LIMITATION IN A BREACH OF CONTRACT CLAIM: DATE OF ACCRUAL; LATENT DAMAGE AND AMENDING UNDER CPR 17.4.(2): A CASE IN POINT

September 14, 2014 · by · in Applications, Civil Procedure, Limitation, Statements of Case

In Interface Europe Ltd -v- Premier Hanks Dyers Ltd [2014] EWHC 2610 (QB) Judge Saffman (sitting as a judge of the High Court) considered the issue of the relevant date of accrual of a cause of action in a breach of contract case when a party wanted to amend the claim to plead negligence as an alternative. The judgment goes on to consider the issue of constructive knowledge for the purpose of the Latent Damage Act and shows the eimportance of making a secondary application under CPR 17.4(2). It is a case worth reading for the detailed discussion of all these issues.

THE ISSUES

The defendant(Premier)  sought permission to amend its Part 20 particulars of claim against the third party (Airedale). The amendment sought to bring a claim in negligence whereas, previously, the claim had been pleaded entirely in contract. The third party objected on the grounds that the action in negligence was statute barred.

THE CLAIM

The claim related to the supply by the third party of dye to to Premier.  It was alleged that they dye supplied was not up to standard. The dye had not been colour fast had caused tiles to fade unduly. Premier had settled a claim against them for £575,000 and sought an indemnity against the third party.

THE PROPOSED AMENDMENTS

Premier wanted to amend the pleadings to plead negligence arising out of a negligent failure by the third party to advise them on the suitability of the yarn and to plead negligent misrepresentation.  The claim had, prior to the proposed amendment, proceeded solely as a contractual claim.

WAS THE NEGLIGENCE CLAIM STATUTE BARRED?

This “simple” question is considered in around 150 paragraphs of the judgment.   The main issue being did the “actionable damage” accrue on the date of supply of the dye or a later date.

THE AGREED ISSUES OF LAW

There were agreed principles of law which were set out in the judgment:

 “30.In resolving this issue certain principles of law have been agreed as follows:

(a) Time does not run under the Limitation Act 1980 until the cause of action accrues;

(b) A cause of action in negligence does not accrue until actionable, measurable damage has been suffered by the potential claimant;

(c) Actionable damage does not include minimal, immaterial or insignificant damage or a purely contingent loss.”

WHEN DID  PREMIER SUFFER ACTIONABLE MEASURABLE LOSS?

Premier argued that the loss remained contingent until it crystallised when the dye failed.  There is a detailed review of the relevant case law. The judge concluded that the cause of action against the third party arose when the dye was supplied to Premier and not simply when the tiles changed colour.

  1. In my view it does not matter that the loss is not quantifiable there and then. The authority for that is Lord Walker’s opinion in Sephton at paragraph 48. Neither does it matter that the consequences of the defect may not eventuate because for example the carpet tiles are fitted in a sufficiently dark area or the fault manifests itself at a time when, under Swiss law, the bank had become debarred from pursuing a claim.

THE LATENT DAMAGE ACT

It was not possible for Premier to rely upon the Latent Damage Act 1980. That Act provides an extension to the limitation period three years after the right of the claim and the knowledge required to bring a claim. The Act provides that a party can have “constructive” knowledge”

“143. Albeit that Haward dealt with actual knowledge, at paragraph 123 Lord Mance said that

“constructive knowledge (within S14A(10)(b)) involves a situation where, although the claimant does not yet know sufficient for S14A(10)(a) to apply, he knows sufficient to make it reasonable (by himself or with advice) to acquire further knowledge that would satisfy (a).”

CONSTRUCTIVE KNOWLEDGE:

Premier had known in 2010 that a claim about the quality of its dyeing process was being made and the third party’s products were involved.

 

  1. In my view it does not matter that in 2010, when the problem first surfaced it was not clear why the problem had come about and that that conundrum was not actually resolved until 2013. What matters is that in 2010 Premier knew that it was facing a claim in respect of the quality of its dyeing process when this had taken place using Airedale products and in reliance on their guidance. This in my view must furnish Premier with the necessary knowledge of their claim against Airedale in the sense of giving them sufficient confidence to justify embarking on the preliminaries to the issue of proceedings. This must be so because Premier itself contended in 2010 that the damage was attributable to the act or omission of Airedale because it wrote to Airedale on 20 April 2010 saying just that.
  2. The fact that the letter is premised on the basis that the dyestuffs failed to meet the required standard rather than on the basis that the recipe was unsuitable in my view does not prevent time from beginning to run in 2010 even in respect of a claim based upon the recipe. This is because it is not necessary to know the precise nature of the negligence claim. It is merely necessary for there to be knowledge of the material facts about the damage in respect of which the damages are claimed and that the damage was attributable in whole or in part to the negligent act or omission of Airedale.
  3. I am satisfied that the “material facts” here are;
  • the failure of the yarn to retain its colour fastness
  • the claim against Premier by Interface
  • that Premier knew the Airedale had supplied the dyestuffs
  • that the recipe for the dye had been created with Airedale’s guidance
  1. Even if that is not so and Premier lacked actual knowledge I am satisfied that it had constructive knowledge by April 2010. It must be so that that circumstance made it “reasonable to acquire further knowledge“
  2. My conclusion therefore is that the negligence claim is statute barred even under s14A

SAVED BY CPR 17.4(2)

CPR 17.4 provides

“(1) This rule applies where –

(a) a party applies to amend his statement of case in one of the ways mentioned in this rule; and

(b) a period of limitation has expired under –

(i) the Limitation Act 19801;

(ii) the Foreign Limitation Periods Act 19842; or

(iii) any other enactment which allows such an amendment, or under which such an amendment is allowed.

