This case note is based on an Article in the March 2006 Edition of the ‘(Re)insurance Bulletin’, published by the Insurance/Reinsurance teams at the international firm of lawyers, DLA Piper Rudnick Gray Cary. DLA Piper is an International Contributor to this website

Background
In 1994, Mr Haward wanted to acquire a controlling interest in a company and obtained advice from a firm of chartered accountants, Fawcetts, who had had a long-standing relationship with his late father. On 9 December 1994, Mr Haward, in reliance on Fawcetts' advice, bought £60,000 £1 shares and retained the firm as company auditors.

Fawcetts' advice was that the business could be brought to profitability by an initial injection of about £100,000. The company, however, steadily lost money and had to be financed by additional investments of £431,000 in 1995, £102,985 in 1996, £509,525 in 1997 and £208,950 in 1998.

In February 1998, Mr Haward engaged a consultant to advise him on the ailing business, but it was not until May 1999 that it was specifically suggested to Mr Haward that a claim might lie against Fawcetts for alleged negligence. A claim form was issued on 6 December 2001.

The Act
It was not in dispute that, under the Limitation Act 1980, the primary 6 year limitation period for claims in contract and tort had expired as regards losses incurred before 6 December 1995. Mr Haward, however, relied on section 14A of the Act, which, in the case of claims in negligence, provides for an alternative limitation period of three years from the "earliest date on which the plaintiff… 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" (s 14A(5)).

Knowledge in this context means both knowledge "of the material facts about the damage in respect of which damages are claimed" (14A(6)) and of other facts relevant to the action - the significant one in this case being "that the damage was attributable in whole or in part to the act or omission which is alleged to constitute negligence" (14A(8)).

Subsection 14A(9), however, provides that "knowledge that any acts or omissions did or did not, as a matter of law, involve negligence is irrelevant for the purposes of subsection (5) …".

At first instance, the judge found that Mr Haward had not discharged the burden of proving he first acquired the requisite knowledge after 6 December 1998 so as to bring his claims for the earlier losses within the limitation period. The Court of Appeal disagreed, but the House of Lords held that Mr Haward's claims for losses incurred in 1994 and 1995 were indeed statute-barred.

In this case, Mr Haward knew of the material fact of the damage throughout, in that he knew that he had made considerable investments in the company and that it continued to make significant losses. The critical issue, however, was whether, before 6 December 1998, he did not know that the damage "was attributable in whole or in part" to the acts or omissions of Fawcetts. On his evidence, it did not occur to him that he might have a claim against the firm until May 1999.

Knowledge in the context of section 14A of the Act does not mean knowing for certain, nor does the claimant have to know enough to draft a particularised statement of claim. He merely needs to have knowledge of the facts that constitute "the essence" of the complaint of negligence (Nash v Eli Lilly & Co [1993] 1 WLR 782, Dobbie v Medway Health Authority [1994] 1 WLR 1234, (Hallam-Eames v Merrett Syndicates (1995) [2001] Lloyd's Rep PN 178). It is not necessary for him to know whether, as a matter of law, the acts or omissions constituted negligence, as under section 14A(9) such matters are stated to be "irrelevant".

Judgment
The House of Lords held that the crucial date in this case was not when Mr Haward first knew he might have a claim for damages, but earlier, when he first knew enough to justify setting about investigating the possibility that Fawcetts' advice was defective.

This required knowledge that Fawcetts' acts or omissions were causative of the making of the investments. More, however, was needed than just the fact of the advice itself. Lord Mance said it would be wrong to suggest that all a claimant needs to know is that he has received professional advice but for which he would not have acted in a particular way which has given rise to loss. Mere "but for" causation was insufficient. The claimant must know the factual essence of what is subsequently alleged as negligence in the claim. In other words, he must know enough to make it reasonable to investigate whether or not there is a claim against a particular potential defendant.

On the other hand, time does not wait until the claimant has put together his claim. Lord Scott commented: "To say that time only ran once the claimant found out why the advice he had received was negligent would be to expand section 14A to cover cases that had nothing whatever to do with latent damage or losses. It would expose those who give advice on financial matters to potential liability not simply until the expiry of three years after the loss making consequences of the advice are known but until the expiry of three years after all reasons why that advice was negligent are known. This would substantially alter the balance between claimant and defendant that Parliament has struck in drawing up the Limitation Act".

The Law Lords recognised the potential tension between the phrase "attributable to" in section 14A(8) and the statement in section 14A(9) that knowledge of whether the acts or omissions constituted negligence is irrelevant. This was particularly the case in professional negligence cases, where a client may not attribute losses suffered to an omission by his advisor because he does not know what it would have been expected of the advisor to do. Or he may have no reason to attribute the loss suffered to that advisor until he discovers that the transaction was intrinsically unsound.

In this case, however, the House of Lords was unanimous in its finding that Mr Haward had not proved that he did not have the requisite knowledge until after 6 December 1998 and so his claim for losses incurred in 1994 and 1995 was statute-barred.

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