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McKillen & Anor v Russell Brothers (a firm) [2001] NICA 51 (07 December 2001)

IN HER MAJESTY'S COURT OF APPEAL IN NORTHERN IRELAND

_______

BETWEEN:

JOHN EDWARD McKILLEN and ANNIE MARY McKILLEN

Appellants

-and-

NORMAN RUSSELL and ALAN RUSSELL practising as RUSSELL BROTHERS

Respondents

________

KERR J

Introduction

This is an appeal by John Edward McKillen and Annie Mary McKillen from the decision of McCollum LJ whereby he dismissed their claim against the respondents. The appellants had taken proceedings against the respondents and a firm of solicitors, Thompsons. On the trial of a number of preliminary points, McCollum LJ held that the appellants' action against the respondents was statute barred. He refused to dismiss the action against Thompsons, however, and the appellants' action against that firm is pending. Thompsons did not appeal the judge's decision and did not participate in the hearing before this court.

Background

The appellants are the owners of a house and garage at 15 Cronstown Road, Newtownards, County Down. They purchased this property for £49500 on 24 April 1989. The purchase was partly financed by a mortgage from the Northern Bank Limited. The bank had engaged the respondents to provide a valuation and conduct a survey of the premises. This was carried out by the first respondent. He pointed out a number of defects and valued the house at £47500.

As originally constructed, the premises comprised a bungalow with garage attached. Some time later the garage was converted to living accommodation and a detached garage was built. The precise date of these works is unknown but it is likely that they took place some time in 1982 because Ards Borough Council granted building control approval for the works on 9 February 1982. Subsequently, in 1983 or 1984 the roof space of the house was converted to bedroom accommodation and a spiral staircase was installed. Building approval for this conversion was not applied for although it was legally required and ought to have been obtained before the works were completed.

In June 1989 the appellants' daughter noticed that the roof of the garage was defective. She pointed this out to her parents and they engaged Thompsons to advise and act on their behalf in a claim against the respondents. The solicitors contacted Ards Borough Council to make inquiries about building control approval. In a letter of 14 August 1989 the Council informed Thompsons that the garage had not been constructed in accordance with a plan that had been submitted (presumably by the builder) and which had been approved by building control officers. The garage construction was therefore in contravention of the Building Regulations (Northern Ireland) 1977.

On 1 February 1990 Thompsons advised the appellants that a claim against Russells depended on its being established that they had conducted the survey and had arrived at the valuation negligently. They also correctly advised that the amount of the claim would be dependent on the diminution, if any, of the market value of the premises as a result of the negligent survey and valuation. The solicitors then embarked on negotiations with loss adjusters acting on behalf of Russells. These culminated in a settlement whereby the sum of £700 and costs was paid to Mr & Mrs McKillen on 4 December 1990. They had signed a discharge in respect of this amount on 28 November 1990.

In early 1997 the appellants decided to sell their house in order to move to California to live near their daughter. They engaged an estate agent to conduct the sale. After inspecting the property, he suggested that Building Control should inspect the roof space conversion. The District Building Control Officer carried out an inspection of the premises and on 13 March 1997 he wrote to Thompsons setting out a number of defects in the work that had been carried out, most notably in the floor (which was supported by ceiling joists only), the roof (which was found to be structurally unstable) and the spiral staircase (which did not comply with Building Regulations). The appellants cannot afford to remedy these defects and have been unable to sell the property.

The proceedings

On 11 November 1997 the appellants issued proceedings against the respondents and the solicitors. They claimed that the respondents had failed to carry out a proper survey of the premises and that Thompsons had been negligent in acting as their solicitors. Although the Statement of Claim intimated various heads of damage, on the hearing before McCollum LJ and before this court, it was accepted that the appellants' claim was confined to the diminution in market value of the premises.

