Beware of Limitation

If you have a professional negligence claim to bring against a surveyor, accountant, barrister, solicitor, architect, or other professional adviser, beware of the limitation periods.  

A professional negligence claim becomes time barred six years after breach of contract or actual damage resulting from a negligent act occurs. The “actual damage” may not be the financial shortfall, easily quantified once an asset is sold or valued, but could be the ‘paper’ loss where you have paid money and obtained assets worth less than expected. The claim may then be time barred six years following the negligent advice or work, even if you are not yet aware of the problem.

If you have only just become aware of a problem then you may have another three years in which to claim, but the assessment of when you had the sufficient level of knowledge can also be difficult. The court assesses what you ought to have known about the problem - which may be different from when you think you were, in fact, clearly aware that you had a right to claim for the negligent act.

The following Court of Appeal cases involving accountants have shown an increasing trend towards pinning the start date for time to run to the earliest point.

Shore v Sedgwick (2008)

In April 1997 the claimant took pension advice and switched to a personal pension. His new pension fell in value and he issued a claim in 2005 for negligent advice, based on his understanding that he had lost out financially since around 2000. It was held that loss was suffered on the date of transfer of the pension in 1997 because he then held a more risky pension product. It was the possibility of actual financial loss by holding a more risky pension that constituted the legal loss to start the six year period running. 

Pegasus v Ernst & Young (2010)

In Pegasus the Claimant sold a business and was advised by the Defendant as to how to minimise his capital gains tax liability. They advised setting up a company in March 1998 to take advantage of reinvestment relief. The scheme failed and the Claimant was exposed to an increased CGT liability. In November 2005 the Claimant issued professional negligence proceedings for negligent advice but the court found that he was barred from bringing a professional negligence claim because over six years had passed from the date the scheme was set up, 26 March 1998. At that date he suffered a loss because his tax position was irretrievably altered and despite no financially quantifiable loss then, there was a loss in legal terms because his position had been altered against his interests.

Summary

Limitation is a vital issue because either you have a right to claim or you are too late: there are no half measures. Do not assume that you have time to claim, just because you only just became aware of the problem or just because the issue has not, as far as you know, actually caused you to lose money (yet).

When dealing with a professional negligence claim it is important that you act sooner rather than later. The issue of limitation can be a complex matter and we recommend that you obtain legal advice.

About the author

Sarah Perry Managing Partner

Sarah is the firm's Managing Partner and also head of the dispute resolution group. She specialises in banking and finance litigation, professional negligence, fraud and commercial litigation.