Limitation and the pursuit of knowledge

Published 24 May 2023

Limitation has again been on the agenda in the High Court.  Whilst often the friend to the Defendant and PI insurer, the recent decision in Etroy & Another v Speechly Bircham LLP [2023] EWCH 386, reinforces how fact-sensitive the analysis will be, and the hurdle to demonstrate ‘knowledge’ in order to have set the clock running for the start of the secondary three year period under s.14A of the Limitation Act 1980.

Primary limitation in contract and tort is usually relatively simple to identify, and the six year periods calculated.  However, s.14A is more nuanced, and the subject of considerable debate: at what point did the Claimant have both the knowledge and right to bring a negligence claim?  Following Haward v Fawcetts [2006] UKHL 9,  the accepted test involves the date when a potential Claimant both knew (i) the underlying facts and ‘essence’ of the potential negligence claim (including that damage had been suffered, attributable to an identifiable professional adviser), and (ii) enough to embark on the ‘investigation’ of such a possibility.

The background to Etroy is complicated, but concerns admittedly negligent advice given in 2009 by solicitors about the creation and transfer of assets between Discretionary Trusts, and the failure to appreciate the tax consequences of the movement of UK assets.  Quantum was significant, at c.£1.6m in damages (tax charges), interest, penalties and costs in mitigation, and so the desire to run a limitation defence well understood.

The primary argument was whether s.14A knowledge was triggered in May 2017 when the Claimant first instructed new professional advisers (PwC) to consider various tax issues arising from the Trusts, or in September 2018 when PwC had concluded its investigations and advised the Claimant to make a disclosure to HMRC about the unpaid tax liabilities that had been incurred some years ago in connection with the Trusts.  For understandable reason, the Defendant felt that the May 2017 date was pivotal; proceedings had been issued in May 2021, meaning ‘knowledge’ had to be after May 2018 to present a viable claim.

The Court sided with the Claimant.  Whilst PwC had been reviewing the Trust structures and possible tax charges that may have arisen, this was not of itself deemed to be enough.  It was only once the PwC investigation had come to an end, and firm advice been given about the significant historical financial liabilities that had been identified, as well as the immediate steps it was recommended be taken, that the Claimant had the knowledge that those charges were attributable to the actions of the Defendant, sufficient to commence preliminary enquiries about bringing a claim.

It is a disappointing outcome for professionals and their insurers, but demonstrates the complexities and uncertainties when relying on s.14A, particularly in the absence of other sustainable defences.  Limitation should still be one of the uppermost thoughts when assessing a new claim, for both Claimants and Defendants.  However, it necessitates a careful analysis of what was known and when, to determine at what date a Court could be persuaded that there was enough to satisfy both the ‘essence’ and ‘investigation’ tests, to justify contemplating a claim for damages and so start the secondary three year timer.