Successfully deploying a limitation defence can give defendants a knock-out blow, but questions of limitation are not always straightforward in tort claims.
- Key provisions of Limitation Act 1980 (LA 1980):
- Tort claim to be brought within six years of “the date on which the cause of action accrued” (s.2)
- Special time limit for cases of latent damage; three years from when claimant has “both the knowledge required for bringing an action…and a right to bring such an action” (s.14A)
- contribution claims to be made within two years of liability being decided or agreed (s. 10), and
- running of time postponed in cases of fraud, deliberate concealment and mistake (s. 32).
- In tort, a cause of action accrues when there has been breach of a relevant duty of care which has caused recoverable damage. Time therefore starts to run from the time the claimant first sustains damage (which is potentially later than for a contract claim).
- The question of when the damage occurred, however, does not always have an obvious answer, particularly in financial transaction cases. Particular difficulties arise in cases involving a contingent liability, as a contingency may not crystallise into an actual liability until much later. A distinction has been drawn between:
- “no transaction” cases (where absent the breach of duty the claimant would not have entered into any transaction at all, so the damage occurs only when the contingent loss later occurs), and
- “flawed transaction” cases (where the claimant would have entered into an analogous, but flawless, transaction, and so the claimant suffers loss at the time the transaction was entered into).
- The parties can agree to suspend the running of time by entering into an agreement effectively to extend the limitation period, known as a "standstill" or, sometimes, a "tolling" agreement.
In the courts
- The following decisions show just some of the difficulties which can arise when seeking to argue when damage was suffered for limitation purposes:
- Halsall v Champion Consulting Ltd relates to allegations of professional negligence in the giving of tax planning advice involving film finance schemes. It was held that, for the purposes of LA 1980 s.2, the investors suffered damage (the failure of the scheme to work "effectively") when they entered into the contracts in the film scheme. That was the point at which they were tied into the "commercial straitjacket". Accordingly, the claims were outside the limitation period. In relation to s.14A, requisite knowledge “does not mean knowing for certain, the claimant must know enough for it to be reasonable to begin to investigate further”.
- Trilogy Management Ltd v Harcus Sinclair: In this case the claimant was alleging that the defendant solicitors had made amendments to documents without instructions, seeking to argue that the claim was not statute barred either on the basis of s.32 LA 1980 (fraud, concealment or mistake) or s.14A LA 1980 (date of knowledge). The court rejected arguments on both fronts; there had been no deliberate concealment, and there was also no prospect of the court finding that the claimant could not reasonably have been expected to acquire the requisite knowledge long before the relevant date.
- Osborne v Follett Stock (A firm): This claim for professional negligence was dismissed as it was statute barred. The court held that, in addition to a contingent liability, there has to be “measurable loss” before time begins to run for limitation purposes. This was not a "no transaction case", or a case of a true contingency, but a "flawed transaction" case, where the measurable loss was there from the outset.
- Parties’ attempts to stop time from running can also cause difficulties. In Russell v Stone the court construed a series of standstill agreements and held that they suspended, rather than extended, time for the purposes of limitation. Although the recitals to the agreements referred to the extension of time, the operative clauses referred to time being suspended.
What this means
- Questions of limitation in tort are not straightforward. The stakes are high for both parties, and where there is an arguable point these matters often end up before the court. Cases involving a contingent liability can give rise to particular issues; identifying when the damage occurred may require extensive analysis of the factual background to determine when the claimant suffered loss, or had the requisite knowledge. In all cases, disputes over limitation will involve analysis of events which probably took place many years ago, with the production of detailed factual evidence, and often also expert evidence.
- As suggested by Coulson J when handing down his decision in Russell v Stone, standstill agreements should be used with caution; his view is that they are “potentially just another self-inflicted complication”. Any agreement seeking to suspend time should be drafted with care, and both parties should have a clear understanding of what the agreement is intended to achieve. Attractive though putting off the commencement of proceedings may be, to allow additional time for investigation and/or to explore ADR, the parties should be mindful of the potential risks. Parties might, in some cases, be better advised to commence proceedings and apply for a stay.