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Section 33 – a little clarity

Limitation in personal injury actions has long been a bug bear for professional indemnity insurers and solicitors alike.

Limitation in personal injury actions has long been a bug bear for professional indemnity insurers and solicitors alike.  The volume of professional negligence claims arising where solicitors have failed either to issue proceedings within limitation, or to serve a claim form within the four month period in a personal injury claim, may have tapered off in recent years.  However, they have not dried up completely and the majority of the profession will no doubt embrace the recent decision in the conjoined appeals of Cain v Francis and McKay v (1) Hamlani (2) Direct Line which provides some welcome clarification as to the exercise of the Court’s discretion under Section 33 of the Limitation Act 1980. 

Historically, solicitors who have missed limitation, and the solicitors who are instructed in their place, may have given little or no consideration to a Section 33 application.  There may be a tendency to believe that as the client will likely have a cast iron case for professional negligence against the (former) solicitor there is little point pursuing a Section 33 application and little chance of one succeeding.  The situation has been perpetuated by the conflicting decisions down the years which have led to a misunderstanding of the law: none more prominent than Walkley v Precision Forgings Ltd [1979] 1 WLR 606 - where the House of Lords ruled that a claimant who had issued proceedings within three years was not prejudiced by the expiry of the primary limitation period – which was finally overruled by the House of Lords in Horton v Sadler (2006) 3 All ER 1177.  Thankfully the decision in Cain and McKay ought to rectify that situation.

The law of limitation has a lengthy history.  Its birthplace, at least in statutory terms, is the Limitation Act 1623, when a uniform limitation period of six years was introduced for all actions.  Why six years?  Well doubtless the reason was the same then as it is now: to prevent defendants having to deal with stale claims.  Memories fade after time and while it may appear an entirely arbitrary period, in truth it was probably a best guess as to when memories will have faded to such an extent that the possibility of any constructive investigations has long since past.

The Limitation Act 1954 reduced the six year period to three years in relation to personal injury claims, presumably because the circumstances giving rise to the majority of personal injury claims happen within such a short space of time that memories are likely to fade more quickly.  Section 33 of the Limitation Act 1980, as it is now, was first introduced in 1975.  There followed a long line of authorities dealing with the exercise of the court’s discretion under this provision which Lady Justice Smith considered in Cain and McKay.

Section 33 provides the Court with a wide discretion to disapply the primary limitation period of three years if it is equitable to do so and lists a number of circumstances to which the court is to have regard when reaching its decision.  Until now there has been an element of inconsistency in the approaches taken by the courts to the exercise of the discretion, a fact which was clearly evident in the instant cases where Judges in two different courts (Oldham and Newcastle-Upon-Tyne) had reached opposing conclusions about cases with similar facts.  At first instance the Judges had conflicting views of the prejudicial effect on the defendant of the loss of a limitation defence.  

In Cain the claim arose out of a road traffic accident.  The claim was notified promptly to the defendant insurer who indicated that liability would not be an issue.  The injuries suffered by the claimant were serious and substantial interim payments were made.  Due to an oversight on the part of the claimant’s solicitor, proceedings were issued one day after the expiry of the primary limitation period. The claimant’s solicitor accepted responsibility and was retained by the claimant.  At the time of the appeal he continued to act.

Matters proceeded promptly following the issue of proceedings and the Judge was asked, by way of preliminary issue, to apply his discretion under section 33.  Although the Judge took into account the fact that the claimant would have to repay substantial interim payments he was swayed by the loss of the limitation defence and ruled in favour of the defendant.  He did not consider whether the loss of such a defence amounted to a windfall despite having apparently considered the decisions in Thompson v Brown (1981) 2 All ER 296 and Hartley v Birmingham City Council (1992) 2 All ER 213. 

