Law Society v Sephton & Co - [2006] UKHL 22

HOUSE OF LORDS

SESSION 2005–06
[2006] UKHL 22

on appeal from: [2004] EWCA Civ 1627

OPINIONS

OF THE LORDS OF APPEAL
FOR JUDGMENT IN THE CAUSE

Law Society (Original Respondents and Cross-appellants) v. Sephton & Co (a firm) (Original Appellants and Cross-respondents) and another and others (Original Appellants and Cross-respondents)

Appellate Committee

Lord Hoffmann

Lord Scott of Foscote
Lord Rodger of Earlsferry
Lord Walker of Gestingthorpe
Lord Mance

Counsel

Original Appellants: Original Respondents:

Michael Pooles QC Timothy Dutton QC

Derek Holwill Rosalind Phelps

(Instructed by Barlow Lyde & Gilbert)

(Instructed by Wright Son & Pepper)

Hearing date:

16 MARCH 2006

ON
WEDNESDAY 10 MAY 2006

HOUSE OF LORDS
OPINIONS OF THE LORDS OF APPEAL FOR JUDGMENT
IN THE CAUSE

Law Society (Original Respondents and Cross-appellants) v. Sephton
& Co (a firm) (Original Appellants and Cross-respondents) and another and others (Original Appellants and Cross-respondents)
[2006] UKHL 22

LORD HOFFMANN
My Lords,
1. Over a period of about six years ending in March 1996, Mr Andrew Payne, a solicitor practising near Solihull, misappropriated about £750,000 held in his client account. In each of the years 1988- 1995 he delivered to the Law Society an accountant’s report in which Mr Ian Mascord, a partner in the firm of Sephton & Co of Solihull, certified that he had examined Mr Payne’s books and accounts and was satisfied that he had complied with the Solicitors’ Accounts Rules 1991. Mr Mascord was negligent, if not worse, in signing these reports since he could not have made a proper examination without discovering the misappropriations.
2. The Law Society, which has broad supervisory and disciplinary powers over the profession, relied upon the reports by refraining from making the investigation it would have made if the reports had not been delivered or had indicated that something was amiss. Mr Payne had staved off discovery by taking money from one client to pay off another (“teeming and lading”) but in April 1996 a client complained to the Law Society of delay in payment and on 17 May 1996 the Society’s investigating accountant discovered the deficiency. On 20 May 1996 the Society exercised its statutory powers of intervention; Mr Payne was afterwards struck off the roll of solicitors and went to prison.
3. By section 36 of the Solicitors Act 1974 the Society is required to maintain and administer a Compensation Fund for the purpose of making grants for, among other things, the relief of loss caused by dishonesty on the part of a solicitor. The Society has power to make rules about the Fund and the Solicitors’ Compensation Fund Rules 1995 contain “guidelines” which explain the circumstances in which grants will ordinarily be made. General principle (a) says that the “basic object of the Fund is to replace ‘client’s money’ misappropriated by a solicitor’. General principle (b) emphasises that grants are wholly at the discretion of the Council and that “no person has a right to a grant enforceable at law” but that the intention of the Council…

Grounds of appeal

[14] The appellant contends that the primary judge erred in finding that the respondent had discharged the onus of establishing the matters required under the relevant provision.

[15] It was submitted that his Honour failed to give adequate weight to the evidence of the second witness, and that the findings of fact were not reasonably open on the material before the Court.

[16] The respondent, for its part, submits that no error is disclosed, and that the conclusions reached were well within the range of outcomes available to the primary judge.

Consideration

[17] It is convenient to deal first with the question of construction, as the resolution of that issue informs the remaining grounds advanced by the appellant.

[18] For the reasons that follow, we are of the view that the appeal should be allowed in part and the matter remitted for further determination.

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Details

Case: [2006] UKHL 22
Decision Date: 10 May 2006

CaseChat Overview and Summary

In Law Society v Sephton & Co, the House of Lords considered the issue of when a cause of action accrues for the purposes of the Limitation Act 1980. The Law Society sought to recover damages from the accounting firm Sephton & Co for negligently signing reports that failed to disclose the misappropriation of client funds by a solicitor, Andrew Payne. The Law Society argued that its cause of action accrued when it first suffered damage, which it contended occurred when it began making payments from its Compensation Fund to Payne's former clients. Sephton & Co argued that the Law Society's cause of action accrued when Payne first misappropriated client funds after relying on the negligent reports. The House of Lords held that a cause of action accrues when the claimant suffers "actual" and "relevant and measurable" damage. Mere exposure to a risk of future damage was not sufficient. The contingent liability incurred by the Compensation Fund did not amount to damage until a claim was actually made by a former client of Payne. The appeal was therefore dismissed and the cause of action was held to have accrued when the first claim was made in July 1996, outside the limitation period.

The key issue was determining when the Law Society's cause of action accrued for the purposes of the Limitation Act 1980. The House of Lords held that a cause of action accrues when the claimant suffers "actual" and "relevant and measurable" damage. Mere exposure to a risk of future damage was not sufficient. The contingent liability incurred by the Compensation Fund did not amount to damage until a claim was actually made by a former client of Payne. The appeal was therefore dismissed and the cause of action was held to have accrued when the first claim was made in July 1996, outside the limitation period.

Orders