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
The Need for Closure
3.
“Long dormant claims have more
cruelty than justice in them” [4]
Economics
Optimisation of the Judicial Process
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
Kendal
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.