The High Court has refused to grant an application to strike out a claim relating to the alleged negligent sale of an interest rate hedging product. The application had been made on the basis that the claim was time-barred.

The decision shows that the High Court will be reluctant to prevent such claims from proceeding to trial where the respondent is seeking to rely on s.14A Limitation Act 1980 to extend the limitation period and there are factual issues about when the respondent should be deemed to have constructive knowledge of the elements giving rise to the claim. 

Kays Hotels Ltd v Barclays Bank Plc (2014) QBD (Merc) (Hamblen J) 16/05/14

In 2005, the Respondent (K) entered into a loan agreement with the Applicant bank (B) to borrow £1.34 million. Before the end of 2005, K entered into a collar to hedge its interest rate exposure. Under the terms of the product, no payment was made by either side between 2005 and 2007. In 2007, as rates rose above a certain level, B made payments to K. In 2008, interest rates fell sharply and K began making payments to B. K issued a claim in 2012, alleging that the collar had been mis-sold.

B applied for summary judgment or to strike out the claim brought by K against it on the ground that the claim was time-barred, as the product was sold more than 6 years before the claim was issued. K sought to rely on s.14A of the Limitation Act 1980, which provides for an extended limitation period in negligence actions where there are facts relevant to the cause of action which are not known to the Claimant at the time when the cause of action accrued, in this case the point of sale. K's main argument was that it did not have the requisite knowledge to bring an action until November 2009. B argued that K knew or should have known that it had a claim prior to that date, since it had made payments under the collar.

The High Court stated that the test for whether the Claimant could rely on s.14A of the Limitation Act 1980 was whether it had been alerted to the facts giving rise to the substance of the claim so as to enable him to take advice and issue proceedings. The determinative moment was when he had reason to begin to investigate. B's approach to K's knowledge was therefore too narrow: K had a real prospect of establishing that it could rely on s.14A and thus its claim could not be summarily dismissed on limitation grounds. Furthermore, determining when K could be deemed to have had constructive knowledge was a factual question and required consideration of the facts at trial.

The effect of this decision is to make it more difficult for banks to dispose of such claims summarily on the basis that they are time-barred where the claimant relies on s.14A of the Limitation Act 1980 to try to extend the limitation period.  However, this does not meant that all such applications will fail, or that the bank in this case will not ultimately be successful with its limitation defence at trial.