Smith V Cunningham & Ors – solicitors can breath a sigh of relief!

In one of the most important decisions for a number of years before the Irish Courts for those involved in professional negligence claims, The Court of Appeal gave judgement yesterday (20 October 2021) in Smith v Cunningham which gives clarity to the application of the statute of limitations in proceedings involving solicitors and other professionals that will have far reaching effects on the professional indemnity market.

In the lead judgement, Judge Collins sets out a clear and thorough analysis of the law in this area.

This article provides a summary of the case and the Court of Appeal’s decision.

Background

The Supreme Court’s decision in Brandley v Deane [2017] IESC 73 (“Brandley”) provided clarity on the limitation period applicable to claims taken in negligence where damage to property occurs. The Supreme Court in that case was requested to consider when “the clock” begins to run for the purpose of Section 11(2) of the Statute of Limitations 1957 (“the 1957 Act”).

Section 11(2) of the 1957 Act states that “an action founded on tort shall not be brought after the expiration of six years from the date on which the cause of action accrued.”. At issue in Brandley was whether the Plaintiff’s cause of action had accrued upon the laying of defective foundations in 2004, in which case the proceedings against the Defendants would have been statute barred, or in 2005 when cracks in the houses first began to appear. The Supreme Court ultimately found that the cause of action accrued in 2005 when the damage manifested and became capable of being discovered.

While the Brandley case provided a degree of certainty in cases of property damage caused by negligence, the application of Section 11(2) of the 1957 Act to professional negligence cases involving financial loss was less clear.

Facts

In April 2006, the Plaintiff entered into an agreement with the Second and Third Defendants for the purchase of a newly-constructed house in County Leitrim (“the Property”). The Property had been granted planning permission subject to several conditions.  On 26 March 2006 after construction had been completed, the First Defendant, an engineer, certified compliance with both planning permission and building regulations.  On foot of this, the Plaintiff agreed to purchase the Property and the sale was closed on 12 July 2006 for the sum of €240,000. The Fourth Defendant solicitors (“Solicitor Defendant”) acted for the Plaintiff in this transaction.

The Plaintiff’s marriage unfortunately broke down shortly after the sale closed and the Property was put on the market. In May 2008, the Plaintiff agreed to sell the Property for €280,000. An issue arose however when the purchaser’s solicitors did not receive the original planning permission and contacted Leitrim County Council seeking confirmation that all planning conditions had been complied with. The Council responded that the Property was not compliant with the conditions imposed by planning permission and that it had been referred to the Building Control and Enforcement Office.

When this was relayed to the purchasers, they decided against proceeding with the purchase of the Property. The Property’s planning issues were remedied soon after through a grant of retention permission on 5 November 2008. Unfortunately for the Plaintiff, in the interim months, the property market had collapsed due to the financial crisis and he was unable to sell the Property. The Property was eventually repossessed by his mortgage lender in 2010 as the Plaintiff could not keep up the mortgage repayments.

Proceedings claiming breach of contract, breach of duty and negligence were issued on 26 May 2014. This was some 8 years after the Plaintiff’s purchase of the property, nearly 6 years after the planning issues came to light and 5½ years after the failed sale of the Property. The Solicitor Defendant brought a motion seeking a preliminary ruling on the statute of limitations issues. Both sides admitted that the claim in contract was statute barred as the accrual date for such actions is 6 years from the date of the breach. The key issue before the High Court therefore was whether the Plaintiff’s action in negligence had accrued upon the purchase of the Property with defective planning permission on 12 July 2006, or when the sale of the property collapsed in October 2008 when the Plaintiff could have been said to have suffered damage. If the former was found, the Plaintiff’s claim would be statute barred.

The High Court

In considering the submissions from both the Plaintiff and the Solicitor Defendant, the Court applied the Supreme Court’s decision in Brandley and similarly found that the determinative distinction at hand was one between “defects” and “damage”. In Brandley, the Court said that the time limit did not begin to run from the date of the underlying defect, in that case the inadequate building materials used in the foundations, but from the date the damage, the cracks in the walls, manifested and were capable of being discovered. Applying this to the facts at hand, the Court found that the defective planning permission at the time the Plaintiff purchased the property was merely a defect and that the damage to the Plaintiff did not manifest until he attempted to sell the property in October 2008. As such, the Plaintiff was within the 1957 Act’s 6-year time limit when he issued proceedings in May 2014.

