Standstills – direct, indirect, connected to, arising out of – has time been stopped?

Defendants are often invited to enter into Standstill Agreements, stopping time for limitation purposes.

Standstills are often entered into to allow the parties to complete the pre-action protocol procedure or to allow settlement discussions to be undertaken between the parties without the expense of proceedings.  The wording of a standstill is vital to whether or not time has been stopped or otherwise continues to run for limitation purposes. 

The Court of Appeal in Mortgage Express v Countrywide Surveyors Limited recently considered whether or not time for both negligence and deceit allegations had been stopped given the wording in a Standstill Agreement.

The Facts

A lender brought a claim against a valuer broadly alleging that the valuer had been at fault in relation to 46 valuations.  The Letter of Claim set out negligence allegations but also expressly stated that the lender's rights were reserved to amend and/or raise further allegations.  A Standstill was entered into between the parties which later came to an end and proceedings issued.  The proceedings alleged not only negligence in relation to 46 valuations but also deceit in relation to 41 valuations. 

The valuer applied to strike out the deceit allegations on the basis that they did not fall within the scope of the Standstill and so any claim in deceit was time-barred.  The High Court found that the Standstill did not have the effect of suspending time for the deceit claim.  The lender appealed.

The Standstill stopped time "in connection with the Dispute".  "Dispute" was said to "mean any claim or claims directly or indirectly arising out of or in any way connected with the matters referred to in" the preamble to the Standstill.  The preamble broadly stated:

• The valuers were instructed to act on behalf of the lender in the production of a valuation report of a number of properties for mortgage purposes.  In reliance upon the valuation report, the lender issued a mortgage offer to the borrower to either re-mortgage or purchase each property. 
• The properties in respect of the valuations were set out in a schedule attached to the Standstill.
• "It is alleged, as more particularly set out in the lender's Letter of Claim dated 12 November 2010, that the valuations of the properties produced by the valuer were outside of the parameters of what would be regarded as reasonable in that each valuation was negligent and beyond the level of skill, care and diligence expected of a reasonably competent [valuer]."

The Court of Appeal

The lender argued that the preamble was sufficiently wide to cover claims in deceit.  The valuer argued that the law draws a stark distinction between claims in negligence or for breach of contract and deceit – the claims had different consequences for the valuer, the limitation periods were different and the evidence adduced at trial was different.  Accordingly, the claims in deceit were not connected with the claims in negligence and breach of contract. 

The Court of Appeal approached the issue as a matter of construction.  The Court found that on a proper construction of the Standstill if the claims could be said to arise "indirectly" from the matters in the preamble or if they were in some way connected to those matters, time was suspended for limitation purposes.  As "Dispute" was defined by reference to "any claim directly or indirectly arising out of or in any way connected with the matters" referred to in the preamble, the wording was sufficiently wide enough to cover the deceit claim.  The deceit claim was at least in some way connected with the factual matters of the valuations and instructions from the lender as provided for in the preamble.  The Court of Appeal allowed the appeal.

Lessons learned

Defendants often try and limit the scope of a Standstill so that it is clearly tied to, for example, a letter of claim setting out the allegations against the defendant, the purpose being to seek to limit the allegations which can later be pursued by a claimant. 

The Court of Appeal's decision is a warning to defence solicitors that care must be taken to ensure that the wording of a Standstill is limited in scope so that claims not fully set out before a party enters a standstill are not by accidentally caught within its terms.