Limitation of action

Citation

Waterson, G. and Lee, R. (2000), "Limitation of action", Property Management, Vol. 18 No. 5. https://doi.org/10.1108/pm.2000.11318eab.003

Limitation of action

Limitation of action

In Gordon v. J.B. Wheatley & Co. (a firm) and Another (2000) The Times, 6 June, the question for the Court of Appeal was the date upon which time began to run. The facts were as follows: from about 1980 the claimant had run a private mortgage scheme through various companies. Until 1991 the lenders and investors were matched to one another. The security was usually a second mortgage. When the Financial Services Act 1986 came into force on 28 April 1988 it provided, by s.3, that no one in the United Kingdom could carry on an investment business unless authorised. Section 6(2) provides that where a person has entered into a transaction in contravention of s.3 then the court can require the person concerned and any other persons who the court is satisfied was knowingly concerned in the contravention to take such steps as the court directs for restoring the parties to the position they were in before the transaction was entered into.

When the claimant ceased matching lender and borrowers in 1991 it appeared that his business may have become became a "collective investment scheme" as defined in s.75 and thus any of his companies that entered into a transaction pursuant to the scheme were likely to be doing so in contravention to s.3 of the Act. The claimant contended that the first defendant, who was his solicitor at the time, was negligent and in breach of duty in that he failed to advise the claimant that his scheme could be considered a collective investment scheme within the Act and what he should do to safeguard himself. That is, obtain the necessary authorisations under the Act or return to matching borrowers and lenders.

The result of the failure to advise the claimant was that in May 1992, about two months after the first defendant ceased acting for the claimant, his operations were investigated by the Securities Investment Board. The claimant immediately consulted the second defendant who advised him to consent to the investigations and later, when the Securities Board had concluded that the scheme was a collective investment scheme, to sign a deed of undertaking indemnity which made him liable to the companies in liquidation for £676,215, which he could not pay. He was later declared bankrupt.

The claimant began his negligence action on 28 May 1998, six years and two months after the first defendant ceased to act for him. He alleged that the negligence of the first defendant had led to the situation in which the Securities Investment Board and the second defendant were likely to conclude (wrongly as it happens) that he was operating in contravention of the 1986 Act.

The first defendant contended that the action was out of time and statute barred because a loss occurred every time an investor made an investment into the pooled scheme and all the relevant investments had been made before the Securities Investment Board investigation began on 15 May 1992 more than six years before the writ was issued.

For the claimant it was alleged that no loss actually occurred until he signed the deed of undertaking and indemnity within the six year period. Until this time there was only a serious risk of loss. When investments were made the claimant was not actually worse off as a result of the first defendant's failure to advise, he was only potentially worse off.

Kennedy and Kay LJJ disagreed, holding that after the investments were made the claimant was exposed to the risk of being required by a court by s.6(2) of the Act to restore the parties to the position they were in before the transactions were entered into. That was a contingent liability, a fetter on his assets, which he would have been protected from if properly advised. Thus the claimant sustained actual loss sufficient to complete his cause of action when each investment was made.

Geoffrey WatersonRosalind Lee

The law is stated as it is understood to be up to 1 August 2000.