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Cite as: [1999] 1 WLR 1849, [1998] EWCA Civ 1939, [1999] WLR 1849, [1999] PNLR 565

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Case No: QBENI 98/0784/1

IN THE SUPREME COURT OF JUDICATURE

COURT OF APPEAL (CIVIL DIVISION)

ON APPEAL FROM MR JUSTICE LAWS

Royal Courts of Justice

Strand, London, WC2A 2LL

Date: Friday 11th December 1998

B e f o r e :

LORD JUSTICE SIMON BROWN

LORD JUSTICE OTTON

and

LORD JUSTICE SCHIEMANN

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	BYRNE AND BYRNE	Appellants
	- and -
	HALL PAIN & FOSTER (a Firm) & Ors	Respondents

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(Handed down transcript of

Smith Bernal Reporting Limited

180 Fleet Street, London EC4A 2HD

Tel: 0171 421 4040 Fax: 404 1424

Official Shorthand Writers to the Court)

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Mr P McCormick (instructed by Anderton & Co., Portsmouth for the Appellants)

Mr A Parsons (instructed by Grindeys, Stoke-on-Trent for the Respondents)

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J U D G M E N T

(As approved by the court)

©Crown Copyright

LORD JUSTICE SIMON BROWN:

This appeal raises a short point concerning the date of accrual of the cause of action, for the purposes of the applicable six year limitation period, in relation to a claim in tort for damages for professional negligence brought by a purchaser of property against a firm of valuers. More particularly the question raised is whether the cause of action accrues when contracts are exchanged or when the purchase is completed. Laws J below held in the defendants’ favour that time begins to run when contracts are exchanged so that the plaintiffs’ action fell to be struck out as statute barred. The plaintiffs now appeal by leave of the single Lord Justice.

With that brief introduction let me set out the few material facts and indicate the circumstances in which the point comes before the court.

The plaintiffs proposed to purchase a residential flat in Portsmouth. Their mortgagees commissioned a valuation report from the first defendant firm. On 2nd June 1988 the second defendant, a chartered surveyor employed by the first defendants, inspected the property and prepared a written report. The plaintiffs did not seek an independent report for themselves. It is pleaded on their behalf (and for present purposes their pleaded case must be assumed factually correct) that they relied on the first defendants’ report commissioned by the building society. So relying on it, they exchanged contracts to purchase the lease of the flat on 8th July 1988. Completion took place a fortnight later on 22nd July 1988. Thereafter defects in the property came to light. They were defects which the plaintiffs say should have been detected when the second defendant inspected the flat and accordingly should have been described in the report. That not having been done, the plaintiffs’ case is that the defendants’ valuation report was negligently made, and in purchasing the flat in reliance upon it they have suffered loss. Prominent amongst the defects which they say should have been discovered and revealed by the report were problems relating to condensation and/or water penetration. Although it is difficult to discover from the plaintiffs’ pleadings precisely how they put their claim for damages, Mr McCormick tells us that the measure of damage sought is the difference between the price paid for the property (£38,500) and its value as it should have been described (which he asserts to have been some £26,000).

The plaintiffs’ writ was issued on 18th July 1994, that is to say more than six years after exchange but less than six years after completion. The primary limitation period is all-important here. The plaintiffs acknowledge that they cannot take advantage of the extended period under s.14A of the 1980 Act: all the relevant facts were known to them well before 19th July 1991 (three years prior to the issue of the writ).

Having pleaded that the plaintiffs’ claim is barred by s.2 of the 1980 Act, the defendants applied under RSC order 18 r.19 for the action to be struck out. On 15th January 1998 the district judge refused the application, concluding that the law was not sufficiently clear to justify striking out the claim as frivolous, vexatious or an abuse of process. On 7th April 1998 Laws J allowed the defendants’ appeal. On the substantive issue he held that:

"... the plaintiffs’ cause of action in this case accrued at exchange of contract. On that date the plaintiffs by their irrevocable commitment to the purchase of the flat suffered damage by virtue of the defendants’ putative negligence sufficient to crystallise or complete their cause of action."

As to the procedural objection that the case is not sufficiently clear to justify striking out the action under order 18 r.19 - see paragraph 18/19/11 at page 349 of the Supreme Court Practice (1999 Vol.1) - Laws J said this:

"... the argument would mean that merely because the law is doubtful or difficult I should decline to decide the point on this strike-out appeal. Were I to take that course, the case would go to trial and the trial judge would have to decide it. That cannot possibly be right. The question, from what date time runs in this case, is discrete and specific. I am clearly in as good a position to decide it as would be the trial judge, and it is in the parties’ interest that I do so. As I understand it, it has never been the law that because a strike-out application may turn on a difficult legal point, that itself requires the court to refuse the application. Indeed some of the common law’s seminal cases, such as Donoghue v Stevenson and Dorset Yacht, were decided on such applications or as preliminary points before trial. The right approach is for the court to proceed on the footing that all the factual allegations made by the plaintiff are true and then decide whether the plaintiffs’ case is arguably sustainable. If at law it is doomed to failure, it should be struck out."

