Speed Read
The two recent decisions of McDonagh & Ors v Ulster Bank Ireland DAC & Ors [2023] IEHC 242 (McDonagh) and Mark Smith v Mark Cunningham & Ors [2023] IESC 13 (Smith) involved consideration by, respectively, the High Court and the Supreme Court, of when a cause of action in negligence in cases of pure economic loss ‘accrues’. As highlighted by Hogan J in his concurring judgment in Smith, the concept of an ‘accrual of a cause in action’ and its significance for limitation periods has become increasingly problematic and difficult in the modern era. Both Smith and McDonagh deal with this issue in the context of claims for financial loss arising from the alleged negligent performance of professional services.
Smith involved proceedings regarding losses suffered by the plaintiff in relation to the purchase of a property. The plaintiff claimed that the solicitors who he had retained for the purposes of the transaction had been negligent in failing to ensure that he received good marketable title to the property when it became apparent upon a subsequent failed sale of the property that it did not comply with planning permission. In McDonagh the underlying proceedings related to losses suffered by the plaintiffs on foot of an allegedly negligent valuation by CBRE regarding lands in Kilpeddar, County Wicklow (the Site).
Both cases involved a trial of a preliminary issue as to whether the respective claims against the professional service providers (the solicitors in Smith and the valuers in McDonagh) were statute-barred under s.11(2)(a) of the Statute of Limitations 1957 (the 1957 Act). In Smith, the Supreme Court emphasised that while the test for an accrual of a cause of action is in theory the same for all forms of injury, certain adaptations were required in cases involving claims in negligence to recover pure economic loss. In such cases, the court has to undertake a pragmatic case-by-case analysis to assess when a real and measurable loss occurred. The Court ultimately held that the plaintiff had obtained an asset in July 2006 that was less valuable than that which he had contracted for, and that damage had occurred at that point in time. The plaintiff's negligence claim against his solicitor was thus statute barred. In McDonagh, the High Court (Quinn J) also considered when financial loss crystallises for the purposes of grounding an action in negligence. Ultimately, Quinn J decided that the plaintiffs suffered loss, and the cause of action accrued, at the latest on 1 October 2014 when the Bank appointed receivers over the Site. The proceedings commenced on 12 February 2021 were therefore statute barred.
Smith
Background
In this case, the question which arose was when the alleged 'damage', which was in the nature of a purely economic loss, occurred: Was it at the time the property was purchased in July 2006 or was it when the subsequent attempted sale of the property fell through in October 2008? This was material, as if the damage was found to have been suffered at the earlier date, the proceedings had not been instituted within the time limits imposed by the 1957 Act and would thus be statute barred.
In a trial of a preliminary issue on the point, the High Court, drew a distinction between a 'defect' and 'damage' in assessing when a cause of action in negligence was complete. Meenan J found that the purchase of the property with the flawed title in July 2006 presented a 'defect', however, 'damage' on foot of this defect did not occur until the subsequent attempted sale fell through in October 2008 which meant that the claim was not statute barred. On appeal of this issue, the Court of Appeal held that the defect in this case was an 'immediate and significant blot on title' such that the cause of action accrued on the initial purchase of the property, thus resulting in the plaintiff's claim being statute barred.
Decision
In his judgment, Murray J drew heavily on the recent Supreme Court decisions in Cantrell v Allied Irish Banks plc [2020] IESC 71(Cantrell) and Brandley v Deane [2017] IESC 83 (Brandley) and its earlier judgment of Gallagher v ACC Bank plc [2012] IESC 35 (Gallagher). In addressing the fact that pragmatism was required in assessing when and whether damage has occurred rather than when and whether a mere contingent or unmaterialised risk has arisen, the Court commented as follows: "That pragmatic response does not mean abandoning the need to articulate a test: it is just that by excluding from the legal definition of damage a purely contingent risk and that which is a ‘mere possibility' requiring instead that the damage be ‘actual’, ‘measurable’, ‘relevant’, ‘real’, ‘immediate’ or ‘not remote’, litigants, lawyers and judges are provided with both a framework for analysis, and sufficient room to accommodate the practical realities and exigencies of an individual case."
In applying the rationale from Cantrell, Gallagher and Brandley to the present facts, the Supreme Court held that in cases where a solicitor was retained for the purposes of obtaining a good marketable title for their client and failed to do so, actionable loss will generally have occurred at the point in time of the conveyance.
In addressing the concepts of 'defect' and damage' the Court expressed doubts on the usefulness of the concept of 'defect' in cases for claims of pure economic loss and expressed the view that if the distinction between the two concepts were to have any useful role to play in this area that it seemed "… to be mirrored in the distinction drawn in Gallagher and Cantrell between a pure contingency, and actual damage."
In conclusion, the Court held that as regards claims in negligence to recover pure economic loss the court must:
- undertake a pragmatic case-by-case analysis;
- ascertain when a real and meaningfully measurable loss was sustained;
- ascertain at what point the balance between the benefits and burdens of a transaction became adverse to the interests of the plaintiff; and
- ascertain at what point a lay person would have understood actionable damage (for which a person would commence proceedings) to have occurred.
The Court ultimately held that the plaintiff had obtained an asset in July 2006 that was less valuable than that which he had contracted for and that damage had occurred at that point in time. The plaintiff's negligence claim against his solicitor was thus statute barred.
