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Knowledge is Power – Limitation Defences under section 14A Limitation Act 1980

August 2022
Jon Hyde

As those familiar with professional negligence claims will know, limitation is often an important – but complicated – issue in such claims.  If a claim is time-barred it can be a complete defence to the losses claimed, which can be very valuable for professional services firms and their insurers.

Usually a claim must be brought within six years of the date of breach, but under section 14A Limitation Act 1980 that time period can be extended if the claimant only had the necessary “knowledge” to bring the claim within the last three years (subject to a longstop of 15 years from the date of breach).

However, establishing the point at which limitation expired is often far from straightforward in practice.  This thorny issue was considered again very recently by the High Court in PSGS Trust Corporation Limited v Aon UK Limited & Others [2022] EWHC 2058 (Ch).

Background

The Claimant, PSGS Trust Corporation Limited, was pension trustee of the Robert Horne Group Pension Scheme (“the Scheme”).  The Defendants provided professional advice about pension schemes, including legal, consultancy, actuarial and administrative services.

The Defendants advised the Claimant about two sets of amendments to the Scheme’s rules: one in 2003 and one in 2007.  In 2003, the intention was to close the defined benefits (“DB”) section of the Scheme to new members, and to change provisions around early retirement.  In 2007, the intention was to close the DB section of the Scheme to future accrual, and to sever the link with final salaries.  The Defendants’ retainer with the Scheme ended in 2015, and Standstill Agreements were entered into by the parties in June 2015 and December 2016 (“the Standstills”).

The Claimant alleged that the Defendants negligently failed to advise them that these amendments could only be implemented prospectively by deed or resolution, owing to the terms of the Scheme’s amendment powers.  Instead, the amendments to the Scheme’s rules were made retrospectively by deed in 2004 and 2008, which the Claimant alleged was ineffective in law to change the rules.  Accordingly, the Claimant sought various losses from the Defendants, comprising additional and unintended liabilities that the Scheme had accrued, mostly the costs of rectifying the underpayment of benefits to members.

Owing to the time that had passed since the purported amendments were made to the Scheme’s rules, it was common ground that the primary limitation period had passed.

However, the Claimant argued that it did not have actual or constructive knowledge of the material facts about the damage that it had allegedly suffered until around October 2014, when it received advice from a firm of solicitors that it was unusual to have purported to make the changes to the Scheme rules retrospectively.  In response, the Defendants argued that the Claimant was aware in 2003 and 2007 that there were real risks about the validity and effectiveness of the process by which the amendments to the Scheme rules were made, which should have prompted the Claimant to seek further legal advice, which would have shown that the Scheme rules could not be amended retrospectively.

Consequently, the Defendants sought summary judgement on the basis that the Claimant’s claim was time-barred because the Claimant had acquired the necessary knowledge for limitation purposes more than three years before the Standstills were entered into.

Separately, the Claimant also argued that the Defendants were under an ongoing duty to advise on the legal effectiveness of the purported amendments to the Scheme rules until their retainer ended in 2015.

The Decision

On the evidence the Judge considered that the Claimant had an arguable case as regards limitation, and so refused the Defendants’ summary judgement application on that point.  The Judge considered that the Claimant had not necessarily acquired the requisite knowledge for limitation purposes more three years ago.  Moreover, the Judge considered it reasonably arguable that the Claimant did not need to seek any further legal advice at that time, which further advice would have made them aware that the Scheme rules could not be amended retrospectively by deed.

The Judge also noted an unusual feature of the claim, namely that the Claimant had realised their losses, and realised that those losses were attributable to the Defendants, at the same point in time.

However, the Judge did agree with the Defendants that there was no ongoing duty on them to inform the Claimant that they had been in breach of their duties to the Claimant in 2003/04 and/or 2007/08.  If the Defendants had breached their duties to the Claimant they should have told the Claimant so at the time, but there was no continuing duty on the Defendants afterwards to advise the Claimant that they had been in breach.  The Judge therefore ordered those parts of the claim to be struck out.

Comment

This decision shows once again the complexities and challenges with limitation in professional negligence claims, especially on an application for summary judgement.  We have seen a number of such claims against pension trustees as here, where the underlying facts were a substantial period of time ago but the trustee claims that they only had the necessary knowledge for limitation purposes much more recently.  Pension schemes often sought to make changes during the time period in this case, try to reduce their ongoing exposure to DB and final salary payments to members.  The question of when the pension trustee obtained the necessary knowledge for limitation purposes in such circumstances is rarely straightforward, although the potential that the claim may be time-barred can be a powerful tool in resolving the claim on favourable terms for the professional and their insurers.

Here, as it often is, the Court was reluctant to find on a summary basis that the Claimant would not be able to defeat the Defendants’ limitation arguments.  The issue of limitation therefore needed to be determined at trial.  Such a decision by the Court is not uncommon in practice, given the severity to the Claimant of its claim being entirely dismissed, and the complex factual issues on which limitation arguments often turn.  It does not mean that the Defendants did not have a limitation defence, but that the Court was unwilling to find in their favour on a summary basis.

It is therefore important for professional firms and their insurers to consider carefully how to make best use of a prospective limitation defence.  As this case shows, unless the facts are very straightforward it is easy to fail in a summary judgement application on limitation.  This can have adverse consequences, not only in terms of costs, but also to the future management of the claim if the claimant is encouraged by the Court’s decision.

However, this decision is more helpful to professionals and their insurers by confirming that the Defendants were not under an ongoing duty to advise the Claimant that they had (allegedly) been in breach of duty.  Such arguments are often run by claimants to try and extend limitation, so it is useful to have clear authority here that they do not work (albeit the point had already been made by the Court of Appeal in Capita (Banstead) 2011 Limited v RFIB Group Limited [2015] EWCA Civ 1310, on which this decision relied).

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