The perils of delaying litigation..

Posted: 5th June 2013

RCJIn a ruling which underlines the potentially dire consequences of putting off until tomorrow civil litigation that should be launched today, the directors of a family company who blamed an accountant for substantial losses have been told by the High Court that they left it too late to seek legal redress.

In Thorogood & Anr v Sudworth, the directors claimed that the accountant was negligent in causing their company to declare unlawful dividends which were not supported by sufficient profits or reserves, failing to record personal loans that they had made to the company and showing dividends in the accounts which they had not received.

The company later went into liquidation and the liquidator obtained an order against the directors, requiring them to repay the unlawful dividends. The accountant had been retained by the company, rather than the directors, so that they had no viable claim against him in contract. However, they claimed a total of almost £250,000 against him in tort.

In ruling that the directors’ claim was barred by passage of time, the court noted that, by operation of section 2 of the Limitation Act 1980 (the Act), a claim in tort must be brought within six years of the accrual of a cause of action. The relevant accounts had been executed over 10 years prior to the issue of proceedings

The directors sought to rely upon the terms of section 14(a) of the Act in arguing that they only became aware that the accountant might have been responsible for their loss when they took legal advice from counsel in 2010. It was submitted that only then did they acquire sufficient knowledge to justify setting about investigating the possibility that the accountant’s advice had been defective.

The court ruled on the evidence that the company’s principal director had had ‘actual knowledge’ as early as 2004 that he faced a substantial claim for recompense from the liquidator and that the accountant may well have been responsible for that. The other director also failed to satisfy the court that she did not have the requisite knowledge to bring a claim within the limitation period.

The court noted that, had such a finding been necessary, it would have ruled that both directors had had ‘deemed knowledge’ of a potential cause of action on the basis that any necessary further information or advice could easily have been obtained within the limitation period.