JUDGMENT of Mr. Justice Fennelly delivered the 7th day of June 2012.
1. The question on this appeal is whether the claim of the respondent (whom I will call “the plaintiff”) against the appellant (whom I will call “the Bank”) is statute-barred. The plaintiff claims damages against the Bank for the alleged “miss-selling” to him of an investment bond. The Court has been taken on an excursion through a large number of cases in which the English courts have grappled with the accrual of the cause of action in cases of financial loss. Our courts have not previously had to cope with these problems. The High Court of Australia has cast doubt on at least some of the English jurisprudence.
2. Kelly J gave liberty to the Bank to seek a preliminary determination, based on the pleadings, of whether the plaintiff’s claim was time-barred. The result of that determination will, we are told, govern a large number of claims pending in the Commercial Court. Charleton J decided that the claim was not statute-barred. He held that the plaintiff, assuming his claim to be a valid one, did not suffer any immediate loss when he purchased the bond, but faced only a contingent loss.
The Solid World Bond
3. In October 2003, the Bank advertised and marketed an investment bond under the name of “Solid World Bond 4.” The plaintiff invested €500,000 in the bond. Crucially, he borrowed that money from the Bank. His essential complaint is that he was induced to purchase a combined “borrow to invest” financial product which was completely unsuitable for him or for any investor as the investment would have had to far outperform the market if he were to get any return over and above the interest he had to pay on the sum he borrowed.
4. The Solid World Bond offered investors a 100% guarantee of the return of the amount invested linked to 80% of any net increase in the value of a “Deep Blue” basket of shares in ten specified companies each of which was claimed to be “renowned for its financial strength and for the wide marketability of its products and services.” The term of the investment was five years and eleven months. The bond could not be encashed during the term and no withdrawals were permitted prior to maturity. The terms of the bond provided for a degree of protection against negative movement in the value of the “Deep Blue Basket” by averaging over the last twelve months of the term. The shares were selected and specified in advance, but the investor’s money was not directly invested in them; it did not benefit from any share dividends; the shares were not actively managed; the bond passively tracked their progress; under normal conditions the basket was not to change over the term of the bond.
5. The plaintiff agreed to invest €500,000 in the bond. No additional charges were to be applied.
6. The Bank’s marketing document emphasised the high quality of the shares being tracked. It included a table showing spectacularly high returns over successive prior periods of five years and eleven months, but cautioned: “Past performance may not be a reliable guide to future performance. Investments may fall as well as rise in value.” The brochure said that the money was “invested in ACC Bank plc, a wholly owned subsidiary of Rabobank, an ‘AAA’ rated Bank.”
7. Contemporaneously with his investment in the bond, the plaintiff borrowed the entire sum of €500,000 from the Bank pursuant to a facility letter dated 26th September 2003. The amount of the loan was to be drawn down in one lump sum. The plaintiff was obliged to use it only to finance his investment in the bond. The term of the loan coincided with that of the bond.
The plaintiff’s complaint
8. The plaintiff commenced his proceedings by plenary summons on 10th June 2010, i.e., more than six years after he had made his investment. He claimed damages for negligence, breach of contract, breach of duty (including breach of statutory duty and of fiduciary duty), and negligent misstatement. He also claimed equitable rescission, no longer relevant as the claim in contract has been ruled out. It is not disputed that the proceedings were issued more than six years after the purchase by the plaintiff of the bond and of his entry into the loan transaction with the Bank.
9. By order dated 23 November 2011, it was ordered by consent that the plaintiff's claims “for breach of contract and Statute (under Fair Contract Terms) are statute barred.” The High Court judgment under appeal does not deal with the issue of fiduciary duty. The appeal before this Court was confined to whether the plaintiff’s claim in tort is statute barred. That will depend on when the plaintiff alleges that he suffered loss or damage.
10. The statement of claim was delivered on 25th May 2011. Paragraph 16 is headed: “The Wrongs committed by the Defendant.” It commences with the following paragraph, which was the central focus of the Bank’s case on the appeal, and which alleges that:
“Wrongfully and in breach of the various duties and contractual terms particularised ante the Defendant caused the Plaintiff to enter into transactions that were unsuitable for the Plaintiff and caused the Plaintiff loss and damage and the Defendant made the representations referred to above negligently. Without prejudice to the specific particulars set out hereunder the marketing of the SolidWorld Bond product as a borrow to invest product made it wholly unsuitable for the Plaintiff or indeed any investor. Given that the Plaintiff was borrowing money from the Defendant to invest in the product taking into account the cost of the said borrowing and the tax that the Plaintiff would have to pay on any gains, the product would have had to far out perform the market’s view of the likely performance of the basket of shares in order for the Plaintiff to make any or any significant gain.”
11. The foregoing paragraph is followed by “Particulars,” set out under eighteen headings. These particulars repeatedly emphasise that the bond and related loan agreement constituted a single transaction. It was a combined “borrow to invest” product. Complaint is made of lack of explanation of features of the product by the Bank and allegations are made of conflict of interest and that the Bank stood to profit hugely from the transaction.
12. The core of the plaintiff’s complaint, insofar as it is claimed to have caused loss to the plaintiff, is, however, that the product was not a “suitable product to borrow money to invest in and that it was most unlikely that the bond would deliver any return sufficient to offset the cost of the loan transaction.”
13. For present purposes, we are not concerned with particulars given of alleged misrepresentation such as failure to explain the downside potential for investments or exaggeration of the reliability of past performance of the basket of shares, the use of pressurised and misleading selling techniques and the like. These may be relevant to the issue of liability. For the purposes of the hearing of a preliminary issue such as the present, it must be assumed that these allegations will be borne out at the hearing and that the liability of the Bank will be established.
14. One aspect of these particulars, however, calls for comment. The plaintiff alleges that the Bank placed some 79% of the sum invested straight back on interest-bearing deposit, which “conferred no benefit on the plaintiff but which generated at least .75% fees per annum for the Bank” calculated on the difference between the interest charged to the plaintiff and the interest earned on the deposit. It is then pleaded that at least 4% was paid in fees to the defendant. Finally, it is claimed that the Bank, without informing the plaintiff, used the remaining 17% of the sum borrowed to purchase an option to cover the “upside promise and pay further commissions,” adding that, had the plaintiff known of the “small cost of the upside promise,” it would immediately have been apparent to him that it was most unlikely that the bond would deliver any significant return. These particulars relate in part to a possible claim that the Bank improperly made undisclosed profits or earned fees at the plaintiff’s expense, which may relate to the fiduciary claim. For the rest, however, they are further particulars of the Bank’s alleged wrongful and misleading representations regarding the likely performance of the basket of shares.
15. At paragraph 18 of the statement of claim it is pleaded that, as a result of the matters complained of, the plaintiff “has suffered loss, damage, inconvenience and expense in the amount of the interest paid by him on the loan transaction.”
16. The relief claimed, insofar as it relates to the claim in tort, is “an order compelling the Defendant to repay to the Plaintiff all sums paid by the plaintiff to the defendant pursuant to the said terms” and general damages.
17. As matters turned out, it seems that the performance of the basket of shares over the term of the bond was insufficient to pay any of the loan interest. The plaintiff paid some €41,000 to the Bank by way of interest.
18. In parentheses, it should be noted that the plaintiff has introduced a plea of fraud in the reply, delivered subsequent to the judgment of the High Court. The Bank informed the Court that it objects to that plea being made. At any rate, the matter of that plea was not before the High Court and is not before this Court.
Proceedings to date
19. By order of the High Court dated 18 May 2011, it was provided that, if the Bank wished to have a determination as to whether the plaintiff’s claim was time barred, it should apply by way of notice of motion returnable for 20th July 2011. The notice of motion to that effect was duly issued and served. No order was made setting down the matter as an issue for preliminary determination pursuant to Order 25, rule 1 of the Rules of the Superior Courts or otherwise. Charleton J treated the matter as being a motion to dismiss the proceedings.
20. Charleton J delivered his judgment, [2011] IEHC 367, on 7th October 2011. “Ordinarily,” he stated, “on the plaintiff suffering damage, a cause of action in tort accrues.” Since the proceedings were issued more than six years after the plaintiff had entered into the transaction of which he complained his claim would be statute barred if he suffered damage at that time. He noted that, in Hegarty v O’Loughran [1990] 1 IR 148, it had been held by this Court that accrual of the cause of action in tort is complete from the date when the damage occurs. He cited the dictum of Lord Esher M.R. in Read v. Brown (1889) 22 Q.B.D. 128 at 131 on the question of when damage occurs, which is when the plaintiff can establish:
“…every fact which it would be necessary for the plaintiff to prove, if traversed, in order to support his right to the judgment of the Court. It does not comprise every piece of evidence which is necessary to prove each fact, but every fact which is necessary to be proved.”