McDonagh
Background
Ulster Bank (the Bank) had provided the plaintiffs with a loan of €21.5 million in 2008 to fund the purchase of the Site. On 30 July 2007, CBRE issued a valuation report valuing the Site at €56 million (the Valuation Report). Ultimately, the plaintiffs were unable to repay the loan and the Bank reached a compromise agreement with them (the Compromise Agreement) which effectively provided for a significant write-down of the plaintiffs' loan from the Bank. The Compromise Agreement was alleged to have been subsequently breached and the Bank demanded repayment of the loan. On 1 October 2014, the Bank appointed receivers over the Site.
In 2013, prior to initiating the debt proceedings against the plaintiffs, the Bank had initiated proceedings against CBRE regarding the allegedly negligent valuation of the Site. These proceedings were then settled in 2016. The present proceedings were issued on 12 February 2021. In the proceedings the plaintiffs alleged inter alia that the Valuation Report provided by CBRE was made negligently.
CBRE argued that the cause of action in negligence accrued either on the date of the CBRE report, 30 July 2007, or, on 3 August 2007, when the purchase of the Site completed, and the plaintiffs incurred the debt of €21.5 million. In the alternative, CBRE argued that the loss occurred at the time the plaintiffs entered into the Compromise Agreement in March 2013. CBRE further argued that the inaccuracy of the Valuation Report and any damage arising as a result had crystallised, by the latest, when the Bank demanded repayment of the loans and when receivers were appointed over the Site on 1 October 2014.
The plaintiffs argued that they had only suffered loss which resulted in the limitation period beginning to run when the value of the lands fell below the amount borrowed (plus interest) and invested by them. They submitted that the defendants had not identified a date earlier than six years prior to the commencement of the proceedings on which there was evidence that such a loss had been suffered.
Decision
The Court identified at least two indicators that in and around 2013/2014 loss was suffered by the plaintiffs: (i) the Compromise Agreement which reflected a significant write-down of the debt to reflect the decreased value of the Site; and (ii) the 13 June 2014 Heads of Terms signed by the defendants to sell the Site for €1.5 million. The Court was therefore satisfied that prior to 13 February 2015 (i.e., 6 years before commencement of the present proceedings) evidence existed that the value of the Site was less than that contained in the Valuation Report and was also less than the plaintiffs' total debt and investment.
The Court ultimately concluded that the cause of action had accrued at the latest on 1 October 2014 when the Bank appointed receivers to the Site. Upon appointment of the receivers, the plaintiffs suffered the loss of their investment in the Site and also lost the opportunity to avail of the write down of their loan balance which had been afforded to them by the Compromise Agreement.
The plaintiffs had also attempted to argue that there had been fraudulent concealment which stopped time running under the 1957 Act on their claim. The Court noted that the onus of proving fraudulent concealment rested on the plaintiffs and concluded that there was no evidence of concealment of the right of action, or of any facts relevant to such a right.
As the Court found that there had been no concealment of the right of action which would defer the commencement of the limitation period, and the proceedings had been commenced more than six years after the cause of action had accrued, the proceedings were held to be statute barred and were dismissed.
Update (This section was added on 7 February 2024)
An appeal of the decision of the High Court in McDonagh was dismissed in a judgment of the Court of Appeal on 18 January 2024. According to the Court of Appeal, the grounds of appeal essentially argued that the trial judge had “erred in law and in fact” in finding that the damage occurred in 2013 and 2014 and in finding that s. 71(1)(b) of the 1957 Act (relating to fraudulent concealment) did not apply to the facts and circumstances of the case.
The Court agreed with the High Court’s identification of three points in time when loss was suffered by the plaintiffs – ie,
- July/August 2007 when, in reliance on the Valuation Report, the appellants borrowed from the Bank;
- 13 March 2013, the date of the Compromise Agreement; and
- 1 October 2014, the date upon which receivers were appointed.
The Court found that it was not necessary to identify any of the above dates as being the specific date upon which damage occurred as all of these dates were prior to 13 February 2015 (the operative date for the 1957 Act in this case - being 6 years prior to the commencement of the proceedings). Thus, the Court of Appeal held that the trial judge was correct to hold that the claim was statute barred. As regards the claim of fraudulent concealment, the Court of Appeal held that the facts of this case did not “come anywhere close to establishing that the appellants’ right of action against CBRE was concealed by fraud.”
Key takeaways from McDonagh and Smith
- These judgments set out a useful number of principles to be followed to identify when a cause of action accrues in negligence as regards cases of pure financial loss.
- While the test for an accrual of a cause of action is in theory the same for all forms of injury, certain adaptations are required in cases involving claims in negligence to recover pure economic loss. Courts will take a pragmatic approach on a case-by-case basis to assessing when a real and meaningfully measurable loss was sustained.
- It is not necessary for the loss to be entirely quantified or ascertained at a given date for a loss to have been suffered on or before that date. A purely contingent risk, however, will not be sufficient alone to ground an action in negligence.
- In his concurring judgment in Smith, Hogan J refers to a number of “existential problems” for key aspects of the Irish law on limitations, particularly as regards claims in negligence for pure economic loss. He suggests that this area may benefit from reform by the Oireachtas.
For more information, please contact Tom Casey, Partner, Rebecca Martin, Associate, Rachel Kemp, Knowledge Lawyer or your usual A&L Goodbody Disputes & Investigations team contact.
