Ford & Warren v Dr Kenneth Warring-Davies

The case

This case concerns section 32 of the Limitation Act 1980 “the Act”, and deliberate concealment allegations against professionals. The claimant pleaded section 32 to bring an otherwise statute-barred claim. The hearing before Coulson J was an appeal from a decision of HHJ Shaun Spencer QC, who had refused to strike out the claimant’s claim on the basis, as contended by the defendant, that section 32 did not operate and the claim was therefore out of time.

Value to practitioners

Coulson J expressed dissatisfaction with the manner in which the learned judge had considered the issues on the application at first instance (paragraph [5]) and therefore elected to proceed with the issues in the application “afresh” in the appeal. It is the sequence and manner in which Coulson J approached the issues in his judgment which is instructive for practitioners considering and advising about concealment allegations in the context of section 32 of the Act.

The facts

Pursuant to a retainer dated 17 May 1999, Ford & Warren “FAW” acted for Mr Warring-Davies in his attempts to bring to market a heart monitoring product he had invented, called the “HeartSmart”.  FAW committed significant resources to the retainer and by 2003, had accrued profit costs in excess of £200,000.00. However, their hard work had brought HeartSmart towards commercialisation; by March 2003, two investors had formed a company called LNT HeartSmart Limited “LNT” with a view to acquiring rights to licence and distribute the product.

As part of the negotiations towards concluding a deal with LNT, discussions turned to the discharge of FAW’s fees. Dr Warring-Davies lacked the funds to pay these from his own resources, and also, the consideration contemplated under the proposed commercial deal would be deferred such that he would not receive funds to pay FAW on completion. The payment of FAW’s fees therefore became something of a sticking point.

FAW recognised that as their own fees had become a matter being directly addressed in the negotiations with LNT, they had a conflict of interest, and they therefore advised Dr Warring-Davies to seek independent advice regarding the completion of the deal. This he did, and a triangular relationship ensued: the deal effectively proceeded with input being required from LNT, Dr Warring-Davies, and FAW (seeking the payment or other securing of their fees).

By December 2003, matters were close to finalisation, and at a meeting on 4 December, LNT signed an investment agreement, licence agreement and option agreement – but did not date these documents. Furthermore, the detail as to the premium that would be paid over by LNT (out of which FAW would receive its fees) was left blank. FAW were sent the documents to approve them, and it was further anticipated that FAW would need to sign off any arrangement that could be reached in due course for payment of their fees out of the premium. It was found as fact that, at least by a few weeks later on 8 January 2004, Dr Warring-Davies knew that the documents were in this state (paragraph [25]).

The negotiations broke down. On 15 January 2004, LNT withdrew their signatures to the option agreement. The deal did not proceed. Dr Warring-Davies laid the blame at the door of FAW, arguing that he had instructed them to approve the documentation but that FAW had failed to perform that instruction, thereby causing the failure of the transaction.

Despite correspondence and even a draft claim form in the ensuring years, proceedings were not ultimately issued until 10 November 2010. The ultimate question was whether the claimant had a real prospect of showing that this claim was issued in time under the Act.

The law

Coulson J considered the core cases which address the language of section 32 and the tests that are to be applied. Section 32 of the Act provides:

(1) Subject to [subsections (3) and (4A)] 1 below, where in the case of any action for which a period of limitation is prescribed by this Act, either—

(a) the action is based upon the fraud of the defendant; or

(b) any fact relevant to the plaintiff's right of action has been deliberately concealed from him by the defendant; or

(c) the action is for relief from the consequences of a mistake;

the period of limitation shall not begin to run until the plaintiff has discovered the fraud, concealment or mistake (as the case may be) or could with reasonable diligence have discovered it.

References in this subsection to the defendant include references to the defendant's agent and to any person through whom the defendant claims and his agent.

