When does loss arise in a professional negligence case?

A professional negligence claim arises where there has been breach of a contractual or tortious duty causing consequential loss.

Limitation Period

The limitation period in both contract and tort is normally 6 years; however the cause of action for contract arises from the date of breach, whereas in tort it is from the date the damage arises.

It is a relatively easy task to work out when the breach occurs, but a much harder one to work out when the loss crystallises.

The starting point is that the value of damages is assessed at the date of breach, confirmed in the case of Smith New Court Securities Ltd v Scrimgeour Vickers (1997). However, this can be displaced if the court considers it would be fair and appropriate to use a different date to assess the value of loss in order to put the claimant in the same position they would have been but for the breach, as confirmed in the more recent case of Smith New Court Ltd v Scrimgeour Vickers (Asset Management) Ltd (1996).

The recent case of Gosden v Halliwell Landau (2021) looked again at the relevant date for assessment of loss in a professional negligence case.

Gosden v Halliwell Landau (2021)

The Defendants were the firm and the solicitor instructed by Dr Jean Mary Weddell, who subsequently died in 2013. Dr Wedell instructed the Defendants to implement a proprietary tax mitigation scheme known as an Estate Protection Scheme (EPS). The intention was for the deceased’s property to pass to beneficiaries with substantially less tax payable on death.

The EPS was created in 2003 and although the property remained in the sole name of the deceased, she held this on trust with the two Claimants. In 2010, in breach of the trust, the property was sold by the deceased without consent or knowledge from the Claimants, who only discovered the sale in 2015.

It was held that the Defendants had been negligent in failing to register a restriction at the land registry on the title which would have prevented the sale by the deceased in 2010. This meant that but for the negligence, the property would have passed to the intended beneficiary under the EPS scheme without the hefty tax implications.

The Claimants were entitled to recover the value of the property by way of damages. The issue between the parties is the date at which the property’s value should be assessed.

A number of different valuations were put forward:

a) In 2010 the property was worth £785,000 – date property was sold
b) In 2013 the property was worth £875,000 – date of death
c) In 2017 the property was worth £1,250,000 – date claim issued
d) In 2021 the property was worth in excess of £1,250,000 – date of trial

The default position would have taken damages at the date the property was sold in 2010.

However, the judge decided to assess damages at the date of death instead. The main reason being that had the EPS been in place, the Claimants would not have been entitled to receive the property until the deceased died in 2013; this was the date that the loss crystallised (and not when the Claimants found out or issued proceedings).

The judge also concluded that the final sum to be awarded was £985,299.45 taking into account interest accrued and the IHT payable.

Final Words

It is important to take/provide detailed instructions in a chronological fact finding exercise from the start as this will determine important issues like date of breach and date of loss for purposes of limitation as well as assessment of the value of that loss. It clearly made a big difference (nearly £100k) in Gosden v Halliwell Landau (2021) which date was used and so a point worth litigating about.

Courts are quite clearly not bound by the default position of assessing the value of any damage only at the date of breach and will depart where necessary to do justice in the case. But the application of this discretion is clearly very fact specific to each individual case.