21. The learned judge thought, however, that there was more scope for debate as to when damage is manifest in cases of economic torts. He continued:
“Each case is to be judged on the facts as to when the tort occurred, and whether damage resulted at that time or whether the wrong initiated a course of action that later resulted in a loss.”
22. He suggested that two questions might helpfully be addressed:
23. In considering the second question, he thought that market conditions might render the transaction more or less valuable over the passage of time, in which case the accrual of the cause of action might be regarded as contingent upon an event which might or might not happen in the future. That he described as a “delay and find out approach…”
24. The learned judge referred to Irish, English and Australian authority. He alluded to the difficulty in ascertaining the date of occurrence of loss or damage where a claim was based on alleged negligent financial advice. He was concerned at situations which were fluid in financial terms or where “one side of a contingency [is] capable of turning out negatively, in terms of financial result, as well as positively.” He expressed these difficulties vividly. Firstly, at paragraph 36:
“If, however, the contingency depends upon an investment or transaction being floated on a more volatile financial sea than the one which the investor wished to embark upon, then, it seems to me, the damage occurs when the plaintiff’s boat founders in rough waters.”
25. Returning to his metaphor at paragraph 41 he observed:
“There might be a loss in the future, but equally there might be a gain; the vessel of financial promise might founder on turbulent financial seas and it might enter a port of plenty.”
In his view, an “ immediate loss might be said to be suffered had the result been that Mr. Gallagher had something that was immediately worthless, or unambiguously worth less than that which had been held out to him, in consequences of the misrepresentation.”
26. He summed up the situation of the plaintiff as he saw it at paragraph 42:
“Manifestly, the transaction in purchasing the bonds entered the holders of the investment into a situation of market return that during the currency of the plaintiff holding the bond could turn out for better or for worse. On the purchase of the bond, therefore, the holders did not suffer an immediate loss but were left facing a contingent loss. The quantification of damages in such a case was not simply difficult, but it was impossible because no loss had then occurred and a buoyant performance over the lifetime of the bonds was possible. After all, it should be remembered that such an attractive prospect is why the plaintiff purchased the bonds and it is the basis, as well, on which the bank claims to have sold this ultimately disappointing financial product. Thus, if there was misrepresentation, the tort only became complete when a financial loss crystallised.” (emphasis added)
27. The underlined sentence contains the essence of the decision. The learned judge held that the plaintiff’s claim in tort was not statute barred.
The appeal: appellant’s submissions
28. The Bank says that, although there is not a single principle covering every case, the present case is within a category where time began to run at the date of the investment. There are many claims pending in the High Court, where identical complaints are made.
29. The Bank challenges the analysis of the High Court judge. It criticises, in particular, his suggestion that a financial loss must crystallise or the period of an investment must terminate before a party can allege that damage has occurred in tort. The plaintiff does not complain of any mismanagement of his investment. Rather he claims that the investment was inappropriate and unsuitable and ought never to have been offered to investors at all.
30. The consequence of this analysis, in the case of a lengthy investment period, would be that the six year period would run from the end of the investment and that, conversely, disappointed investors would be unable to initiate proceedings until after the end of the term, except where the investment was, to quote him, “immediately worthless, or unambiguously worth less than” had been represented.
31. Furthermore, there would be a sharp difference between the limitation periods for claims in contract and in tort. The limitation period in contract would, in some cases, have expired before the tort claim had even accrued.
32. The Bank submits that the kernel of the plaintiff’s case is expressed in paragraph 16 of the statement of claim, quoted at paragraph above. In short, the Solid World Bond was a “borrow to invest product,” which made it wholly unsuitable for the Plaintiff or indeed any investor. The plaintiff’s complaints all relate to inherent features of the bond. No complaint is made with regard to the management of the investments or that the Bank departed from the investment strategy as originally outlined to him.
33. The Bank, in the absence of any Irish authority directly in point, relied on a range of English decisions, in particular: Forster v. Outred [1982] 1 WLR 86; DW Moore & Co. v. Ferrier [1988] 1 WLR 267; Iron Trade Mutual Insurance Co. v. Buckenham [1990] 1 All ER 808; Bell v. Peter Browne & Co. [1990] 2 QB 495; Knapp v. Ecclesiastical Insurance Group plc [1998] PNLR 172; Nykredit Mortgage Bank plc v Edward Erdman Group Ltd. (No. 2) [1997] 1 WLR 1627; Martin v. Britannia Life Ltd. [2000] Lloyd’s Rep. P.N. 412; Law Society v. Sephton [2006] 2 AC 543; Shore v. Sedgwick Financial Services Ltd. [2008] PNLR 37; AXA Insurance v. Akther & Darby [2010] 1 WLR 1662; Pegasus Management Holdings v. Ernst & Young [2010] 3 All ER 297. There was much discussion of the apparent divergence between the decision of the High Court of Australia in Wardley Australia Limited v. State of Western Australia (1992) 175 CLR 514 and the general trend in the English cases, although the House of Lords sought to reconcile them. The English cases stood broadly for the proposition that once a party relies on advice to his detriment by entering into a transaction whereby he fails to get that to which he was entitled, the cause of action is complete, notwithstanding the fact that quantification of the loss might be difficult.
34. The Bank says that the learned trial judge confused the question of whether the plaintiff could be said to have suffered loss from the time he made the investment in 2003 with questions of quantification of the loss, whereas, on the authorities, it is not necessary to be able to quantify the loss for the purpose of showing that the cause of action has accrued. The Bank encapsulated its submissions in the following seven general propositions:
1. While it is recognised that time runs differently in contract and tort cases, the policy of the law should be to minimise rather than to expand that disparity;
2. Equally, the policy of the law should be to advance rather than to retard the accrual of a cause of action;
3. A clear distinction has been recognised between cases where the plaintiff complains of being exposed to a contingent liability, which may or may not result in actual liability and “transaction” cases where the value of what has been acquired has been diminished by the negligence of the defendant;
4. Where the “bundle of rights” acquired in the transaction does not correspond with what the plaintiff ought to have acquired, then prima facie, time begins to run at that point;
5. Where an investor enters into a riskier investment than he would otherwise have done by reason of the negligence of a financial adviser, as a general rule time will start to run at that point, i.e., the time of entering into the transaction;
6. Difficulties of assessment do not imply that time has not begun to run;
7. If, in a claim for damages for breach of contract brought immediately after the transaction, more than nominal damages would be awarded, it would appear to follow that there is damage sufficient to start time running.
The Appeal: respondent’s submissions
35. The plaintiff confirms that his claim is that he would never have entered into the transaction had the Bank not been negligent as is alleged. However, he cannot maintain an action for damages against the Bank unless he has suffered damage and, he claims, there is no evidence whatsoever of damage having been suffered by the Plaintiff prior to the maturity of the investment. The Bank, on the other hand, contends that the Plaintiff would have had a completed cause of action when he entered into the loan and investment transactions even if he might appear to be substantially better off at any point during or at the conclusion of the transaction.
36. The investment made by the plaintiff was absolutely fixed in its duration and its nature. There was no management and no withdrawal or encashment was permitted during the investment period. The plaintiff describes the transaction as a simple bet on what the value of the shares would be at the end o the term.
37. Assessment of the date of accrual of the cause of action should be “fact specific.” There were times, during the life of the Solid World Bond, when the return on the bond exceeded the interest paid by the plaintiff on the loan. At such times, the plaintiff could not be said to have a complete cause of action. The plaintiff does not accept the Bank’s seven general propositions.
38. The plaintiff relied on the English decisions in UBAF Ltd v European American Banking Corporation [1984] Q.B. 713, per Ackner L.J. and First National Commercial Bank plc v. Humberts [1995] EWCA Civ J0113-9. Both were cases in which a bank claimed to have suffered loss by lending on security which, as a result of the negligence of the defendant, turned out to be less valuable than it should have been. In these cases, unlike all those cited by the Bank (except Sephton) the cause of action was held not to be statute-barred.
Discussion of the issues
39. Section 11(1)(a) of The Statute of Limitations, 1957 lays down a limitation period of six years for the bringing of any action, inter alia, “founded on simple contract.”
40. Section 11(2)(a) of the Act of 1957, as amended by section 3(2) of the Statute of Limitations (Amendment) Act, 1991, provides:
“(a) Subject to paragraph (c) of this subsection and to section 3(1) of the Statute of Limitations (Amendment) Act, 1991, an action founded on tort shall not be brought after the expiration of six years from the date on which the cause of action accrued.”