(2) For the purposes of subsection (1) above, deliberate commission of a breach of duty in circumstances in which it is unlikely to be discovered for some time amounts to deliberate concealment of the facts involved in that breach of duty.

Coulson J referred to the following authorities:

(a)   Cave v Robinson Jarvis and Rolf (a firm) [2002] UKHL 18, [2003] 1 AC 384 (the leading case). This is authority, among other matters, for the proposition that section 32 (2) provides an alternative route to invoking the extension of time to that provided by 32 (1) (b). The former focuses on the deliberate commission of a breach of duty and the circumstances of that breach (being unlikely to be discovered for some time); the latter on the ‘pure’ intention to conceal facts. Coulson J did, however, go on to say of these alternative routes (paragraph [64]):

“Although…s 32 (1) (b) provides an alternative to s32 (2), they have one thing in common: there must be something intentional, something deliberate in the defendant’s conduct.”

(b) The Kriti Palm [2006] EWCA Civ 1601: for the proposition that to be a fact “relevant to the plaintiff’s right of action” must be a fact without which the claimant cannot plead a complete cause of action, rather than being a fact which merely improves the prospects of a successful complaint.

(c) Paragon Finance plc v DB Thakerar & Co [1999] 1 All ER 400: for the propositions that when considering when a claimant could first with reasonable diligence have discovered the concealment, “could” is the key word, and the claimant has the burden of proof:

“The question is not whether the plaintiff should have discovered the fraud sooner; but whether they could with reasonable diligence have done so. The burden of proof is on them. They must establish that they could not have discovered the fraud without exceptional measures which they could not reasonably be expected to take…[As to which measures] the test was how a person carrying on a business of the relevant kind would act if he had adequate but not unlimited staff and resources and were motivated by a reasonable but not excessive sense of urgency.”

The analysis of the issues

Coulson J then began his analysis of the case by considering the cause of action asserted by Dr Warring-Davies.  He concluded that the claim was a relatively straightforward assertion of breach of contract and/or breach of duty on FAW’s part, for failing to approve the documents. Coulson J noted that the assertion of a breach of fiduciary duty did not (and could not) improve Dr Warring-Davies’ position as far as limitation was concerned (Paragon Finance applied, paragraph [48]).

Having so ascertained the cause of action, Coulson J was in a position to consider (i) the facts that it was alleged had been concealed (ii) the relevance of those facts to the cause of action he had identified.

Dr Warring-Davies’ first and most pivotal problem was that he did know as early as January 2004 that the instructions he gave to FAW had not been carried out. Indeed this very fact was being pointedly debated at the time, in open terms, because Dr Warring-Davies was most unhappy about FAW’s inaction. On the contrary the fact which he said had been concealed was the reason why the agreements had not been approved by FAW in accordance with his instructions; this, on Dr Warring-Davies’ case, was because FAW had elected to prefer its own commercial interests to his and as such had declined to "sign off" on the deal.

However, Coulson J regarded it as trite that the reasons behind the (alleged) breach of contract were not only not “critical” to the cause of action as required by The Kriti Palm – they were wholly immaterial. As Coulson J observed, it is the breach and not the reasons for it that give rise to the cause of action; and there are many cases of negligence and breach of contract where even at the end of the trial, nobody knows why a defendant acted as he or she did (paragraph [54]).

Interestingly, at paragraph [55] the judge noted the “complete lack of correlation in the particulars of claim between the contents of the email(s) of 9 January 2009 [which Dr Warring-Davies said was the document in which the reasons for FAW’s inaction had been promulgated] and the allegations of breach of duty or breach of contract”. This demonstrated “that the alleged concealment did not go to the core of the claimant’s cause of action.”

These findings were dispositive of the appeal; the claim was out of time because section 32 did not operate. Coulson J went on, however, to consider the remaining elements of the section in any event.

