Byrne v Pain & Foster

In a purchaser’s negligence claim arising from a negligent valuation, actual economic loss is sustained on exchange of contracts where reliance on the report makes the purchaser irrevocably committed to acquire property worth less than represented. The later completion does not postpone accrual merely because legal title and final payment pass then.

The loss is relevant and measurable when the purchaser assumes a binding obligation to complete, obtains an interest in the property and becomes liable to insure it. Possibilities that completion might not occur, or that market movements might later reduce or remove the loss, do not prevent accrual. The six-year period under the Limitation Act 1980 therefore runs from exchange.

The claimants bought a leasehold flat in reliance on a valuation commissioned by their mortgage lender. They alleged that the valuers negligently failed to report material defects. Contracts were exchanged on 8 July 1988 and completed on 22 July 1988. Their writ, issued on 18 July 1994, was within six years of completion but outside six years of exchange.

A district judge refused to strike out the action. Laws J allowed the valuers’ appeal and held that the cause of action accrued on exchange. The claimants appealed. They could not rely on the extended knowledge-based period under section 14A of the Limitation Act 1980. The central question was whether a purchaser’s tort claim accrued on exchange or completion.

Disposition

The appeal was dismissed unanimously. Simon Brown LJ held that the claim was statute-barred because the cause of action accrued when contracts were exchanged. Otton LJ gave concurring reasons, and Schiemann LJ agreed with both judgments.

1. Actual damage. A negligence claim accrues when the claimant sustains actual, relevant damage, rather than when the negligent act occurs or when damage is discovered. The loss must fall within the applicable measure of damages.

2. Purchaser’s loss on exchange. A purchaser who relies on a negligent valuation suffers actual economic loss on exchange. The purchaser pays a deposit, undertakes a binding obligation to pay the balance, obtains a real interest in the property and must insure it. If the property is worth less than represented, the purchaser has thereby become irrevocably committed to an adverse transaction.

3. Completion is not decisive. Completion transfers the legal estate and final payment, but it adds no relevant element to the loss already sustained. The possibility of rescission, non-completion or favourable market movement is merely contingent and did not prevent the loss from being actual on the pleaded facts.

4. Simon Brown LJ explained that the purchaser illustration in Nykredit Plc v Edward Erdman Ltd, [1997] 1 WLR 1627, did not decide the exchange-completion issue. It confirmed that a purchaser is damaged by entering a transaction for property worth less than the price. Lending cases were different because a lender’s loss may remain uncertain until default or an insufficiency of security emerges.

5. The court also rejected the procedural objection. A discrete legal issue requiring no evidence could properly be determined on a strike-out application under the Rules of the Supreme Court. Difficulty or novelty in the legal question did not itself require a trial or preliminary issue.

The appeal was dismissed with costs, and permission to appeal to the House of Lords was refused.

• Court of Appeal (Civil Division): dismissed the claimants’ appeal, affirming that their negligence claim accrued on exchange; appeal dismissed with costs and permission to appeal to the House of Lords refused: [1999] 1 WLR 1849 .
• High Court: Laws J allowed the defendants’ appeal from the district judge and struck out the claim as barred by section 2 of the Limitation Act 1980.
• District Judge: refused the defendants’ strike-out application, considering the law insufficiently clear for that procedure.