41. The amendment of 1991 provides that the limitation period is to run from the date of knowledge of the plaintiff rather than accrual of the cause of action but only for personal-injury claims. The present appeal turns on the question of when the plaintiff’s cause of action accrued. While the Act of 1957 lays down some rules for the accrual of causes of action in cases of actions to recover land (see sections 14 to 18), it leaves it to the common law so far as actions in tort are concerned to provide for the date of accrual. In the case of torts actionable without proof of special damage, the cause of action accrues when the wrongful act is committed. The tort of negligence is not actionable in the absence of proof of actual damage. The debate in the present case revolves round when the plaintiff, on analysis of his pleadings, suffered damage.
42. The courts have had to consider accrual of causes of action in negligence in the case of three broad categories of damage or loss: personal injury; damage to physical objects, typically in cases of building and engineering works; financial loss. In respect of the first category, the Act of 1957 has been amended to remove the injustice caused to plaintiffs who were unaware that they had suffered injury until the limitation period had expired. It is notable that no such amelioration of the strict rule has been applied in our law to the second or third categories of loss. The second category has been addressed in our case-law, discussed below, after a period of some uncertainty. For the sake of completeness, it should be noted that s. 7 of the Liability for Defective Products Act, 1991 applies a reasonable discoverability test in the case of actions in relation to defective products. The third category has caused the most difficulty. The Bank has been driven, in the absence of direct authority from our own courts, to cite a large body of English law, and one decision of the High Court of Australia.
The Irish case-law
43. It is, nonetheless, most appropriate, in my view, to start from a consideration of decisions of our own courts.
44. Hegarty v O’Loughran [1990] 1 IR 148 was a case of alleged medical negligence. This Court was asked to interpret s. 11(2)(b) of the Act of 1957 as it stood before amendment in 1991. Thus, the three-year time-limit applicable to all cases, including person injury, was to run from the date when “the cause of action accrued.” The central issue in the case was whether the plaintiff’s cause of action could have accrued before she was aware that she had one. The plaintiff submitted that such a cause of action accrued when a reasonable man exercising reasonable care and diligence could have discovered the “manifestation of the damage.” Finlay C.J. summarised, at page 152, the three alternatives which had been debated as follows:
“The first was a construction whereby the cause of action would be deemed to have accrued when the wrongful act was committed. The second was that the cause of action would be deemed to have accrued at the time when, a wrongful act having been committed, it was followed by damage which, it was submitted on behalf of the defendants, in the case of personal injury, was the time when that personal injury manifested itself.
The third interpretation was that for which the plaintiff necessarily contended, namely, that the cause of action only accrued when the injured party not only had suffered the committing of a wrongful act but had also suffered damage and could, by the exercise of reasonable diligence, in addition have discovered that such damage was caused by the wrongful act complained of.”
45. The Chief Justice rule out the first proposition, namely that time could run from the date when the wrongful act occurred, at page 153, because:
“A tort is not completed until such time as damage has been caused by a wrong, a wrong which does not cause damage not being actionable in the context with which we are dealing. It must necessarily follow that a cause of action in tort has not accrued until at least such time as the two necessary component parts of the tort have occurred, namely, the wrong and the damage.”
46. Finlay C.J. next addressed the third question, namely whether the accrual of the cause of action was postponed until a time when the plaintiff could, with reasonable diligence have discovered the damage. The decision of Carroll J in Morgan v Park Developments [1983] I.L.R.M. had the effect that the accrual of the cause of action was postponed “beyond the manifestation of the damage to the discovery of the causation, when this was later.” The Chief Justice referred with approval to the judgment of Evershed M.R. in Cartledge v. E.F. Jopling & Sons [1963] A.C. 758. Dealing with the corresponding English limitation provision , the Master of the Rolls commented that any such postponement would “necessarily require the insertion of some words qualifying the statutory formula.” (page 774 of the report). The Chief Justice came to a similar conclusion regarding section 11 of the Act of 1957. The section was not, he held, open, for the purpose of adopting an interpretation compatible with the Constitution pursuant to the double-construction rule, to two alternative constructions, one of which would have involved adopting a “reasonable discoverability” test. He reserved any question of whether the provision was compatible with the Constitution for consideration when there was a case where the issue arose. Having thus eliminated the first and third propositions, he chose the second in the following terms:
“I would, therefore, conclude that the proper construction of this sub-section is that contended for on behalf of the defendants and that it is that the time limit commenced to run at the time when a provable personal injury, capable of attracting compensation, occurred to the plaintiff which was the completion of the tort alleged to be committed against her.” (emphasis added)
47. It will be noted that the Chief Justice did not, in this passage, express himself in terms of when the damage “manifested” itself, which was how the defendant had expressed it in the second of the three alternative propositions. He spoke of a “provable personal injury, capable of attracting compensation.” McCarthy J, in his concurring judgment, expressed the view that the defendant had made a concession by referring to “manifestation of damage.” As McCarthy J also said, any “alleged distinction …between damage to property and personal injuries” was unfounded.
48. The principle established by Hegarty is that the cause of action in the tort of negligence is complete and the cause of action accrues when damage occurs. Finlay C. J., in using the term “provable,” was not importing any requirement of knowledge. It may be significant that, earlier in the judgment, he had, like Charleton J in the present case, cited the dictum of Lord Esher M.R. in Read v Brown referring to “every fact which it would be necessary for the plaintiff to prove, if traversed, in order to support his right to the judgment of the Court.” Nonetheless, the solution adopted in Hegarty is not necessarily so clear as to be capable of simple and obvious application in every case, above all in cases of financial loss.
49. Hegarty itself was a case where the plaintiff claimed that each of two defendants had negligently performed operations on her nose. The first defendant had carried out an operation of septal resection to treat an airway blockage in her nose and the plaintiff claimed that, due to negligence, the resection later collapsed. Barron J had decided that the cause of action accrued when the act causing the damage had been committed. As we have seen, Finlay C.J. rejected that approach. Nonetheless, in the case of surgical negligence cases at least, there must be a real question as to whether damage of some sort has been caused at the time of the operation, even though the consequences do not become apparent until later. Griffin J, in his concurring judgment mentioned some practical aspects at page 158:
“In personal injury cases the time at which the wrongful act is committed and the time at which the damage occurs will very frequently coincide. For example, where a person involved in a motor accident, or an employee who falls from a scaffold or becomes entangled in a machine in a factory, sustains injuries such as fractured limbs, head injuries, severe lacerations, extensive bruising and the like, it will be apparent that damage has been caused to such person by the wrongful act at the time of its commission, and time will begin to run from that date.
“There have, however, been many cases in which persons involved in violent accidents have escaped apparently unscathed, or at worst with only such trivial injuries as would not warrant an award of compensation. Nevertheless several months, or even years, later such persons have become gravely ill from a condition which was attributable to the particular accident. Likewise, there have been instances in which persons involved in trivial accidents, in which they sustained no apparent injury, later exhibited symptoms of serious injury such as brain damage. Again, there have been cases in which a foreign body was negligently left in a patient after an operation, and the patient had been totally oblivious of its presence for a considerable time before suffering any ill-effects from it. In cases such as these, if time were to run from the date of the occurrence of the wrongful act, the period of limitation of three years might very well expire before there is any manifestation of the damage suffered in consequence of the wrongful act. However, in s. 11, sub-s. 2 (b) of the Act of 1957, time is not expressed to run from the date of the occurrence of the wrongful act and should not in my view be interpreted as if it was. The relevant date under the subsection is the date on which the cause of action accrues. Until and unless the plaintiff is in a position to establish by evidence that damage has been caused to him, his cause of action is not complete and the period of limitation fixed by that sub-section does not commence to run.
50. The date of accrual, in this passage, is the date when the plaintiff is in a position to establish by evidence that he has suffered damage. At least to some extent, the test, thus expressed, renders less certain the distinction between the date of commission of the wrongful act and the occurrence of damage.
51. Both Finlay C.J. and McCarthy J cited the decision of the House of Lords in Pirelli General Cable Works v Faber [1983] 2 A.C. 1. That case concerned the accrual of the cause of action where the claim was made against a firm of consulting engineers for negligence in the design of a factory chimney, the negligence consisting in the use of an unsuitable material. The work was completed in June or July 1969; not later than April 1970 cracks developed at the top of the chimney; it was found that the plaintiffs could not, with reasonable diligence, have discovered the damage prior to October 1972; they discovered it in fact in November1977 and issued proceedings in October1978. The decision of the House of Lords, applying Cartledge v. E.F. Jopling & Sons, cited above, as stated in the headnote was that:
“…the date of accrual of a cause of action in tort for damage caused by the negligent design or construction of a building was the date when the damage came into existence, and not the date when the damage was discovered or should with reasonable diligence have been discovered, that the plaintiffs' cause of action therefore accrued not later than April 1970, when the cracks occurred in the chimney, and that since that date was more than six years before the issue of the writ, the claim was statute barred…”
52. The House drew a distinction between a defect which might give rise to damages and the actual damage caused by the defect. Lord Fraser of Tullybelton, in a passage referred to by McCarthy J in Hegarty (at page 161) said at page 14:
“It seems to me that, except perhaps where the advice of an architect or consulting engineer leads to the erection of a building which is so defective as to be doomed from the start, the cause of action accrues only when physical damage occurs to the building. In the present case that was April 1970 when, as found by the judge, cracks must have occurred at the top of the chimney, even though that was before the date of discoverability.”
