GORDON v J B WHEATLEY & CO (A FIRM) AND ANOR

In professional negligence, limitation begins when actual, legally relevant loss is sustained. A contingent liability may constitute actual loss where it is a real detriment or fetter on assets attributable to the breach, even though later events determine its extent. Uncertainty affects quantification rather than the existence of loss. Where negligent advice exposes a client to statutory restoration liability, loss may arise when the transaction is entered into. A client may also suffer actual loss when instructing solicitors if that instruction creates a non-negligible liability for reasonably chargeable fees, even though the invoice is rendered later.

The claimant operated a mortgage scheme through companies. The first defendant solicitors acted for him until March 1992, and the second defendant acted thereafter. The claimant alleged that the first defendant negligently failed to advise him that pooling investments might constitute a collective investment scheme under the Financial Services Act 1986.

The claim was issued on 28 May 1998. Master Foster struck it out as statute-barred. Buckley J allowed the claimant's appeal and set aside that order. The first defendant appealed, arguing that loss arose when the investments were made, or at the latest when the claimant incurred liability for the second defendant's fees. The central issue was when actual loss accrued for limitation purposes.

Disposition. Lord Justice Kennedy delivered the judgment and Lord Justice Kay agreed. The appeal was allowed and the order striking out and dismissing the claim against the first defendant was restored.

1. The court had to identify the precise loss claimed and measure it against the duty allegedly breached. Actual loss was not confined to an immediately crystallised payment. A relevant liability arising on a contingency could amount to actual damage if it was a real detriment, liability or fetter on assets capable of monetary assessment. Uncertainty about later consequences affected quantification, not accrual.
2. The claimant alleged that proper advice would have prevented the pooled investments or led to authorisation. Once investments were made, he was exposed to a possible order under section 6(2) of the Financial Services Act 1986 requiring restoration of investors and borrowers to their pre-transaction positions. That contingent liability was sufficient actual loss. The cause of action therefore accrued when each investment was made, outside the six-year limitation period. The approach was consistent with Foster v Outred and Co [1982] 1 WLR 86 and Nykredit plc v Edward Erdman Ltd [1997] 1 WLR 1627.
3. Alternatively, the claimant sustained actual loss on 18 May 1992 when he instructed the second defendant. He then incurred liability for fees properly and reasonably chargeable for the services, despite the absence of an immediate payment on account or invoice. The possible total failure of consideration was remote, and the liability was neither insignificant nor postponed until invoicing.
4. The first defendant was entitled to the costs of the hearing before Buckley J and of the appeal, subject to detailed assessment. Leave to appeal was refused.

1. Court of Appeal (Civil Division): allowed the first defendant's appeal and restored the order striking out and dismissing the claim.
2. High Court, Buckley J: on 13 January 2000 allowed the claimant's appeal against Master Foster and set aside the strike-out order.
3. Master Foster: on 25 November 1999 ordered that the claim against the first defendant be struck out and dismissed.