Limitations periods for warranty claims - do deeds affect them?
There was a lot of interest shown in my last blog, concerning the dire consequences of a failure to prepare and execute a deed.
In view of this, I have looked at what happens when a deed is validly completed and the effect this may have on the limitation period for claims under the deed. This was recently considered in the case of Liberty Partnership v Tancred.
In Liberty, shares in an IFA business were sold. The share purchase agreement (SPA) was executed as a deed on 14 November 2007. The SPA contained warranties given by the seller. As is common in SPAs, there were contractually agreed limitation periods for the bringing of claims for breach of those warranties. Here, the limitation period was 18 months, save for instances of “wilful concealment”.
The buyer did allege breaches of warranty and issued proceedings on 14 November 2013. As the statutory limitation period for claims for breach of contract is 6 years, this was just in the nick of time. Given the contractual limitation period of 18 months, the buyer would have to show wilful concealment to progress those claims. However, as the buyer sought to make subsequent amendments to its case, the seller asserted that any new claims would be outside the 6 year limit and time barred.
The court therefore had to consider whether a longer limitation period was applicable, as the SPA was executed as a deed. Section 8(1) of the Limitation Act 1980 provides that: “An action upon a specialty shall not be brought after the expiration of twelve years from the date on which the cause of action accrued.” The key question was this – if the deed was validly completed, is the deed a “specialty” for the purpose of the Limitation Act 1980?
The court concluded that a deed “executed under seal” is a specialty. In reaching this conclusion, the court confirmed that a seal is no longer required for an individual under Law of Property (Miscellaneous Provisions) Act 1989, which we looked at in the previous blog. In a world where the carrying a supply of wax and a signet ring by individuals is no longer the done thing, the court quite reasonably focused instead on the intent of the parties to import the “special solemnity” of a deed. As it was a specialty, a 12 year limitation period would apply, so that the new claims would not be time barred. The court went on to try the claims that were not subject to the 18 month limitation period in the SPA.
So with warranty claims in mind, what are the takeaways here? As a buyer, bearing in mind the time it sometimes takes to get to know a new business and such things as its history, operations and financial data, you may want to resist contractual limitation periods that are restrictive, or at least seek carve outs based upon knowledge and concealment (as in Liberty). You may also want to think about a 12 year rather than 6 year limitation period for warranty claims. If you do, then a properly executed deed is the way forward. As a seller, you will of course wish to push these points firmly in the reverse direction.
If you would like advice on any of the issues mentioned in the blog, please contact Stuart Evans BLM partner and head of commercial litigation, London.