The case I discuss today went up to the Court of Appeal then the House of Lords in effect on the interpretation of a single word in a statute. As their Lordships point out, the law on limitation is in the Limitation Act 1980 (as amended), and the various issues surrounding limitation are issues about how to interpret that statute. As every student knows, limitation runs from the date of breach (in contract cases) and the date of damage (in tort cases). The period for contract cases is 6 years from the date of breach. However, the period for negligence cases is 6 years (3 years for personal injury) from the date of damage, or the date of knowledge (as set out in Limitation Act 1980 s. 14A, and s.11 for personal injury cases).

A question of when knowledge accrued came before the House or Lords in November 2005, and judgement was handed down on 1 March 2006. This is Haward & ors v. Fawcetts.& ors [2006] UKHL 9. The Claimant is a family business (builders), who in 1995 after, consulting the their usual accountants (the Defendants), bought shares in another small business. It turned out that the accountants had badly underestimated the problems with the target company. It was a bad investment. The Claimant wasted far more money than anyone had anticipated trying to keep that bad investment going and trying to turn it around. The were various reasons why the target company was in trouble, including market conditions and so on. Mr. Haward and his family company said that part of the reason the investment made a loss was due to problems which Fawcetts should have spotted. On that basis, Fawcetts were arguably at fault in giving over-optimistic advice about how attractive the investment was. Whether that allegation was fair has not yet been adjudicated. Here I discuss the House of Lords decision on the preliminary point that part of Mr. Haward's claim is out of time.

On the face of it, the law in this case is straightforward, and neither the Court of Appeal nor the House of Lords made any obvious development in the law in their judgments. But if the case raised problems which are worth reflecting on. A unanimous Court of Appeal (at [2004] EWCA Civ 240) had reversed the judge at first instance. The unanimous House of Lords decided that on the law the first instance Judge was wrong and the Court of Appeal was right; but, on the facts, restored the first instance decision.

What the case offers us is a summary of the law on how to determine the date of knowledge. It also offers a lesson in the potentially tricky task of how to apply that law to evidence. This is where the Court of Appeal and the House of Lords diverged.

Mr. Haward issued his claim against Fawecetts, his former accountants, on 6 December 2001. Therefore he had a potential problem with any cause of action which accrued before 6 December 1995. Fawcetts had given what turned out to be over-optimistic advice on the acquisition well before that, so the limitation defence against a contract claim (at least over the initial advice) succeeds. Also by 6 December 1995 Mr Haward had spent – wasted, as it turned out – almost half a million pounds on the venture. The latest possible date of damage for that loss was date he pumped that money into the failing business. Therefore, at least in connection with that half a million pounds, a negligence claim against Fawcetts was also out of time. Mr. Haward therefore sought to fall back on the date-of-knowledge provision in s.14A of the Limitation Act 1980. Counting back three years from date of date of issue of proceedings gave 6 December 1998. He argued that he did not have the relevant type of knowledge to start time running until after that date. On that basis, his whole claim would get past the limitation barrier. (There is a further absolute guillotine at 15 years in s.14B, but Mr. Haward was well within that time, of course.)

So what amounts to knowledge? The same kind of knowledge is relevant in both personal injury (PI), and other negligence cases, although the statutory provision for PI is not identical. We should note in passing the undisputed point that could be put, very loosely, as 'ignorance of the law is no defence,' (i.e., 'the claimant's ignorance of his legal rights is no answer to a limitation defence'). S. 14A(9) of the Act says, 'Knowledge that any acts or omissions did or did not, as a matter of law, involve negligence is irrelevant for the purposes of subsection (5) above.' [i.e. the subsection defining the date of knowledge as the starting date of the 3 year period]. On the positive side the statute (in s.14A(6)(a) and (8)(a)) says among other things that knowledge means knowledge 'of the material facts about the damage in respect of which damages are claimed'; and 'that the damage was attributable in whole or in part to the act or omission which is alleged to constitute negligence.'

The single word in the statute which these appeals turned on is the word 'attributable'. At first instance the Judge said that Mr. Haward knew about the advice he complained of, and he knew about the loss he complained of. He knew about them both before 6 December 1998. Therefore, at some point before 6 December 1998 time had started to run, and the claim was barred. The Court of Appeal and the House Lords both said that the judge had overlooked was the word 'attributable.' They said the judge was wrong to treat the causal connection between the advice and the loss as 'patent and obvious.' As the statute says, knowledge includes knowledge 'that the damage was attributable in whole or in part to the act or omission which is alleged to constitute negligence.' What the Court of Appeal said was, yes, Mr. Haward knew about the advice and he knew about the loss, but he did not make the link. There were all sorts of reasons why the business failed, and Mr. Howard did not have knowledge of the link, of the fact that the losses may have been partly 'attributable' to the allegedly bad advice he had received from Fawcetts. The House of Lords said that the Court of Appeal were absolutely right. Until Mr. Haward had seen there was a link between the (allegedly bad) advice and his losses, time did not start to run. The link was not 'patent and obvious.'

