Subject: Limiting Liability and Human Rights issues – recent discussion - FSA/FOS


    The concept of limiting liability exists to promote commerce and trade as a more noble activity than compensation for wrongdoing.  If it didn't exist there would not be enough people in business, as fewer people would be prepared to risk losing everything to claimants.  This would seriously impair trade, industry and commerce.

    In times past common law and equitable considerations often conflicted giving rise to legal maxims where equity always prevails - 'equity defeats delay'.[1]  In practice common law and natural justice may conflict and a statutory body of law developed to overcome doubt in considering whether an action could be brought to court. The current law is to be found in the Limitations Act (1980) together with other pieces of legislation in connection with specific matters.

    For negligently caused property damage or economic loss, the limitation period is 3 years from the date the plaintiff discovered or ought to have discovered the damage or 6 years from the date of the damage, with a long-stop limitation period of 15 years from the date of the negligent conduct.[2]

    In the case of financial advice the claim is in tort, it is a claim for negligence.  Arguments could also be presented for non-performance of a contractual obligation.  There is no legal concept of mis-selling, my view is that this concept would be considered as negligence (tort) or misrepresentation (contract).  If we are talking about advice, which is what the FSA and FOS do in respect of advisers, then the claim is one of negligence.  If the arguments are about documents and outcomes then the claim can be argued in contractual terms.  Regardless of any academic argument attempting to define the concept, there is a clear obligation owed to the client by the adviser and by the product provider. 

    In tort and contract a claimant is time barred three years after she became aware that an action could be brought, or six years from the event.  A court can extend these time limits and allow the case to be heard.  In tort the

    claimant has to prove damage; this begs the question raised by correspondents - in an endowment or pension claim when did the damage occur, as the contract hasn't ended it must be at the point when advice was

    delivered.  This leads me to conclude that the argument has to be tortious, and this places the burden of proof on the claimant.

    In connection with the time bar, the balance currently favours the claimant, as an action can be brought later than the six-year bar if the three-year knowledge period occurs during the six-year horizon.  The FSA have

    decided to extend the three-year bat by a further six months.  For mortgage endowments this effectively extends the bar to nine and a half years, in any event there is a statutory fifteen-year backstop under S 14B of the Act.

    [3]  The fact that the claimant is not aware of her claim upon the expiry of fifteen years is irrelevant.  This dispels the myth that IFA's have a lifetime liability.

    The other key issue is the date of knowledge and I don't plan to repeat all the arguments that have been presented about this - in connection with mortgage endowments the current position of the FSA is well known, the date of the first red letter.  Whether this would be the position of a court has yet to be tested.  I would argue that the decision of the FSA to extend and re-position statutory barring to suit what it claims to be naive investors

    is ultra vires.  A court may well accept the date of knowledge to be the date the FSA issued their own guidance to policyholders in March 2002.  Under the Limitation Act the three-year period would therefore have ended last month, at the end of February 2005.  It could be argued that as the date of knowledge was universally March 2002 any endowment complaint is now time barred, unless of course the plan was started since.  Any plan started prior to March 1990 is time barred under the fifteen-year rule.

    A court is able to extend the limitation period if hardship is likely to otherwise result.  As the damage can't be measured it is difficult to argue what any hardship amounts to.  There is of course no statutory definition of hardship.

    Arguments exist for the review of these statutory provisions based on both the need of the defendant to avoid latent claims, and the rights of the claimant to seek re-dress.  These can be summarised:

    Risk of Injustice as Time Progresses

    Availability and veracity of evidence - as it is the claimant who is in control of the timing the ability to collect and preserve evidence favours claimants

    Changing standards - as time passes the cultural and regulatory environment changes to accommodate societal expectations - defendants are often measured against these current standards rather than those prevailing at the time

    The Need for Closure

    3.       “Long dormant claims have more cruelty than justice in them” [4]


    It is bad for the economy to have unresolved dormant claims.

    Optimisation of the Judicial Process

    Claims should be brought and closed quickly, old claims should fall out of the system.

    What is important is that a balance must be struck between the competing elements.  The regulatory framework is crucial in this and must be impartial and objective.  The current regulatory regime seems to be partial and

    subjective.  This imbalance is further exacerbated by inconsistent decisions from the FOS and a transparent willingness to change decisions based on new arguments but without new evidence, and a failure to re-consider reversed decisions where evidence is supplied.  A culture of veracity, innocence and naivety is accepted for claimants to the detriment of defendants.  This reverses the burden of proof, as would happen in a case of misrepresentation, and if my contention that the claim is in tort is accepted, contravenes our legal processes and natural justice.

    Augmentation of these arguments using Human Rights legislations and Freedom of Information legislation can be made, but how much confidence do we have in a government that is denying basic human rights and an opposition that is offering to repeal human rights legislation.  Remember the FSA is the agent of the government.

    The current regulatory and distribution system is not trusted by the consumer or the provider and serves only itself.

    I am in no doubt that there has been negligence connected with advice, and there are poor products. In my view the arguments outlined above are those that should be presented and it appears that the best way to do this would be for PI Insurers or product providers to challenge the claimant and obtain some properly considered judgments.

    Although not considered here, there are good arguments for including indemnity and limitation clauses in Terms of Business or engagement letters.  The FSA have always maintained that they do not get involved in

    commercial transactions, but are only concerned with compliant delivery of advice.  Whether the FOS would consider these clauses fair and whether they would fail under the Unfair Contract legislation is open to debate. 

    The other issue is the legal relationship between an IFA and a product provider.  As an IFA is required to establish an agency, what is the legal position?  Clearly this is defined in the contract between the parties but a body

    of agency law exists that could test these contractual terms.  A recent comment made in the financial press suggested that the IFA is accountable and liable for statements made in a Key Features Document.  If this is the

    regulators stance this has far more serious consequences than any non-compliant sale.  I hope that this provides some constructive input to your case and fuel for further debate.

    Steve Scott

    22nd  March 2005

    I have leaned heavily on the The Irish Law Commission CONSULTATION PAPER ON THE STATUTES OF LIMITATION: CLAIMS IN CONTRACT AND TORT IN RESPECT OF LATENT DAMAGE (OTHER THAN PERSONAL INJURY) Nov 1998 and unreservedly apologise if this piece happens to breach their intellectual property.

    Turner Scott

    53 Highgate


    LA9 4ED

    Tel: 0845 230 2202  Direct Dial 01539 797341

    Fax: 01539 741812

    [1] The Irish Law Commission Consultation Paper Nov 1998 Introduction

    [2] The Law Commission Report Limitation of Actions Law Commission Consultation Paper 151  MAKING THE LAW ON CIVIL LIMITATION PERIODS SIMPLER AND FAIRER 1998 summary Prof Andrew Burrows

    [3] Limitation Act 1980 S 14B

    [4] A' Court v Cross (1825) 3 Bing 329, 332 per Best CJ, 130 ER 540, 541.