Case No: A3/2010/1907
Neutral Citation Number: [2011] EWCA Civ 547
IN THE COURT OF APPEAL (CIVIL DIVISION)
ON APPEAL FROM THE HIGH COURT OF JUSTICE
QUEEN’S BENCH DIVISION
LONDON MERCANTILE COURT
HIS HONOUR JUDGE MACKIE Q.C.
[2010] EWHC 2066 (Comm)
Royal Courts of Justice
Strand, London, WC2A 2LL

Date: 11 May 2011
Before:

LORD JUSTICE WARD
LORD JUSTICE LLOYD
and
MR JUSTICE LEWISON
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Between:

	JOHN LANE	Claimant
Appellant	
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	(1) CULLENS SOLICITORS
(2) BOWLING & CO LLP
(3) BOWLING & CO (SOLICITORS) LLP	
Defendants
Respondents	
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 (Transcript of the Handed Down Judgment of
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Simon Howarth (instructed by William Graham Law Ltd) for the Appellant
Jamie Carpenter (instructed by Weightmans LLP) for the Respondents

Hearing date: 19 April 2011
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Judgment

Lord Justice Lloyd: 
1.	This appeal raises again the question when a cause of action in tort arose, being a claim in negligence against solicitors.  His Honour Judge Mackie Q.C. sitting in the London Mercantile Court held that the Claimant’s cause of action had arisen more than 6 years before the issue of the Claim Form, and he therefore struck out the negligence claim.  For the Claimant it is argued that this was wrong, because the negligence did not cause anything which amounted in law to damage until a date within the 6 year period.  The Claimant appeals with permission granted by Etherton LJ.
2.	The Claimant is the brother of the late Mrs Doris Elizabeth Edith Eason, who died on 22 January 1997.  He became her personal representative, under a grant of letters of administration made on 2 August 2000, on the basis that she died intestate.  Her next of kin were the Claimant, another brother, Mr Frederick Lane, and the two children of her sister, Mrs Ellen Hobson, who had died in 1995, who are Mr Paul Hobson and Mrs Ann Hannah.  Thus, under the intestacy her estate was divisible as to one third to each of the brothers and as to one sixth to each child of the deceased sister.  The net estate was just over £61,000, of which almost £55,000 represented the net proceeds of sale of a freehold property which had been her home, 4 Shurland Avenue, Leysdown, Kent.
3.	Mrs Eason did in fact leave a will dated 5 December 1993, under which her entire estate would have gone to Mrs Hannah.  However, it became clear that the will had not been properly executed, and it was therefore invalid.  It was so declared by a District Judge in the Principal Registry of the Family Division on 1 March 1999, by agreement.  The Claimant had lodged a caveat, and the proceedings resulting from that came to an end by a further order dated 4 July 2000 by which he was to be granted letters of administration if he applied for a grant, as he then did.
4.	The Claimant instructed the First Defendant, Cullens, to act as his solicitors in relation to the administration of the estate.  It is unnecessary to distinguish between the various Defendants for present purposes.  It is said that Mr Cullen stopped practising as Cullens at the end of February 2001, and became a consultant with Bowling & Co., but he went on acting for the Claimant after that date.
5.	There was more to Mrs Eason’s intended testamentary gift to Mrs Hannah than was immediately apparent.  In October 1998, through solicitors, Mrs Hannah asserted a right that was independent of the will, based on an express or a constructive trust created before Mrs Eason’s death, or on proprietary estoppel, and said to be binding on the estate in relation to the freehold property.  She sought to be appointed as a personal representative in order to give effect to the obligation in her favour, and said that if her claim was not accepted she would seek a declaration from the court to that effect.  For a time she had legal aid to assert that right, and her solicitors said that she would seek a declaration from the court that she was entitled to the whole estate.  However, her legal aid was revoked in September 1999.
6.	Once the Claimant had become the administrator of the estate he proceeded to realise the assets and pay debts and liabilities.  By February 2001 he was in a position to make payments to beneficiaries.  Mr Cullen paid £10,000 to each of the Claimant and his brother in February 2001 out of the estate account and a further £10,000 to each of them in March 2001.
7.	In April 2001, however, Mrs Hannah issued proceedings claiming to be entitled to the whole estate.  The basis of this claim, as set out in the Particulars of Claim, was this, in summary.  Mrs Eason had been close to Mrs Hannah.  Shortly after the death in October 1993 of Mrs Eason’s mother, Mrs Eason gave her freehold property to Mrs Hannah, subject to a licence giving Mrs Eason the right to live there for the rest of her life.  Mrs Hannah became the registered proprietor of the property at the end of December 1993 as a result of this transfer.  The invalid will was made at about the same time.
