How will changes to our limitation laws affect you? Charlene Sell, a solicitor with Wynn Williams, discusses the impact of our new limitation laws on your business’s record keeping procedures.
Records should be kept until there is no longer a risk of a claim being brought against your business. It is very difficult to defend a claim adequately when relevant records have been destroyed.
On 1 January 2011, the Limitation Act 2010 (the ‘New Act’) comes into force, replacing the Limitation Act 1950 (the ‘Old Act’). The effect of the New Act is that certain records will have to be retained for longer. It is anticipated that the new rules will create more certainty about when claims will be time-barred.
Why do we need limitation laws?
We need rules which prevent claims being brought against a person or business after a period of time. There are a number of reasons for this:
limitation rules promote certainty. They allow people to plan knowing they will not be potentially liable for their past acts or failures for an indefinite period of time;
claimants must not sit on their rights. Valid claims should be dealt with quickly and efficiently;
a person who has to defend an old claim will be disadvantaged, because relevant documents may have been lost or destroyed, memories have faded and witnesses may have disappeared.
Limitation rules must balance the rights of people to receive a remedy for valid claims against the rights of people who may be pursued for stale claims.
The position under the Old Act
Until the New Act comes into force, a person is prevented from bringing a claim for breach of contract or commission of a tort (for example, negligence or misrepresentation) when more than six years have passed since the claim accrued. A claim accrues from the date all events giving rise to the claim have occurred. This general rule is found in section 4 of the Old Act.
Until 1 January 2011 your business will need to keep records relating to dealings with customers, suppliers and competitors for at least six years.
Legal commentators have identified various problems with this general rule:
Specific limitation rules
It can be unclear when a claim has accrued. This is important as it can mean the difference between a claim being successfully brought against your business or not.
A claim can be time-barred through no fault of the person bringing the claim. This can happen when a person does not know of the facts giving rise to the claim until after the six-year time limit.
There are also additional rules for particular types of business records and different types of claims:
Changes under the New Act
All businesses must keep certain accounting records for seven years, as required under the Tax Administration Act 1994.
Under the Employment Relations Act 2000, if an employee alleges they have a personal grievance against your business, the employee must raise the personal grievance with you within 90 days of the date on which the action alleged to amount to a personal grievance occurred. The employee then has three years from the date on which the personal grievance was raised to bring a claim in the Employment Relations Authority or Employment Court. Any other claims concerning employment relationship problems must be commenced in the Employment Relations Authority or Employment Court within six years after the date the cause of action arose. This means you need to keep records relating to your employees for at least six years after an employee has left their employment with you.
Claims under the Fair Trading Act 1986 can be brought against a business within three years after the date the loss or damage was, or should have been, discovered. A business could potentially remain liable for an indefinite period. In some cases it may be difficult for a business to know how long to keep records relating to potential claims under the Fair Trading Act.
Businesses in the building industry are covered by a longstop provision in the Building Act 2004. Proceedings relating to building work may not be brought 10 years or more from the date of the act or omission on which the proceedings are based. If you are in the building industry, you need to keep records for at least 10 years.
Claims concerning leaky homes made under the Weathertight Homes Resolution Services Act 2006 (‘WHRS Act’) must be made within 10 years of the date of the act or omission on which the claim is based. Generally, another party cannot be joined to proceedings outside the limitation period. However, the High Court has found that a party can be joined to proceedings under the WHRS Act outside the 10-year limitation period, provided the original claim was brought within 10 years. Therefore, it may be difficult for builders, and other parties who may be liable under the WHRS Act, to know how long they should keep records.
Under the New Act the six-year limitation period will continue to apply for most types of claim.
The New Act addresses problems identified under the Old Act:
The six-year limitation period will begin to run from the date of the act or omission on which the claim is based (the ‘primary period’), instead of the date the claim has accrued. This is intended to provide more certainty about when the primary period begins to run;
Claims can be brought within three years after the date the claimant knew or ought reasonably to have known certain facts giving rise to the claim (the ‘late knowledge period’), even if the primary period has expired. Therefore, a person can bring a claim within three years after they discover they have a claim, even if six years have elapsed since the date of the act or omission on which the claim is based. This addresses the concern that valid claims may previously have been time-barred because the claimant did not discover the facts giving rise to the claim until after the limitation period had elapsed;
However, in no circumstances can claims be brought more than 15 years from the date of the act or omission on which the claim is based (the ‘longstop period’).
From a record keeping perspective, these changes mean that from 1 January 2011 businesses will need to keep records for 15 years.
While the New Act will apply to most types of claim, specific limitation rules contained in other statutes will continue to apply in the situations covered by those statutes. For example, the new rules will not affect the specific limitation rules under the Fair Trading Act and the joinder rules in relation to the WHRS Act referred to earlier. Therefore, in some circumstances it may be difficult for businesses to know when a claim may no longer be successfully brought against them.
Businesses may need to update their record keeping practices before the New Act comes into force on 1 January 2011. As a general rule, businesses will need to keep records for 15 years. However, specific limitation rules will still apply, and could mean in some circumstances that records should be kept for longer.
As different rules may apply in different industries, you may wish to consult your Lawlink lawyer when reviewing your record keeping procedures.