LAW REPORTS : Lloyd's Names' action not time-barred

Hallam-Eames and others v Merrett Syndicates Ltd and others. Court of Appeal (Sir Thomas Bingham, Master of the Rolls, Lord Justice Hoffmann and Lord Justice Saville). 13 January 1995.

A plaintiff who sought to rely on the special extended time limit, under section 14A of the Limitation Act 1980, for negligence actions where facts relevant to the cause of action were not known at the date of its accrual, could not be said to have knowledge that "the damage was attributable ... to the act or omission which is alleged to constitute negligence", under section 14A(8)(a) until he knew about the particular act or omission which was "causally relevant" to his claim.

The Court of Appeal unanimously allowed an appeal by the plaintiffs, William Hallam-Eames and other Lloyd's names who had been members of Syndicates 418/417 between 1978 and 1984, against the decision of Mr Justice Gatehouse, on 14 October 1994, that their negligence claims against the syndicates' managing agents, Merrett Syndicates Ltd, their active underwriter, Stephen Roy Merrett, and their auditors, Ernst & Whinney, were time-barred. Anthony Boswood QC and Brian Doctor (More Fisher Brown) for the pl aintiffs; Anthony Temple QC, John Rowland and Aidan Christie (Reynolds Porter Chamberlain) for the Merrett defendants; Roger Toulson QC and Colin Edelman (Oswald Hickson Collier & Co) for the members' agents; Christopher Clark QC and Mark Howard (McKenna & Co) for the auditors.

LORD JUSTICE HOFFMANN said the plaintiffs' claims related specifically to two groups of reinsurance contracts: (1) Run-off policies written from 1978 to 1983, by which the syndicates reinsured other Lloyd's syndicates against all their outstanding and future liabilities for, inter alia, US casualty business. (2) Reinsurance to close (RITC) contracts by which the accounts for the years 1979 to 1984 were closed by the outstanding liabilities being reinsured by the (sometimes different) members of the syndicate in the next year.

In both cases, the plaintiffs alleged that the writing of these policies was negligent because the liability was potentially enormous and the active underwriter did not have the material to form any reasonable view of its likely extent. They also claimedthe auditors were negligent in certifying the accounts upon which the RITCs were based.

The first writ was issued in January 1993, so all claims except the RITC by which 1984 was closed into 1985 (which took place in May 1987) were prima facie barred by the standard six-year limitation period. But the plaintiffs relied on section 14A, underwhich the period could be extended by up to three years from the earliest date on which they had "the knowledge required for bringing an action for damages in respect of the relevant damage".

The defendants said the plaintiffs could have acquired the requisite knowledge from documents, including annual syndicate reports and accounts and a letter from the managing agents, sent to names or their agents more than three years before the writ.

The dispute was over the requirement of sub-section (8)(a) that a plaintiff must have known that "the damage was attributable in whole or in part to the act or omission which is alleged to constitute negligence."

In their Lordships' judgment, the act or omission of which the plaintiff must have knowledge must be that which was causally relevant for the purposes of an allegation of negligence. The plaintiff must have knowledge of the essence of the act or omissionto which the damage was attributable. He did not have to know that he had a cause of action or that the defendant's acts could be characterised as negligent or as falling short of some standard of professional behaviour. But he must have known the factswhich could fairly be described as constituting the negligence of which he complained.

In this case, a full investigation of what the plaintiffs knew, or could reasonably be expected to have ascertained, might show they had the requisite knowledge at the time contended for by the defendants. But the documents alone were insufficient for the court so to find now and the action should not have been barred.

Paul Magrath, Barrister.