Last week the House of Lords overturned a line of previous court decisions which had established a major loophole in the six year statutory time limit which applied to most contract claims including royalty under-accounting claims.
The normal time limit for such claims is 6 years but there are exceptions. One of these applies to deliberate concealment of the claim by the defendant.
S.32 of the Limitation Act 1980 postpones the start of the normal six year period where any fact relevant to the claim has been ‘deliberately concealed’ by the defendant. This section further provides that a deliberate breach of duty in circumstances where it is unlikely to be discovered amounts to a deliberate concealment.
There can be little arguing with this exception to the normal limit. The purpose of the time limit is to protect defendants from old claims which can be difficult to defend as relevant evidence may no longer be available. However, a defendant can hardly complain about being sued on an old claim when he is the one who has prevented the claimant discovering it earlier.
The scope of this exception was expanded by the Court of Appeal decision in Brocklesby v Armitage & Guest, a case which involved negligent professional advice. The Court there took the view that a deliberate breach did not necessarily involve knowledge on the part of the defendant that a breach had been committed. It was sufficient if the breach resulted from an intentional act regardless of whether the defendant knew that it was a breach.
As most breaches result from intentional acts the Court of Appeal had opened up a loophole which threatened to swallow up the six year time limit entirely. The significance of this decision for under-accounting claims was quickly appreciated by claimants.
Sending out a royalty statement is an intentional act and the party receiving it often has no way of discovering any inaccuracy in it. This was quite arguably deliberate concealment by the Brocklesby standard entitling the claimant to raise claims going back well beyond six years (except where there was a shorter time limit provided for in the contract).
Brocklesby was followed by the Court of Appeal on two further occasions, the second being the Cave case. This case was appealed to the House of Lords.
The Lords have now restored the law to the sensible position which prevailed prior to Brocklesby. The six year time limit applies unless the defendant has knowingly breached the contract. Companies facing royalty under-accounting claims can breathe a sigh of relief as the loophole which allowed many claimants to go back beyond the six year limit has now been firmly closed.