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The passage of time can create a number of potential problems for claimants. Memories fade, documents can be lost (or even destroyed), and there is increased scope to challenge a claimant’s attempts to mitigate their losses. Most significant, however, can be the passing of limitation.
For example, in English contract law the standard rule is that claims must be brought within six years of the date of breach – irrespective of the claimant’s knowledge. There are similar limits for claims brought in tort (such as claims for negligence). Limitation exists as a line in the sand to provide legal certainty, but it can produce harsh results.
It is now well over six years since Lehman Brothers filed for Chapter 11 protection in the US (15 September 2008). This is seen as a key event in the financial crisis and was the point at which many investments and other banking instruments/derivatives saw very significant falls in value. Claims which arose around that time could now potentially be time barred.
However, many of the claims which arose from the financial crisis are founded not from the instability in the financial sector itself, but on the way banks and other financial institutions responded to a sudden lack of liquidity and a collapsed property market. These claims may have accrued in the years immediately following the crash. Such claims potentially face the imminent passing of limitation.
The behaviour of the banks that generated such claims has not escaped the attention of regulators – for example the FCA has ordered an independent skilled persons report into the treatment by Royal Bank of Scotland of business customers in financial difficulty. A review of banking services to small and medium-sized enterprises forms part of an investigation being carried out by the Competition and Markets Authority.
Historically, the banks’ conduct was criticised by Dr Lawrence Tomlinson, then the “Entrepreneur in Residence” at the Department for Business, Innovation and Skills. His report was concerned with certain banks generating increased revenues, to the detriment of otherwise viable businesses, for example by relying on mere technical breaches of covenant.
Claims around lender interference give rise to a number of complex issues, and potentially multiple causes of action, which may in turn be subject to different limitation periods. Although the general position is that claims must be brought within six years, there are several exceptions, such as where the defendant has concealed its behaviour.
Limitation means many potential claims arising directly from the financial crisis will now be at risk of being extinguished. Potential claimants who are unsure as to whether they are in a position to seek legal redress should therefore seek legal advice, and if necessary protect their claim from limitation, for example through entering into a standstill agreement.