The action was set down for trial on 28 September 1999 and was entered in the Commercial List. On 19 March 2000 the solicitors for the surveyors applied to the Commercial Judge, Coghlin J, to have the following questions tried as preliminary issues: -

"1. Whether the plaintiffs' claim against the first defendants is statute barred by virtue of the provisions of the Limitation (Northern Ireland) Order 1989

2. Whether the plaintiffs' claim is satisfied and discharged and a binding contract of settlement of this matter has been concluded between the plaintiffs and the first defendants by the signing of a discharge by the plaintiffs on 28 November 1990 and the payment on behalf of the first defendant to the plaintiffs in consideration thereof

3. Whether the plaintiffs' claim against the first defendants is an abuse of process by reason of the plaintiffs' previous claim against the first defendants, the subject of the discharge at 2 above"

The action had been scheduled for a full hearing on 17 May 2000 and in view of the imminence of the trial, Coghlin J refused the application. When the matter came on for hearing, however, it appears that McCollum LJ suggested that the questions raised by the respondents should be tried as preliminary issues as should the question whether the action against the solicitors was statute barred. All parties agreed to this course and the matter proceeded in this way. No evidence was called but the learned judge had available to him the affidavit filed in support of the application that had been made to Coghlin J and a number of exhibits which included the surveyor's report, the form of discharge and correspondence passing between Thompsons and Ards Borough Council dealing with both sets of defects.

In his judgment, McCollum LJ held that the appellants' claim against the respondents was statute barred. He was not prepared to hold that the discharge constituted a binding settlement of all the plaintiffs' claims against the surveyors and he made no finding on the abuse of process claim. He rejected the solicitors' claim that the action against them was statute barred.

The Limitation Order

Article 6 of the Limitation (Northern Ireland) Order 1989 provides: -

"Time limit: certain actions founded on tort

6. (1) Subject to paragraph (2) and to Articles 7 and 9 and 11 to 13, an action founded on tort may not be brought after the expiration of six years from the date on which the cause of action accrued. (2) Subject to Article 51, an action for damages for libel or slander may not be brought after the expiration of three years from the date on which the cause of action accrued."

It is accepted by the appellants that the only possible cause of action against the respondents lies in their alleged negligence in the conduct of the survey and their valuation of the property. The primary limitation period in respect of this cause of action therefore expired on the sixth anniversary of their having purchased the property, viz 24 April 1995.

Article 11 of the Order provides: -

"Special time limit for negligence actions where facts relevant to cause of action are not known at date of accrual

11. —(1) This Article applies to any action for damages for negligence, other than one to which Article 7 applies, where the starting date for reckoning the time limit under paragraph (3)(b) falls after the date on which the cause of action accrued. (2) An action to which this Article applies may not be brought after the expiration of the period applicable in accordance with paragraph (3). (3) That period is either—

(a) six years from the date on which the cause of action accrued; or

(b) three years from the starting date as defined by paragraph (4), if that period expires later than the period mentioned in sub-paragraph (a).

(4) For the purposes of this Article, the starting date for reckoning the time limit under paragraph (3)(b) is the earliest date on which the plaintiff or any person in whom the cause of action was vested before him first had both the knowledge required for bringing an action for damages in respect of the relevant damage and a right to bring such an action.

(5) In paragraph (4) "the knowledge required for bringing an action for damages in respect of the relevant damage" means knowledge both—

(a) of the material facts about the damage in respect of which damages are claimed; and

(b) of the other facts relevant to the current action mentioned in paragraph (7).

(6) For the purposes of paragraph (5)(a), the material facts about the damage are such facts about the damage as would lead a reasonable person who had suffered such damage to consider it sufficiently serious to justify his instituting proceedings for damages against a defendant who did not dispute liability and was able to satisfy a judgment. (7) The other facts referred to in paragraph (5)(b) are—

(a) that the damage was attributable in whole or in part to the act or omission which is alleged to constitute negligence; and

(b) the identity of the defendant; and

(c) if it is alleged that the act or omission was that of a person other than the defendant, the identity of that person and the additional facts supporting the bringing of an action against the defendant.

