Lessons in limitation

Updated May 2011

As a general rule, an action in negligence cannot be brought after six years from the date on which the cause of action accrued (section 2 Limitation Act). The cause of action accrues when the claimant suffers actual damage.

However, in two recent cases involving alleged negligence against conveyancing solicitors, the courts have sought to clarify exactly when actual damage occurred.

Date of completion or date when transfer is registered?

In the case of Nouri v Marvi [2010] EWCA Civ 1107 the Court of Appeal sought to determine whether the cause of action in negligence accrued on the date of the fraudulent transfer, or when the transfer was registered.

Nouri ("N") was the registered proprietor of the property. On 21 December 2001, holding himself out to be N, Marvi ("M") instructed a firm of solicitors (AKS) to act in the sale of N's property. M forged N's signature to sell the property to himself. M then instructed a second firm of solicitors to act in the purchase of the property. On 2 April 2001, simultaneous exchange and completion took place and AKS released the transfer to M. On 4 July 2001, M used the transfer to register the property in his own name. On 7 January 2003, M sold the property to an unconnected third party.

On 2 July 2007, N brought a claim against AKS alleging that they had been negligent in failing to handle the sale in a competent manner and that he had suffered a loss as a result. N claimed that the solicitors owed him a continuing duty extending beyond completion of the conveyancing transaction. N's argument was that the solicitors had an obligation to confirm their instructions directly with their client and satisfy themselves of his identity.

The court had to determine whether the damage was suffered at the date of completion (2 April 2001) or at the date of subsequent registration (4 July 2001). The answer to this question would determine whether or not N was out of time for bringing an action in negligence.

It was common ground that the registration of M as the proprietor had caused actual damage to N. However, the court held that the claim in negligence was statute barred because N suffered actual damage at the time of completion of the sale on 2 April 2001. Therefore, as N issued proceedings on 2 July 2007, the 6 year limitation period had expired. The court held that the date of completion was the time at which N suffered an immediate loss, even though this only represented the cost which N would have to expend in preventing registration. Due to the forged transfer, there was a decrease in the open market value of the property at the time of completion.

The court concluded that there were no special facts which would give rise to a continuing duty on the part of the solicitors. They owed no duty to N after completion of the sale as it was not for them to supervise the registration of M's title. Limitation had expired and as such, the court dismissed N's appeal.

Date of exchange or date of completion?

In March this year, the High Court had to address the narrower question of whether actual damage from a fraudulent transaction occurred to the registered proprietor on the date of exchange of contracts, or on the date of subsequent completion of the transaction.

In the case of Bowling & Co Solicitors v Edehomo [2011] EWHC 393 (Ch), the first defendant ("E") instructed Bowling & Co Solicitors (“Bowlings”) to act for him and the claimant in the sale of the property to a third party. The claimant was unaware of the defendant's actions and took no part in the transaction. E forged the claimant's signature on the contract and transfer.

Contracts were exchanged on 21 November 2002 and completion took place on 2 December 2002. The claimant never received any of the sale proceeds.

On 1 December 2008, the claimant issued a claim in negligence against Bowlings alleging that they were in breach of their duty of care to her for failing to establish her identity.

The court had to establish at exactly what point the claimant suffered damage. If the damage occurred at the time contracts were exchanged, the claimant's claim would be time-barred.

The court referred to the judgment in Nouri v Marvi. However, in that case, as exchange and completion were simultaneous, it was unnecessary for the court to make any distinction between them.

The High Court decided in the Bowling case that damage occurred to the claimant at the time of exchange of contracts. The reasoning for this was that if the claimant had attempted to sell her share in the property after the date of exchange (assuming she was aware of the fraud), she would have had to disclose the existence of the forged sale and as such, no prospective purchaser would have wanted to enter into an agreement to purchase the property until the issues surrounding the fraud had been rectified. The value of the claimant's interest in the property had significantly reduced at the point of exchange, so this was the time that the damage was suffered. It was at the time of exchange when the claimant could have commenced proceedings.

Although not raised in this hearing, the court considered whether Bowlings owed the claimant a continuing duty up to the date of completion to verify the identity of their client. The court held that, if this were the case, then the solicitors would have committed a further breach at the time they released the transfer at completion, or at least a continuing breach up until that point. If that was the case, then the claim may not have been time-barred. With these comments in mind, the claimant is currently seeking permission to amend her case to have this issue decided.

Implications for lenders

The results of both N and Bowling serve as a warning to lenders as they represent examples of where the courts have been prepared to find actual damage early on in a sequence of events, thus frustrating claims against professionals. It is for the claimant to prove that the claim is not time-barred. Caution in the way limitation dates are calculated is of paramount importance.

This publication is intended for general guidance and represents our understanding of the relevant law and practice as at April 2011. Specific advice should be sought for specific cases; we cannot be held responsible for any action (or decision not to take action) made in reliance upon the content of this publication.

TLT LLP is a limited liability partnership registered in England & Wales number OC 308658 whose registered office is at One Redcliff Street, Bristol BS1 6TP England. A list of members (all of whom are solicitors or lawyers) can be inspected by visiting the People section of this website. TLT LLP is authorised and regulated by the Solicitors Regulation Authority under number 406297.