In Thompson Lord Diplock observed (albeit obiter) that if the delay in the issue of proceedings had been short then the loss to the defendant of a limitation defence might be considered a windfall.  Hartley falls almost on all fours with Cain in that the claim was promptly notified, liability was accepted, but the writ was issued one day out of time.  The Court of Appeal agreed with the views of Lord Diplock and concluded that if the claimant had to change course to bring an action against the former solicitor, who would know the weak points of the case, that would form a significant prejudice in comparison to the prejudice to the defendant of losing its windfall defence.

In McKay, the claim again arose out of a road traffic accident. Shortly thereafter a claim was intimated to the defendant’s insurers and liability accepted.  A claim form was issued just within limitation but the claimant’s solicitors failed to serve the proceedings in time.  The claimant was not advised of the position until some months later whereupon she instructed new solicitors who issued fresh proceedings 12 months out of time.  The Court was asked to exercise its discretion under Section 33.

At first instance the Judge said his decision would turn on the balance of prejudice.  Among other things it was acknowledged by the Court that the claim against the former solicitor could only ever be for the lost opportunity of pursuing the original action.  The Judge did not take into account any prejudice suffered by the defendant by the loss of a windfall limitation defence, having misunderstood the case as presented.  He ruled in favour of the claimant.

Lady Justice Smith emphasised that there must be consistency in the application of section 33.  Echoing the comments of the House of Lords in Horton and the Court of Appeal in Hartley she concluded that, when exercising the Section 33 discretion, the basic question that the Court must ask is: “whether it is fair and just [i.e. equitable] in all the circumstances to expect the defendant to meet the claim on the merits, notwithstanding the delay in commencement”.  Courts must therefore look at the case as a whole and decide whether, taking all factors into account, it is fair and just for the action to proceed.  In Cain and McKay Lady Justice Smith concluded that it was.

So what are the implications of the decision for professional negligence claims?  Both cases concerned personal injury claims which had been notified promptly by the claimant and liability conceded by the defendant.  In each case prompt action was taken on behalf of the claimant once the solicitor’s negligence was discovered – in McKay it was only the claimant’s solicitor’s failure to inform her that caused the one year delay.  It might be argued that the decision only impacts upon cases where liability is conceded by a defendant before limitation expires.  However, the decision could have wider implications.

The key appears to be an early notification of the underlying claim (thereby providing the defendant’s insurers with ample time to investigate the claim) rather than the acceptance of liability.  It is questionable what would happen in a situation where defendant insurers are notified of a claim within a matter of weeks of the incident date, but do not investigate the matter fully and progress on the matter generally is slow.  Providing the claimant can be seen to be trying to progress the action, in the event that the claimant then issues proceedings outside of limitation it may be difficult for the defendant to argue significant prejudice when it was given ample opportunity to investigate the claim.

Lady Justice Smith said that the question which the Court must consider is whether the defendant has suffered any evidential or other forensic prejudice which may make a profound difference.  Therefore, if the underlying claim is notified only weeks prior to the expiry of the limitation period, even if the delay in issuing proceedings after expiry of that limitation period is only a matter of days, the prejudice to the defendant – particularly if witnesses cannot be traced - might be sufficient to persuade the Courts to exercise its discretion in the defendant’s favour.

The clarification which the Court of Appeal has provided gives practitioners a framework within which to assess the likely success of a Section 33 application.  Clearly all circumstances/potential claims remain notifiable once a limitation date has been missed.  However, the decision in Cain and McKay provides ammunition for Insurers and Insured’s alike to try and nip potential claims in the bud.  The Court’s decision will turn on the facts of each case but providing prompt action is taken once the error has been discovered there may be every chance that a claim can be avoided or at worst that a nominal payment has to be made for the costs of the Section 33 application. 

However, there is a note of caution to be sounded.  It is not as simple as telling the claimant’s new solicitors to make the Section 33 application.  Serious consideration will need to be given to making a prompt offer to the claimant’s new solicitors to indemnify them in respect of the funding of a Section 33 application; otherwise it might reasonably be argued that a failure to make the application does not amount to a failure to mitigate on the part of the claimant.