We come now to the different ways the Court of Appeal and the House of Lords read the evidence on this question of whether the losses were 'attributable' to the advice. The first point to bear in mind is that the defence can argue that if Mr. Howard did not, know he should have known. Thus the pleadings will allege alternatively actual or constructive knowledge. Their Lordships make it clear that they thought the defence should have argued that Mr. Haward had constructive knowledge. However, the defence had not argued constructive knowledge at the outset. By the time the defence raised it, the evidence had been heard. The Court of Appeal therefore refused to consider the argument that Mr Haward had constructive knowledge, because it was too late for his witnesses to have an opportunity to give evidence to the contrary.

Second, and again not in issue, is that where the Claimant relies on date of knowledge (rather than date of damage) the burden of proof is on the Claimant. The Claimant has to prove that he did not have the knowledge until after the date three years before proceedings were issued.

Third, what the Claimant has to prove is that he got the knowledge at some time after the critical date, three years before proceedings were issued. In the present case, after 6 December 1998. The evidence in the present cases was that Mr. Haward's business advisor was contemplating a claim by 8 December 1998. What is obvious to everyone, though it is never spelled out, is that Mr. Haward had to prove a negative. The judgments say he had to prove his knowledge came after 6 December. It follows that he had to prove that he did not have the requisite knowledge before 6 December. It is likely that the task of proving a negative makes the burden on him and on claimants in a similar position all the more difficult to discharge.

It follows from this that if a claimant has to rely on date of knowledge (rather than date of damage) in a tort claim, he can face a seriously uphill battle. The onus is on him to prove, in effect, that he did not know he might have a case. Therefore, if a Claimant has any chance of issuing with six years (or three for personal injury) of the date of damage, he should grab that chance with both hands. If you are a professional, whether a lawyer, or in some other profession, and a client comes to you and says he has just found out about a problem which happened almost 6 years ago (or 3 years for PI), it can be a mistake to think that it is safe to rely on the fact the date of knowledge is much more recent. Far better, in many circumstances, to issue proceedings without delay, in spite of the fact the case is not ready, than to expose the client to the having the onus of proving he was ignorant of the relevant facts until the after the deadline.

Fourth: the point which divided the House of Lords from the Court of Appeal. There were all sorts of reasons why the business was or might have been failing. The Court of Appeal found as a matter fact, that, faced with all those possible reasons for the loss, Mr. Haward had not (until after 6 December 1998) realised that one of the reasons for his losses might have been that Fawcetts' advice on the condition of the business when he bought it was simply wrong, and was given negligently. However, the judgments in the House of Lords cite several authorities for the point that what Mr. Haward needed to prove he was ignorant of before 6 December 1998, was not the fact he had enough material to get a claim off the ground. To survive the limitation defence Mr. Haward had to prove that before 6 December 1998 he did not even know enough to start asking questions and taking advice on the quality of Fawcetts' advice. After some hesitation their Lordships all concluded, in effect, that it must have occurred to Mr. Haward by that date that the optimistic advice his accountants, Fawcetts, had given him was open to question. That was enough to stop him relying on ignorance of a possible claim in order to extend the limitation period. This distinction – between knowing there might be a claim, and merely knowing there was something there worth questioning - became obvious in the House of Lords. However, it may have been overlooked earlier on. Lord Nicholls says that Mr. Haward's evidence addressed the question of whether before 6 December 1998 he knew he had a possible claim. What his evidence needed to address, and did not, was whether it even crossed his mind that it might be worth probing a bit more deeply into the quality of Fawcett's optimistic advice. Their Lordships held that in fact he must have known, if not that he might have a claim, but that there was a question there worth investigating. Therefore, what he knew before the deadline was enough to start the limitation period running, even supposing he did not have the requisite knowledge at the date of damage.

In summary, if there is any possibility of issuing proceedings in time to avoid the need to rely on a limitation period based on date of knowledge (rather than date of damage), do so. The claimant who relies on date of knowledge has the uphill task of proving that before the relevant date he was ignorant not only of the fact he might have a claim, but even of the fact that there might be an issue worth investigating. If there was some advice or professional service (or other potentially negligent act) whose quality the claimant wondered about (or – constructive knowledge – should have wondered about) and which he could have investigated or taken advice on, then his failure to do so will stand in the way of his attempt to use date of knowledge as the start date for the limitation period.

Dr John Birchall - Professional English, Legal English, and Common Law Training