Although before this court the plaintiffs have returned to the procedural point (which, indeed, they were given express leave to argue), Mr McCormick has been content to rely upon his written argument and not to press the matter in oral submission. His essential contention is that the order 18, r.19 procedure is inappropriate to resolve a difficult and novel point of law of general public interest. For my part I would reject this contention. No doubt it is more conventional to decide such points by way of preliminary issue under order 33 r.3. Given, however, that no evidence was required, that would have brought no possible advantage. In short, I find myself in full agreement with Laws J’s view upon this question. It is also, I believe, supported by what Lord Templeman said in Williams & Humbert v W & H Trade Marks [1986] AC 368 at 436. I accordingly turn to the central point at issue.

It is perhaps surprising that this point has not previously been decided. Whilst, however, both sides can point to various dicta in the authorities suggesting one conclusion rather than the other, neither can point to a case where the distinction between exchange and completion was, as it is here, decisive.

It is convenient to start by noting what Jackson and Powell on Professional Negligence (4th Edition 1997) have to say upon the issue. Paragraph 1-114 reads:

"Where a person purchases property in reliance on a survey report which fails to disclose material defects, the courts have repeatedly held that the measure of damages is the difference between the price paid and the value of the property as it ought to have been described. Quite consistently with this approach, Judge Hawser QC held in Secretary of State for the Environment v Essex Goodman & Suggitt [1986] 1 WLR 1432 that the cause of action accrued when the plaintiffs acted in reliance on the survey report (and became irrevocably committed to lease the property in question). In the case of a house purchaser, the cause of action would normally accrue when contracts are exchanged. This approach was adopted in Horbury v Craig Hall & Rutley [1991] CILL 692."

Strongly though that paragraph appears to support the defendants’ argument, there are these comments to be made about it. First and most obviously, neither of the cases there referred to binds us: both were decided by official referees ( Horbury by Judge Bowsher QC). Second, it appears from consideration of the facts of those cases that in any event it probably mattered not whether time started to run at exchange or completion: the real issue in Essex Goodman was whether it started to run from some later date entirely i.e. when physical damage occurred, and in Horbury (where the proposition that time ran from exchange went by concession) the issue was whether the plaintiffs could rely on s.14A of the 1980 Act.

Those comments notwithstanding, the defendants are entitled to point to this passage in Judge Hawser’s judgment at page 74:

"In my judgment, the submissions of counsel for the third defendants correctly state the law in cases where the duty is simply that of taking reasonable care to ensure that the damage is reported to the client. In my opinion, this is such a case. If the damage had not occurred at the date of the report, the third defendants would not be liable at all. If it was then in existence and reasonably discoverable, they would have been liable immediately the plaintiffs committed themselves to the lease."

Judge Hawser there was evidently accepting the defendants’ central submission that the plaintiffs’ cause of action accrues at the point when they become irrevocably committed to the lease.

Emmet on Title (Vol. 1, release 34, paragraph 1.065) adopts the same approach, also in reliance on Essex Goodman :

"In principle, time runs in respect of a negligent survey as from the date of reliance on the report (e.g. by exchanging contracts) not from the occurrence or discovery of damage or defects."

I next pass briefly to a small group of cases relied on by Mr McCormick for the language in which the judgments are expressed, the language of completion. Perry v Sidney Phillips & Son [1982] 1 WLR 1297 was a Court of Appeal decision affirming a line of authority to the effect that in ordinary cases involving the purchase of property at a price in excess of its market value as a result of wrong advice the measure of damage “is simply the difference between what the plaintiff paid for the property and its value at the date when he obtained it” (per Oliver LJ at page 1304). He “obtained it” at completion, submits Mr McCormick.

Westlake v Bracknell District Council [1987] 1 EGLR 161 was the decision of a Deputy High Court judge that in a surveyor’s negligence case time started to run when the property was purchased and not some eight years later when the plaintiffs issued their writ:

"It is clear that the plaintiffs have suffered damage by reason of this negligence because they have bought a house which has proved to be unsaleable by reason of the defective floor. This state of affairs came into existence as soon as they completed their purchase in July 1975 which is the date at which I find that the cause of action accrued."