8.	In 1994 Mrs Eason became unwell and had to spend some time in hospital.  On her recovery there were discussions with the local social services department about public funding for modifications to the property to make it easier for her to live in.  This could be done, but only if Mrs Eason was the owner of the property.  Therefore Mrs Hannah agreed to give the property back to Mrs Eason, on the understanding that Mrs Eason’s entire estate was to go to Mrs Hannah on her death (as it would have done if the will already made had been valid).  The property was transferred back to Mrs Eason and the modifications were done, paid for by the local authority.  On that basis Mrs Hannah asserted a proprietary estoppel claim to the entire estate, or alternatively to the property alone.  
9.	By her Claim Form and Particulars of Claim she claimed a declaration that the entire estate was held on trust for herself, an order that the present Claimant and his brother provide to Mrs Hannah an inventory of all chattels belonging to the estate that had come into their possession, and an order restraining the present Claimant from distributing the shares shown in the distribution account pending determination of the proceedings.  Of course, by then £40,000 had already been distributed, but it seems probable that Mrs Hannah did not know of that.
10.	The details of her claim had not previously been disclosed, but no doubt if anyone had thought to ask Mrs Hannah’s solicitors about the basis of the claim when it was first asserted, much of that would have been explained.
11.	Mr Cullen did not feel able to handle the defence of the proceedings, but suggested to the Claimant that another solicitor at Bowling & Co could do so.  The Claimant went to see another solicitor in due course, who wrote to him in June 2001.  He expressed himself as “not at all optimistic that you will be successful in defending this litigation”.  He would have been willing to act but required £1,000 on account of costs, which the Claimant said he could not afford to pay.  In April 2002 Mrs Hannah obtained a public funding certificate.  Neither the Claimant nor his brother had taken any step in the action. 
12.	On 14 October 2002 Mrs Hannah obtained an order from Master Bowman, in the absence of any representation on the part of any Defendant, by which the court declared that the estate of Mrs Eason was held on trust for Mrs Hannah, ordered the Claimant to file an account of what had become of the estate, and also ordered the Claimant to pay the costs of the claim, to be assessed in detail.  Later, on 2 June 2003, the same Master made an order that the Claimant and his brother each pay £20,000 to Mrs Hannah by 31 July 2003, with interest at the judgment rate from the date on which the payment on account was made.  The Claimant attended that hearing in person.  In January 2005, Mr Frederick Lane having failed to repay the sum due from him, a further order was made, the Claimant being represented by solicitors on this occasion, that the Claimant do pay to Mrs Hannah the sum of £20,000 which should have been repaid by his brother.
13.	At the heart of the Claimant’s case against the Defendant solicitors is the contention that he should have been warned not to distribute any money to any beneficiary given the claim which had been asserted by Mrs Hannah and not withdrawn.  That is a convincing claim on the facts as I have described them.  It is unnecessary to consider whether there might be any defence on the merits.  The only question is whether the claim is barred by the Limitation Act, as not having been brought within 6 years of the accrual of the cause of action.
14.	On the facts as they now appear, as a result of the order of 14 October 2002, although the Claimant was the administrator of the estate, he held the whole of the net estate on trust for Mrs Hannah, because of her proprietary estoppel claim, the gift to her by will having failed.  Accordingly, it is said that as soon as any payment was made out of the estate account to a beneficiary, he suffered loss because he was liable to repay that sum to the true owner, Mrs Hannah.  
15.	Essentially, that was the basis on which Judge Mackie decided the case.  He referred to Guardian Trust & Executors Co of New Zealand Ltd v Public Trustee of New Zealand [1942] AC 115.  In that case the trustee company had assisted an elderly lady to make a will, under which it was the executor, and acting as such it made payments to beneficiaries under the will, despite having notice of claims by her next-of-kin that the will was invalid for want of capacity.  It did so having given a statutory notice which it wrongly supposed would protect it against claims by the next-of-kin.  Lord Romer, giving the opinion of the Privy Council, said that the issue of the liability of the trustee to refund the sums paid out had to be decided according to the well established principles of equity.  He said, at page 127:
“One of those principles is that if a trustee or other person in a fiduciary capacity has received notice that a fund in his possession is, or may be, claimed by A, he will be liable to A if he deals with the fund in disregard of that notice should the claim subsequently prove to be well founded.”
