Last Thursday marked the third anniversary of the collapse of Lehman Brothers which may have drawn a line in the sands of time for complaints about the mis-selling of investments before September 2005.  Under the relevant FSA rules (DISP 2.8.2), complaints must be made within six years of the event complained of or, if later, “three years from the date on which the complainant became aware (or ought reasonably to have become aware) that he had cause for complaint“.

Lehman’s collapse acted as a catalyst for chaos in the global stock markets, government bail outs of institutions as large as AIG and RBS and led to a further significant fall in commercial property prices and unit trust values around the world.  Although this may appear to be just another anniversary, it does in fact have significance for financial advisers and others who face potential complaints from clients about investment products.  The events of September 2008 were so heavily publicised, and had such a significant impact on the value of investments generally, we anticipate that many advisers and their clients would have been in contact at the time to discuss the falling value of their investments and future strategy.  In any event, the losses sustained and the wide publicity make it strongly arguable that all investors ‘ought reasonably to have been aware of cause for complaint’ if they felt that their losses arose from mis-selling.

It is within this context that serious consideration should be given to time bar issues for all new investment-related complaints where the investment itself was sold more that six years ago.  The rules are widely drafted such that general publicity about wide-spread losses could be enough to argue that a complainant ought then to have been aware of cause to complain.

It is worth comparing the DISP time bar rules to the limitation rules set out in the Limitation Act 1980 upon which they were deliberately based.  The lack of a long stop time bar is a well known thorn in the side of the financial services sector but the comparison between the DISP rules and the Act actually works in firms’ favour in respect of the ‘date of knowledge’.

Back in 2001, the High Court tightened the interpretation of the ‘date of knowledge’ under s.14A of the Act which refers to the date when the claimant had “both the knowledge required for bringing an action for damages in respect of the relevant damage and a right to bring such an action“. 

Previously, the ‘date of knowledge’ was the date on which the claimant became aware of their loss but, following the decision in Glaister v. Greenwood [2001] All ER (D) 316, the Court decided that the time limit for an individual making a Pensions Review claim was three years from the date he received his loss assessment even though he had previously submitted what could only be described (under the FSA’s rules) as a complaint.  The case effectively extended time for Pension Review cases to run from when the individual claimant knew the particular details of their loss rather than by reference to the widely publicised Pensions Review generally.

Although the Glaister case was bad news for advisers answering Pension Review cases in the Courts, we at RPC handled a lead case and persuaded the FOS of the important difference between s.14A and DISP 2.8.2(2)(b).  In summary, the FOS accepted that the secondary, three year period under DISP should run from the date when a complainant received notice of their case being included in the Pensions Review because, although they may not then have yet known about the relevant damage and the right to bring a claim, they ought reasonably to have been aware of cause to complain.

More recently, we have seen numerous complaints from individuals who knew in September 2008 that the value of their investments had fallen dramatically.  Often there are valuations on file that were sent to clients or notes of telephone calls where advisers spoke to the individuals who were concerned by the performance of their investment portfolio.  If it is clear that an individual knew or ought to have known that the value of their investment had fallen dramatically on or shortly after 15 September 2008 (and the advice complained of was given more than six years prior to the complaint), then very serious consideration should be given to rejecting the complaint on the basis that it is time barred.