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Time limit pitfalls for claimants
28 February 2012

Most parties contemplating litigation will be aware that there are strict time limits within which court proceedings must be commenced if the claim is not to become time barred. For example, any claim for damages for breach of contract will normally have to be lodged at court within six years of the date of breach of contract. However, it is also possible for contracting parties to agree with each other shorter limitation periods in which case great care needs to be taken to address whether or not circumstances are likely to give rise to the need for court proceedings well within the contractual period.

A typical example of contracts containing relatively short time limitations are contracts for the sale of a business or shares. In such contracts it is common for the seller to provide warranties as to the state of the business and its accounts, but there will be strict time limits for pursuing any claim for breach of such warranties. Often the time limit for bringing such a claim will be different according to the nature of the warranty provided and there may also be a separate provision requiring notification to the seller of circumstances likely to give rise to a claim long before proceedings are issued, failing which a claim cannot proceed. There may also be requirements within the contract as to the methods by which service of any such notice may be effected. Any purchaser believing that there has been a breach of warranty will need to address at the earliest possible stage the time limits set out in the contract but also the provisions relating to service of notices.

All too often claimants can find themselves prevented from pursuing an otherwise perfectly sound claim to recover losses arising from breach of contract due to missing a deadline. If in doubt about the meaning of the contract clauses it is safest to assume the worst case scenario and take action long before there is any question of the time limit expiring. The recent case of Ener-g Holdings Plc –v- Phillip Hormell [2011] demonstrates the difficulties that can arise if action to seek redress is left to the last minute. This case concerned the sale of shares by the defendant to the claimant company pursuant to a written share sale agreement.

The contract contained warranties provided by the defendant, but in order to be able to pursue court proceedings to recover damages in respect of any breach of warranty the claimant was required firstly to give written notice of any claim to the defendant by the second anniversary of completion, and then secondly to serve court proceedings within 12 months after the date of the initial notice. The contractual provisions as to the method by which service of any notice could be effected and the date of deemed service according to whichever method was adopted gave rise to difficulties for the claimant. The contract stated “any such notice may be served by delivering it personally or by sending it by pre-paid recorded delivery post to each party” and “any notice delivered personally shall be deemed to be received when delivered (or if delivered otherwise than between 9.00am and 5pm on a Business Day, at 9.00am on the next business day), any notice sent by pre-paid recorded delivery post shall be deemed to be received two Business Days after posting.”

The share sale contract was completed on 2 April 2008. The claimant decided to bring a warranty claim before the second anniversary of completion. The claimant arranged for service of the initial notice by two different means. The first was using a process server who left the notice in the front porch of the defendant’s home on 30 March 2010. The defendant found the letter before 5pm and called his lawyer. The second method was to send the notice by recorded delivery on the same date which, under the terms of the contract, would have counted as being served on 1 April 2010.

The issued court proceedings, which had to be served within 12 months after the date of the initial notice were taken to the defendant’s home by a process server on 29 March 2011. Getting no answer, the process server left the proceedings in the letter box. The defendant was away and did not get the proceedings until 2 April 2011.

The court had to decide which of the methods of service of the notice took effect and then had to consider whether the method of service of proceedings adopted by the claimant meant that proceedings had been served in time. In conducting this exercise the Judge had to decide whether delivering the notice “personally” meant the same as personal service such that the document had to physically be handed to the intended recipient or whether merely leaving the documents at the address given in the contract for the recipient was enough. The Judge concluded that it was not sufficient simply to leave the documents at the premises to comply with a provision saying a notice may be given by “delivering it personally”. Furthermore, the contract did not mean that the notice could only be effective if served personally or by recorded delivery and so the initial notice left in the porch was effective because the defendant actually had notice of it on 30 March 2010 when it was left but the proceedings were not personally served by leaving them in the letter box and did not count as served until 2 April 2011 when the defendant returned home. The Judge ruled that the claimant was time barred and could not proceed any further.

The case serves as a useful reminder for clients and solicitors to take appropriate action well within the time limits provided under the contract. The greater the uncertainty over the meaning of the contract wording the greater the need to avoid having to rely on what a Judge’s interpretation of the contract might be.

For more information about the issues in this article to find out more about how the Dispute Resolution team can help you please contact Mike Robinson on 0118 952 7206 or email [email protected].

Consistent with our policy when giving comment and advice on a non-specific basis, we cannot assume legal responsibility for the accuracy of any particular statement. In the case of specific problems we recommend that professional advice be sought.

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