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The Supreme Court clarifies: Lawyers' professional liability becomes time-barred according to the rules on contractual liability

The Supreme Court's decision published as HR-2019-2034-A concerns a client's claim for damages from his lawyer for alleged grossly negligent advice. The Supreme Court, however, found that the client's claim for compensation was time-barred. In the judgment, the Supreme Court provided important clarification on whether a lawyer's professional liability is a contractual liability or based in tort.
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In 2005, a psychologist received notice of a potential claim from NAV (the Norwegian Labour and Welfare Organisation). NAV considered claiming a refund of more than NOK 10 million, which he had previously received as reimbursement. The psychologist contacted a lawyer for assistance. The lawyer assisted the client from 2005 to 2009. Based on advice from his lawyer, the psychologist signed an agreement with NAV, which extended the limitation period for the reimbursement claim. Under the agreement, NAV’s claim for repayment could be set off against future benefits from NAV despite of the fact that NAV’s repayment claim was time-barred. Thus, the agreement with NAV resulted in a loss for the psychologist.

In 2015, six years after the lawyer’s assistance, the psychologist filed a claim for damages against the lawyer, submitting that he had been negligent in his counselling.

The dispute was divided into two parts. The case before the Supreme Court was limited to whether the claim was time-barred. An essential issue was whether a lawyer’s professional liability was as a contractual liability, i.e. if it should be regarded as a claim based on a breach of contract.

If a claim is based on a breach of contract, the limitation period is, as a general rule, three years, cf. The Norwegian Limitations Act section 2, and the limitation period is calculated from the day when the breach occurs, cf. section 3 (2).

For claims in tort, the limitation period is also three years, but this limitation period is calculated from the day when the affected party acquired or should have acquired knowledge about the damage and the person responsible, cf. section 9 (1). This is usually a later date. The distinction between section 3 and section 9 is stated in section 9 (3) where it is stated that section 9 does not apply to “claims that arise from a contract”.

In previous decisions handed down by the Supreme Court on liability for professionals providing consultancy services, the Supreme Court has alternated between applying section 3 (contractual claims) and section 9 (claims in tort). In two previous cases concerning a lawyer’s professional liability (Rt-1998-740; “Attorney’s liability I”, Rt-2001-1702 ” Attorney’s liability II”) the Supreme Court applied section 9, i.e. the rules on claims in tort. These decisions from the Supreme Court have been criticized in legal theory, and the lower courts have rarely complied in similar cases.

In HR-2019-2034-A, the Supreme Court has taken note of the criticism and stated the following:

“I can hardly see it any other way than that a claim for compensation from the client that is based on a lawyer having performed his assignment in a negligent manner, must be based on his agreement with the client. As I have already emphasized, this is also the understanding of section 9 (3) which best corresponds to the wording of the provision. I find some support in the fact that a fairly consistent case law from the lower courts and a fairly consistent legal theory have both assumed that claims for compensation against lawyers shall become time barred according to section 3. ”

This is a clear change from the Supreme Court’s previous decisions on lawyers’ professional liability. That the Supreme Court relies on practice from the lower courts when setting aside its own decisions in similar previous cases is also quite unusual.

Following this judgement, it must be regarded as finally clarified that a lawyer’s professional liability is a contractual liability in relation to the rules of limitation.

Which set of rules apply also has consequences for the length of the limitation period.

The limitation period on contractual claims for compensation is generally shorter compared with claims in tort.

For both sets of rules, a limitation period of three years applies.

However, the claimant will often interrupt the limitation period for his claim after the aforementioned three years.

The important and practical main difference in this situation lies in the length of the time limit from the starting point when the effected party “had or should have acquired the necessary knowledge” about the claim. In respect of claims for compensation based on a contract, such as in the case of a lawyer’s professional liability, the limitation period is only one year, cf. section 10. For non-contractual claims for compensation, the limitation period is three years, cf. section 9.

The maximum limitation period for contractual claims for compensation is three plus ten years, i.e. thirteen years. The maximum limitation period for non-contractual claims for compensation is normally 20 years, cf. section 9.

(Please note that this article only regards main principles and that shorter or longer limitation periods with different starting points may apply.)