Limitation: a game of chance?

A recent Court of Appeal judgment means bad news for defendants and their professional indemnity insurers seeking to defeat a "loss of chance" claim on limitation grounds.

Josselyne Cohen v Kingsley Napley [2006] EWCA Civ 66 concerned a claim against solicitors for failing to pursue an underlying action which was subsequently struck out as an abuse of process for failure to pursue it. The Court of Appeal unanimously held that even though the claimant's claim in the underlying action had for some time been liable to be struck out, that claim would continue to have value for the purposes of a professional negligence claim if, as a matter of fact, the defendant to the underlying claim might not have applied to strike it out. It followed, in the Court of Appeal's judgment, that time did not start to run for the purposes of limitation so long as there remained a substantial chance that the defendant would not have applied to strike out the claim.

This judgment introduces an additional hurdle in the way of establishing a limitation defence to a "loss of chance" claim. It is a hurdle which may be particularly difficult to surmount at the strike out / summary judgment stage. 

Background

This was an appeal by Mrs Cohen against a decision giving judgment for her former solicitors (Kingsley Napley) in respect of most aspects of a professional negligence claim brought by Mrs Cohen. Kingsley Napley had acted for Mrs Cohen from December 1995 in relation to proceedings commenced in 1992 for recovery of architects' fees. Mrs Cohen's counterclaim against the architects had been struck out in 1998 as an abuse of process for failure to pursue it.

In November 2002 Mrs Cohen began proceedings against Kingsley Napley alleging negligence in relation to their conduct of the counterclaim. Kingsley Napley sought to strike out the claim or obtain summary judgment on the basis that it was statute-barred. They argued that Mrs Cohen's counterclaim was valueless by November 1996 and that relevant damage had been suffered more than six years before the proceedings had been issued. At first instance the judge held that a significant part of the counterclaim had no value in November 1996 because it would have been struck out if an application had been made at that time or soon afterwards, and therefore Kingsley Napley's limitation defence succeeded to that extent.

Court of Appeal decision

The Court of Appeal allowed the appeal from the judge's order entering judgment for Kingsley Napley on part of the claim. Whether a cause of action had value at the material time depended on two questions. First, would it have been struck out if an application had been made? If so, the court had to go on to consider the second question: on a consideration of the facts, was there a substantial chance that an application to strike out might not have been made if the solicitors had taken steps to pursue the action in November 1996? If the answer to this further question was yes, the claim retained a value.

The Court of Appeal stated that while in many cases it could readily be assumed that an application to strike out would have been made in these circumstances, it was certainly arguable that there would be cases in which a factual inquiry was appropriate. The hypothetical question as to whether an application would have been made would therefore have to be confronted.

Here the court concluded that it was arguable that, if a factual analysis were to be undertaken, it might be established that the architects would not have applied to strike out the counterclaim if steps had been taken to pursue the matter by November 1996. On the material before the court, therefore, there were issues of fact which were fit for consideration at trial and the claim should not have been struck out on limitation grounds.

Comment

This decision contrasts with the approach of the Court of Appeal in the previous cases of Khan v Falvey [2002] PNLR 28 and Hatton v Chafes (a firm) [2003] PNLR 24. In both those cases the Court of Appeal held that the cause of action in professional negligence had arisen (at the latest) when the claimant's action was liable to be struck out. Unlike in the Cohen case, the application to strike out was assumed: in neither case did the court consider it necessary to conduct a factual inquiry as to whether an application to strike out might not have been made.

The judgment in Cohen is not strictly inconsistent with these earlier decisions, in light of the court's comment that in many cases the court will be able to assume that an application to strike out would have been made. However, it seems clear that this judgment will give scope to a claimant seeking to "muddy the waters" by raising issues as to what might or might not have been done by the underlying defendant in the given hypothetical situation. Once such questions are raised by the claimant, a court may be hesitant to rule out the need for a factual inquiry.

Following Cohen, it seems that a defendant seeking either to strike out or to obtain summary judgment on a loss of chance claim on limitation grounds must establish that at the relevant time (ie, six years before the professional negligence action was commenced) there was no real chance of the underlying action proceeding. Accordingly, it would seem that the prospects of putting an early end to this sort of claim on limitation grounds are greatly diminished as a result of the judgment.

Further, the Court of Appeal's decision is arguably difficult to reconcile with the leading House of Lords decision on limitation: Nykredit Mortgage Bank plc v Edward Erdman Group Ltd (No 2) [1998] 1 All ER 305. It is well established that in an action for negligence, the cause of action accrues (and thus time starts to run for limitation purposes) when actual damage is suffered as a result of the negligence. In Nykredit, it was established that "actual damage" for these purposes includes any detriment, liability or loss capable of assessment in money terms, including liabilities which may arise on a contingency. In contrast, the judgment in Cohen seems to indicate that, at least in a loss of chance case, the cause of action has not accrued until any contingency standing in the way of the claimant's loss has been removed: in effect until the loss is certain. It remains to be seen to what extent this line of authority might be developed in future cases.

The Cohen decision is also interesting in confirming that a claimant may be awarded damages for loss of a chance in litigation even where there was an airtight defence to the underlying claim if, on a consideration of the facts, there was a substantial chance that the defence would not have been run.