16.	The present Claimant was in exactly that position, Mrs Hannah having asserted her claim as early as 1998, and his dealings with the fund in 2001 by paying sums to himself and his brother being inconsistent with and in disregard of the notice of Mrs Hannah’s claim.
17.	On that basis, the judge held that the Claimant’s cause of action in tort accrued when the first payment was made in February 2001, and it was therefore barred before the issue of the claim form.
18.	For the Claimant, Mr Simon Howarth contended that, although he had made payments, as personal representative, to himself and to his brother, he had not altered his legal position by those payments, and that a change to his legal position would not occur unless and until Mrs Hannah established her adverse rights and made a claim against the Claimant which would require him to refund any part of the distribution.  He emphasised the last words in the quotation from Lord Romer: “should the claim subsequently prove to be well founded”.
19.	He also relied on Law Society v Sephton [2006] 2 AC 543, where the society’s liability, said to have been caused by the defendant accountant’s negligence, was held to be contingent until a claim was made against the compensation fund, so that no loss was suffered until then.  He drew on the speeches in the House of Lords in that case for some passages which he used to reinforce his argument.  Thus, Lord Hoffmann said at paragraph 31:
“But I would prefer to put my decision on the simple basis that the possibility of an obligation to pay money in the future is not in itself damage.”
20.	In turn from Lord Mance, at paragraph 82, he took the phrase (from comments about another case, not directly about Sephton itself) “there was … no change in the claimant’s legal position”.
21.	He also argued that the nature of a claim by way of proprietary estoppel is that it is inchoate until the court determines what, if any, remedy should be awarded to give effect to the equity, or the position is resolved by agreement.  Therefore, even if Mrs Hannah had a strong case on the merits, he argued that it would not be known what her entitlement (if any) was to be as against the estate until the position was resolved, in this case by the court’s order.
22.	In the course of the helpfully succinct oral arguments at the hearing from Mr Howarth and from Mr Carpenter for the Defendants, attention came to be focussed on the nature of the third party claim to which the Claimant was exposed, and on the fact that, unlike the Law Society, the Claimant in the present case had, on the face of it, altered his position, as personal representative, by distributing £40,000 out of the estate in favour of beneficiaries as a consequence of the Defendant’s failure to advise him not to do so because of the notice he had of Mrs Hannah’s claim.
23.	It seems to me that by making those payments out of the estate bank account, the Claimant had altered his position.  Beforehand, as personal representative, he held the net estate, of just over £61,000, which was available to meet any outstanding claims.  As personal representative he was exposed to any such claim, but he had in hand, in his capacity as personal representative, the funds required to meet any claim.  Afterwards, he remained exposed to any claim of which he had had notice before the distribution, and he did not have the funds available with which to satisfy any claim which was pursued and made good.
24.	Of course, it remained to be seen whether the third party claim which had already been notified would be pressed and, if so, whether it would be made good.  However, Mr Howarth accepted that, if the notified claim had been for a common law remedy based on a right accrued from facts occurring before the death of Mrs Eason, for example for breach of contract, then parting with the money would have caused immediate loss to the Claimant.  In such a case the only remaining contingencies would have been whether the notified claim was pursued and, if so, whether it was proved.  He accepted that pursuit and proof of a claim of that kind could not be regarded as a contingency for this purpose.
25.	By contrast, he argued that if the claim had been purely under the Inheritance (Provision for Family and Dependants) Act 1975, so as to depend entirely on the court’s discretion exercised at the time of the hearing, that would be fully contingent because the third party would have no accrued right (other than to assert a claim), and the making of an order upon such a claim was a future, uncertain and therefore contingent event.  He submitted that a proprietary estoppel claim, which is what Mrs Hannah asserted by her proceedings as eventually issued, was to be regarded as similar to a claim under the 1975 Act for this purpose, not to a common law or even an equitable claim which had (if valid) accrued on or before the death of the deceased.
26.	Mr Howarth criticised the judge for his reliance on a passage from the judgment of Stanley Burnton LJ in Spencer v Secretary of State for Work and Pensions [2008] EWCA Civ 750, [2009] QB 358 at paragraph 51:
“In a sense, Mr Spencer’s Francovich cause of action was contingent: if well founded, it could be said to have been contingent on Boots not having been negligent and not having committed a relevant breach of the Manual Handling Regulations but having been in breach of the Management and Health and Safety at Work Regulations.  But these are not true contingencies, in the sense of events that may or may not occur.  They are facts that occurred when he suffered his injury.  There may be cases where such facts are undisputed; there will be cases where they are the subject of dispute.  But the existence of a dispute does not detract from the fact that they have already occurred.”
