Investor’s knowledge bars mis-selling claim
27 May 2015
If an investor is deemed to have requisite constructive knowledge through observation of facts ascertainable to them, this will allow time to start running for limitation purposes in a mis-selling claim. Firms facing claims from investors should examine carefully when an investor could be said to have acquired such constructive knowledge with reference to the factors set out in the Court of Appeal’s judgment in the case of Susan Jacobs v Sesame Ltd  EWCA Civ 1410, 30 October 2014.
The defendant, Sesame Ltd, is a network of financial advisers. The claimant, Susan Jacobs, was an individual investor. In September 2005, the claimant was advised by a member of the defendant’s network to invest GBP 65,000 in an investment bond (the Bond). After the Bond was surrendered, the claimant sued the defendant for negligent investment advice in November 2012. The claimant alleged that the Bond was unsuitable for her investment requirements.
“Primary” and “secondary” limitation periods
It was agreed that the claimant’s claim was time-barred for the purpose of the primary limitation period of six years from the date on which the cause of action accrued, as per s14A Limitation Act 1980 (the Act).
However, under the Act the primary limitation period of six years may be extended to three years from the date upon which a party knew or reasonably ought to have known that it had a claim (known as the secondary limitation period). Under s14A(10) a person’s knowledge includes knowledge that they might reasonably have been expected to acquire either:
- from facts observable or ascertainable by them; or
- from facts ascertainable by them with the help of appropriate expert advice that it is reasonable for them to seek.
The claimant sought to rely on the secondary limitation period in order to bring her claim against the defendant. She claimed that the secondary limitation period started to run in February 2012 when the Bond was surrendered and she realised the extent of the losses she had suffered as a result of investing in the Bond.
The defendant submitted that the secondary limitation period started to run from July 2009 because by then the claimant had received four annual account statements for the Bond (two of which showed a significant fall in value) and therefore had sufficient knowledge to bring a claim against the defendant at that point.
First instance – claim allowed to proceed
At first instance the court held that, until the Bond had been surrendered, the claimant only had a suspicion that something had gone wrong in relation to her investment in the Bond and that “perhaps naively” the claimant believed that she would get her initial investment of GBP 65,000 back. The court accepted that the claimant did not have sufficient knowledge to start a claim, take advice or collect evidence in July 2009. As a result, it was held that the secondary limitation period started in February 2012 when the Bond was surrendered.
Appeal – investor had earlier “constructive knowledge” so claim is time-barred
The Court of Appeal stated that the starting point for assessing a person’s knowledge for the purposes of s14A was “knowledge of the material facts about the damage in respect of which damages are claimed”.
The claimant’s belief that the full amount of her investment would be returned to her, regardless of the performance of the Bond, was “hopelessly confused”. The Court of Appeal concluded that by July 2009 the claimant had acquired constructive knowledge that the Bond did not meet her requirements and that the sum of GBP 65,000 that she had invested was not guaranteed. In addition, in or around July 2009:
- the claimant should have asked the issuer of the Bond (who she had spoken to in or around July 2009 in relation to another issue relating to the Bond) whether, despite the fall in the value of the Bond, the return of her original capital was guaranteed; and
- the claimant should have consulted the documentation she received in relation to the Bond which confirmed that the claimant’s original capital was not guaranteed.
The Court of Appeal held that the claimant’s claim was time-barred and was dismissed.
The Court of Appeal’s judgment outlines the factors that a court will consider when assessing when the secondary limitation period starts to run in a case where a claimant can acquire the requisite constructive knowledge through observation of facts ascertainable to them. Firms facing similar claims brought by third parties will want to examine when an investor could be said to have acquired such constructive knowledge.