Sullivan v Layton Lougher & Co [1995] 49 EG 127 was another Limitation Act case concerning an eight year delay between purchase and writ. The negligence there was that of the plaintiff’s solicitor in failing to advise him that the lease in question, having already been extended under the Leasehold Reform Act 1967, could not be further extended. Leggatt LJ said that:

"... time ran from completion and not from any subsequent date, with the result that it had run in favour of the defendants by the time the writ was issued."

In none of these three cases did any issue arise requiring the court to determine, as between exchange and completion, the date at which the cause of action accrued.

I come finally to two decisions of the House of Lords which, it is suggested, contain important conflicting dicta on the point. First, Smith v Bush [1990] AC 831 where, at page 852, Lord Templeman said this:

"Mr Hague [counsel for the surveyors] also submitted that there was no contract between a valuer and a purchaser and that, so far as the purchaser was concerned, the valuation was ´gratuitous,’ and the valuer should not be forced to accept a liability he was unwilling to undertake. My Lords, all these submissions are, in my view, inconsistent with the ambit and thrust of the Act of 1977. The valuer is a professional man who offers his services for reward. He is paid for those services. The valuer knows that 90 per cent. of purchasers in fact rely on a mortgage valuation and do not commission their own survey. There is great pressure on a purchaser to rely on the mortgage valuation. Many purchasers cannot afford a second valuation. If the purchaser obtains a second valuation the sale may go off and then both valuation fees will be wasted. Moreover, he knows that mortgagees, such as building societies and the council, in the present case, are trustworthy and that they appoint careful and competent valuers and he trusts the professional man so appointed. Finally, the valuer knows full well that failure on his part to exercise reasonable skill and care may be disastrous to the purchaser. If, in reliance on a valuation, the purchaser contracts to buy for £50,000 a house valued and mortgaged for £40,000 but, in fact worth nothing and needing thousands more to be spent on it, the purchaser stands to lose his home and to remain in debt to the building society for up to £40,000."

Smith v Bush , of course, is the very case which established the potential liability in tort of the mortgagees’ valuers to the purchaser - the foundation of the plaintiffs’ claim in the present action - and, submits Mr Parsons for the defendants, Lord Templeman can be seen pointing to exchange rather than completion as the stage when the cause of action arises. Not so, argues Mr McCormick: Lord Templeman was there using the term “contracts to buy” as an omnibus expression encompassing either exchange or completion; it mattered not which it was: what mattered was that a duty of care should be held to exist because of the purchaser’s likely reliance on the mortgagees’ valuation. I accept Mr McCormick’s submission: essentially the case was concerned with the duty of care rather than damage; certainly it was not directed to the question of when, as between exchange and completion, damage is first sustained.

The second House of Lords decision is the authority upon which Mr McCormick principally relies, Nykredit Plc v Edward Erdman Ltd [1997] 1 WLR 1627, and in particular the following passage from Lord Nicholls’ speech at page 1630:

"Accrual of a cause of action: actual damage

As every law student knows, causes of action for breach of contract and in tort arise at different times. In cases of breach of contract the cause of action arises at the date of the breach of contract. In cases in tort the cause of action arises, not when the culpable conduct occurs, but when the plaintiff first sustains damage. Thus the question which has to be addressed is what is meant by ´damage’ in the context of claims for loss which is purely financial (or economic, as it is sometimes described).

In Forster v Outred & Co. [1982] 1 WLR 86, 94, Stephenson LJ recorded the submission of Mr Stuart-Smith QC:

´What is meant by actual damage? Mr Stuart-Smith says that 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; 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 ... 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.’

Stephenson LJ, at p.98, accepted this submission. I agree with him. I add only the cautionary reminder that the loss must be relevant loss. To constitute actual damage for the purpose of constituting a tort, the loss sustained must be loss falling within the measure of damage applicable to the wrong in question.

Take first a simple case which gives rise to no difficulty. A purchaser buys a house which has been negligently overvalued or which is subject to a local land charge not noticed by the purchaser’s solicitor. Had he known the true position the purchaser would not have bought. In such a case the purchaser’s cause of action in tort accrues when he completes the purchase. He suffers actual damage by parting with his money and receiving in exchange property worth less than the price he paid.

In the ordinary way the purchaser in this example will not know of the negligence of his valuer or solicitor when completing the purchase. Despite this his cause of action arises at the date of completion and time begins to run for limitation purposes."

There, submits Mr McCormick, Lord Nicholls is in terms addressing the question as to when damage is first sustained by a purchaser so that his cause of action in tort accrues against the negligent valuer, and his answer is “when he completes the purchase”, which is when he “suffers actual damage by parting with his money”.

