The Government is to consult on changes to the Limitation Act — branded ‘unfair’ and ‘outdated’ by the Law Commission. Fiona Heyes looks at the implications of a new limitation regime, and predicts who will be the winners and losers
Recent high-profile decisions in sex abuse cases, such as the recent House of Lords decision in A v Hoare, have been testing the 1980 Limitation Act. But in other areas, too, the Act has been showing its age.
Professional indemnity claims are less likely to hit the headlines, but they frequently reflect the difficulties and uncertainties of current limitation law.
The alternative three-year period for latent damages claims in negligence, for example, requires the court to establish the date the claimant had the requisite ‘knowledge’ of the facts on which to base a claim and the right to bring an action. And in cases where the claimant alleges negligent advice caused economic loss, the question of whether or not the claimant can bring a case at all is sometimes wholly dependent on when he actually suffered a loss.
Earlier this year, the Government confirmed it is preparing a consultation paper on the Law Commission’s 2001 proposals for reform. Legislation may follow when, and if, Parliamentary time allows.
Outdated regime
In 2001, the Law Commission concluded the current limitation regime was unfair, complex, uncertain and outdated.
The standard six-year time limit for tort and contract claims, for instance, harks back to 1623, when communication and evidence gathering took a lot longer than they do now. And some of the traditional provisions, such as the distinction between normal contracts and contracts signed as a deed (where the time limit is 12 years), appear to have little relevance in modern times.
The Law Commission’s main recommendation was for a core limitation regime — three years from the ‘date of knowledge’ of the claimant with a long-stop cut-off date of 10 years from the accrual of the cause of action.
For the primary three-year period, time would not run against a claimant until he or she knew or could reasonably be expected to have known: (a) the facts giving rise to the cause of action; (b) the identity of the defendant; and (c) the knowledge that the injury, loss or damage was significant.
If 10 years have passed since the accrual of the cause of action, however, the claim would be time-barred, even if the three-year time limit were still running. In tort claims where loss is an essential element (wrongful advice claims, for instance), accrual would mean the date of the act or omission giving rise to the cause of action. This avoids the need to find out precisely when the claimant suffered loss.
In cases where the defendant is under a continuous duty to perform, long-stop time would start to run on the latest day on which he or she should have performed the relevant act. And in cases involving continuous acts, a fresh cause of action would accrue on each day the act continued.
Neither the primary time limit nor the long-stop would apply in the case of dishonest concealment. There would also be special rules for personal injury claims, where the court would retain discretion to disapply the three-year primary limitation period and there would be no long-stop.
Date of knowledge
Many professional indemnity claims already have to grapple with date of knowledge issues, so would the Law Commission’s proposals make any difference?
Section 14(a) of the 1980 Act provides for a secondary, three-year limitation period from the claimant’s date of knowledge of the alleged negligent act. The claimant must have sufficient knowledge of material facts relating to the damage as would lead a reasonable person to consider it serious enough to bring a claim and that the damage was attributable to an act or omission of the defendant. Knowledge of whether an act or omission amounts to negligence as a matter of law, however, is irrelevant.
It was between these fine distinctions that Mr Haward lost his negligence claim against his accountants in 2006.
In December 1994, Haward bought a controlling interest in a company after obtaining advice from the accountants that the business could be turned around after an initial investment. The company, however, steadily lost money and Mr Haward was forced to inject more and more cash. In 1998, he engaged a consultant to advise him on the ailing business, but it was not until 1999 that it was specifically suggested he might have a claim against the accountants. The claim form was issued in December 2001.
The House of Lords in Haward v Fawcetts [2006] held this was too late. Mr Haward knew he was making a loss on his investment from the start. The critical issue was when he knew the losses were “attributable” to the acts or omissions of the accountants.
Knowledge under section 14(a) does not mean knowing for certain, but enough to form ‘the essence’ of the complaint. This was not when Mr Haward first knew he had a claim for damages (knowledge of whether the advice amounted to negligence as a matter of law was irrelevant) but earlier, when he first knew enough to justify setting about investigating the possibility that the advice was defective.
Defining knowledge
At first sight the Law Commission’s primary limitation period of three years from the ‘date of knowledge’ of the claimant looks fairly similar to the section 14(a) provision. The difference, however, lies in the definition of knowledge. The new rules would be firmly fact-based. The claimant would have to know the facts giving rise to the cause of action, the identity of the defendant and that the loss or damage is ‘significant’.
‘Significant’ means the claimant knows the full extent of the loss or damage (or benefit obtained), or a reasonable person would think that it was worth making a claim (on the assumption that the defendant did not dispute liability and could pay the damages).
An exception to the proposed regime would affect claims for wrongful legal advice. In most cases, the date when the claimant knew that the facts, as a matter of law, gave rise to a cause of action, would continue to be irrelevant. But where the claimant alleges a failure to give correct legal advice, the claimant has to show he or she did not know the law in order to establish the claim.
In the Law Commission’s view, it would be unjust for the date of knowledge to run from the date the advice was given, before the claimant had sufficient information to suggest that the defendant had given incorrect advice on the law. The same would apply to cases where money has been paid under a mistake of law.
Scope for argument
In Mr Haward’s case, there would be scope for quite a lot of argument about when a reasonable person would have first thought it worth making a claim and, on that basis, it is possible that the court would have still have found him time-barred under the primary limitation period.
But, since the advice was given in 1994 and the claim form issued in 2001, his claim could have survived under the 10-year long-stop.
This suggests that some claims that currently fail the limitation test might benefit from the Law Commission’s proposals. Older claims, however, may fall by the wayside if the 10-year period has passed, even though the claimant has not had the requisite knowledge for three years.
It is perhaps inevitable that there will be winners and losers under any new limitation system. The Law Commission, however, believed its proposals would strike a fairer balance between defendants and claimants. The Government’s planned consultation paper will give interested parties a further opportunity to comment.
Fiona Heyes is head of the insurance and reinsurance group at Pinsent Masons.ProfessionalIndemnityJuly2008
