In an interesting judgment, the High Court has rejected a defendant solicitors' firm's application to strike out a plaintiff's claim on the ground that it was commenced too late (time-barred). Given the relatively high threshold in Hong Kong for an applicant (in this case the defendant) to succeed with an application to strike out a claim before trial, the court's decision is not surprising. However, the written reasons given in the decision are a useful analysis of the legal principles involved in determining when a cause of action accrues for the tort of negligence – in this case, with respect to a solicitor that is alleged to have failed to register a client's property interest.(1)
The defendant firm had acted for the plaintiff in a financial dispute with her former husband. The plaintiff obtained a court order for the transfer of the husband's interest in the matrimonial home to herself. It appears that before the plaintiff's interest was registered at the land registry, the husband may have managed to mortgage his share in the property in return for a loan. By the time that the plaintiff's interest was registered the other secured interest had taken effect and been registered – and, therefore, took priority over the plaintiff's interest.
The plaintiff claimed in negligence against the defendant and commenced her action on 20 August 2016. In short, she alleged that the defendant had failed to advise her properly about the registration of her interest and failed to register the court order in time to take priority over the other secured interest. This was denied by the defendant. It appears that the defendant had ceased to advise the plaintiff sometime in July or August 2008, the husband's mortgage had been taken out in November 2012 and the court order was not registered until July 2013.
A potential claim for breach of contract appears to have been time-barred – more than six years having passed since an alleged breach.(2) In negligence, it was less clear when the plaintiff's cause of action had accrued. For an actionable claim in negligence there needs to be a duty of care, a breach and, as a consequence, damages. A claim based on an allegation of negligence should be commenced before the expiration of six years from the date on which the cause of action accrued.
A question arose as to when the plaintiff had suffered a loss. The defendant argued that the plaintiff's cause of action in negligence had accrued from the time of the alleged failure to properly advise and to register the court order in 2008. If correct, the claim was liable to be defeated by a defence of limitation and dismissed.
However, the plaintiff argued that her loss had accrued from when the contingency against which it was intended to protect her occurred – namely, when the other secured interest was created in November 2012. If correct, the plaintiff's claim was not out of time, having been commenced on 20 August 2016.
The defendant applied to strike out the plaintiff's claim on the basis of a defence of limitation and that it was an abuse of process.(3) For the purposes of the application, and although liability was denied by the defendant, the factual allegations pleaded by the plaintiff were assumed to have been correct.
For the defendant to succeed with its application it had to establish that it was clearly the case that the plaintiff's cause of action as pleaded had accrued before 20 August 2016.
In giving comprehensive written reasons, the court held that is was arguable that the plaintiff's claim in negligence had accrued "only when the contingency of any encumbrance on the Property eventuated"(4) – namely, when the other secured interest had been created. Therefore, the plaintiff's claim (at this stage) was not time-barred and the defendant's application should be dismissed.
The court's decision is careful to stress that the nature of loss and damage in a case, and how it arises, are fact specific and the relevant legal principles should be understood in the context in which they arise.(5) Important in the court's analysis is the way in which the plaintiff had pleaded her cause of action – she had included a claim that had the defendant not been allegedly negligent, she would have been able to register the court order and her interest at the latest in mid-August 2008. In that event, the plaintiff's interest would have taken priority over that of the other secured interest.
The court's decision seeks to explain and put into context those English, Australian and Hong Kong judgments that consider the legal principles relating to when a cause of action might accrue with respect to a solicitor's failure to exercise reasonable care and skill in handling property transactions on behalf of a client. There are cases where (on the facts) a court can ascertain that a loss occurred by reference to the diminution in the value of a property or the incurring of a liability, such that the client receives less than they should have got. In such cases, the accrual of the cause of action can be stated to have accelerated. However, in other cases, such factors might be absent and a plaintiff's loss can be stated to have accrued on the happening of another event – such as, for example, a failure to register a client's interest before another interest was created.
The court noted that:
Her complaint concerned the alleged failure to advise and to register the Order at the Lands Registry as protection against the contingency that the Husband would not only default in complying with the Order but also act against it.(6)
The court's decision cautions against too much rigid application of legal principle and places an emphasis on the context in which the issues arise.
The court's decision is a useful analysis for legal practitioners working in the area of professional risk and liability. It contains a detailed analysis of relevant cases from different principal common law jurisdictions.
A takeaway point is that that the determination of when a cause of action accrues (and a loss arises) is a fact specific exercise. Limitation issues in alleged negligence cases against professional service providers can raise complex issues – particularly, in cases such as this one. There was no claim for a breach of contract in this case – the six years since an alleged breach of contract having passed.
In the meantime, defendants will quite rightly continue to push limitation (time-bar) defences where reasonable to do so. Limitation provides a complete defence. The outcome of the application in this case fell to be determined according to a "plain and obvious" test.
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