This to my mind is undoubtedly the high-water mark of the appellants’ argument. Completion rather than exchange is the concept three times referred to by Lord Nicholls at the conclusion of that passage.

In my judgment, however, the argument fails. For the purposes of Lord Nicholls’ illustration in Nykredit it mattered not, any more than in all the other cases cited, whether time ran from completion or exchange. The issue in Nykredit was when the plaintiff bank’s cause of action had arisen, and the decision was that it arose when a relevant and measurable loss had first been revealed. There, since the borrower had defaulted at once and the amount lent had at all times exceeded the value of the property, that had been at or about the time of the loan transaction. The critical point to note, however, is that the action there was by a lender complaining that in reliance on the defendant’s negligence he had made a bad loan, whereas the present action is by a purchaser the essence of whose complaint is that he bought a bad property. Because it is altogether less certain whether and when loss will be suffered by badly-advised lenders than in the case of badly-advised purchasers, the cases are treated differently. The contrast was, indeed, struck by Lord Nicholls himself shortly after the passage above quoted:

"More difficult is the case, where, as a result of negligent advice, property is acquired as security. In one sense the lender undoubtedly suffers detriment when the loan transaction is completed. He parts with his money, which he would not have done had he been properly advised. In another sense he may suffer no loss at that stage because often there will be no certainty he will actually lose any of his money: the borrower may not default. Financial loss is possible, but not certain. Indeed, it may not even be likely. Further, in some cases, and depending on the facts, even if the borrower does default the overvalued security may still be sufficient."

This is also the answer to such submissions as Mr McCormick makes in reliance upon passages in the judgments of the Court of Appeal in UBAF Limited v European American Banking Corporation [1984] QB 713 and First National Bank Plc v Humberts [1995] 2 All ER 673. Both of those were lending cases and both, indeed, were discussed as such in Nykredit.

Let me return to Lord Nicholls’ illustration of the house purchaser. The central point which I apprehend was there being made is that the purchaser is on any view damaged by purchasing in reliance upon a negligent over-valuation. But for that he “would not have bought.” No more would he have exchanged contracts to buy. “He suffers actual damage by parting with his money and receiving in exchange property worth less than the price he paid.” But I can see no distinction in principle between “parting with his money and receiving in exchange property” at completion and, as will generally occur on exchange, paying a deposit and becoming committed to pay the balance on completion. True, it is not until completion that the purchaser receives the property in the sense of the legal estate in the property. On exchange, however, he obtains a very real interest in the property and, for example, must insure it.

In the last analysis Nykredit to my mind assists the defendants’ argument rather than the plaintiffs’. Lord Nicholls, like Stephenson LJ in Forster v Outred , accepted Mr Stuart-Smith’s formulation of the meaning of actual damage. One looks, therefore, for “any detriment, liability or loss” including “liabilities which may arise on a contingency” and “losses incurred from onerous provisions or covenants in leases” subject only to the loss being “a relevant loss” i.e. one “falling within the measure of damage applicable to the wrong in question.” Here, I repeat, the plaintiffs on exchange became irrevocably committed to acquiring the lease, a lease worth less than they reasonably believed, and one which they would not have committed themselves to acquire but for the defendants’ negligent report. That, as it seems to me, plainly resulted in “actual (as opposed to potential or prospective) loss or damage of a kind recognised by the law”, as Saville LJ expressed it in First National Commercial Bank Plc v Humberts at page 676.

In my judgment it is no answer to this to say that not every exchange results in completion so that the plaintiffs might perhaps in the event have escaped from their commitment without loss. The fact is that they did not do so and there was no reason to suppose that they would. Nor does it seem to me any answer to say that property prices could have increased between exchange and completion sufficiently to outweigh the depreciating effect of the unrevealed defects. Mr McCormick submits that the loss crystallises only at completion and it is the market value of the property at that date that one must compare with the price paid. I see no good reason why. By the same token that he would ignore any movement in the property market after completion, I would ignore it after exchange. The valuation in the report will necessarily relate more closely to that of the property at exchange than at completion; by exchange the purchase price will be fixed and agreed; and by his commitment to the transaction at exchange the purchaser will effectively have locked himself into the property market at that point.

In advancing this appeal Mr McCormick took the Court to a great range of further authorities dealing with speculative damage, physical damage, recurrent damage, and many other aspects of damage. Suffice it to say that none of them to my mind provide the least help in resolving the point presently at issue. This is a case of tortiously induced economic loss. For the reasons given, which in substance are the same as those given by the judge below, I too would hold that the cause of action in these cases accrues when contracts are exchanged. I would accordingly dismiss this appeal.

