The Court of Appeal yesterday provided further guidance on when the limitation period begins for claims for pure financial loss following negligent advice or over-valuation.
We have previously reported on Shore v Sedgwick at first instance and on Watkins v Jones Maidment Wilson in our Covernote publications for spring and summer this year. In relation to Shore we expressed concern that there appeared to be more scope than previously anticipated for a claim to be considered a "contingent liability" claim rather than a "transactional loss" claim and for the start date for limitation periods to be delayed. This concern has been allayed somewhat by the judgment of the Court of Appeal, which is considered in more detail below.
In the current economic climate where valuation claims have substantially increased there is some comfort from the reasoning of the Court of Appeal for insurers. We must wait and see, however, whether the House of Lords may provide the same comfort if the case reaches it.
At present, it seems that the Nykredit decision will be not be applied in all cases, that over-valuation claims may not all be "contingent liability" cases and that limitation periods for valuation claims will not necessarily begin any later than the date upon which the relevant security or mortgage is taken.
The Court of Appeal's judgment
Mr Shore had transferred funds out of his employed final salary pension scheme into a "drawdown" scheme which was subject to risks in the stock market.
The court at both levels decided that Mr Shore's claim was statute-barred and considered the House of Lords ruling in Nykredit v Edward Erdman (1997), which held that where a lender relies on a negligent survey and enters into a mortgage over a property, damage occurs not at the date of survey but later if the borrower defaults when the value of the security becomes less than the value of the loan.
However, the Court of Appeal's reasoning differed from the judge's reasoning at first instance.
At first instance the judge considered Mr Shore's claim to be for a "contingent liability" where the cause of action accrued in February 1999 (when the funds in the drawdown scheme would have been valued at a reduced level and annuity rates had fallen to a new low) following Nykredit. The Court of Appeal however considered that the damage occurred at an earlier time - on 28 April 1997 - the date when Mr Shore first transferred out of the final salary scheme into the drawdown scheme, even though this did not actually crystallise into a monetary loss until 1999.
The Court of Appeal considered that, on transfer in April 1997, Mr Shore had acquired a "bundle of rights" which was less advantageous then than the rights which he had surrendered by leaving the final salary scheme and so he had suffered damage at that time (this was the approach adopted by the court in Watkins v Jones Maidment Wilson earlier this year). The Court of Appeal considered that damage occurred then because he transferred in to a more risk exposed scheme so that the possibility of financial loss arose then even though there was also the possibility that Mr Shore would be better off if the market had performed better.
Whilst the Court of Appeal did not depart from Nykredit, it did not consider it to be "authority for some special approach to the question on when loss is suffered in negligent advice cases, or even valuation cases, and all will depend on the facts". The court considered that Nykredit did not apply to this case because this was not a case of "contingent liability" but was a "transactional" loss which occurred at the time of the transfer.