53. Tuohy v Courtney [1994] 3 I.R. 1 concerned an action for professional negligence against a solicitor in handling a purchase of a dwelling house. The plaintiff believed he was buying a 99-year lease with the right to acquire the fee simple. In fact, he got a lease with 41 years to run and no right to acquire the fee simple. The true extent of the limited title he had acquired did not become apparent to the plaintiff until he went to sell the house. By then, six years had run from the date of the original purchase. The reported decision concerns the plaintiff’s unsuccessful challenge to the constitutionality of s.11(2)(a) of the Act of 1957, the provision with which this case is concerned. The plaintiff’s claim was governed by the judgment in Hegarty v O’Loughran, which had been delivered on 8th February 1990. Blayney J, whose decision is not reported (but mentioned at page 2 of the report in the constitutional action), held on 9th April 1991, that the claim was statute-barred. Lynch J held, for the purposes of the constitutional action, that the solicitor had been negligent (see page 21).
54. The decision of this Court in Tuohy v Courtney necessarily related only to the question of the compatibility of s. 11(2)(a) of the Act of 1957 with the Constitution. Nevertheless, the judgment of the Court contains observations concerning the effects of limitation periods which may assist in the interpretation of that provision. Firstly, at page 45 of the judgment of Finlay C.J., the Court recognised the constitutionally protected status of the right to litigate:
“Interpreting the right to litigate in the case of a plaintiff at least, as the right to achieve by action in the courts the appropriate remedy upon proof of an actionable wrong causing damage or loss as recognised by law, this Court would accept both this analysis of the right which the plaintiff claims to have been invaded and the fact that it must constitute an unenumerated personal constitutional right.”
55. Secondly, at page 47, Finlay C.J.recognised, at a practical level, though without propounding any interpretative rule, the potential for injustice in the operation of limitation periods:
“It cannot be disputed that a person whose right to seek a legal remedy for wrong is barred by a statutory time limit before he, without fault or neglect on his part, becomes aware of the existence of that right has suffered a severe apparent injustice and would be entitled reasonably to entertain a major sense of grievance.”
56. This passage was written in the knowledge that the Court had already held, in Hegarty v O’Loughran, that the double-construction rule did not require that the section be interpreted so as to cause the time to run only from the date the plaintiff acquired knowledge of the damage. Nonetheless, it acknowledges the potential for injustice arising from strict interpretation of the limitation period. In the result, Irish law does not allow the accrual of a cause of action in tort to be postponed so that a limitation period will not run against an injured party until the existence of the cause of action can reasonably be discovered except in two cases specifically covered by statute. This is so even though the Law Reform Commission has made relevant recommendations on the subject. No issue of discoverability arises on the facts of this case.
57. The only Irish decision to date on the question of accrual of a cause of action in negligence where financial loss is claimed is that of Irvine J in Darby v. Shanley t/a Oliver Shanley & Co. Solicitors [2009] IEHC 459.
58. Before moving to consider the many English decisions on financial loss, I believe that it is important to bear in mind the change in the law in that jurisdiction which has not been followed in this. In Hegarty v O’Loughran, Finlay C.J. remarked on the trenchant criticism in Cartledge of a state of the law where a plaintiff might, by virtue of the application of a limitation period, lose his right to be compensated for a wrong even before he realised he had a claim. Lord Diplock in Pirelli thought that the law as it then was “was a matter of no pride.” (page 19). In the event, the (English) Latent Damage Act, 1986 introduced a new section 14A into the Limitation Act, 1980 mitigating the severity of the existing law by providing for an alternative three-year time limit running from the date of knowledge. No corresponding provision exists in our law, except in cases of personal injury and liability for defective products. In one phase in the English cases, as we have seen from Cartledge and Pirelli, the courts deplored the injustice of the existing law. In a second group of cases, decided after the legislative change, some courts regretted that the facts had occurred prior to the change in the law and that the plaintiff might have had a remedy. After the change had taken effect, it was possible to remedy any injustice and courts may have been content to adopt a strict interpretation. Judges have repeatedly stated that the entire question of accrual of the cause of action in tort incases of financial loss is “troublesome.” (See, for example, Lord Hoffmann in Sephton at page 548, citing Nicholls L.J. in Bell v Peter Browne & co).
English cases on accrual of cause of action in financial-loss cases
59. The first in time of the large number of English cases to which we were referred, and it was the Bank that principally relied upon them, is the decision of the Court of Appeal in Forster v Outred [1982] 1 W.L.R. 87. That decision is either applied or discussed to some degree in all the subsequent cases. Lord Hoffmann, in his speech in Law Society v. Sephton in 2006, to be discussed later, thought it unnecessary to “go back further.” The High Court of Australia gave it particular consideration in Wardley, cited above. Forster is, therefore, an important point of reference. It is particularly so because of the significance of its treatment of uncertain or contingent future events.
60. The case came before the court on a preliminary issue. The relevant facts considered by the court were those pleaded in the statement of claim. The plaintiff owned a farm, which she mortgaged in 1973 in favour of a mortgage lender to secure the debts of her “unfortunately improvident son.” She pleaded that she did so in the belief that the mortgage was to provide only temporary security for a bridging loan from the lender to enable her son to purchase an hotel. In fact, no long-term mortgage had been arranged and she executed a mortgage covering all present and future liabilities of her son. The plaintiff complained that her solicitors had not explained any of these matters to her. In fact, the hotel venture was a failure and the son went bankrupt. The plaintiff became liable on the mortgage and, on being pursued by the mortgage lender, discharged the son’s liabilities in August 1975.
61. The plaintiff commenced proceedings against the solicitors originally in 1977 but, for complex procedural reasons which it is not necessary to explain, the reference date was that of new proceedings issue in January 1980 and that was outside the limitation period, on the assumption that her cause of action accrued on her execution of the deed. On the other hand, it was within time, if the cause of action accrued either when demand was made on her to pay her son’s debts in 1974 or when she actually paid in 1975.
62. The plaintiff contended that the claim was not statute-barred. The answer depended on when the plaintiff first suffered damage. The cause of action did not accrue, she claimed, until she suffered damage which was at the earliest when demand was made. The defendant submitted that she suffered damage on the execution of the mortgage, because she then encumbered her freehold interest in her property and subjected herself to liability to discharge her son’s debts. The freehold was then encumbered with a charge and its value was reduced. Stephenson L.J. delivered a judgment with which Dunn L.J. and Sir Richard Cairns agreed. He records a submission made by defendant’s counsel, which has been cited and analysed in several of the subsequent cases. It offered the following definition of actual damage:
“…… 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.”
63. This very broad definition covers both contingent or uncertain future loss and contingent liability. It was later questioned by Lord Hoffmann, at page 549, in Sephton insofar as it extended to “liabilities which may arise on a contingency.” Otherwise, it has remained intact in England. Stephenson L.J. applied counsel’s definition and held that the plaintiff had suffered actual damage by entering into a mortgage deed which encumbered her interest in her freehold estate and subjected her to a liability which might, according to matters completely outside her control “mature into financial loss.”
64. Forster v Outred was followed or, as the headnotes say, “applied” in two subsequent solicitor’s negligence cases. DW Moore & Co. v. Ferrier [1988] 1 WLR 267 concerned a company which had taken in a new shareholder and director. It and its other directors instructed their solicitor to prepare a contract which would restrict the director, if he left the company, from engaging in competing business in a specified area for a specified time. The clause was defectively drafted and completely ineffective. The director left the company; he set up in competition and could not be stopped. In an action for damages against the solicitor, the question arose as to whether the cause of action accrued when the original contract was signed or when the director set up in competition. The Court of Appeal held that the damage occurred at the time of executing the agreements. That was when the company and its directors received a worthless covenant rather than a valuable chose in action. It is tempting to remark on the difficulty for the company or the other directors in initiating litigation against the solicitor immediately after the new director had joined the firm. Neill L.J. said that, if an action had been brought at that time or shortly after, “the actual assessment of damages would have depended on the likely future attitude of [the new director].” However, “the imponderables which future behaviour presented relates to the quantification of damages and not to the existence of the cause of action.”