(2) The court may allow an amendment whose effect will be to add or substitute a new claim, but only if the new claim arises out of the same facts or substantially the same facts as a claim in respect of which the party applying for permission has already claimed a remedy in the proceedings.”

WERE A CLAIM IN BREACH OF CONTRACT AND IN NEGLIGENCE “SUBSTANTIALLY THE SAME FACTS”?

  1. As Mr Dougherty points out, it is not a question of focus — it is a question of whether the new claim arises out of substantially the same facts. The relationship between the parties and the extent of reliance are already in issue. What Premier rely on to create the duty of care is broadly what Airedale rely on already as the basis of the contending that Premier has nobody to blame but itself for producing a dye which did not possess the necessary light fastness.
  2. The commentary at paragraph 17.4.4 of the White Book reveals a wealth of cases where Part 17.4(2) has been considered but both counsel spared me specific reference to any of them because it was agreed that inevitably whether the new claim arises out of substantially the same facts as the existing claim is a matter of impression formed by a comparison of the existing and proposed statements of case.
  3. I am satisfied that the new claim framed in negligence arises out of substantially the same facts as the current claim as defined in the current statements of case.
  4. The allegation of negligence is based upon a contention that the close relationship gave rise to a duty of care. The nature of the relationship is already a pleaded matter. The inference of negligence is drawn from facts already in play.
  5. I do not overlook that the proposed pleading introduces new facts, I have referred to them above but even the original Particulars of Claim refer to previous occasions when Acozine has been used on nylon to the knowledge of Airedale, implying at the very least that some thought had been given previously to the suitability of applying a dye containing Acozine to a nylon product. In any event the point is that the facts do not need to be the same, they need to be substantially the same. In my view they are and so the court has power to permit the amendment.
  6. Merely because the court has the power does not mean that it should be exercised to permit an amendment. The final question therefore is whether the court should exercise its discretion to do so.

SHOULD THE COURT EXERCISE ITS DISCRETION TO ALLOW THE AMENDMENTS?

The exercise of the discretion

  1. Mr Toms submits that the amendment would cause hardship to Airedale not least because the allegations refer to discussions possibly going back to 2002. The passage of time brings with it the risk of prejudice in the presentation of a defence to the new claim.
  2. When considering prejudice it is relevant to have regard to how far out of time the claimant is. As I recorded at paragraph 28 above Airedale contends that time expired in June 2013 or possibly May 2014.
  3. I can understand the problem of investigating the contents and significance of discussions going back to 2002 but it is not immediately clear that those difficulties are significantly compounded by virtue of the fact that the defendant is obliged to make them in the latter half of 2014 rather than say in the first half of 2013.
  4. In any event it seems to me that evidence as to the extent and nature of the relationship and the flow of information between the parties is just as relevant to the original claim, or least to the defence of it, as it is to the new claim.
  5. Mr Toms argues that the new claim will add considerably to the length of the hearing as well as to the length of preparation. I am not convinced of that. There will be some addition to the length but it is by no means inevitable that it would be considerable. I am also not convinced that the additional claim will require the use of experts other than those who may be needed in any event. Nor of course does the new claim expose Airedale to any greater liability. The money that is sought is the same.
  6. True it is that I have no information as to why the negligence claim did not find its way into the original claim. It is inappropriate therefore to speculate but even if I take the least charitable explanation so far as Premier is concerned namely that it did not occur to them, that is only one factor against amendment to put in the balance to add to those to which Mr Toms has referred including his concern as to the effect this amendment will have on costs.
  7. I accept that the amendment will cause additional costs to be incurred because the nature of the dispute is widened at least to some extent. It is not only costs, it is also the extra time that will have to be devoted by Airedale personnel and which takes them away from pursuing more profitable objectives. I also accept that the omission of this claim originally has widened the period in which memories, like carpet tiles, can fade or documents disappear.
  8. However, I am satisfied that these factors are outweighed by my finding that actually the factual matrix for both causes of action is substantially the same, the new claim is not more than a year or so out of time, it does not extend the value of the claim and that the investigations that the new claim brings are not in my view significantly different to those which would be necessary in any event.
  9. Furthermore, where there is a difference some of the critical issues are discreet ie conversations Mr Wilkinson had with Mr Farrell about Acozine and nylon. I note that these may be less far reaching than might have otherwise been the case by virtue of Premier’s concession that it “does not allege that it discussed the creation of the relevant shade with or provided Airedale with any information in relation to the same to Airedale prior to the use of the dye on Interface’s yarn”
  10. In those circumstances, taking all factors into account I propose to permit the defendant to amend pursuant to Part 17.4(2). As I understand it and will no doubt be corrected if I am wrong, by virtue of section 35(1)(b) Limitation Act 1980 the amendment relates back to the issue of the proceedings so the negligence claim ceases to be statute barred for the purpose of the action going forward.”

 

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