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Claims Against Professionals

Running a company means having to have a good understanding of lots of management issues, but there will always be occasions where you have to rely on specialist advice from a professional. Sadly, such advice may not always be correct and business owners can feel they have nowhere to turn for redress.

The recent House of Lords case of Haward v Fawcetts [2006] UKHL 9 is a reminder of the importance of taking prompt action to seek redress when things go wrong as a result of relying on a professional opinion.

The facts of the case are by no means unusual.  In December 1994 Mr Haward, an experienced businessman, purchased a controlling shareholding in a company called Kings Stag Engineering Ltd in, having first obtained a report upon the financial position of the company from his accountants, Fawcetts.  Fawcetts’ report was favourable, and, relying upon it, Mr Haward invested substantial sums in Kings Stag Engineering Ltd.  The sums in question were as follows:-

1995: £431,000.00
1996: £102,000.00
1997: £509,000.00
1998: £208,000.00

In December 2001, Mr Haward commenced proceedings against Fawcetts claiming that he should be compensated for all the sums he had invested in the company. 

The court decided that Mr Haward was entitled to be compensated, but was too late to claim the first £431,000.00 invested during 1995.

The current law on time limits

To understand the case it is first necessary to be aware that, as a general rule, the latest possible date for issuing proceedings in these circumstances is 6 years from the date on which the negligence caused loss, in this case the date, or rather dates, on which Mr Haward invested his money.

However, the time for issuing proceedings can be extended if the claimant has suffered “latent damage”, that is, where facts relevant to the cause of action are not known at the date when loss is suffered. 

Section 14 A of the Limitation Act 1980 provides that time for commencing proceedings is 6 years from the date on which the loss is suffered or, if later, 3 years from the date on which the claimant acquires knowledge of (amongst other things) the following:

  1. That he has suffered damage that is sufficiently serious to justify issuing proceedings against a defendant who admitted liability and would be good for the money; and
  2. That the damage is attributable to, the act or omission which is alleged to constitute negligence.

Section 14A also provides that

  1. Knowledge that any acts or omissions did or did not, as a matter of law, involve negligence is irrelevant.
  2. For the purposes of Section 14A, a person’s knowledge includes "knowledge which he might reasonably have been expected to acquire from facts observable by him or from facts ascertainable by him with the help of appropriate expert advice, which it is reasonable for him to seek"; and
  3. That a person "shall not be taken …. to have 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, action) that advice".

Haward v Fawcett

In the case of Haward v Fawcetts, Mr Haward suffered loss each time he invested money in the company in reliance upon the report.  Thus, by the time he issued proceedings in 2001, because more than 6 years had elapsed since he invested the first £431,000.00, he was too late to recover that initial sum unless his time for issuing proceedings for that first amount was extended by s.14A of the Limitation Act 1980.

The issue was whether Mr Haward had knowledge of the matters set out above at any time prior to December 1998, three years prior to the issue of proceedings.  A key element of his case was that, at the relevant time, in December 1998, he did not have "knowledge of the act or omission alleged to constitute negligence".

 Curiously, Fawcetts’ lawyers never seem to have argued that, if and so far as Mr Haward did not have actual knowledge of the act or omission in 1998, nevertheless he should be treated as having that knowledge, because he could easily have found it out if he had taken appropriate advice. 

In the event, the House of Lords decided that he did have knowledge of the act or omission alleged to constitute negligence in 1998.  Their Lordships’ approach was to identify the act or omission alleged to constitute negligence by considering “the essential thrust of the case”, i.e. “looking at the way in which the claimant puts his case, distilling what he was complaining about and asking whether he had knowledge in broad terms of the facts on which that complaint is based”.  They noted that Mr Haward had knowledge from the outset that the accountants had provided a report that presented a favourable picture of the financial state of the company.  His complaint was that, despite the favourable reports he had suffered heavy losses as a result of his investment in the company.  Their Lordships found that he therefore had the requisite knowledge of the act or omission alleged to constitute negligence from an early date, certainly before December 1998.  It was irrelevant that he did not know until after December 1998 that he had a legal claim against Fawcetts, or the exact details of how their performance fell short of the required standard.  Accordingly Mr Haward’s claim for the first £431,000.00 of his investment was time barred. 

What lessons can be drawn from this case?  No new lessons, but, as I said at the outset, it is a timely reminder that once a person has broad knowledge of facts that may give rise to a negligence claim, it is sensible to focus at an early date upon the question of whether any redress is possible and/or desirable.  Further (though this was somewhat quirkily not spelled out in the case of Haward) it is sensible to act promptly in taking legal and other expert advice, because you will be treated as having whatever knowledge you ought to have acquired if you had done so; while if you take appropriate legal advice or other expert advice, yet, for some reason, nevertheless fail to acquire the relevant knowledge, you will not then be treated as having knowledge that you do not in fact possess. 

For further information on claims about professional negligence, contact Patricia on 01228 552222 or visitwww.burnetts.co.uk. Patricia Hall is a Partner in Burnetts’ Dispute Resolution department and a member of the Professional Negligence Lawyers Association (PNLA).

About the author

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Patricia Hall

Patricia is a Practising Consultant in the Dispute Resolution team.

Published: Friday 3rd November 2006
Categorised: Commercial Dispute Resolution

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