How long after an incident can you make a negligence claim? Nicholas Heaton and Toby Rouse report

A recent House of Lords decision may make it easier for professionals and their insurers to defeat negligence claims brought after the primary limitation period of six years has expired.

Although claims for negligence must normally be brought within six years of the claimant first suffering damage caused by the negligence, in certain circumstances, Section 14A of the Limitation Act 1980 allows a claimant to bring his claim later, provided it is started within three years of when they first had the knowledge (or could reasonably have acquired the knowledge) of the material facts required to bring a claim in respect of the relevant damage.

It is not uncommon for claimants in professional negligence claims to try to rely on S14A to allow them to bring their claim when it would otherwise be out of time.

The House of Lords' judgment in Haward v Fawcetts decides what the claimant must know before the three-year time limit under S14A starts to run. It is, however, an important decision for professionals and their insurers.

Haward v Fawcetts was a claim against a firm of accountants. The claimant, Haward, had bought shares in a company and then made further substantial investments in it in reliance on the allegedly negligent advice of his accountants, Fawcetts.

The purchase of the company and the subsequent investments had been made more than six years before the proceedings were started and so Haward relied on S14A.

It was accepted that Haward had known he had relied on Fawcetts' advice when he acquired the company and committed himself to further investment in it and that he had known more than three years before the claim was started that his investments in the company had been irrecoverably lost.

In the High Court, the judge found that Haward's claim was out of time. This was because he had known all the material facts and events as they had occurred.

He had known the fact of his damage (he had made a bad investment) and he had known that the damage was caused by an act of the defendant (he had known that he had made the investment on the advice of the Fawcetts).

The judge thought the only matter he had not known was whether the accountants had been negligent and S14A(9) expressly provides that knowledge of this is not relevant for the purpose of determining when time starts to run under S14A.

The Court of Appeal disagreed with the judge at the first instance. The Court of Appeal found that there was more than one possible cause of the loss (as the collapse of the company in which Haward had invested could have happened for a number of reasons).

Haward, the Court of Appeal found, had not known that the damage he had suffered was attributable to the advice of Fawcetts and the claim was, therefore, not out of time.

The House of Lords reversed the Court of Appeal's decision, finding that the claim had not been brought in time.

It found that the claimant had failed to show that he had acquired the relevant knowledge less than three years before starting his claim and so he was unable to rely on S14A to bring his claim.

The House of Lords decided that it was not necessary for the claimant to know every detail of his claim before time started to run under S14A. The three-year time limit will start to run once the claimant knows the "essence" of his complaint.

Flawed advice
To rely on S14A the defendant must show that he did not know nor, importantly, have reason to investigate the possibility that the advice he relied on might be flawed. It is not sufficient for a claimant simply to say that he did not know the reasons why the advice may have been flawed.

In Haward's case, he knew the essence of his claim because he knew he had relied on Fawcetts' advice to make investments that had resulted badly.

It was irrelevant that he did not know that Fawcetts' advice was flawed because it had not properly investigated the company before advising on the investment.

The mere fact that the investments turned out so badly was enough to alert him to the possibility that the advice was flawed and so for him to investigate it.

However, the House of Lords recognised that in other cases, where there is not such an obvious link between the loss suffered and possibility of flawed advice from the defendant, simply knowing that you have suffered loss as a result of relying on the advice of the defendant may not be sufficient to warrant investigation and start time running.

Reasonable diligence
Haward v Fawcetts was unusual in that the House of Lords considered only the claimant's actual knowledge, not the knowledge that he ought reasonably to have discovered. This was because the defendant had not relied on such constructive knowledge before the lower courts and so could not do so on appeal.

However, in most cases of this type, the defendant will be able to argue that the claimant should with reasonable diligence have discovered the material facts even if he had not, in fact, done so.

The House of Lords decided that the material facts are those that ought to cause the claimant to investigate whether the advice or other acts of the defendant are flawed.

Once constructive knowledge is taken into account, time will start to run as soon as the claimant could with reasonable diligence have discovered facts which warrant an investigation into whether the advice relied on was flawed. This point may be reached a great deal sooner than when the claimant in fact discovers that the defendant had made a mistake causing him loss.

The Law Lords' judgments refer to the underlying purpose of S14A, which is to prevent claims from becoming time-barred before the claimant could realise he has suffered a loss.

They also refer to the need for limitation periods to strike a balance between the interests of claimants and defendants. This decision attempts to address that balance.

The way in which the House of Lords has identified the critical moment when time starts to run will, in some cases, lead to time starting to run at an earlier date than might otherwise have been the case and so to some claims becoming time-barred sooner.

This will be welcomed by professionals and their insurers. IT

' Nicholas Heaton is a partner and Toby Rouse is an assistant solicitor in Lovells' Professional Indemnity Group

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