A solicitor's negligence is frequently not exposed until many years after the solicitor's services are rendered. The question then arises whether the limitation period for bringing a claim against the solicitor has expired. This depends on when the cause of action accrued - in other words, when all the facts necessary for the cause of action came into existence. This is often a difficult question, as shown by the case of Pangani Properties Ltd v Owens Transport Ltd (July 2002).
A lessor sued the lessee after the expiry of a 15-year lease for breach of covenants to repair the premises. The lessee then discovered that it was obliged to "keep and maintain" the premises in the same state of repair as when the lease commenced. The lessee made a claim against its solicitors on the basis of the solicitors' negligence in not including the usual exception for fair wear and tear. The solicitors applied to strike out the lessee's claim on the basis that it was outside the six-year time limit under the Limitation Act 1950.
Limitation of claims
The judge held that the time for bringing a claim arose from the date that the cause of action accrued - that is, when every fact existed which was necessary for the plaintiff to prove in order to support a judgment against the defendant. A cause of action in contract was complete at the date of breach of contract without proof of loss.
A claim for negligence is only complete when loss was suffered. In cases of negligent building or personal injury a cause of action may be delayed until the loss is reasonably discoverable by the plaintiff, but otherwise it is not relevant whether the plaintiff was aware that loss had occurred. Where the plaintiff assumes a liability (as in the Pangani Case) the crucial issue is whether the liability was present or contingent on a future event. If the liability was present then loss occurred and the cause of action accrued immediately, but if liability was contingent on a future event then the loss arose and the cause of action accrued when the event or contingency occurred.
The problems that this can present are illustrated by two cases. In Stratford v Phillips Shayle-George (Court of Appeal, NZ, 2001) a solicitor was negligent in structuring a matrimonial property settlement before separation by providing for a mortgage by the wife to the husband. This created a present debt (even though there was no obligation to repay immediately), not a contingent debt dependent on the husband's bankruptcy or when the debt was called up by the official assignee in bankruptcy. Further, in Gilbert v Shanahan (Court of Appeal, NZ, 1998) a director's liability on a guarantee was a present debt and not contingent on default of the company on its loan, because the guarantee deemed the director-guarantor to be a principal debtor.
The court's decision
The lessee's claim in contract was pleaded as breach of a retainer to act for the lessee up to the execution of the lease in 1985. There was no question that breach of the contract occurred in 1985 and that therefore this claim was time-barred. The time at which the claim in negligence arose was answered by examining the obligation in the lease to "keep and maintain" the premises in the same state of repair. As this created a continuing obligation from the date of execution of the lease, the claim in negligence arose more than six years after the lessee made its claim against the solicitors and was therefore time-barred under the Limitation Act.
The decision in the Pangani Case is useful guidance as to the limitation of claims in contract and tort against solicitors. As the facts of Pangani, Stratford and Gilbert show, it is particularly important in claims of negligence carefully to identify the nature of any liability incurred by the solicitor's client.
For further information on this topic please contact Patricia Courtney at McElroys by telephone (+64 9 307 2003) or by fax (+64 9 309 7558) or by email ([email protected]).