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Call FSA to the time bar with a fair long stop

Under English law, the time limits within which claimants must issue legal proceedings in court are fixed for most purposes by the Limitation Act 1980.

Broadly, a claimant must institute proceedings within six years of the event which gave rise to the claim, otherwise it will be time-barred.

There are special rules for claims based on negligence, and where the claimant does not know of the wrongdoing by the defendant, because, for example, the damage does not manifest itself until some time after the wrong was committed.

In that case, the claimant has three years from when he or she discovered the damage, or should with reasonable diligence have discovered it. But that does not extend the limitation period indefinitely, there is an overriding time limit of 15 years from the date of the wrongful act or omission after which no claim may be brought.

There is thus a 15-year long stop, after which the three-year rule will no longer assist a claimant.

In relation to complaints taken to Financial Ombudsman Service, there are also time limits. Generally speaking, the FOS cannot consider any complaint if it is referred to FOS more than:

a: Six months after the final response of the firm against which the complaint is made; or b: Six years after the event complained of; or (if later) c: Three years from the date on which the complainant became aware (or ought reasonably to have become aware) that he had cause for complaint.

Those time limits are roughly the same as under the general law but there is no long stop and there are other significant exceptions.

In relation to mortgage endowment complaints, there is a special regime introduced to assist complainants under which generally the complaint must be referred to the FOS within three years of the sending of a “red high-risk letter”. Again, there is no long stop.

Time limits for bringing claims in court have been part of English statute law for hundreds of years and are an attempt to balance the competing interests of claimants and defendants.

As Lord Scott, one of the Law Lords, said in 2006: “Parliament has had to strike a balance between the interests of claimants and the interests of defendants.

“It is a hardship, and in a sense an injustice, to a claimant with a good cause of action for damages to whichthere is no defence on the merits to be barred from prosecuting [it] on account simply of the lapse of time since the occurrence of the injury

“But it is also a hardship to a defendant to have a cause of action hanging over him, like the sword of Damocles, for an indefinite period.

“Lapse of time may lead to the loss of vital evidence; it is very likely to lead to a blurring of the memories of witnesses and to the litigation becoming even more of a lottery than would anyway be the case; and uncertainty as to whether an action will or will not be prosecuted may make a sensible and rational arrangement by the defendant of his affairs very difficult and sometimes impossible.”

A court or tribunal is likely to find it increasingly difficult to reach a just decision with the passage of time.

The long stop is where Parliament drew the line in cases where the claimant did not know of the wrongdoing at the time. The matter cannot remain open for ever.

The absence of a long stop in the FOS regime is resented by those who, like IFAs, are subject to the FOS compulsory jurisdiction because it is unfair.

IFAs are, like all others, subject to the jurisdiction of the courts but they are also subject to the jurisdiction of FOS.

A complainant with a claim worth up to 100,000 can choose whether to sue in the courts or take the matter to FOS and is likely to choose to FOS. But it is unfair that an IFA cannot claim the benefit of a long-stop rule when dealing with a stale complaint to the FOS when all other professionals are able to do so in court.

Take the following example: suppose a client has been advised by his solicitor, his accountant and his IFA, who all agree on the course of action which the client should take. Assume that that advice was negligent and that the client did not know for, say, 20 years, when the loss first emerged.

The client would not be able to sue the solicitor or the accountant because of the long stop. But the IFA could still be exposed to an adverse finding by the FOS up to 100,000 because of the lack of a long stop in the FOS rules.

That is surely unfair Why should two of the three professionals involved in the same case escape liability on the basis that Parliament drew the line in one place but the FSA chose not to draw a line at all?

In any event, it cannot be right in principle, let alone fair, that an IFA has no liability under the general law but is liable to make payments of up to 100,000 under the FOS jurisdiction.

Since an IFA continues indefinitely to be subject to the risk of a complaint to the FOS, records need to be kept indefinitely and at some cost and inconvenience.

Further, PI cover will need to be maintained indefinitely after retirement. Indeed, cover may not be available at affordable cost or at all. Those costs have to be paid from retirement income.

Until December 1, 2001, most IFAs were subject to a complaints scheme run by the PIA Ombudsman which recognised the general law of limitations. In other words, there was a 15-year long stop.

Then the FSA made the FOS rules about time limits and, in effect, abolished the long stop retrospectively for all claims relating to events before December 2001.

It was not fair that the FSA should sweep aside the basis on which IFAs had been carrying on business up to that time. In an appropriate case, a firm could argue that such retrospective rule-making by the FSA was unlawful.

It is also contrary to the rule of law, which is the general principle which underpins our society and the way in which we carry on our daily lives.

The distinguished Law Lord, Lord Bingham, recently expressed the rule of law in this way – it is “that all persons and authorities within the state, whether public or private, should be bound by and entitled to the benefit of laws publicly and prospectively promulgated and publicly administered in the courts”.

The laws of the land should not be changed with retrospective effect and should apply equally to all. But, as shown above, all those subject to the FOS’s jurisdiction are deprived of the benefit of the long stop in the same circumstances in which all others are able to rely on it. It is equally arbitrary that even IFAs are able to rely on the long stop if sued in the courts.

But the FSA said that it will not introduce a long-stop. Its reason was that to justify a long stop, it needed to identify benefits to firms or consumers beyond the savings for firms from not having to make compensation payments.

The FSA did not deal with the unfairness points at all. That failure was itself unfair. The FSA should now introduce a long stop to provide a proper balance between the interests of the parties.


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