When cause of action accrued in a negligence case
The defendant relied on a representation from its supplier that the dyes supplied to it would be satisfactory when used on nylon. The nylon yarn produced by the defendant (using those dyes) was then supplied to the claimant, who in turn used the yarn to produce carpets ultimately fitted on certain premises. The carpets faded and it was eventually alleged that, although the dyes were not defective, the representation that they could be used on nylon had been wrong. The defendant sought to bring a claim in negligence against its supplier (by bringing Part 20 proceedings against it) and the supplier argued that that claim was time barred.
The key issue was therefore when the defendant’s cause of action against its supplier accrued. The supplier sought to argue that there was an actual measurable loss here as soon as the defendant acted on the representation or produced the yarn in question (albeit that loss could not be measured until later on) and hence the claim was now time-barred. The defendant sought to argue that this was a case involving a contingent liability and that the representation/supply of the yarn only gave rise to the possibility of an obligation to pay money in the future (the cause of action only actually accruing when the carpet was damaged by fading a few years later).
Reference was made to earlier caselaw such as Law Society v Sephton (see Weekly Update 10/06) (in which it was held that a contingent liability had arisen when accountants negligently signed off on solicitors’ accounts and actual damage was suffered only when a claim was made by a third party) and Co-operative Group v Birse (see Weekly Update 9/14) (in which time started running as soon as sub-contractors had placed a main contractor in breach of its own obligations to the employer, even though no actual claim had been made yet by the employer).The defendant argued that Birse was incorrect and not in line with Sephton.
Saffman HHJ held that there was no meaningful distinction between this case and Birse (which he found was correct and, although not binding on him, persuasive). As soon as the unsatisfactory dyes had been supplied to the defendant, the value of the defendant’s contract with the claimant was immediately affected: “This is because at that point [the defendant] became a contract breaker whose rights under its contract with [the claimant] were devalued by the extent to which [the claimant]’s contract with its customers was devalued. This is in distinction to the position of the Law Society in Sephton”. There had been no such bilateral transaction in the Sephton case. It also did not matter that the loss was not quantifiable yet or that the chain of supply was longer in this case than in Birse (with the defendant having no direct liability to the end user).