The Court of Appeal

The Solicitor Defendant appealed the decision to the Court of Appeal, claiming that the High Court judge had misapplied the Brandley principles. This was based largely on the submission that those principles are restricted to property damage claims. The Solicitor Defendant submitted that there were defects to the Property’s title that were capable of discovery when the Plaintiff purchased the Property and that the Property was immediately devalued as a result. The resulting loss of value caused by the defects must have been said to have caused damage, thus beginning the time limit under the 1957 Act.

The Plaintiff countered that no loss had been suffered upon the purchase of the Property and that any loss or damage as a result of the defective planning permission was purely hypothetical until the contract for sale was later rescinded. According to the Court’s ruling in Brandley, the time limit could only start running on this date.

Both parties pointed to the Brandley case to support their submissions, along with the case of Gallagher v ACC Bank plc [2012] IESC 35, [2012] 2 IR 620. The Court of Appeal’s Judgement was delivered by Judge Collins and it analysed those cases in detail. Of Brandley, the Court quoted extensively from the Judgment of Judge McKenchie who stated that while some torts may be actionable per se, the tort of negligence was not and required damage to occur, at which point the cause of action accrues.  Judge McKenchie in Brandley further said that in regard to the statutory limitation period, “Time begins to run from the date of the manifestation of damage, which means it runs from the time that the damage was capable of being discovered and capable of being proved by the plaintiff”.   Judge Collins went on to say that the occurrence of damage and its manifestation will often be simultaneous and that in cases of property damage, as in Brandley, differentiating between defects and the manifestation of damage was more readily done. This was not so in cases of financial loss, as here, where it is difficult to point to the exact moment damage, and the cause of action, accrues.

Judge Collins then discussed the Gallagher case, which itself was discussed in the recent case of Cantrell v Allied Irish Banks plc [2020] IESC 71, [2021] PNLR 9. In Cantrell, in analysing the Gallagher case, the Court said that damage must be defined pragmatically as, “real actual damage, which a person would consider commencing proceedings for”. The Court therefore stated, as the Supreme Court did in Gallagher, that the mere possibility of loss does not, in itself, constitute damage sufficient to accrue a cause of action in negligence. Crucially, however, the court in Gallagher qualified this, in saying that any loss of value to an asset could not be seen as mere possible damage. Judge Collins accepted this and said that actual damage can be suffered on the occurrence of a transaction and that a cause of action may accrue before a Plaintiff is capable of quantifying a claim.

The Court went on to say that actual damage that was capable of discovery occurred to the Plaintiff when he purchased the Property, in that he did not receive good marketable title and had, in effect, purchased an unauthorised development. The Plaintiff had paid a price for a planning compliant house and had not received one and the Property was obviously less valuable as a result. This was not a contingent loss as had been argued by the Plaintiff but an immediate one. Judge Collins also disagreed with the High Court’s ruling that no loss had occurred to the Plaintiff until October 2008. The High Court had stated that as it was still open to the purchasers at that time to complete the purchase, notwithstanding the planning issues, it was only on the recission of the contract that damage could be said to have occurred. Judge Collins found that it was precisely because of the damage suffered by the Plaintiff in 2006 that the purchase of the Property in 2008 could not be completed. As such, the limitation period for the purposes of the 1957 Act began to run on that date, and the Plaintiff’s claim in 2014 on beginning proceedings was therefore statute barred.

Conclusion

The Court of Appeal’s decision will be of significant interest to solicitors and other professionals, along with their professional indemnity insurers. It provides clarity on statute of limitation issues for professionals and will provide comfort to those dealing with aged claims. The comments of the Court of Appeal are useful in that it is now possible to distinguish cases involving financial loss and those involving physical damage. For the former, even in cases of contingent loss, the manifestation of damage is likely to occur simultaneously with an alleged defect and thus the statutory limitation period will begin sooner than cases involving the latter. This will, of course, depend on the facts of each case.

Beale & Co LLP were delighted to assist the Solicitor Defendant in their successful application and in clarifying an important area for the professional indemnity market.