(8) Knowledge that any acts or omissions did or did not, as a matter of law, involve negligence is irrelevant for the purposes of paragraph (5). (9) For the purposes of this Article a person's knowledge includes knowledge which he might reasonably have been expected to acquire—

(a) from facts observable or ascertainable by him; or

(b) from facts ascertainable by him with the help of appropriate expert advice which it is reasonable for him to seek;

but a person is not to be fixed under this paragraph with knowledge of a fact ascertainable only with the help of expert advice so long as he has taken all reasonable steps to obtain (and, where appropriate, to act on) that advice."

For the respondents, Mr Morgan QC submitted that the cause of action vested in the appellants on the date that they acted on the valuation report supplied by the surveyors. The last date on which this could have occurred was, he suggested, the date on which they completed the purchase. Mr Horner QC for the appellants suggested that it was possible for a number of different causes of action to arise from the negligent omissions in the surveyors' report. He did not dissent from the proposition that a cause of action vested in the appellants on the date that they purchased the property but suggested that this did not prevent further causes of action arising. For reasons that I shall give presently, I do not accept Mr Horner's argument on this point and I am satisfied that Mr Morgan's submissions are correct. It follows that in this case the combined effect of Article 11 (3) (b) and (4) is that the special time limit expired three years from the earliest date on which the appellants first had the knowledge required for bringing an action for damages in respect of the relevant damage.

Mr Morgan argued that the appellants knew of "the material facts about the damage in respect of which damages [were] claimed" for the purposes of Article 11 (5) on 28 November 1990 at the latest because by then they knew that it had been accepted by the respondents that they were liable to the appellants in respect of the defective valuation. He submitted, therefore, that the special time limit provided for by Article 11 expired in this case on 28 November 1993. Since this was earlier than the date on which the primary limitation expired, the action became statute barred, Mr Morgan claimed, on 25 April 1995.

For the appellants, Mr Horner submitted that there was no evidence before the judge to show that the defects in the garage gave rise to a diminution in the value of the property. There was therefore no evidence, he suggested, that the appellants had knowledge of the "relevant damage" in 1990. Moreover, he claimed, a number of negligent omissions in the valuer's report gave rise to several different causes of action.

Relevant damage

In a claim for diminution in the value of property as a result of a negligent valuation, on the question of what qualifies as "relevant damage" for the purpose of Article 11 (4) two alternative approaches may be considered. The appellants espoused the first of these. It is that the relevant damage is the diminution in value of the property that arises from the discovery of any number of negligent omissions in the survey and valuation report. Thus, the appellants suggest, relevant damage may occur on a number of occasions, depending on the date(s) on which the damage becomes manifest. The second approach (which the respondents contend is the correct one) is that relevant damage in the context of Article 11 (4) means the diminution in the value of the property simpliciter and once it has been established that such diminution has occurred knowledge of the relevant damage exists.

I consider that the respondents' argument is to be preferred. The only compensatable loss that arises for a negligent valuation by a surveyor in circumstances such as the present is for diminution in the market value of the premises. Once it has been established that such a diminution has occurred, the relevant damage is present. The extent of that damage (i.e. the full amount of the diminution) may not be immediately apparent but this should not be confused with the fact of the damage, which is established by the discovery that there has been a diminution in market value.

The knowledge required under Article 11 (4), (5) & (6)

Article 11 (4) fixes the starting date for reckoning the time limit under paragraph (3)(b) as "the earliest date on which the plaintiff … had … the knowledge required for bringing an action for damages in respect of the relevant damage". Therefore as soon as a plaintiff knows enough to allow him to bring an action for damages, time begins to run. Article 11 (5) brings further definition to the phrase "the knowledge required to bring an action for damages". In the present context, the material provision in Article 11 (5) is that "the knowledge required for bringing an action for damages in respect of the relevant damage" means knowledge of the material facts about the damage in respect of which damages are claimed. In my judgment, since the relevant damage was the diminution in the market value of the property, as soon as the appellants became aware that the valuation of the property carried out by the respondents had been negligent and that this had led to an over-valuation of the property, they had the requisite knowledge for the purpose of Article 11 (5).