65. Bingham L.J. took the same view, at page 279:
“It seems to me clear beyond argument that from the moment of executing each agreement the plaintiffs suffered damage because instead of receiving a potentially valuable chose in action they received one which was valueless……
“If the quantification of the plaintiffs' damage had fallen to be considered shortly after the execution of either agreement, problems of assessment would undoubtedly have arisen…. In making his assessment the judge would have had to attach a money value to a possible future contingency; but judges do this every day in awarding claimants damages for the risk of epilepsy, the risk of osteoarthritis, the risk of possible future operations, the risk of losing a job and so on. The valuation exercise is, of course, different, but the difference is one of subject matter, not of kind.”
66. Bell v. Peter Browne & Co. [1990] 2 QB 495 also arose from a solicitor’s negligence. In the context of divorce proceedings, it was agreed that the family home would be transferred into the wife’s name with the husband’s one-sixth interest in the equity to be paid to him, if the wife were to sell it in the future. The solicitors failed to take any steps to protect this interest of the husband. The wife sold the house some eight years later but failed to account to him for his share. The husband’s cause of action against the solicitors was held to have accrued when the husband executed the transfer and not when the wife later sold the house. Nicholls L.J., at page 502, reiterated that “a cause of action based on negligence does not accrue until damage is suffered,” observing that the question of damage and the limitation period in tort had been a “troublesome” one. He held that “the uncertainty surrounding [the wife’s] future intentions [went] only to the quantum of the loss of the plaintiff sustained when the transfer was executed without him having the same degree of protection as would be provided by a formal document.” He reached this conclusion “with reluctance” (see page 504). He drew attention to different rules which would have applied if the then recently passed Latent Damage Act, 1986 had applied to the case, acknowledging that this was “cold comfort to the plaintiff.”
67. The English courts applied the principles derived from Forster v Outred in two cases (Iron Trade Mutual Insurance Co. v. Buckenham [1990] 1 All ER 808; Knapp v. Ecclesiastical Insurance Group plc [1998] PNLR 172) where it was claimed that insurance brokers had negligently failed to make full disclosure to insurers (in one case a reinsurer) when proposing for insurance policies, with the consequence that the insurer could avoid the policies. Damage was held to have accrued when the insurance contract was executed, not when it was avoided. The reasoning was that the plaintiff had not obtained a valid and effective insurance policy but only one which was voidable. Hobhouse L.J., in his judgment in Knapp v. Ecclesiastical Insurance Group plc disposed of the problem of the uncertainty or contingency of the insured’s situation by, echoing Bingham L.J. in Moore v Ferrier. He explained that:
“The fact that how serious the consequences of the negligence would be depended upon subsequent events and contingencies does not alter this; such considerations go to the quantification of the Plaintiff’s loss not to whether they have suffered loss.”
68. There are then the two decisions, cited by the plaintiff, where the result went the other way. In UBAF Ltd v European American Banking Corporation [1984] 1 Q.B. 713, the plaintiff bank agreed to the proposal of the defendant, an American bank, to take a participation in two loans to Panamanian companies on what they claimed were representations that the investment would be sound and profitable. The Panamanian companies failed and the plaintiff suffered loss. The claim against the American bank was brought more than six years after the grant of the loans and the defendant argued that the claim was statute–barred. Ackner L.J. did not accept that the plaintiff had suffered damage at the moment of entering the loan contract. It was possible that the value of the chose of action they had acquired had been not less than the amount they had lent. Evidence would be required to establish whether the case of action accrued at the time of the loan.
69. The second of these cases is First National Commercial Bank plc v. Humberts. The Court of Appeal held that a claim by a bank that a firm of valuers had negligently overvalued a property investment which they financed by their lending was not statute-barred. The developer became insolvent and the bank lost money because the security was insufficient. Saville L.J., for a unanimous court, held that the case had to be considered as one where the bank, but for the negligent over-valuation, would not have entered into the transaction. His summary of the accrual of the cause of action in tort differs from some of the later cases. He said at page 676:
“It is the law that a cause of action for the tort of negligence only arises when there has been a breach of duty resulting in actual (as opposed to potential or prospective) loss or damage of a kind recognised by the law.” (emphasis added)
70. He distinguished Forster v Outred, Iron Trade Mutual Insurance Co. v. Buckenham and Bell v. Peter Browne & Co. as cases where the plaintiff then and there suffered loss “on the basis that if the injured party had been put in the position he would have occupied but for the breach of duty, the transaction in question would have provided greater rights, or imposed lesser liabilities or obligations than was the case…” (see page 679).
71. Before referring to the more recent English cases, it is appropriate to take particular note of the somewhat more sceptical approach adopted by the High Court of Australia, particularly to Forster v Outred, in Wardley Australia Limited v. State of Western Australia, cited above, and also because it received strong approval in the subsequent English cases. Wardley concerned a claim made by the State of Western Australia alleging misleading and deceptive conduct against a merchant bank. The State alleged that, based on false representations made by the merchant bank, it had granted an indemnity to another bank against loss on a facility granted by the bank to a company called Rothwells. The false representations related to the assets and financial condition of Rothwells. The indemnity was given in 1987. The State was required to pay pursuant to the indemnity when the company failed to meet its obligations under the facility. The relevant claim against the merchant bank was made in 1991, outside the three-year statutory limitation period.
72. The question of law was whether the State’s cause of action accrued when it executed the indemnity, as was held by the first-instance judge, or whether, the indemnity created an executory or contingent obligation, which crystallised only when the bank called on the State to indemnify it, as was held by the Federal Court and as was upheld on appeal by the High Court of Australia. That Court held, at page 524, that the indemnity “created a liability on the part of [the State] to the Bank to make payment if and when the Bank’s relevant “net loss” was ascertained and quantified.” The majority judgment, delivered by Mason C.J., Dawson, Gaudron and McHugh JJ, was described by Lord Hoffmann in Sephton as a “masterly exposition of the law.” The court accepted the authority of Forster v Outred, as being “explicable by reference to the immediate effect of the execution of the mortgage on the plaintiff’s equity of redemption…” (page 529). In a passage expressly approved by Lord Hoffmann in Sephton, the court observed at page 531:
“It has been contended that the principle underlying the English decisions extends to the point that a plaintiff sustains loss on entry into an agreement notwithstanding that the loss to which the plaintiff is subjected by the agreement is a loss upon a contingency. For our part, we doubt that the decisions travel so far. Rather, it seems to us, the decisions in cases which involve contingent loss were decisions which turned on the plaintiff sustaining measurable loss at an earlier time, quite apart from the contingent loss which threatened at a later date ((36) Forster v. Outred and Co. and D.W. Moore and Co. v. Ferrier illustrate the point.).”
73. Brennan J adverted to the range of different circumstances in which financial loss might occur. He emphasised the difference between the measure of damages in contract and in tort, by saying, at page 535, that question was “not how much worse off is the State than it would have been had the alleged misrepresentation been true, but how much worse off is the State than it would have been had it not relied on the alleged misrepresentation and entered into the transaction.” In a passage, at pages 536 to 537, quoted in two subsequent English cases, he said:
“A plaintiff may suffer economic loss or damage in a number of ways: by payment of money, by transfer of property, by diminution in the value of an asset or by the incurring of a liability. Whether loss or damage is actually suffered when any of those events occurs depends on the value of the benefit, if any, acquired by the plaintiff by paying the money, transferring the property, having the value of the asset diminished or incurring the liability. If the plaintiff acquires no benefit, the loss or damage is suffered when the event occurs. At that time, the plaintiff's net worth is reduced. And that is so even if the quantification of that loss or damage is not then ascertainable. But if a benefit is acquired by the plaintiff, it may not be possible to ascertain whether loss or damage has been suffered at the time when the burden is borne - that is, at the time of the payment, the transfer, the diminution in value of the asset or the incurring of the liability. A transaction in which there are benefits and burdens results in loss or damage only if an adverse balance is struck. If the balance cannot be struck until certain events occur, no loss is suffered until those events occur…… The quantification of the diminution in value of an asset or of a liability incurred or the value of any benefit acquired may not be ascertainable at the time when the burden of the transaction is borne. In that event, the suffering of any loss cannot be said to occur before it is reasonably ascertainable (not before it is ascertained) that the burdens which the plaintiff has borne are greater than the value of the benefits that the plaintiff has acquired or will acquire. In other words, no loss is suffered until it is reasonably ascertainable that, by bearing the burdens, the plaintiff is "worse off than if he had not entered into the transaction”.”
74. The decision of the House of Lords, particularly the speech of Lord Nicholls, in Nykredit Mortgage Bank plc v Edward Erdman Group Ltd. (No. 2) [1997] 1 WLR 1627 was in part relied on by both parties on the appeal. The Bank cited it for the two very general policy-based propositions that, firstly, the policy of the law should be, “within the bounds of sense and reasonableness……to advance rather than retard, the accrual of a causes of action,” and, secondly, that the disparity between parallel causes of action in contract and tort should be smaller rather than greater. (see page 1633).
