Causes of action and limitation: the decision in Annett Osborne v. Follett Stock (a Firm) and Follett Stock LLP  EWHC 1811 (QB)
The recent judgment in Annett Osborne v Follett Stock (a Firm) and Follett Stock LLP  EWHC 1811 (QB) provides helpful guidance on when a cause of action accrues in cases involving contingent loss for the purposes of the Limitation Act 1980, particularly for those dealing with professional negligence claims. It also highlights the importance of identifying and preserving the limitation period as a matter of urgency. Tim Barr and Beth Caygill of DWF LLP, who acted for the successful Defendant firms of solicitors, review the High Court’s decision.
The claim was one of professional negligence against the Defendants ("FS") for a failure to advise the Claimant, Mrs Osbourne, to bring a professional negligence claim against another firm of solicitors, “CT”.
The case originated from a will, executed on 11 February 1997, by which the testator Mr Roth, a former German prisoner of war detained in the UK, left a pecuniary legacy to his daughter, Mrs Benakovic who he had lost touch with due to the war and been estranged from, and the remainder to Mrs Osborne. Mrs Osborne was the niece of a woman with whom Mr Roth had enjoyed a long relationship until her death. Unfortunately, however, Mrs Osborne's husband witnessed the signing of Mr Roth's will so that the gift of the residue of the estate to Mrs Osborne failed. This resulted in a partial intestacy and so Mr Roth' s daughter, Mrs Benakovic became entitled to all of his estate.
On 1 March 1997, with assistance from a solicitor at CT, Mrs Osborne and Mrs Benakovic entered into an agreement in an attempt to vary the will ("the 1st March Agreement"). Under the 1st March Agreement Mrs Benakovic received an extra £25,000 and Mrs Osborne received the remainder of the estate. Mrs Osborne moved into a farm which formed part of the estate and incurred expenditure.
In 2005, Mrs Benakovic issued proceedings against Mrs Osborne on the basis that the 1st March Agreement breached the fiduciary fair dealing rule. It was alleged that Mrs Osborne, as executor of Mr Roth's will , could not show that Mrs Benakovic had been advised to seek or had received independent legal advice in relation to the 1st March Agreement. FS acted for Mrs Osborne in that litigation. Mrs Benakovic succeeded in getting the 1st March Agreement set aside. Mrs Osborne then achieved a compromise of her dispute with Mrs Benakovic.
In 2011 Mrs Osborne alleged that FS had acted negligently in depriving her of the opportunity to sue CT for negligence both for failing to advise on the correct procedure for attesting Mr Roth's will and the need for Mrs Benakovic to seek independent legal advice on the 1st March Agreement. She claimed the loss of her inheritance under the original will and the costs of her dispute with Mrs Benakovic.
Importantly, although she intimated a claim against FS in October 2011, Mrs Osborne did not enter into a standstill agreement with FS (the partnership) at all and did not enter into a standstill agreement with FS LLP until 9 February 2015.She did not issue a claim form against the FS entities until 17 August 2016. She could therefore not rely on s 14A of the Limitation Act 1980 as the standstill agreement and the issue of the claim form were more than three years after she had first suggested that she had a claim.
The limitation argument was determined by a trial of a preliminary issue. The burden of proof was on Mrs Osborne to show that her cause of action against CT was lost whilst one of the FS entities was retained by her and that the claim against FS was brought within six years of that date. As the claim was one brought in tort the key issue was when the damage occurred and therefore the cause of action accrued.
Mrs Osborne argued that her cause of action against CT only accrued in 2005 when she received the Letter of Claim from Mrs Benakovic, the daughter, alleging that the 1st March Agreement from 1997 should be set aside. Mrs Osborne relied on Law Society v. Sephton and Co (2006), alleging that her loss was contingent on Mrs Benakovic changing her mind about the 1st March agreement. She argued that until the contingent event occurred in 2005, no loss had been suffered because Mrs Osborne had benefitted from the agreement (whether or not it was actually valid). Mrs Osborne asserted that she had had six years (until 2011) to sue CT, that the FS entities were retained during this period and therefore her claim against FS was brought in time in August 2016.
FS argued that Mrs Osborne's cause of action against CT, both in contract and tort, accrued when the 1st March agreement was entered into in 1997. They relied on case law both pre and post Law Society v Sephton including the decision of the Privy Council in Maharaj v. Johnson  PNLR 27, as well as in the intermediate Court of Appeal decisions in Axa Insurance Ltd v Akther & Darby  1 WLR 1662 and Pegasus Management Holdings SCA v. Ernst & Young  PNLR 438. There was discussion as to whether in the language of these cases this was a no transaction case or a flawed or wrong transaction case. The Privy Council decision in Maharaj addressing this distinction said: The difference in concept dictates a difference in the inquiry as to whether, and if so when, the claimant suffered actual or measurable damage. In the “flawed transaction” case the inquiry is whether the value to the claimant of the flawed transaction was measurably less than what would have been the value to him of the flawless transaction. In the “no transaction” case the inquiry is whether, and if so at what point, the transaction into which the claimant entered caused his financial position to be measurably worse than if he had not entered into it.”
FS argued that this was a “flawed transaction” case because there was a chance (albeit small) that a valid agreement could have been reached in 1997. Actual damage was suffered when the 1st March agreement was entered into in 1997 because it was vulnerable from the outset to being set aside. Mrs Osborne had suffered actual loss in relying on the agreement being valid, to her detriment including incurring expenditure she had assumed was valid as a result of the 1st March Agreement
The Court's decision
HHJ Matthews resolved the preliminary issue in favour of FS and dismissed Mrs Osborne’s claim. He found that damage, for the purposes of the accrual of the cause of action in tort, occurred when the 1st March agreement was entered into in 1997. He agreed with FS that this was a flawed transaction case, and found that there was a measurable loss from the time the 1st March agreement was entered into, not when Mrs Benakovic changed her mind about the agreement in 2005. He applied the three checks suggested in Maharaja including a test of what a third party with full knowledge of the circumstances would have paid for the assignment of the benefit of the agreement after it was entered into and concluded that it would have been much less than the value of the assets in the estate to cover the risk of a claim by Mrs Benakovic. He also found that Mrs Osborne plainly suffered loss when she expended money in reliance on the 1st March agreement.
Considerations for lawyers and insurers
As a side note, this case highlights three important risk management issues for solicitors. The first is to ensure that the correct procedure is followed when a testator's signature is attested. The second is that, when asked to advise on a bilateral transaction such as this, the client is advised of the need for the other party to obtain independent legal advice particularly where the client is a fiduciary such as an executor or trustee. These simple steps will help prevent challenges to the validity of the documents later on. The third is to identify and preserve any client's ability to seek a remedy as soon as possible by identifying any limitation difficulty and entering into a standstill agreement with all relevant entities promptly if possible.
For defendant professionals and their insurers, the decision is a welcome one in terms of when damage for the purposes of the accrual of a cause of action arises. However, it also highlights the complexity of limitation and the importance of careful application of the facts in any case where limitation may apply.
This information is intended as a general discussion surrounding the topics covered and is for guidance purposes only. It does not constitute legal advice and should not be regarded as a substitute for taking legal advice. DWF is not responsible for any activity undertaken based on this information.