It is clear that they did not need to know that they were certain of success in an action in respect of the diminution in the value of the property because Article 11 (6) defines "the material facts about the damage" as "such facts about the damage as would lead a reasonable person who had suffered such damage to consider it sufficiently serious to justify his instituting proceedings for damages against a defendant who did not dispute liability and was able to satisfy a judgment". Thus the appellants needed only to know that the diminution in the value of their property was such that it would be worthwhile to issue proceedings against the respondents, on the basis that liability for their loss would be accepted and that the respondents would be in a position to meet any award of damages made against them.

What did the appellants know?

By 28 November 1990 the appellants knew that the respondents had failed to mention the defect in the garage in their report. They also knew that this could only give rise to a claim for damages if it could be shown that this omission amounted to negligence. They had been advised that it was also necessary to show that there had been a diminution in the value of the property as a result. Crucially, they also knew that the insurers of the respondents were prepared to make an offer in settlement of the claim that had been intimated on their behalf.

In our opinion, these facts were more than sufficient to satisfy the fairly modest requirements of Article 11 (6). Plainly, the appellants considered it worthwhile to pursue a claim against the respondents based on the allegation that they had suffered a diminution in the value of the property because their solicitors had advanced such a claim. They must also have been reinforced in their belief that, if necessary, they were justified in issuing proceedings by the offer of settlement made by the respondents' insurers. Armed with this knowledge, a reasonable person in the appellants' position is bound to have considered that the damage suffered was sufficiently serious to justify instituting proceedings for damages against "a defendant who did not dispute liability and was able to satisfy a judgment".

The authorities

In Horbury v Craig Hall & Rutley [1991] EGCS 81 the defendant surveyors had provided the plaintiff with a structural survey report on a property which she subsequently bought in November 1980, relying on the report. In 1984 a builder carrying out work in the loft informed the plaintiff that the chimneys were in a dangerous condition. This had not been mentioned in the surveyors' report. In 1985 an outbreak of dry rot was discovered and works to eradicate this took place between 1985 and 1986. The writ claiming damages for negligence against the surveyors was issued in February 1988. It was held by Judge Bowsher QC (sitting as an official referee) that "damage" for the purposes of the starting date of the three year period in section 14A of the Limitation Act 1980, (the equivalent of Article 11 of the 1989 Order) was the single cause of action the plaintiff suffered when she bought the property. Since she knew of the defective chimneys by May 1984 she had knowledge of the damage for the purpose s of section 14A and her claim was statute barred because the writ had not been issued within three years of her having acquired that knowledge.

In Felton v Gaskill Osborne & Co [1993] 2 EGLR 176 the plaintiff exchanged contracts for the purchase of a property in Liverpool on 6 June 1983, in reliance on a report provided by the defendants to a building society which had advanced a loan to the plaintiff. The report failed to refer to tracking above a window in the region of the lintel, a serious bulge in the gable wall and a leaning chimney. Before he exchanged contracts the plaintiff observed the cracking but did not appreciate its significance. He also saw the leaning chimney stack and was aware that it would have to be repaired. Indeed, he paid for repairs to the chimney after he had purchased the property. In 1989, the plaintiff obtained a structural report having been alerted to the defective condition of the lintel and the bulge in the wall by a prospective purchaser of the property. On 15 December 1989 he issued proceedings claiming damages against the defendants for their negligence in failing to detect and warn him of these two defects. A claim in respect of the chimney stack was abandoned. The plaintiff claimed that he was unaware of the condition of the lintel or of the bulging to the gable wall until after he received the structural report in 1989.

