Privy Council considers time bar test for a negligence claim based on a "flawed transaction"

In cases of negligence resulting in economic loss, there is an actual loss (and hence time starts running) if there is a diminution in value/money for the claimant. It makes no difference if the loss has not crystallised yet. If the case is one of a "flawed transaction" (ie the claimant would still have entered into an analogous, flawless transaction, in the absence of the defendant's negligence), the question is whether the value to the claimant of that transaction is measurably less than what would have been the value to him of a flawless transaction. If, instead, the claimant would not have entered into the transaction at all (a "no transaction" case), the question 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. Where the client has a purely contingent liability or loss, though, because of the professional's negligence, the cause of action accrues only when the contingency actually does occur and damage is suffered.

The Privy Council concluded that this was a flawed transaction case. It then went on to consider whether it is correct to say that damage is always suffered at the time of entry into the flawed transaction.  Although some Court of Appeal judges have held that a claimant suffers damage as soon as he receives something different to that which ought to have been received, the Privy Council unanimously disagreed with that view: "There is no substitute for attending to the particular facts and deciding whether such an inference is to be properly drawn from them". On the facts of this case, such an inference could be drawn".

The Board also rejected an argument that this was a case of breach of a continuing contractual duty (the defendant's fees having been paid and the file closed some 22 years ago). Lord Clarke dissented on this point, though. He felt it was arguable that, unbeknown to both sides, the defendants had owed a contractual duty to the claimant for more than 22 years.

COMMENT: This case approves the decision in Knapp v Ecclesiastical Group [1998], where an insurance policy was avoided after brokers failed to disclose material facts to the insurers. There, the Court of Appeal held that the claim against the brokers was time-barred because actual damage had been suffered by the insured at the time the policy was renewed (and that the renewal had been a flawed transaction). Hobhouse LJ had gone on, though, to find that it was possible to envisage other situations in which the fault could so easily be remedied that the damage would be no more than nominal.