The Court of Appeal recently delivered a significant judgment on the interpretation of the Statute of Limitations 1957 (as amended) in the context of investment disputes in a case where Hayes acted for one of the defendants.
The litigation involves six pathway cases representing approximately 300 claims arising out of failed investments in the UK commercial property market. The plaintiffs invested in the funds through investment vehicles which then negotiated loans to enable the purchase of a large portfolio of commercial property. The plaintiffs claim that the existence of certain covenants, known as loan to value (LTV) covenants in the loans caused them loss as the investment funds were not capable of trading out of the difficult market conditions present from 2008 onwards and had they known of the said clauses they would not have invested in these funds.
The defendants sought a preliminary ruling from the Commercial Court that the claims were statue barred as they had been issued after the six year period provided for in the Statute of Limitations for claims in negligence. When the six year time limit began to run (known as accrual of the cause of action) was a critical issue in the case. The defendants argued that on the case pleaded the claims were entirely unsuitable for the investors from the outset and that the investments were similar in nature to the investments that were the subject matter of the Supreme Court’s decision in ACC v Gallagher1
The Commercial Court (Judge Haughton) delivered a judgment in April 2017 to the effect that the claims were partly statute barred but certain claims survived the statute of limitation as the accrual of the plaintiffs’ cause of action did not occur until such time as they became aware of the existence of the LTV covenants and were in receipt of correspondence and financial statements from the investment funds that showed losses to the plaintiffs. The Court also distinguished the claims from ACC v Gallagher as the Belfry investments were capable of making a profit whereas the ACC v Gallagher investment was not. The defendants appealed this decision to the Court of Appeal and the hearing took place in December 2018.
The Defendants argued that the Commercial Court was incorrect in ruling that the claims were substantially different from the investment in ACC v Gallagher. The Plaintiffs argued that the Supreme Court decision of Brandley v Deane2 was authority to support the Commercial Court’s ruling. The Defendants argued that Brandley v Deane should be restricted to property damage cases or in the alternative the Brandley v Deane reasoning supported the argument that the claims were statute barred as the damage was manifest when the plaintiffs entered into the investment.
The Court of Appeal ( Ms Justice Baker) ruled that the claims are statute barred as time began to run when the loans containing the LTV covenants were entered into and not when the plaintiffs received letters informing them of the existence of the LTV covenants or details of the losses. The Court ruled that on the case pleaded, the very existence of the LTV covenants increased the risk associated with the investment and made the investment less capable of surviving adverse market conditions. Therefore, the damage was manifest and provable once the loans were entered into. Judge Baker acknowledged the difficulty in the present case in that while the cause of action had accrued, the investment funds were profitable for the first number of years and in those circumstances had the plaintiffs wished to act on the accrued cause of action they would have been doing so in the context of a profitable investment scheme.
The court based its decision on the Supreme Court decisions of ACC v Gallagher and Brandley v Dean and also the older Supreme Court decision of Hegarty v O’Loughlin3. Based on these authorities, a cause of action in negligence will accrue when damage is manifest and provable, not when the plaintiff is in receipt of evidence to prove the damage.
This decision reaffirms that there is no discoverability test (i.e. time running from when the plaintiff actually discovers the damage) outside of personal injuries actions and confirms that Brandley v Deane is not restricted to property damage claims and ACC v Gallagher is applicable to investments were LTV covenants are featured.
This case clarifies the law in relation to the accrual of the cause of action and extracts a common reasoning from the principal Supreme Court decisions in this area which litigants previously argued were either particular to their own facts or restricted to certain types of negligence claims.
Hayes acts in all aspects of commercial disputes and have detailed knowledge and experience in dealing with all issues relating to the Statute of Limitations and investment disputes, should you have any concerns regarding such issues please do not hesitate to contact Michael Kelly email@example.com or Joe O’Malley firstname.lastname@example.org.
1 ACC v Gallagher  IESC 2 IR 620. The Plaintiff alleged that he was induced to enter into an investment that was entirely unsuitable for him because he had borrowed to invest and so the investment would have to far out-perform the market to see a return greater than the interest on his loans. The Court ruled that he suffered damage by entering into the investment and therefore time began to run when he invested and the claim was statute barred.
2 Brandley v Deane  IESC 83. This case concerned cracks in the walls of a property arising from faulty foundations. The Court ruled that the case was not statute barred as the cause of action accrues when the damage is manifest and capable of being discovered even if there is no “reasonable or realistic prospect of that being so”. In this case that was when the cracks appeared in the walls.
3 Hegarty v O’Loughlin  I IR 148Back to Full News
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About the Authors
Joe is a partner and Head of the Commercial Litigation & Dispute Resolution team at Hayes solicitors. He handles a wide variety of commercial disputes involving high value claims, complex issues and voluminous data for financial institutions and corporate clients.
Michael is a solicitor in the Commercial Litigation & Dispute Resolution team. He has experience advising commercial clients with respect to a wide variety of issues and has particular interest in Alternative Dispute Resolution. He has concluded a number of high value disputes by way of mediation and gained a wealth of experience acting as panel solicitor in relation to the defence of solicitor’s professional negligence claims.