27.	I would not accept Mr Howarth’s criticism of the judge in this respect.  That passage shows that a fact which has already occurred is not contingent, and it makes no difference that it is in dispute so that it has to be proved (and therefore might not be proved, in the end).
28.	Mr Howarth is right to observe that a proprietary estoppel claim which is made out may leave the court with a choice of different ways in which to give effect to the equity established by the estoppel.  He showed us Jennings v Rice [2002] EWCA Civ 159, [2003] 1 P&CR 8 in which Robert Walker LJ discussed the approach of the court to satisfying such an equity once it is made out, with reference (among other materials) to an article by Mr Simon Gardner, The Remedial Discretion in Proprietary Estoppel, (1999) 115 LQR 438.  (That case itself was the subject of further comment by Mr Gardner, in turn, in The Remedial Discretion in Proprietary Estoppel – Again, (2006) 122 LQR 492.)  Robert Walker LJ’s review makes it clear that the way in which the equity should be satisfied will depend very much on the nature of the facts on which the equity is based, and on other surrounding circumstances.  He refers to a not uncommon type of case where a carer has the expectation of inheriting the benefactor’s house, in which, absent other significant factors, the natural response is to fulfil the expectations arising from the representations made.
29.	That is not quite this case, but this case could be said, on its facts, to be even stronger, since Mrs Hannah gave her property to Mrs Eason on the faith of a representation that she would get it back on her aunt’s death.  That was not, of course, a binding agreement, because it did not satisfy section 2 of the Law Reform (Miscellaneous Provisions) Act 1989, but it was very close to an agreement.  If there had been a binding agreement, then Mrs Hannah’s claim would have been in the category which Mr Howarth accepts as not being contingent.  (For a case involving such an agreement, see Schaefer v Schumann [1972] AC 572.)
30.	Mr Carpenter invited us to consider Yaxley v Gotts [2000] Ch 163, where an informal agreement for the grant of a long lease of a flat, invalid because not in writing, was nevertheless held to give rise to a constructive trust, so as to be saved by section 2(5) of the 1989 Act.  In that case too the judgment was given by Robert Walker LJ.  There too he referred to the width of the range of relief which may be granted when a claim by way of proprietary estoppel is established: see [2000] Ch page 175E-H.  There was an argument that for the court, by way of proprietary estoppel, to enforce an oral agreement which was rendered void by section 2 would be contrary to public policy.  That argument would not have been effective as against a claim by way of constructive trust, because of the saving in section 2(5).
31.	Later in his judgment Robert Walker LJ referred to the area of overlap between proprietary estoppel and constructive trust, and pointed out that they overlap in relation to some types of proprietary estoppel cases but not in all.  If a landowner stands by while his neighbour mistakenly builds on the former’s land there may be little in common with a constructive trust.  By contrast, in the type of case with which the court was concerned, he considered that the finding that there was an equity in favour of Mr Yaxley which should be satisfied by the grant of a long lease of the flat, also justified the conclusion that Mr Yaxley was entitled to such a lease under a constructive trust: see [2000] Ch at page 177E-G.  Beldam and Clarke LJJ agreed.
32.	On the facts asserted by Mrs Hannah in her proceedings, it seems to me plain that her claim would also have been recognised as capable of taking effect under a constructive trust.  Of course, we do not know what might have been said against the claim if it had been defended, or whether the outcome of the claim might have been different in any way.  Presumably the fact of Mrs Eason’s original gift to Mrs Hannah, the latter’s re-transfer of the property, and the carrying out of works of adaptation by the local authority would not have been in contention.  If those were accepted, the proposition that Mrs Hannah gave the property back on the faith of an agreement or understanding that she would inherit it on Mrs Eason’s death would not be far-fetched.  One possible issue might have been as to whether Mrs Hannah’s entitlement was to the whole estate or to the property, though of course under the original will, albeit invalid, she would have got the whole estate.
33.	Despite a degree of uncertainty as to the eventual outcome, it seems to me that the nature of Mrs Hannah’s claim was such that she could well have asserted it (as her solicitors’ original letter did) by way of constructive trust.  If so, then it also seems to me that it was in the category of cases which Mr Howarth accepts are vested rather than contingent, because they depend only on proof of matters which had occurred by the date of the relevant person’s death.
