than three years before she commenced her claim. The Court of Appeal emphasised that the starting point of any enquiry as to whether a claimant can rely on LA 1980, s 14A is to identify the damage, since the ‘knowledge’ referred to in LA 1980, s 14A was knowledge of the material facts about the damage in respect of which damages were claimed. For further information, see News Analysis: Court of Appeal—annual investment statements sufficient for LA 1980, s 14A ‘knowledge’ in financial services claim (Jacobs v Sesame).

The case Su v Clarksons

concerned a claim by Mr Su for breach of duty. It was argued that the defendant had failed to ensure that an agreement which had been brokered on Mr Su’s behalf was made by companies in the claimant’s control instead of with the claimant personally (the ‘second claim’). Mr Su brought the claim against the defendant following successful proceedings having been brought against him by another party, which had resulted in Mr Su being subject to a judgment for substantial damages (the ‘first claim’). In the first claim, Mr Su had also been subject to a freezing injunction, which was upheld by the Court of Appeal, with Longmore LJ in the Court of Appeal stating that there was a good arguable case that the claimant was personally liable under the agreement. The defendant applied for summary judgment in the second claim on limitation grounds, and one of the issues raised was whether Mr Su was saved by

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