75. The case before the House related to interest on damages which flowed from the liability of valuers for negligent valuation of properties leading a mortgage lender to lend on a false assumption as to the value of its security. In that sense the question of when the cause of action accrued was relevant, and this led Lord Nicholls to embark on a discussion, during which he cited the statement of Brennan J in Wardley, of cases in which, on the one hand, the lender suffered loss as soon as he parted with his money and, on the other, there was no certainty that he would suffer any loss. “The moment at which the comparison (between the position of the lender’s position if the defendant had not been negligent and his actual position) will,” he thought, “depend on the facts of each case.” While he left room for the possibility that, in some cases, the borrower’s covenant might have value, “and until there is default the lender may presently sustain no loss even though the security is less than the amount of the loan,” Lord Nicholls stressed at page 1632:
“But the difficulties of assessment at the earlier stage do not seem to me to lead to the conclusion that at the earlier stage the lender has suffered no measurable loss and has no cause of action, and that it is only when the assessment becomes more straightforward or final that loss first arises and with it the cause of action.”
Lord Nicholls believed that “for the cause of action to arise only when the lender realises his security would be a highly unattractive proposition.” The complexities of Nykredit arise from the context of multiple uncertainties in mortgage lending transactions. The valuer might negligently overvalue the security, but it might still be enough to pay off the loan; alternatively, the borrower might have other property. In some cases, the cause of action accrues with the loan; in cases of greater uncertainty, its accrual may be postponed. This decision clearly gives rise to great uncertainty. Although Lord Nicholls referred to the judgment of Savill L.J. in First National Commercial Bank plc v. Humberts, he did not advert to the notable difference of emphasis.
76. The type of loss at issue in Law Society v. Sephton, cited above, was similar to that in Wardley. The Law Society sued a firm of accountants for its negligent audit of the accounts of a solicitor for the purpose of the annual report to the Law Society. The solicitor had in fact misappropriated large sums from his client account. The Society was compelled to make payments out of its compensation fund to clients of the solicitor. The Society’s claim against the accountants would be statute-barred, if its cause of action accrued from the date of receipt of the relevant accountant’s report, but not if it accrued when the compensation claims were made. The House of Lords held, as set out in the headnote at page 543, that “a contingent liability, such as the obligation to pay money in the future, was not in itself damage until the contingency occurred.”
77. Lord Hoffmann, having expressed complete agreement with the dictum quoted above from the majority judgment in Wardley, considered that, under the rules of the compensation fund, the solicitor’s “misappropriations gave rise to the possibility of a liability to pay a grant out of the fund, contingent upon the misappropriation not being otherwise made good and a claim in proper form being made.” On those facts, “until a claim was actually made, no loss or damage had been sustained by the fund.” Thus, no cause of action had accrued. Lord Hoffmann placed cases of contingent liability in a category of their own, as distinct from Forster v Outred where the value of the plaintiff’s property was immediately reduced. In Sephton, there was no damage until the contingent event occurred.
78. Lord Hoffmann sought to reconcile the other cases as well as Wardley, by making a distinction between two types of case. The first was where the measure of damage was, as he said at page 551, “the extent to which the lender is worse off than he would have been if he had not entered into the transaction.” In those cases, following Brennan J, he thought the plaintiff suffered loss “only when it is possible to say that he is on balance worse off.” The other class of case was where “the liability [was] for the difference between what the plaintiff got and what he would have got if the defendant had done what he was supposed to have done.” He placed DW Moore & Co. v. Ferrier and Knapp v. Ecclesiastical Insurance Group plc in this category and thought it would be relatively easy to say that the plaintiff had suffered some immediate damage.
79. Lord Walker of Gestingthorpe and Lord Mance agreed in the result. Lord Mance, having noted that, in Forster v Outred the plaintiff claimed that she would never have entered the transaction at all but for the solicitor’s negligence, stated at page 565:
“However, while a defendant’s failure to preserve or protect a particular asset by proper performance of his duty in relation to a particular transaction may readily be seen to have caused measurable loss, negligence causing a claimant to enter into a transaction which he would not otherwise have entered may not immediately, or indeed ever, cause measurable loss to any particular asset.”
80. Each of the three speeches in Sephton make reference to differences between cases where the measure of loss is the difference between what the plaintiff would have obtained if the defendant had not been negligent and what he obtained in fact, on the one hand, and those where the plaintiff’s actual position is measured against what it would have been if he had never entered into the transaction. Lord Walker referred to the first category as “transaction cases.” Sephton does not appear, however, to establish any principle of law save to the effect that in pure-contingency cases, the cause of action does not accrue until the contingency arises. At most, Sephton may establish that, in the first case, it may be “relatively easy” to show (Lord Hoffmann) or one may “readily” show (Lord Mance) immediate loss, whereas, in the second case, no loss may ever be suffered. These, it seems to me, are mere matters of practical likelihood rather than of principle. Insofar as DW Moore & Co. v. Ferrier is placed in the first category, it might equally be said that there was no certainty that the director would ever leave the firm or set up in competition. The same analysis could be applied to the insurance cases: the insurer might never have sought to avoid the policy. I cannot see that the cases are susceptible of any such neat categorisation.
81. Lord Mance laid particular emphasis, at page 568, on the fact that there had been no change in the Law Society’s legal position until a claim was made. He also considered that it was not possible, until after a claim was received, to know which clients of the solicitor might suffer what loss and be able to justify a grant out of the fund. The authorities, to which he referred, showed that a cause of action accrued in the event of a contingent liability provided that there was an associated change in legal position or diminution in value of an asset. In such cases, he remarked that the authorities took “a clear-cut, though perhaps rather strict view.” It is interesting that he saw reason to observe that the House had “not been asked to review such authorities…” In sum, he saw “no reason to add to the strictness of the English legal position by treating the claimant as having suffered measurable loss before the contingency materialised.”
82. The difficulties in discerning a clear principle from these cases were compounded by the extra step taken by the Court of Appeal in England in Shore v. Sedgwick Financial Services Ltd. [2008] PNLR 37. The plaintiff was the managing director of a substantial company and entitled to valuable benefits under its occupational pension scheme. He was approaching retirement. When the company was being taken over, he obtained financial advice from the defendants. On their advice, in 1997 he transferred his then very valuable accrued benefits in the occupational scheme, under which his benefits would have been guaranteed, to a personal income withdrawal plan, which was more risky. He discovered, in particular in 2004, that the benefits under the new scheme were very substantially less than he had expected. Proceedings against the defendant advisers were issued in 2005. The question, according to Dyson L.J., who gave judgment on behalf of a unanimous Court of Appeal, was whether the plaintiff suffered damage as soon as he gave up his rights under the occupational pension scheme and transferred to the income withdrawal plan.
83. Shore illustrates the different approaches to damage, particularly whether risk of damage suffices, which were considered by Charleton J in the present case. It has established the soubriquet, “Shore loss.”
84. Dyson L.J. referred to Sephton and drew a sharp distinction between “pure contingent liability” and “contingent risk.” The plaintiff was undoubtedly exposed to risk, but not to a liability. He dismissed the plaintiff’s argument that he had paid market value when he transferred to the income withdrawal plan and that this was analogous to paying £100 for shares instead of government bonds. It was no answer to say that the plaintiff’s investment was worth what he paid for it. It was more risky: “A claim for damages immediately upon the acquisition of the shares would succeed. The investor would at least be entitled to the difference between the cost of buying the …bonds and the cost of buying and selling the shares.” Appearing to reverse the burden he said it was “not possible to say that Mr Shore did not suffer financial loss ……when he invested in the [income withdrawal] scheme.” He said, at page 886, that the essence of the reasoning in the cases was “the fact that the risk to which the claimant was exposed by the defendant’s negligence might not eventuate did not mean that the claimant did not suffer loss as a result of being exposed to that risk.” Next he took from Moore v Ferrier that “it was possible that the director would not leave the plaintiff’s employment” and “would not act in breach of the covenant,” and from Bell v Peter Browne & Co that “it was possible that the former wife would not deny the plaintiff his one-sixth share in the proceeds of the matrimonial home.”
85. Dyson L.J. then deduced that:
“It is the possibility of actual financial harm that constitutes the loss. That possibility is present even if there is also the possibility that the claimant will be financially better off as a result of being exposed to the risk. In my view, therefore, it is irrelevant that, as things turned out, Mr Shore might have been financially better off under the PFW scheme than he would have been if he had deferred taking his pension under the [occupational] scheme…” (emphasis added)
86. The emphasis on “possibility” of loss in this passage does not appear to me to be justified by his premiss that loss would possibly not have occurred in the earlier two cases. It is far removed from the view of the High Court of Australia in Wardley, and in particular that of Brennan J, quoted above, that a “transaction in which there are benefits and burdens results in loss or damage only if an adverse balance is struck.” It seems also difficult to reconcile with Lord Hoffmann’s acceptance that, at least in certain cases, damage is suffered “only when it is possible to say that [the plaintiff] is on balance worse off.” It contrasts with the approach of Ackner L.J. in UBAF Ltd v European American Banking Corporation, already quoted.
