Time waits for know-ledge: but what does that mean for limitation?

According to the old adage, timing is everything and this is certainly true when it comes to bringing a claim.

However, working out what limitation period applies to a particular set of facts and circumstances is not always straightforward, especially in circumstances where negligence has allegedly caused latent damage. Under English law, Section 14A of the Limitation Act 1980 sets out the position on latent damage in negligence claims and this article explores the circumstances in which the section applies and the latest decision on when the clock starts to count down (excluding personal injury claims).

 

The law

 

Negligence claims must usually be brought within six years from when the cause of action accrued (ie, when the damage was caused). However, when the six-year axe has fallen, and a potential claimant was unaware of any damage until after that period, Section 14A can step in by starting the clock when the claimant knew that it might have a potential claim and should investigate further. From that point, a claimant has three years to bring the claim. Claims must be brought within 15 years from the date of the defendant's breach of duty (Section 14B) so as to provide a fair cut-off point for potential defendants.

 

What is meant by 'knowledge'?

 

Section 14A states that a claimant must have knowledge of:

•  the material facts relating to the damage – facts that: would lead a reasonable person who has suffered such damage to consider it sufficiently serious to justify his instituting proceedings for damages against a defendant who did not dispute liability and was able to satisfy a judgment (Section 14A(7)); and
• other facts relevant to the current action – which include the identity of the defendant and knowledge that the damage was attributable in whole or in part to the act or omission which is alleged to be negligent (Section 14A(8)). Section 14A also states that knowledge can be actual or constructive/implied and that the court will consider what knowledge the claimant might reasonably have been expected to acquire from observable or ascertainable facts. Facts will be considered to be ascertainable if it was reasonable for the claimant to seek expert advice and that advice would have provided the claimant with the requisite knowledge. Therefore, the threshold for whether a claimant has knowledge is relatively low.

Knowledge pitfall

Litigation around the application of Section 14A has predominantly centred on when the claimant has the requisite knowledge to bring a claim and if a claim could, and should, have been brought earlier. This has been brought into sharp focus again recently in a case relating to a claim brought against the Bank of Scotland.

The claimants had purchased three interest rate swaps from the Bank of Scotland on three separate dates in 2008. When interest rates fell in 2009, the claimants had to pay substantial sums to the bank. They allegedly discovered in November 2015 that the bank had carried out some worst case scenario contingent liability forecasts of the claimants' potential exposure before the purchase had been made. The bank had not shared these forecasts with the claimants.

The claimants alleged that by failing to share the forecasts at all, the bank had provided misleading descriptions of the  risks associated with the swaps and had therefore been negligent. The claimants argued that the limitation clock should start ticking from November 2015 when the forecasts had been discovered (ie, they did not have the requisite 'knowledge' required to bring an action until they knew the nature of the bank's failure).

The court found that the bank was responsible for informing the claimants of their potential liability when the swaps had been sold and that one way (but not the only way) of doing that would have been to share the forecasts. However, the court found that when the swaps had made losses in 2009, resulting in the claimants having to pay substantial sums to the bank, they knew at that point that they might not have been advised properly by the bank. It did not matter that the claimants were unaware of the forecasts at this time. The three-year period therefore started in 2009 and had elapsed by the time the claim was issued. The claim was time-barred.

Keep limitation under review

In short, Section 14A does not extend the limitation period until each and every breach is identified and a claimant cannot postpone the date of 'knowledge' under Section 14A of the Limitation Act by choosing which breach of duty it relies on.

In order to avoid claims being time-barred, limitation should be considered from the outset and continually reassessed to ensure that a claim is made at the right time. Where a limitation period is approaching expiry, consider stopping the clock by entering into a standstill agreement with the potential defendant.