May 18
The claimant retained the defendant firm of solicitors to act for her in connection with a transaction pursuant to which her husband was to grant her a lease and she would grant an underlease to a subtenant. In pursuance of their instructions, a lease, underlease and rent deposit deed were prepared by the defendant and thereafter executed. Although the lease included covenants by the claimant to insure the premises against fire, the defendant failed to advise her to obtain such insurance. Furthermore, the solicitors failed to name the subtenant’s parents, who it was intended would act as guarantors, as parties to the underlease, and they neither executed the underlease nor otherwise became guarantors. Subsequently, the premises were destroyed by fire. The subtenant vacated the property without undertaking repairs and the tenant also lost rent. More than six years after the lease and underlease were executed but less than six years after the fire, the claimant issued proceedings against the defendant seeking damages for negligence, for failing to (i) ensure that the subtenant’s parents entered into a guarantee and (ii) advise the claimant of her insurance obligations under the lease and underlease. The defendant contended that the claim was statute-barred, having been brought outside the six-year limitation period from the date of the accrual of the cause of action, since the claimant had first suffered loss at the point at which the documents were executed, such loss being the lower value of her interest in the property in the absence of the parental guarantee. Determining the question of limitation as a preliminary issue, the judge rejected the defendant’s limitation argument, finding that the loss as contended for fell within the “financial loss is possible but not certain” category which was not sufficient detriment to make good a claim for tort. It was only when the various contingencies occurred after the fire that the cause of action accrued.
On the defendant’s appeal—
Held, appeal allowed. Since the execution of the lease and underlease by the defendant was a flawed transaction, the relevant question was whether “the value to [the tenant] of the flawed transaction was measurably less than what would have been the value to [her] of the flawless transaction”. There could be no doubt that, looking at matters objectively, what the claimant received from the transaction was significantly inferior to what she should have received. The reversion to an underlease with the benefit of the subtenant’s parents as guarantors would plainly have been of measurably greater value than that to the unguaranteed underlease which the defendant’s negligence had led the claimant to grant. It was wrong to suggest that since the claimant did not wish to assign her lease, the mere fact that the absence of a guarantee might have reduced its assignable value was unimportant. The simple fact was that the claimant did not obtain the package of rights that she subjectively desired. True it might be that she did not envisage assigning her lease, but it did not follow that she did not want the lease to be assignable or that it was not part of the purpose or object of the transaction to produce an assignable lease. Where a flawed transaction was objectively less valuable from the start, the cause of action accrued at the outset. It was one thing to say that someone suffered damage because she did not get what she wanted regardless of whether what she got was objectively as valuable; it was another to say that someone who, looking at matters objectively, had sustained a financial loss had not yet suffered relevant damage and so could not bring a claim. Where a claimant could be seen to be “financially worse off”, because an asset had a lower market value, relevant damage would have been suffered whatever the claimant was intending to do with the asset. In the circumstances of the present case, the defendant’s failure to ensure that the subtenant’s parents were guarantors had caused the claimant damage as soon as the lease and underlease were entered into and, accordingly, her cause of action accrued at that point and was now statute-barred (paras 28, 31–33, 39, 40, 41).
Simon Goldstone (instructed by Reynolds Porter Chamberlain LLP) for the defendant.
Daniel Crowley (instructed by Clarkson Wright & Jakes Ltd, Orpington) for the claimant.