LORD JUSTICE OTTON:

A tort is only actionable on proof of damage; there is no cause of action, and time does not begin to run for limitation purposes until some damage actually occurs. Thus in cases of negligence time runs from the date of damage, not from the negligent act or omission. However, the cause of action ‘accrues’ when the damage occurs not when it is discovered by the plaintiff. In Cartledge v E Jopling & Sons Ltd [1963] AC 758 the plaintiff was exposed over a number of years to noxious dust caused by breach of statutory duty and as a result contracted pneumoconiosis. The plaintiff could not prove that a breach had occurred during the 6 years (the then limitation period) preceding his writ. Although the disease had not revealed itself until later the plaintiff had in fact suffered actionable injury to his lungs within the 6 year period. The House of Lords held that his claim was statute-barred.

Until 1983 the Courts proceeded on the basis that economic loss occurred at (and the limitation period began to run from) the date when the damage was reasonably discoverable (see Sparham-Souter v Town Developments [1976] QB 858 C.A.) However, in Pirelli General Cable Works Ltd v Faber & Ptners [1983] 2AC 1 the House of Lords held that a cause of action in tort for negligent advice given by an engineer in relation to the design of the chimney accrued (and the limitation period began) when the damage occurred (i.e. when there were cracks in the chimney) - rather than when the damage was reasonably discoverable. Thus the action became time barred even though the plaintiff owner neither knew of the cracks nor could reasonably have been expected to discover them within the 6 year period.

Their Lordships recognised that its rejection of the discoverability test for when time started to run could cause injustice to plaintiffs who could be deprived of their cause of action before they knew of its existence.

They were not prepared to overrule Cartledge & Jopling. They indicated that this unsatisfactory situation could only be remedied by statute so as to remove the injustice of plaintiffs being statute-barred before they had the means of knowing of their causes of action for personal injury, death or other negligently-caused damage such as economic loss. They called for a legislative solution.

Section 1 and 2 of the Latent Damage Act 1986 amended the Limitation Act 1980 so that by s 14A(1) of the 1980 Act the limitation period for negligent latent damage (other than for personal injury) was made more favourable to plaintiffs by extending it to either 6 years from when the cause of action “accrues” or 3 years from the date of the plaintiff’s “knowledge” whichever is the longer (with an absolute long-stop of 15 years from the defendant’s breach of duty). Unlike the regime for personal injury and death there is no discretion to disapply any of these time limits.

This reform was not confined to defectively designed or constructed buildings. Latent pure economic loss caused by the negligent advice of a solicitor falls within its provisions (see Forster v Outred & Co [1982] 1 WLR 86).

In the instant case the plaintiffs could not avail themselves of the “knowledge” protection. To bring themselves within s 14A (b) they had to show that they did not have “the knowledge required for bringing an action for damages in respect of the relevant damage” until, at the earliest, 19 July 1991 (3 years prior to the date of issue of the writ). From their own evidence they were well aware of serious defects in the flat well before July 1991; they began to suffer problems with damp and water penetration from the winter of 1988 onwards.

Thus the critical question arose as to when their cause of action arose. There can be little doubt that the negligent act or omission occurred on the occasion of the inspection on 2 June 1988. The plaintiffs were informed of the valuation shortly afterwards. The communication of the valuation to the plaintiffs still did not amount to a tort. Their cause of action arose when they acted on it and thereby suffered damage. This occurred, in my judgment, when they signed and then exchanged contracts. For all intents and purposes they were irrevocably bound to complete the purchase whenever that event took place, whether immediately after exchange or at the date agreed between them. From the moment that they exchanged the plaintiffs acquired an interest in the property (it matters not for the purposes of this case whether this was technically an equitable rather than a legal interest). They acquired an immediate and binding obligation to insure the property.

None of the remote events which might have led to rescission of the contract of sale, or completion not to take place, occurred. Thus completion was only a formality. Both the seller and the plaintiffs could have held the other to the deal and enforced their rights by a suit for specific performance. On exchange they acquired a lease which was worth less than they were led to believe by the report and upon the strength of which they agreed to purchase.

I can find no inconsistency between this approach and the previous decisions where lenders have sued in negligence for negligent valuation. Applying the principles set out above the tort is not complete until the lender suffers damage. This can occur (for example) when the borrower defaults. Until then the lender had not suffered any “actual (as opposed to potential loss or damage of a kind recognised by the law” per Saville LJ in FNCB plc v Humberts [1995] 2 AER 673 (at p.676).

Accordingly I too would dismiss the appeal.

LORD JUSTICE SCHIEMANN: I agree with both judgments.

Order: Appeal dismissed with costs; application for

leave to appeal in the House of Lords refused.