Limitation periods: Not just for litigators
Some nightmares seem universal: teeth suddenly falling out, or an important exam in a class you forgot to attend. But some fears, such as forgetting to diarize a limitation period, come only to lawyers, and usually just litigators.
While corporate solicitors may thankfully lose less sleep over limitation periods than their litigator colleagues, they should still be aware of situations where their clients may be affected by a short or strict limitation period in the context of corporate transactions. Missed limitation periods are one of the most common sources of malpractice claims, and they can impact the practice of solicitors as well as litigators.
LAWPRO sees claims where solicitors have failed to alert their clients to impending deadlines that will impact their client’s rights. Since these strict deadlines can pass before any litigation counsel are consulted or become involved in a file, it is important for every lawyer to diarize potential limitation dates and keep them front of mind at all times.
Here are a couple of examples in which limitation periods may come into play for solicitors in the context of corporate transactions.
Limitation periods and post-closing representations and warranties
As an example, an agreement of purchase and sale may protect the purchaser against a breach of any representations and warranties by holding back a portion of the sale proceeds to be held in escrow for a limited time after the deal closes. This holdback may be intended to only be paid out to the vendor if, after the specified period of time, the purchaser has brought no claim for breach of warranty. In such circumstances, counsel for the purchaser must be vigilant to ensure that any post-closing breach is discovered and acted upon within the escrow period.
Sometimes, an agreement of purchase and sale will require litigation or arbitration over any post-closing dispute to commence within a very short period of time—after closing or following a denial by the vendor that any breach actually occurred. If counsel fail to act within the mandated deadline, the agreement may require the funds held in escrow to be transferred to the vendor. This could impair the purchaser’s ability to seek damages for a valid claim should the proceeds of the sale be transferred and a corporate vendor is later found to be judgment proof.
As another example, contractual limitation periods may also apply to the vendor in some circumstances. If a claim is made, the vendor may have a limited period of time in which to dispute the claim, such as 30 days, or be deemed to have conceded the claim made by the purchaser. In these circumstances, corporate counsel may be obligated to take steps in a timely fashion to protect their client’s position.
Don’t forget to diarize
Corporate solicitors should be careful to diarize contractually imposed limitation periods associated with a corporate transaction, such as an agreement of purchase and sale. If an agreement requires claims made by the purchaser for any post-closing breach to be made within a specified period of time, counsel for the purchaser should take steps to confirm that no representations or warranties were breached and no claim will need to be made against the vendor.
No solicitor wants to find themselves in a position where their client’s legitimate claim is barred, or a meritless claim is deemed to be consented to, on account of a missed or forgotten limitation period. Careful review of any deadlines that will affect a client’s legal rights, and proper diarizing of those deadlines, will help avoid the consequent malpractice claims.
And remember, if you have any concerns about a potentially missed limitation period, or if you are not sure whether you have made an error or there is a potential claim against you, please call LAWPRO at (416) 598-5899 or 1-800-410-1013.