On the trial of a preliminary issue of limitation, Judge O'Donoghue rejected the argument of counsel for the defendant that, once the plaintiff had realised that the defendant's firm had failed to refer to a defect (the chimney stack) he ought to have obtained his own structural report. The judge said: -

"If the submissions … made by counsel for the defendant were correct, the fact that a plaintiff had known that there had been some negligence on the part of the defendant, but had chosen not to institute proceedings for damages on the grounds that he could live with the situation, might by this indulgence be prevented from later instituting proceedings in respect of a far more serious example of negligence of which he was earlier unaware giving rise to a far more serious claim for damages. I hesitate to find that the provisions of section 14A would produce such a result"

The Court of Appeal in England considered both decisions in Hamlin v Evans [1996] 2 EGLR. In that case the appellants had purchased a property in Deptford in November 1986. They had received a report from the respondents as to its condition. The report drew attention to a number of minor defects but concluded that the proposed purchase price was reasonable. In 1987 the appellants discovered dry rot which cost £4000 to eradicate. When confronted with this the respondents disputed the suggestion that the dry rot was present or detectable at the time of the survey but offered to pay £750 on an ex gratia basis "in full and final settlement of any claim". The appellants accepted the offer and signed a form of discharge. In 1992 the appellants became aware of an enlarging fracture in one of the walls of the property; a report from a firm of experts suggested that there was substantial damage to the entire property through subsidence.

After considering the decisions in Horbury and Gaskill Waite LJ said: -

"The present case is to be contrasted with cases involving claims against those with responsibility for defective building work, where there may well be different causes of action against different contractors and in respect of different categories of damage to the same building (as in Steamship Mutual Underwriting Association v Trollope &Colls (City) Ltd 33 BLR 77). Here there is but one single and indivisible cause of action arising out of one negligent act, the making of a single report. Section 14A is expressed to apply (sub-section (1)) to cases where the (knowledge-related) starting date introduced by the section occurs at a date subsequent to that on which "the cause of action accrued". There was only one such cause of action, namely the making of the report; and it accrued when the damage (great or small) was suffered for the first time. The reference in sub-section (5) to "relevant damage" can only sensibly be construed as referring to damage relevant to that same cause of action."

I agree with this analysis of the principles involved. Even if I had not done so, I would have been reluctant to take a different course because of the well-established principle that the Court of Appeal in this jurisdiction will generally follow a relevant decision in the English Court of Appeal - see Beaufort Developments (NI) Ltd v Gilbert-Ash (NI) Ltd [1997] NI 142, 155 per Carswell LCJ.

It appears to me that the matter of most importance is the fact that the cause of action arises from a single event, namely, the provision of a report on which the purchaser acts and which over-values the property. As soon as a purchaser becomes aware that the property has been overvalued by reason of the surveyor's failure to detect or report on a material defect, he must be considered to have the requisite knowledge under Article 11 (4). He may not be aware of the extent of the value of his claim but he is undeniably aware that he has a cause of action. That cause of action comprises a right to claim compensation for the difference between the actual value of the property and that estimated by the surveyor. The existence of the claim is established at the point of discovery that there is – or may be - a difference in those values. The quantum of the claim may rise if further omissions on the part of the surveyor are discovered but no separate causes of action arise in respect of such later discoveries.

Mr Horner was critical of the decision of the Court of Appeal in Hamlin because of the observation of Waite LJ that the construction of Section 14A favoured by the court harmonised with Wigram V-C's classic statement of the principle as to maintaining consecutive claims in respect of one act of negligence in Henderson v Henderson (1843) 3 Hare 100. The Henderson case and subsequent decisions such as Talbot v Berkshire County Council [1994] QB 290 were concerned with res judicata and abuse of process. They do not provide assistance in construing Article 11 of the 1989 Order and, in light of the conclusion that I have reached as to the proper construction of that provision, it is unnecessary for me to express an opinion on Mr Horner's arguments on this point. I consider that the appeal should be dismissed.