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Limitation period on a counterclaim – section 35 Limitation Act 1980

A party brings a claim within the limitation period, but can the defendant counterclaim, even though the limitation period for their own claim expired before the claimant’s claim was issued? In Al-Rawas v Hassan Khan & Co (a firm) [2017] EWCA Civ 42, the Court of Appeal considered the effect of s. 35 of the Limitation Act 1980 on the limitation period of an original set off or counterclaim and ruled that the answer to the question was “no”.

The background to the case

Two firms of solicitors (Cs) sued two former clients (Ds) for legal fees and disbursements. The claims were brought within the limitation period. Ds served Defences and Counterclaims seeking to set off against the claims counterclaims (in contract and tort) for damages for professional negligence. The usual limitation periods for the counterclaims had expired before the claims were issued. Therefore, had Ds issued fresh claims for damages, those claims would have been limitation barred.

The Court of Appeal was asked to decide whether the fact that Ds had issued their claims as counterclaims to Cs claims rather than as separate claims meant that they were not limitation barred.

Section 35(1) to (3) of the Limitation Act 1980

Here is what it says.

“35 New claims in pending actions: rules of court

  1. For the purposes of this Act, any new claim made in the course of any action shall be deemed to be a separate action and to have been commenced—
    1.  in the case of a new claim made in or by way of third party proceedings, on the date on which those proceedings were commenced; and
    2. in the case of any other new claim, on the same date as the original action.
  2. In this section a new claim means any claim by way of set-off or counterclaim, and any claim involving either—
    1. the addition or substitution of a new cause of action; or
    2. the addition or substitution of a new party;

and “third party proceedings” means any proceedings brought in the course of any action by any party to the action against a person not previously a party to the action, other than proceedings brought by joining any such person as defendant to any claim already made in the original action by the party bringing the proceedings.

  1. Except as provided by section 33 of this Act or by rules of court, neither the High Court nor the county court shall allow a new claim within subsection (1)(b) above, 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 which would affect a new action to enforce that claim.

For the purposes of this subsection, a claim is an original set-off or an original counterclaim if it is a claim made by way of set-off or (as the case may be) by way of counterclaim by a party who has not previously made any claim in the action.”

Interpreting Section 35(1) to (3): the legal arguments

Cs and Ds agreed that Ds had each pleaded an “original set off and counterclaim” within the meaning of s. 35(3).

Ds argued that on the proper interpretation of s. 35(3), a Defendant wishing to rely on an original set off and counterclaim could do so despite the expiry of the limitation period. On their proposed interpretation, the prohibition imposed by s. 35(3) on bringing new time-expired claims in the course of any action (except as provided by the rules of court and by section 33 of the Act) applied to all new claims made in the course of an action “other than an original set off or counterclaim”. Consequently, they argued, an original set off or an original counterclaim could be brought after the expiry of any limitation period that would apply if the claim were brought as a fresh action.

Cs argued that s. 35(3) had a more limited effect on the limitation period for an original set off and counterclaim. The effect was that the original set off and counterclaim was deemed to have been issued at the date that the claim was issued, rather than the latter date on which the court actually issued the set off and counterclaim.

The Court of Appeal’s findings

The Court of Appeal accepted Cs’ interpretation of s. 35(3). It concluded that an “original set off and counterclaim” was excepted from the special restrictions which s. 35(4)-(5) and the rules of court made pursuant to those provisions otherwise applied to the addition of time-expired claims made in the course of proceedings. Furthermore, for limitation purposes, the deemed commencement date of the original defence and counterclaim was the commencement date of the claim, thus giving an original defence and counterclaim the benefit of the doctrine of relation back. However, s. 35(3) afforded no greater benefit to an original defence and counterclaim.

The author’s view: a sensible approach to counterclaims

The result appears sensible. If the Court of Appeal had accepted Ds’ position, it would have enabled Defendants to issue claims – by way of counterclaim – that would otherwise have been many years out of time for limitation purposes. Instead, the benefit of s. 35 to a defendant with an original defence and counterclaim is merely that, if the limitation period for the counterclaim ran out in the relatively short period of time between the issue of the claim and the issue of the counterclaim, the defendant would be able to avoid limitation. This would therefore assist defendants in cases where claims were brought against them very close to the expiry of the limitation period.

 

Winston Jacob / 7th Feb 2017


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