LLOYDS BANK PLC v BURD PEARSE (A FIRM) AND ANOR

A lender’s tort claim against a negligent solicitor accrues when the lender first suffers actual damage within the applicable measure of loss. The claimant bears the legal burden of proving timely accrual. Under section 14A of the Limitation Act 1980, knowledge is not imputed from an agent where the principal had no duty to inquire and the agent was not authorised to receive the information. For damages, the court must distinguish the loss caused by entering the transaction from the loss caused by the solicitor’s particular breach. A solicitor retained to report on title, value or saleability may be treated like a valuer. The fact that the transaction would not have occurred does not, by itself, justify recovery of the entire loss.

The Bank lent money to Sharland Developments Ltd on the security of a building plot. The appellant solicitors negligently failed to disclose restrictive covenants affecting the plot’s value and saleability. Evans-Lombe J found negligence, entered judgment against the appellant solicitors for the Bank’s full loss, and dismissed the Bank’s alternative claim against Burd Pearce. The appellant challenged the rejection of its limitation defence and the measure of damages. The central issues were when the tort claim accrued, whether section 14A postponed limitation, and whether the solicitors were liable for the whole loss or only the loss attributable to the defective information.

Lord Justice Jonathan Parker delivered the judgment, with whom Lord Justices Sedley and Potter agreed.

1. Limitation. The contractual claim was statute-barred. For the tort claim, the lower court had failed to make necessary findings on the valuation evidence and had misdirected itself by treating the burden of proving the limitation defence as resting on the defendant solicitors. The legal burden rested on the Bank to establish accrual within the relevant period. The conclusion on the section 2 issue therefore could not stand.
2. The conclusion under section 14A of the Limitation Act 1980 did stand. The Bank first became aware of the terms and effect of the restrictive covenants on 7 July 1995. The absence of valuation findings did not undermine that finding. Knowledge of the covenants acquired by Burd Pearce in its limited retainer was not imputed to the Bank. The principles in El Ajou v Dollar Land Holdings plc [1994] 2 All ER 685 applied: imputation required a duty on the principal to inquire or authority in the agent to receive the information. The limited retainer also defeated constructive notice.
3. Measure of damages. Applying South Australia Asset Management Corporation v York Montague [1997] AC 191 and Nykredit plc v Edward Erdman Ltd [1997] 1 WLR 1627, the court first compared the Bank’s position with and without the transaction. It then identified the scope of the solicitors’ duty and the consequences of its breach. The relevant question was the consequence of lending without the true facts, not what would have happened if the facts had been disclosed.
4. The solicitors’ retainer required information about title, value and saleability. It was therefore analogous to a valuer’s information duty, not a duty to advise whether the Bank should lend. The fact that the borrower would not have proceeded did not make this a whole-loss case. The matter fell within the valuation category discussed in Bristol and West Building Society v Fancy & Jackson and other cases [1997] 4 All ER 582, rather than the Steggles Palmer category. The recoverable loss required valuation findings comparing the plot’s actual value with its represented value at the date of the transaction.
5. The appeal was allowed to that extent. An inquiry as to damages was directed before another judge. The order below otherwise stood. The appellant received half its appeal costs, and permission to appeal to the House of Lords was refused.

1. Court of Appeal (Civil Division): The appeal from the order of Evans-Lombe J was allowed to the extent indicated. An inquiry as to damages was directed before another judge; the order below otherwise stood.
2. Chancery Division: Evans-Lombe J found the appellant solicitors negligent, entered judgment for the Bank for the full claimed loss, and dismissed the Bank’s claim against Burd Pearce.