Bad timing for a counterclaim
27 February 2017
The provisions of section 35(3) of the Limitation Act 1980 will not enable a defendant to bring counterclaim that would otherwise be time barred before the proceedings had commenced.
BackgroundThe claimant in both claims was a firm of solicitors which had begun proceedings against Mrs Al-Rawas and Mr Al-Shafari for unpaid fees. It was agreed that the defendants’ causes of action accrued, at the latest on 6 September 2006. The primary limitation period of 6 years for these claims ended on 6 September 2012, after which point, the defendants’ claims became time barred.
On 1 August 2013 the claimant commenced a claim against both defendants for unpaid fees. The defendants commenced a counterclaim alleging negligence and breach of contract on 4 April 2014. The claimant asserted that these claims were time barred and sought to have them struck out or to obtain summary judgment against the defendants.
The defendants relied on section 35 (3) of the Limitation Act 1980, which states:
“…neither the High Court nor any County Court shall allow a new claim…other than an original set-off or counterclaim, to be made in the course of any action after the expiry of any time limit under this Act…”
The defendants’ case was that this provision meant primary limitation periods did not apply to counterclaims, such as the defendants’ which were time barred before the commencement of the case. Master Yoxall agreed with this interpretation and refused to grant summary judgment or strike out the defendants’’ counterclaims, but gave permission to appeal.
On appeal, Laing J came to the contrary conclusion and decided that section 35(3) did not act to rescue a counterclaim that would otherwise be time barred, when the original proceedings began. The case was then appealed to the Court of Appeal.
DecisionIn a short judgment the Court of Appeal agreed with Laing J and dismissed the appeal. The Court of Appeal agreed that section 35(3) did not create a special exception for counterclaims that would otherwise be time barred if made as standalone claims. A counterclaim benefits from having the same issue date as the original claim, which acts to protect defendants who have been sued close to a limitation date, but this did not create a right for a defendant to bring a counterclaim outside of the normal limitation periods.
A defendant may bring a counterclaim that has become time barred after proceedings has commenced, because the counterclaim is deemed to have been commenced on the same date as the original claim, this is the doctrine of relation back. Defendants should be aware of the limitation dates which would appear to their counterclaims and ensure that their claims are commenced before the limitation barrier falls.
Where the limitation dates differ between the parties’ respective claims, it may be possible to gain a tactical advantage in choosing when to issue a claim in order to allow the limitation bar to fall on a potential counterclaim.