The first matter to consider was when the claimant had the knowledge of the concealed facts, if (contrary to Coulson J’s primary view) they were "relevant facts". On the evidence, it was held that by January 2004 Dr Warring-Davies knew the fact he said had been concealed anyway, so the claim presented in November 2010 was substantially out of time (paragraphs [58] to [61]).

Next, the judge considered whether there had been any act (or omission) amounting to deliberate concealment. This fell to be considered in the alternative: was there an act of concealment under section 32 (1) (b), and if not, was there a deliberate breach of duty in the required circumstances of being unlikely to be discovered for some time? On the evidence, the answer to both questions was negative.

Finally, Coulson J looked at the "cross-check" question in section 32, on which the claimant bears the burden: could Dr Warring-Davies show that he could not with reasonable diligence have discovered the reason for the inaction any sooner than he did, which on his case, was 2009?

Given his prior views on the other issues, there is an element of artificiality in this part of the decision, but it was nonetheless entirely proper to complete the analysis. He found that Dr Warring-Davies could with ease have enquired about and thereby learned the reasons behind the refusal to carry out his instructions “within a few weeks, at the very most” (paragraph [71]). Thus even if the running of time had been postponed by section 32, it was only for a very short period indeed, and not such as to save the otherwise time-barred claim.

Discussion

Section 32 can have serious consequences for defendants against whom it is successfully invoked. It may expose a professional defendant to a claim for negligence “long after he has retired from practice and has ceased to be covered by indemnity insurance” (Lord Millett in Cave v Robinson).

Correlatively, it only operates in a situation of deliberate wrongdoing by a defendant.

Establishing that deliberate wrongdoing is not an easy undertaking. A claimant running section 32 should consider the evidential burden of proving deliberate concealment (or breach of duty), and the legal burden of overcoming each of the hurdles provided by section 32.

It is suggested that Coulson J’s approach to sequencing the issues provides a valuable checklist for a practitioner advising upon or responding to the assertion of this tricky area within the law of limitation. The checklist might read:

(1)    Remind yourself of the principles that are derived from the key cases. This will mean you focus on the key words in section 32 (“ fact relevant to…”; “deliberately concealed…”; “reasonable diligence…”  and so on)

(2)    Distil the cause(s) of action being asserted. Without knowing the cause of action, you cannot consider what facts must be proven as critical elements of that cause of action.

(3)    Consider the facts said to have been concealed, or the facts involved in the deliberate breach of duty. This is the core of section 32. It is vital to take a properly narrow view of what facts are truly necessary ingredients of the claim, rather than gloss or factual background. The exercise is not always an easy one, but the law is clear: relevant facts is a narrow concept in section 32. It may be helpful, having regard to Coulson J’s comments about the lack of relation between the particulars of claim and Dr Warring-Davies’ “discovery” of the relevant facts, to think about how the particulars of the cause of action might be pencilled out. Do they in any way involve the facts concealed? How centrally?

(4)    Evaluate the allegation of concealment. Has there actually been a concealment or a deliberate breach? This too is a difficult exercise and routinely requires a hearing before the evidence is fully ventilated. Be mindful that documentary evidence of recorded advice or correspondence at the time may be more probative than the often patchy memory of a witness who insists he was not told of a particular matter.

(5)    Consider when the claimant knew the facts ascertained as relevant. Chronology is key. Concealment without further analysis is a thing “writ in water” – the claimant’s subjective knowledge must be assessed.

(6)     Finally, perform the cross-check: even if the claimant did not know the material fact that was concealed, or of the facts involved in the breach, can the claimant credibly take the stand and say: “I could not have known the facts sooner even with reasonable diligence”. A claimant who wants to rely on section 32 must be able to sustain such a statement (or at least, make it without blushing under the baleful scrutiny of the judge).

It is suggested that a carefully sequential and thorough analysis of each step of section 32 is required. Naturally, this is not always attainable for claimants who wish to issue urgently where limitation is an obvious problem. However, at whatever stage the analysis is performed, follow Coulson J’s lead.