Publication
Can selective drafting of a claim circumvent a limitation period? England and Wales High Court and Court of Appeal give guidance
United Kingdom | Publication | January 2020
Content
Introduction
In Munroe K Ltd v Bank of Scotland Plc [2018] EWHC 3583 (Comm), the Court has given valuable guidance in the financial services context on whether selective drafting can get around a limitation period.
Background
The claimants (Munroe Group) borrowed money from Bank of Scotland plc (the Bank) under a loan facility agreement. Between 2006 and 2008, Munroe Group entered into three interest rate swaps with the Bank to hedge their borrowing costs.
At the time of entry into the swaps, the Bank had undertaken a calculation of its potential future exposure to Munroe Group as a result of the swaps, on a ‘worst case’ scenario. The Bank did not inform Munroe Group about the calculation.
By 2009, interest rates were falling. In consequence, Munroe Group found themselves paying substantial sums to the Bank under the swaps.
In 2015, Munroe Group and the Bank entered into a standstill agreement, which suspended any future running of time of any limitation period.
In 2017, Munroe Group commenced a claim against the Bank for the tort of negligence. Munroe Group alleged that the Bank owed Munroe Group a duty to exercise reasonable skill and care in advising Munroe Group in relation to the swaps and that the Bank, in not informing Munroe Group about the calculation at the time of entry into the swaps, breached that duty. Munroe Group sought damages of in excess of £40m. (Munroe Group also made other claims which are not relevant to the High Court’s reported decision.)
The Bank denied that it had owed a duty to advise Munroe Group and denied that there was any breach of duty in not informing Munroe Group about the calculation. The Bank also argued that the claim was barred under the law of limitation.
The Limitation Act 1980
By s.2 of the Limitation Act 1980, the normal limitation period for the tort of negligence is six years from when the cause of action accrued. The date that the cause of action accrued is usually the date when damage is first suffered. If the Bank was negligent (which the Bank denied), then the damage would have been suffered on entry into the swaps in 2006-2008. The consequence would be that any claim would have become limitation-barred during 2012-2014.
However, s.14A of the Limitation Act provides for an extension of the limitation period until (in summary) three years after Munroe Group ‘first had both the knowledge required for bringing an action for damages in respect of the relevant damage and a right to bring such an action’ (s.14A(5)).
Knowledge includes ‘that the damage was attributable in whole or in part to the act or omission which is alleged to constitute negligence’ (s.14A(8)(a)).
In Haward v Fawcetts [2006] 1 W.L.R. 682, the House of Lords gave guidance on the test for knowledge under s.14A(8)(a). It is the knowledge sufficient to justify embarking on the preliminaries of a claim. The claimant “must know the factual essence of what is subsequently alleged as negligence in the claim.” A claimant cannot postpone the running of time by reference to detailed factual points which often only become known in the course of investigation of a possible claim.
When did time start to run for Munroe Group?
Munroe Group stated that they did not learn of the existence of the calculation until 2015. They argued that they did not have knowledge for the purposes of s.14A(8)(a) until they learnt of the calculation.
It is notable that Munroe Group’s Particulars of Claim focused on the calculation, rather than other potential breaches of a duty to advise that are often seen in claims concerning interest rate swaps.
Munroe Group relied on Haward and argued that the calculation was the “factual essence of what is subsequently alleged as negligence in the claim.” If Munroe Group’s argument were right, then their claim would not be limitation-barred.
The Bank, also relying on Haward, argued that the essential gist of Munroe Group’s alleged complaint was that the Bank had not advised them about the risks of the swaps with reasonable skill and care. Munroe Group had knowledge under s.14A(8)(a) in 2009-2010, when it began paying substantial sums to the Bank under the swaps. That was when Munroe Group would have been justified in investigating any alleged claim. The calculation was a detailed factual matter which could not postpone the running of time, and the focus on it in the Particulars of Claim did not affect this.
If the Bank were right, then the three-year period under s.14A would run from 2009-2010, and Munroe Group’s claim would be limitation-barred.
Decision
In the High Court, Mr Justice Knowles held that Munroe Group’s claim was limitation-barred. On a true analysis of the cause of action on which Munroe Group relied, the alleged failure of the Bank was in not advising or informing Munroe Group about their potential liability. The calculation was just a detail, which Munroe Group did not need to know for time to run under s.14(8)(a).
Munroe Group applied for permission to appeal, which the Bank opposed by way of written submissions. On March 28, 2019, the Court of Appeal sealed its order refusing permission to appeal. Lord Justice Males opined that the focus in Munroe Group’s Particulars of Claim on the calculation could not affect when Munroe Group acquired knowledge under s.14(8)(a).
The case provides valuable guidance that careful or selective pleading cannot get round a limitation period.
Paul Morris, partner, and Samson Spanier, senior associate, of Norton Rose Fulbright LLP represented the successful Bank.
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