87. Counsel referred us in argument to a comment in Jackson & Powell on Professional Liability (Fourth Supplement to the Sixth Edition. October 2010 Sweet & Maxwell. Thomson Reuters) to the effect that Dyson L.J.’s reference to the “possibility” of actual financial harm “is not the conventional analysis of the “transaction” cases…” The authors commented:
“It is right to say that the reason why rights are less valuable may be that the claimant is exposed to a risk or contingency against which he should have been protected, but that is not the same as saying that the risk or contingency itself constitutes the loss.”
88. The reservations expressed in this passage do not reappear in the (most recent) Seventh Edition of the same work. The decision in Shore has been, at least implicitly, accepted in later decisions but, so far as we have been informed, has not yet been considered by the Supreme Court.
89. The narrow scope of application of the Sephton rule that time does not commence to run in cases of pure contingent liability was shown by the Court of Appeal decision in AXA Insurance v. Akther & Darby [2010] 1 WLR 1662. The appellants rely on it as showing Sephton to be exceptional. The plaintiff insurers brought an action against panel solicitors operating a scheme for funding the costs incurred by their clients in bringing personal-injury claims. The insurers provided after-the-event legal expenses insurance enabling the clients to bring personal injury claims on a no win, no fee basis. The scheme depended on each claim being vetted by the solicitors as having a 51% chance of success and being worth at east £1,000 and the solicitors notifying the solicitors if that chance fell below 50% or the value below £1,000. They sued the solicitors alleging that they had been negligent in performing each of these duties in respect of a large number of claims.
90. A limitation issue arose. The proceedings were commenced more than six years after the inception of the policies and, in other cases, more than six years after the alleged failure to notify. The first point is sufficient for present purposes.
91. The court, in particular Arden L.J., subjected the reasoning and even the logic of Sephton to intensive scrutiny. She noted differences between the speech of Lord Mance and that of Lord Hoffmann. Lord Mance, she pointed out, had adopted a test, the first part of which depended on whether the legal position of the Law Society had changed, which it had not done until it received a claim from a client of the dishonest solicitor. She expressed her own view that “the legal position of a person……is changed when he incurs a contingent liability.” (page 1673, par. 24). She had difficulty in seeing why an unsecured guarantor (though that was not the Sephton case) should be in a better position vis-a vis the limitation period than a guarantor (as in Forster) who grants security over his property (par. 28) She found a number of the distinctions flowing from the existing case-law “difficult to rationalise.” She thought some aspects of Sephton should be “revisited by the Supreme Court,” and that the rule in Forster benefits the wrongdoer. Nonetheless, the Court concluded that the liability incurred by the insurers in taking on the after-the-event insurers did not benefit from the “pure contingency” rule in Sephton. The insurers suffered loss and the time began to run in favour of the solicitors as soon as they entered into the policies.
92. It is worth noting that Lloyd L.J. dissented. His interpretation of Sephton led him to conclude, at page 1711, that the insurers “entered into a contract as a result of the solicitors’ negligence which exposed it to a contingent liability.” The court was, therefore, divided, as Arden L.J. explained at page 1686, on the question of “whether the contingent liability of [the insurers] under the policies that it issued stood alone, or whether [the insurers] incurred other measurable loss at the time those policies were issued.” In her view they did. In the view of Lloyd L.J., the adverse effect on the commercial and economic position of the insurers did not answer the question of whether, “in the eyes of the law [they] had already suffered actual damage.”
93. Having wrestled with the complexities of this case-law, I find it difficult not to join in the lament of Lewison J in Pegasus Management Holdings v. Ernst & Young [2009] P.N.L.R. 209 at 226, i.e., prior to the AXA decision, but referring to three decisions of the House of Lords and the fact that the question had been examined on “countless occasions by the Court of Appeal” that “this concentration of judicial firepower does not give easy answers for the first instance judge.”
Searching for an answer
94. This large body of English case-law is notable for the almost complete absence of expressions of regret of the kind recorded in the earlier cases of Cartledge v. E.F. Jopling & Sons and Pirelli General Cable Works v Faber at a state of the law in which a person suffering financial loss should be shut out from relief and statute-barred not only before he knew he had a cause of action but in circumstances where he could not reasonably have been expected to sue. It may be that the explanation lies in the mitigating provisions introduced in 1986, whereby an alternative three-year time limit runs from the date of knowledge. Nonetheless, the recent cases exhibit little concern for the striking of a just balance between the rights of plaintiffs and defendants.
95. I do not intend to rehearse again the cases which have led the English courts to adopt what Lord Mance in Sephton called a strict interpretation of when loss occurs. Moore v Ferrier is one of the earlier sheet-anchor cases relying on a judgment by no less a figure than Bingham L.J. It still seems to me remarkable that the cause of action against the solicitors was held to have accrued immediately following the negligent drafting of the non-compete clause. At that time, the new director had just joined the company. Were the other directors on their own behalf or on behalf of the company seriously expected to sue the solicitors at a time when there was no reason to expect the new director to leave the company or, a fortiori, to set up in competition within the forbidden geographical area?
96. In Bell v. Peter Browne & Co, the husband was implicitly expected to sue the solicitors immediately after the negligent drafting of the deed conveying the family home to the wife and, therefore, on the assumption that the wife would not only sell the house but would also fail to account for his one-sixth share and dissipate the proceeds. Lord Nicholls in Nykredit Mortgage Bank plc v Edward Erdman Group Ltd. (No. 2) made a number of fine distinctions in his examination of what should be a comparatively simple notion of actual damage. To say the least, these do not lead to a clear-cut result. Perhaps the case with which I have the greatest difficulty is Shore v. Sedgwick Financial Services Ltd. It seems to have been accepted that the plaintiff, Mr Shore, got full market value (at the time) for the rights which he transferred out of the occupational pension scheme into the personal income withdrawal plan. Dyson L.J. explained that it was “the possibility of actual financial harm that constitutes the loss.”
97. Sephton has been established as the only leading case in which time did not run against the plaintiff. It placed pure contingent liability in a separate category and, as Dyson L.J. held in Shore v. Sedgwick Financial Services Ltd, that was, so far as the running of time was concerned to be distinguished from contingent risk. I fail to see the logic behind that distinction. Some of the cases contain endless prognostication and fine distinctions are drawn. It is clear that Arden L.J. in the AXA case had difficulty with some of the reasoning.
98. I also have difficulty in accepting the first two general propositions advance on behalf of the Bank, whose provenance is apparently the speech of Lord Nicholls in Nykredit. Firstly, he suggested, at page 1633, that “within the bounds of sense and reasonableness the policy of the law should be to advance, rather than to retard, the accrual of a cause of action.” Secondly, he added that this was “especially so if the law provides parallel causes of action in contract and in tort in respect of the same cause of action.” He thought: “The disparity between the time when these parallel causes of action should be smaller rather than greater.
99. No reason has been put forward in support of the proposition that the policy of the law should be to advance rather than to retard the accrual of a cause of action. I cannot accept a rule of interpretation which would favour the defendant at the expense of the plaintiff. We are concerned with the interpretation of a limitation period laid down by statute, an Act of the Oireachtas. The policy of the Oireachtas is to be gleaned from the words of the Act.
100. It is true that, in Tuohy v Courtney, Finlay C.J, speaking for the Court at page 48, identified one of the purposes of the limitation period under review as being "to promote as far as possible expeditious trials of action so that a court may have before it as the material upon which it must make its decision oral evidence which has the accuracy of recent recollection and documentary proof which is complete, features which must make a major contribution to the correctness and justice of the decision arrived at.” This recognition of a legitimate legislative objective does not, however, lead to any particular interpretation of the legislation as enacted. In particular, the Chief Justice went on to recognise “the necessity as far as is practicable, or as best it may, for the State to ensure that such time limits do not unreasonably or unjustly impose hardship.”
