In the recent case of Maharaj v Johnson, the Privy Council considered the vexed question of when time begins to run for the purposes of primary limitation in a claim that negligent advice led the claimant to enter into a “flawed transaction”.
Although the case arrived on appeal from Trinidad and Tobago, nothing in the Board’s reasoning relied on anything specific to Trinidadian law and the decision can be confidently taken to express the position in the law of England and Wales.
Facts of the dispute
In February 1986, Mr and Mrs Maharaj purchased a property from a Mr Innes who was operating under a power of attorney from Mrs Lambert, the previous owner’s widow. In 2008, the Maharajs had the opportunity to sell to a property developer for $20 million. However, lawyers for the buyer identified that Mr Innes did not appear to have had the power to deal with the property on behalf of Mrs Lambert in 1986, as she held it only as personal representative of Mr Lambert’s estate, rather than as the owner in her personal capacity.
Eventually, the relevant deed of rectification was arranged with Mrs Lambert. In the meantime, however, the property market had fallen substantially, and the developer pulled out of the transaction, citing the Maharajs’ inability to provide him with a good marketable title. The Maharajs were left with the property, now worth only $4 million.
They sued the firm of solicitors that acted in the 1986 sale in negligence, for failing to identify the potential problem with the title. They claimed that, had things been properly clarified in 1986, they would have been able to sell to the developer in 2008 at the top of the market.
The defendants argued that the claim was time-barred. The statutory time limit for bringing a negligence claim in Trinidadian law is four years from the date of accrual of the action, and it was common ground that the key date for accrual was the date upon which the claimants could be said to have suffered actual loss. Given that Trinidadian law has no equivalent of section 14A of the Limitation Act 1980, the Maharajs’ case would stand or fall on primary limitation.
Question for the Board
The question for determination was, therefore, whether the Maharajs suffered actual economic loss when they purchased the property in 1986. To answer this question, the Board considered the nature of both the equitable and legal interests acquired. As for the equitable interest, the Board considered that, upon the Maharajs’ payment of the purchase price, any equitable interest that Mrs Lambert (or indeed Mr Lambert’s estate) had in the property must have been extinguished. Accordingly, regardless of any irregularity in the original conveyance, the Maharajs were clearly full equitable owners of the land from February 1986 onwards.
As the majority judgment of Lady Hale and Lords Wilson, Carnwath, and Hodge put it:
“[t]he inquiry then becomes: was the value of a full equitable interest in the land on 6 February 1986 measurably less than the value then of a full legal and equitable interest in it? If so, the claimants then suffered actual damage and their action in tort is time-barred”.
The Board saw that the question marks as to the legal title (stemming from the authority of Mr Innes to convey it) caused substantial practical problems to the Maharajs in terms of securing finance and finalising the sale. Those difficulties meant that “mere” full equitable ownership without a marketable legal title was “significantly less valuable to them than a legal interest would have been”. Given that the same inherent flaw existed from February 1986 onwards, the Board had little difficulty in concluding that actual loss had been suffered then.
Analysis of the Board’s decision
That result is not surprising. It reflects the typical position with respect to the date of loss in flawed transaction cases, with which practitioners in conveyancers’ negligence claims will be particularly familiar. More interesting, however, are the Board’s apparent qualifications to that general position.
First, the Board explicitly rejected any notion that, in flawed transaction cases, the limitation clock will always start running as soon as the transaction is completed. The majority considered the obiter statements of Templeman LJ in Baker v Ollard & Bentley and Rimer LJ in Pegasus Management Holdings SCA v Ernst & Young, which suggested that claimants might not, in certain circumstances, have to prove loss where a typical flawed transaction has been entered into. The Board concluded that such an attitude would be to “go too far”, and counseled that “there is no substitute for attending to the particular facts and deciding whether such an inference is properly to be drawn from them”. While a bright-line rule on limitation in flawed transaction cases might have been welcome from the perspective of legal certainty, it must be right that the burden remains on claimants to prove loss, and the obligation on courts to interrogate the facts upon which that loss is said to be based.
Second, and implicit in the Board’s reasoning, is the idea that where the position in which a claimant is left after a flawed transaction is capable of remedy by the claimant themselves, it might be possible that no loss has occurred. The majority of the Board, in stating its conclusion as to why loss had occurred in 1986, noted:
“[i]t was not even in the power of the claimants or of the defendants to remedy the flaw by themselves. For it was necessary to procure the participation of Mrs Lambert … from 6 February 1986 onwards there were risks that Mrs Lambert would not be able to be located or would be found to have died: were either risk to have eventuated, there would have been significant extra complications – and extra costs”.
Unless that observation is taken as mere embellishment, the Privy Council appears to be leaving open the possibility that, were the facts different, and the relevant defect capable of straightforward remedy by the claimant party, the result could also have been different. It is worth asking how far this expectation of self-help would extend. Would, for instance, a person who has inadvertently been rendered the sole beneficiary in a trust as the result of a flawed transaction be expected to exercise their own rights as sole beneficial owner to demand that the trustees transfer the legal title in the assets? Or does the Privy Council only contemplate situations where minor formalities have been omitted? Whatever the Board’s intention, this intriguing point suggests that the field of flawed transactions and limitation will remain fertile ground for disputes in the future.
