Contractual time bars: standing the test of time
Firms commonly include contractual time bars in engagement letters (outside audit), limiting statutory limitation periods for bringing any claims. Such clauses generally seem to attract far less attention than monetary liability caps but they can, in terms of ultimate exposure, be at least as significant.
Cases on time bars have tended not to be litigated on professional services engagements. We have seen some recent judgments in other commercial spheres, however, upholding very short limitation periods. The courts' current approach to contractual disputes, at least with commercial parties, appears to boil down to, "We won’t interfere, as long as it makes commercial sense." The same approach seems to be taken on time bar clauses.
Most recently, in Inframatrix v DCL (25 July 2011), His Honour Judge Behrens struck out a claim for allegedly defective building work on a camera factory. The claim fell foul of a limitation clause which barred claims after "the expiry of 1 year from the date the Contractor last performed Services in relation to the Project". That case was about a bespoke commercial contract, not one on standard terms, as engagement letter terms and conditions very often will be. There was, therefore, no debate on reasonableness under the Unfair Contracts Terms Act 1977.
For that, one must go back to the start of this year and a case about freight forwarding and paving stones: Rohlig v Rock Unique (20 January 2011). The clause in question provided that the freight forwarder should be discharged of all liability whatsoever unless a claim was brought within 9 months. The Court of Appeal followed the decision in Granville v Davis Turner (2003) on similar standard British International Freight Association (BIFA) terms, deciding that such a clause was reasonable.
UCTA reasonableness must be judged by reference to the circumstances at the time the contract is made, not later. The court noted that time bar clauses are prevalent in contracts of carriage, and had been negotiated here by BIFA. 9 months was adequate time particularly since the defending party might need to bring its own claims which could also be time barred. It did not matter that the clause might also stifle claims of which the claimant was entirely unaware until after the time bar had expired.
The impact of time bar clauses can of course be extreme. A time bar point may also be a commercially unpalatable one as a first line of defence to a client's claims. That said, where litigation is brought several years after the event, say after a change in management or a corporate collapse, such a clause can be very valuable, sometimes more so than the hotly-debated monetary caps.
While the BIFA 9 month time bar would probably prove a difficult sell to a court in a professional negligence claim, it is clear that the court’s default will be to hold commercial parties to their commercial bargain. It is not uncommon, for instance, to see contractual time bars at 2 years from the date of knowledge of the relevant facts, subject to a longstop of 4 years, and one can take some comfort from recent decisions that such time periods - perhaps shorter - would stand up to an UCTA challenge. As Lord Justice Tuckey said in Granville:
"[UCTA] obviously plays a very important role in protecting vulnerable consumers from the effects of draconian contract terms. But I am less enthusiastic about its intrusion into contracts between commercial parties of equal bargaining strength, who should generally be considered capable of being able to make contracts of their choosing and expect to be bound by their terms."
Lawyers Andrew Howell
