Capita (Banstead 2011) Ltd and another v RFIB Group Ltd
A recent appeal case has held that there is no continuing duty on professional advisors to correct previous acts of negligence. Where a professional fails to correct previous mistakes, this does not give rise to a fresh cause of action every day after the mistake has been made. This is potentially an important clarification of the position on when causes of action become time barred, although the issue arose in a different context.
Claims for professional negligence need to be brought within 6 years of a cause of action arising; and for breach of contract, within 6 years of the breach. Claimants who, on the face of it are too late, have tried over the years to bring claims within those periods by various means, one being to try to say that a mistake on a particular day was also a mistake on every subsequent day that a professional failed to notice and/or correct the error. That could help stretch a 6 year period to a much longer period in which a claim can be brought.
For example in the case of Midland Bank v Hett, Stubbs and Kemp in 1979 it was decided that a family solicitor was under a continuing duty to register a son’s 10 year option to purchase his father’s farm every day from the date of the option deed until the 10 year period expired. In a similar case though (Bell v Peter Browne in 1990) solicitors who failed to register an interest in property sale proceeds were found only to have had a duty when they first failed to register the client’s interest, not every day afterwards until the house was sold. The only distinction seemed to be that in the first case the solicitors were asked for advice by the client after the first failure, but in the second case they were not. Later similar cases in 2009 and 2015 have also found that no ongoing duty exists, with the result that professional negligence claims against the professionals became time barred.
The Court of Appeal has looked at this issue closely in a recent case and provided a more definitive view on this potentially important issue.
What happened and the issue to be decided
The case concerned the sale of CHBC, a pension management and advisory consultancy, from RFIB to Capita on 30 April 2004. The share sale agreement contained an indemnity by which Capita was indemnified against any claims arising from the services provided by CHBC prior to the sale to them.
In 2010 CHBC was sued by a client for negligent pensions advice between 2000 and 2004 and for negligent misstatements/misrepresentation from 2005-2007 in failing to acknowledge or correct the errors in their previous advice. That claim was settled at mediation for £3.85m and Capita sought that sum from RFIB under the indemnity in the 2004 share sale agreement.
The issue between Capita and RFIB was how the indemnity should be applied. Did the liability arise across the whole period from 2000 to 2007 (giving rise to a part indemnity), or did it all accrue before 2004 (to be fully indemnified by RFIB)?
At first instance, the Judge took the view that there was a continuing breach of duty in the advice given by CHBC until it was remedied. He noted there was an ongoing retainer for pension advice to carry out specific instructions throughout the period 2000 to 2007; it was not a simple matter of saying that the professional’s retainer with the client (and thus the duty of care) had ended at a specific date or acts/omissions had taken place on specific dates. The Judge therefore apportioned the losses incurred before and after the transfer date equally.
On appeal, Capita argued that the losses were a result of the conduct of CHBC before April 2004 and that any continued negligence after 2004, in making misrepresentations essentially to cover up the impact of those previous failings, was part of the original breach of contract/duty. They argued that the concept of a continuing breach of duty was artificial, that no new liability for breach could arise, and so RFIB were liable to indemnify all losses.
The appeal decision
The court ruled that CHBC did not owe a continuing duty to correct previous negligence. Longmore LJ held that where a professional gives incorrect advice and fails to subsequently correct it, this does not give rise to a fresh cause of action every day thereafter. He stated that “the obtaining and receiving advice after a mistake has been made (even if the mistake can be easily rectified) cannot to my mind mean that an obligation to correct one’s mistake or negligence continues to accrue and give a fresh cause of action every day after the mistake has been made”.
He also explained that even if there was continued negligence, that did not mean that it had caused the loss by Capita, because it had operated concurrently with the original negligence which had occurred before the sale of CHBC.
One of the three appeal judges differed and reasoned that the ongoing advisory relationship meant that there was an ongoing contractual obligation to achieve a wide array of outcomes. This, she found, meant that there were ongoing breaches of contract, although her view is the non-binding minority. It also relies on the facts of this case and so may be of less significance when considering one off failures and acts of negligence.
This case clarifies that breaches of duty that remain unremedied are just that; breaches of duty that have happened but not been corrected. They are unlikely to be characterised as ongoing failures or give rise to fresh daily duties to correct them. That approach was analysed at some length in this case and considered to be unsustainable.
It should be noted that the Limitation Act 1980 allows negligence claims after 6 years if the claim is brought within 3 years of knowing that it existed. Had this been the law in 1979 then this may have rendered the court’s approach in the Midland Bank case unnecessary, which perhaps softens the impact of the appeal court’s dismantling of that decision.
Nonetheless, the advice must always be that if you think you have suffered loss as a result of bad professional work, seek advice as early as possible to prevent the claim becoming time barred. You do not want to have to fall back on these types of creative arguments as to when the cause of action arose, particularly in light of this latest appeal decision.