A tale of three errors

Osborne v Follett Stock (a Firm) and Follett Stock LLP [13.07.17]

Date published

28/12/2017

Services

Sectors

Locations

This case is a useful reminder of the basic principles governing when a cause of action accrues and limitation starts to run. It is also potentially of relevance to lender’s claims, offering an argument to get round the Nykredit principle that damage only accrues when the amount loaned plus interest exceeds the value of the rights acquired by the lender.

The facts of this case read like a cautionary tale of what not to do when executing a will, or indeed entering into an agreement for a subsequent variation. It is also a classic example of satellite litigation involving a professional negligence action generated by earlier professional negligence.

Background

The claim stemmed from the will of a former Yugoslav prisoner of war, Mr Roth, who formed a long-term relationship with the claimant’s aunt who, on her death in 1995, left her property to him.

In 1997, Mr Roth instructed firm of solicitors, Coodes, to draw up a will leaving £50,000 to his daughter, Liza, and the residue of his estate to the claimant. The will was executed on 11 February 1997 but was witnessed by the claimant’s husband, rendering the gift to the claimant invalid under the Wills Act 1837. Mr Roth died six days later on 17 February 1997.

Subsequently, the claimant, having learnt of the problem, reached an oral agreement with Liza to vary the will increasing Liza’s legacy to £75,000 with the remainder of the estate going to the claimant. Perhaps surprisingly given their earlier performance, the claimant instructed Coodes to formalise the agreement in writing, who did so without:

  • Advising Liza that she should take independent advice in relation to the agreement.
  • Advising the claimant of the need for such advice if the agreement was to be free from challenge.

In 2005, Liza brought proceedings against the claimant and her husband as executors alleging that the 1997 agreement was not binding upon her and she was entitled to the whole of the estate.

Summary judgment was issued in Liza’s favour in June 2006. In 2007, the claimant instructed the defendants to challenge the judgment.

That application was unsuccessful and the proceedings were compromised in 2010. In 2016, the claimant issued a claim against the defendants for omitting to advise her to bring proceedings against Coodes in relation to their failings in respect of both the attestation of the will and the need for Liza to obtain independent legal advice.

The limitation arguments

Unsurprisingly, the defendants raised a limitation defence.

Whilst the claimant conceded that limitation had expired in respect of the attestation negligence, she argued that her loss in respect of the agreement was contingent on Liza’s change of mind and the damage for the purposes of limitation was only suffered when that contingency occurred.

The decision

Applying Pegasus Management v Ernst & Young [2010], the Judge drew a distinction between a “no transaction” and a “flawed transaction” case, stating that “the difference in concept dictates a difference in the inquiry as to whether, and if so when, the claimant suffered actual or measurable damage.

“In the ‘flawed transaction’ case the inquiry is whether the value to the claimant of the flawed transaction was measurably less than what would have been the value to him of the flawless transaction. In the ‘no transaction’ case the inquiry is whether, and if so at what point, the transaction into which the claimant entered caused his financial position to be measurably worse than if he had not entered into it.”

The Judge had “no hesitation” in finding that the damage for the purposes of the accrual of the cause of action arose at the time of entering the agreement in March 1997. This was not a case of a true contingency. This was a flawed transaction case.

Comment

The distinction between a “flawed transaction” and a “no transaction” is one that should be borne in mind for the purposes of determining when a cause of action has accrued, particularly in lender claims where, invariably, the claimant will seek to rely on the decision in Nykredit which can significantly extend the time period in which a claim can be successfully pursued.

If, however, it can be argued that the loan would have proceeded albeit for a lesser amount, and thus it was a “flawed” rather than a “no transaction” case, then it should be possible to argue that the cause of action accrued at the date the loan was made. Accordingly, subject to any available latent damage arguments, limitation will expire after six years.

Related items: