Al-Rawas v Hassan Khan & Co (a firm) & Anor

An original set-off or counterclaim remains subject to the primary limitation periods. Section 35(3) of the Limitation Act 1980 does not give a defendant an unrestricted right to advance a counterclaim which was already time-barred when the claimant commenced the action.

Such a claim is deemed by section 35(1)(b) to have commenced on the date of the original action. It therefore receives the benefit of relation back, but no greater benefit. The exception in section 35(3) removes the special restrictions governing the later addition of time-expired claims. It does not disapply the primary limitation periods.

Two firms of solicitors brought separate actions against former clients, Mrs Al-Rawas and Mr Al-Shanfari, for unpaid fees and disbursements. Each defendant counterclaimed for professional negligence. It was common ground that the counterclaims would have been time-barred if brought as separate actions when the solicitors issued their claims.

Master Yoxall held that section 35(3) of the Limitation Act 1980 permitted the original counterclaims notwithstanding the expired limitation periods. Elisabeth Laing J reversed that decision, holding that the counterclaims obtained only the benefit of relation back to the commencement of the original actions.

The defendants appealed. The central issue was whether an original set-off or counterclaim could be brought as of right where it was already time-barred when the original action commenced.

1. The appeals were dismissed. Sharp LJ, with whom Green J and Elias LJ agreed, held that section 35(3) of the Limitation Act 1980 did not permit an original set-off or counterclaim which was already time-barred when the claimant commenced the action.

2. Section 35(1)(b) applies to any new claim made during an action. By section 35(2), this includes any claim by way of set-off or counterclaim. Its deemed commencement date is the date of the original action. The claim therefore receives the benefit of relation back, but no greater benefit.

3. The words excluding an original set-off or counterclaim from section 35(3) remove such claims from the special restrictions imposed by sections 35(4) and 35(5) and the related rules of court. They do not remove those claims from section 35(1)(b) or disapply the primary limitation periods in Part I of the Act.

4. This construction serves two purposes. It regulates the addition of time-expired claims while protecting a defendant where the claimant commences proceedings close to the end of the limitation period. The alternative construction would allow unrelated counterclaims of any age merely because the counterclaimant happened to have been sued. Such a wide and uncertain exclusion from limitation would require clear statutory language.

5. Observations in Lloyds Bank plc v Wojcik and JFS (UK) Ltd v Dwr Cymru Cyf supported the conclusion that a counterclaim served after expiry is permissible only where it was in time when the original action commenced. Aspect Contracts (Asbestos) Ltd v Higgins Construction plc [2015] UKSC 38 also proceeded on the premise that primary limitation periods apply to an original counterclaim.

6. Although not arising for decision, an amendment adding an original set-off or counterclaim is not subject to the special restrictions in sections 35(4) and 35(5) or CPR 17.4. Permission to amend remains necessary. If granted, the added claim relates back to the date of the original action.

1. Court of Appeal (Civil Division): The appeals were dismissed. The construction adopted by Elisabeth Laing J was upheld in [2017] EWCA Civ 42.

2. High Court, Queen’s Bench Division: Elisabeth Laing J allowed the solicitors’ appeal from Master Yoxall. She held that section 35 gave an original counterclaim the benefit of relation back but did not disapply a limitation period which had expired before the original action commenced. No citation is stated.

3. High Court, Queen’s Bench Division: Master Yoxall dismissed the applications for summary judgment or strike-out. He held that an original counterclaim could be pleaded although already time-barred when the original action commenced. No citation is stated.