34.	On that basis, Mr Howarth’s challenge to the judge’s decision must fail.
35.	For my part, however, I would reach the same conclusion for a different reason, which does not depend on the nature of the third party claim of which the personal representative has notice at the time of the distribution.
36.	As I said in paragraph [23] above, at the beginning of February 2001 the Claimant had completed the task of collecting in the assets and paying the debts and liabilities of the estate.  Some £61,000 or so stood to the credit of the administration account maintained by Mr Cullen’s firm.  The Claimant had notice of a claim by Mrs Hannah which had not been pursued but had also not been withdrawn.  As personal representative he remained exposed to that claim, on the principle set out in Guardian Trust & Executors Co of New Zealand Ltd v Public Trustee of New Zealand, discussed above, unless and until it was withdrawn.  However, he had in hand the assets against which the claim could be asserted.  He was safe, in that sense, because he could hold on to the assets, no other assets could be answerable for the claim and, depending on his conduct of any defence, he had a reasonable prospect of being able to be indemnified out of the assets for the costs of defending a claim.
37.	By parting with £40,000 to himself and to his brother he altered that position significantly.  Having had the full amount in his possession he remained answerable to the claim for that amount.  But he did not have it in hand, so as to be able to satisfy any claim.  Even a distribution from himself as personal representative to himself beneficially might have been sufficient to alter the position.  It is unnecessary to consider that because, plainly, by making the distribution to his brother he parted with £20,000 for which he could be made accountable.  Unless he could be certain of recovering the funds from his brother (which evidently he could not), the very act of parting with the funds altered his position to his detriment.  Of course, he might have been safe, in the end, if Mrs Hannah had, for some reason, not asserted her claim, or had not been able to make it good.  But that seems to me to be in the category of matters which are not to be regarded as contingencies, as already discussed.  Accordingly, it seems to me that, for the Claimant as personal representative to have made a payment to his brother with notice of Mrs Hannah’s claim constituted damage suffered by him, sufficient to make good his cause of action in tort against the Defendants for failure to advise him not to make the distribution.
38.	In Law Society v Sephton the society had not made any payment out of its funds at any time relevant to the issue of limitation.  The only question was whether it had suffered damage because of the circumstances which led to the making of a claim on its compensation fund.  In that case it was relevant to consider whether the fact that the society’s compensation fund was exposed to the likelihood of a claim was sufficient to constitute damage.  In the present case it does not seem to me that that enquiry is necessary, because of the Claimant’s act in releasing funds from the administration account in favour of his brother. 
39.	The judge in his unreserved judgment held that the claim was out of time because loss was suffered as soon as the payments were made out of the administration account to the Claimant’s brother.  As appears from what I have said already, I agree with him on that.  The point about the nature of the third party claim may have been examined more elaborately on the appeal than before him, but, as I have indicated, I do not think that this affords any reason for saying that his conclusion was wrong.
40.	For those reasons, I would dismiss the appeal.
Mr Justice Lewison
41.	I agree.  In considering when a cause of action in tort accrues it is necessary to compare the claimant’s position as it was and as it would have been if the tort had not been committed.  In the present case the tort was Mr Cullen’s failure to advise Mr Lane not to distribute the estate.  Before that failure Mr Lane, in his capacity as administrator, had £61,000 in hand.  After that failure he had £21,000.  In his capacity as executor, therefore, he was £40,000 worse off.  In my judgment he had altered his legal position for the worse as a result of that distribution.  I do not regard the fact that Mrs Hannah had not (yet) proved her claim as amounting to a relevant contingency.  The facts on which her claim was based had all happened.  Nor do I regard the nature of the claim as relevant in this case.  Mr Howarth stressed the discretionary nature of the relief which the court is empowered to grant in satisfaction of an equity raised under the doctrine of proprietary estoppel.  But unless it could be plausibly argued that there was a real prospect that the court would grant no relief at all, even if all the facts had been proved, I do not think it matters what form that relief might have taken.  As it is, for the reasons given by Lord Justice Lloyd, Mrs Hannah’s claim was very close to a contractual claim or a claim based on a constructive trust.  Accordingly, for the reasons given by Lord Justice Lloyd, supplemented by this short footnote, I too would dismiss the appeal.
Lord Justice Ward
42.	I agree.