Timed out

On Wednesday 14 June the House of Lords handed down its judgment in a case which will have great significance for motor insurers and professional indemnity insurers.

The case is also particularly noteworthy because it saw the House of Lords overturn its own decision of almost 30 years standing - that of Walkley v Precision Forgings Ltd (1979).

Horton was injured in a car accident on 12 April 1998. Sadler had caused the accident but was uninsured. The Motor Insurers' Bureau (MIB) had therefore appointed an insurer to deal with the claim.

On 10 April 2001, two days prior to the three year limitation period expiring, Horton's solicitors issued proceedings. However, they failed to provide notice to the MIB and as a result the MIB argued that it was not responsible.

In September 2001 Horton's solicitors commenced a second action and provided notice to the MIB. However, since the second action was issued after three years, the MIB's defence was that it was statute barred.

Preliminary issues were heard by Judge David Cook in the Salford County Court: was the MIB still obliged to deal with the first action? Could the three-year period be extended to include the second action?

The judge found the MIB was not obliged to deal with the first action, but he was bound to follow the decision of Walkley in refusing to extend the three years, though were it not for Walkley he would have extended the limitation period.

Walkley had established that if a first action had been commenced within three years, a second action commenced after three years could not benefit from s.33 of the Limitation Act 1980. S.33 provides the court with discretion to extend the limitation period in personal injury actions.

In Walkley the House of Lords was of the view that no prejudice had been caused by the requirement itself that proceedings were issued within three years, but rather the prejudice had been "self inflicted" by the claimant and his solicitors.

The matter went to the Court of Appeal which also felt bound by the decision in Walkley.

The House of Lords consisted of Lords Bingham, Hoffman, Rodger, Carswell and Brown. Lord Bingham provided the leading speech and set out a summary of the MIB, the background to s.33, the decision of Walkley and the subsequent approach to that decision.

A number of decisions had recognised that one of the effects of Walkley was that a claimant who had failed to issue any proceedings within three years was in a better position than the claimant who had done so, but who had had to issue a second action after three years. Lord Bingham indicated that the former involved more negligence on the part of the solicitors.

It was recognised that a number of the Court of Appeal decisions had been critical of Walkley and a number of those decisions had sought to distinguish their own facts from Walkley.

For some of the judges departing from their previous authority caused discomfort. Lord Hoffman said: "It is with a reluctance verging on disbelief that one is driven to conclude that the deliberate decisions of Lords Wilberforce and Lord Diplock were quite wrong."

However, Lord Brown stated: "Small wonder that it has given rise to so much unsatisfactory jurisprudence...that it has stood for so long is a pity. It is certainly no reason to perpetuate it any longer."

The Lords decided that they should not be bound by their previous decision. Lord Bingham indicated that Walkley was contrary to Parliament's intentions and it had prompted artificial "distinctions".

Of critical importance to the exercise of s.33 in this matter was the limited time which had passed since the expiry of the three years until the commencement of the second action, and the fact that neither party would suffer in collating evidence.

At first instance the court had heard an argument that since the solicitors' insurers had received a premium that they should bear responsibility rather than the MIB which had received no payment.

However, the judge was still of the view that the claimant would be prejudiced in having to bring a fresh claim, even where a claim would be successful against the solicitors.

The House of Lords, while recognising that insurance interests were relevant as to whether the limitation period could be extended, agreed with the judge.

Lord Carswell indicated that no distinction could be drawn between the MIB and other motor insurers and professional indemnity insurers.

The House of Lords determined that it was the MIB or the motor insurer which would be "the primary source of compensation".

Lord Hoffman added that if motor insurers wished to try to transfer responsibility "it is up to them to persuade parliament to do so".

There was some discussion by Lord Carswell as to the importance of the degree of negligence on the part of the claimant's solicitor in this situation. However, he concluded that it was not possible for the courts to consider this issue when considering s.33.

The anomaly which had been highlighted in numerous cases since Walkley, that is, that a claimant and his solicitors which failed to issue proceedings within three years would be in a better position in seeking to extend time than the claimant who had missed the three-year period entirely clearly needed correction.

It is difficult to argue with the view that this had been a "windfall defence" for the MIB and the motor insurer.

For solicitors and their professional indemnity insurers, this decision will come as welcome news. Many have felt that the existence of professional indemnity insurance has weighed too heavily in the minds of judges not only as regards consideration of s.33, but also in other limitation cases. IT

' Matthew Hirst is a partner in the insurance group at DLA Piper Rudnick Gray Cary UK