101. Nor can I accept that the courts should adopt a general policy of interpreting an Act of the Oireachtas so as to minimise rather than to expand the disparity between the running of time in cases of contract rather than tort. It does not appear that Lord Nicholls proposals have met with universal approval. Lord Mance observed in Sephton, at page 569, that “differences between the limitation periods in contract and tort do however exist.” He recalled that Lord Goff of Chieveley in Henderson v Merrett Syndicates Ltd. [1995] 2 AC 145 rejected the “temptation of elegance,” explaining the essential difference that a remedy in contract is due to the will of the parties whereas that in tort is imposed by the general law and saying that he did not find it “objectionable that the claimant may be entitled to take advantage of the remedy which is most advantageous to him.” I do not think the Bank’s seventh proposition that if, in a contract claim, more than nominal damages would be awarded, it follows that there is damage sufficient to start time running, is of any assistance in establishing a test. The fourth and fifth propositions presume a comparison between what the plaintiff obtained under the transaction and what he should have obtained. This is, however, a “no transaction” case. The plaintiff says he would not have entered into the transaction but for the Bank’s negligence.
102. This brings us back to the basic question of when the cause of action accrues in cases of financial loss where the cause of action is in tort. It does not accrue merely when the wrong is committed. Actual damage is necessary. The English cases demonstrate and the judges have repeatedly said that cases of financial loss present particular difficulties.
103. Some attempts have been made to establish classifications. I will assume that, as in this case, the cause of action is in negligence. In some cases, the claim is that the plaintiff would not have entered into the transaction but for the negligence of the defendant. Then the measure of loss will prima facie be the difference between the plaintiff’s position as it is after entering into the transaction and what it would have been without it. In many cases, particularly cases of professional negligence, the loss is measured by reference to what the situation would have been if the defendant had not been negligent as against the plaintiff’s actual position. These cases include negligence alleged against solicitors, valuers, insurance brokers and financial advisers. These cases approximate the measure of loss to what it would be in contract. In some of the English cases (for example by Lord Hoffmann in Sephton) it is suggested that it may be easier to assume loss from the moment of entry into the transaction, whereas in “no-transaction” cases, there may be no loss or it may be necessary to wait and see how things turn out. I do not see this distinction as providing a basis for a rule. Nykredit Mortgage Bank plc v Edward Erdman Group Ltd. (No. 2) shows how difficult it is to devise anything like a straightforward rule. In either case, there may be immediate damage or it may not be possible to say that there will be damage until a later date.
104. Fortunately, it is not necessary for us to choose between the differing approaches considered in the English cases.
105. I return to the language of Finlay C.J. in Hegarty v O’Loughran. That was a personal-injury case, so he spoke of a “provable personal injury.” In Read v Brown, to which Finlay C.J. referred, Lord Esher suggested a test of accrual in terms that: “…every fact which it would be necessary for the plaintiff to prove, if traversed, in order to support his right to the judgment of the Court.” The principle must be the same whether the damage takes the form of personal injury, damage to physical property or financial loss, recognising, as one must, that the last category presents special difficulties. The cause of action accrues in the case of financial loss when the plaintiff has suffered actual damage. The problem is that actual financial loss may take many forms. I doubt whether it is going to be possible to lay down a rule capably of easy application in every case.
106. In Darby v. Shanley t/a Oliver Shanley & Co. Solicitors, a claim against solicitors for negligence in drafting a will, Irvine J held that time did not begin to run until the disappointed party had compromised later proceedings. Only then could it be said that he “had sustained a loss arising from the negligence alleged against the defendants.” She does not appear to have been referred to any of the English decisions.
107. I do not think that the mere possibility of loss, at least in terms of Shore v. Sedgwick Financial Services Ltd, is enough. Dyson L.J. applied a type of pure logic in saying that Mr Shore had got a risky product, which he did not want. However, it was clear that, at the date of the transfer from the occupational pension scheme to the personal income withdrawal plan, he got what was then full market value. It would not have been possible then to show that Mr Shore was at a loss. He, like many others, had the bad luck to encounter a downturn in the markets. But the logic should apply even in better market conditions. I do not think it was just or fair to apply such relentless logic to an uncertain situation. Some account has to be taken of probability. That is not, of course, necessarily decisive. It is true that damages can be recovered for the possibility of loss in certain types of case. (See Philp v Ryan [2004] 4 IR 241). Normally that arises, as in possibility of future arthritis, epilepsy and so on, where some primary damage has been proved.
108. The possible situations vary infinitely. Where a person has been led by what he alleges to be negligent advice or other negligent action, such as , for example, negligent valuation of an asset, to enter into a transaction, I do not think the cause of action accrues when there is a mere possibility of loss. To hold otherwise would be doubly unfair to the plaintiff. If he sues early, he may be unable to quantify his loss. The defendant may be able to point to imponderables and uncertainties and argue reasonably that the plaintiff is unable to prove on the balance of probabilities that he has suffered any actual damage. If, on the other hand, the plaintiff waits until his loss materialises, his claim will be held to be statute-barred, if mere possibility of loss is the test.
109. Brennan J in the passage from pages 536 and 537 in Wardley, provided a useful framework of analysis. In particular, it is helpful to bear in mind the following:
“A transaction in which there are benefits and burdens results in loss or damage only if an adverse balance is struck. If the balance cannot be struck until certain events occur, no loss is suffered until those events occur…”
110. This is close to the analysis applied by Charleton J in the present case. I would not quarrel with his statement that:
“Each case is to be judged on the facts as to when the tort occurred, and whether damage resulted at that time or whether the wrong initiated a course of action that later resulted in a loss.”
111. However, there will be cases where there is immediate loss, even if there are difficulties of quantification and there are uncertainties and contingencies. The analogy with personal-injury claims can be helpful. A claim for damages will include amounts for immediate compensation and estimations, often based on a combination of medical and actuarial expertise, of future loss of earnings and of other costs. In other words, uncertainties do not in themselves prevent the early accrual of the cause of action, subject to the proviso that the plaintiff has suffered actual loss at the time of entry into the transaction.
112. It is best to turn to the facts as pleaded in the present case. The key complaint of the plaintiff is that he was induced by the negligence of the Bank to invest in the SolidWorld Bond, which was a “borrow to invest” product, a feature which made it “wholly unsuitable for the Plaintiff or indeed any investor.” Put otherwise, the product was not a “suitable product to borrow money to invest in and that it was most unlikely that the bond would deliver any return sufficient to offset the cost of the loan transaction.” He would not have entered into the transaction were it not for the negligence and misrepresentations of the Bank.
113. The plaintiff does not and cannot make any complaint about the quality of management of the investments in the SolidWorld Bond. There was no fund to be managed. The basket of shares was designated at the start and could not be changed. No complaint is made about the shares chosen. The plaintiff was locked in to the SolidWorld Bond for the entire term of five years and eleven months.
114. The complaint as pleaded is that the Bank caused the plaintiff to enter into the transactions. The loss claimed is the amount of the interest paid by him on the loan transaction. There could be no other. The plaintiff could not suffer any loss on the shares. The value of the Bond was guaranteed.
115. There are three possible approaches to the accrual of the cause of action: firstly, it could accrue when the plaintiff entered the transaction by borrowing the money and purchasing the bond; secondly, it might accrue at some intermediate date when the plaintiff could prove that he was at a loss in terms of a calculation of his liability for interest against movements in the value of the shares; thirdly, it could accrue at the end of the period of the investment.
116. It is to my mind inescapable that the plaintiff’s claim as pleaded is that he suffered damage by the very fact of entering the transaction and purchasing the Bond. The cause of action then accrued. That was also the date when he entered into a contractual relationship with the Bank.
117. In logic, if the plaintiff’s loss was too uncertain at the start of the period, the same would be true to a greater or lesser extent at every point during the currency of the Bond. No loss could be established during the term, since the plaintiff could not withdraw from the Bond. If the plaintiff could not sue at the beginning, because of the need to await the development of the value of the Bond, equally it is unlikely that he could sue on any intermediate date. The plaintiff stated in his written submissions that there was no evidence whatever of any damage being suffered by him prior to the maturity of the investment.
118. The only possible alternative date of accrual would be at the end of the period of five year eleven months when it could be seen whether the plaintiff suffered loss by measuring any gains in the shares against the interest paid on the loan. That alternative view would apply no matter what the length of the Bond, which would mean that, in the case of a Bond for ten, fifteen or even thirty years, the defendant could say that no damage had been caused. That approach might be the correct one in the cases of a different kind of investment, especially one where obligations of management and investment were undertaken. The implication in the present case would be that the cause of action in tort would not even have accrued although the six-year limitation period for any claim in contract would have almost expired, as the maturity date of the bond was five years and eleven months. On the pleaded facts of the present case, as set out in paragraph 10 of this judgment, the damage accrued on the entry into the Bond, when the plaintiff was sold a bond which was “wholly unsuitable” for him.
119. This case, therefore, is, on its own particular pleaded facts, a clear one. The cause of action accrued when the plaintiff purchased the Bond. Since that was more than six years before he commenced the proceedings, his claim is statute-barred. I would accordingly allow the appeal, set aside the order of the High Court and order that the claim if the plaintiff is barred by the provisions of Section 11(2)(a) of the Statute of Limitations, 1957.
