Background
The claimants, founders of the online travel business Wakanow.com, engaged the law firm Orrick Herrington & Sutcliffe to advise on a major investment by the Carlyle Group. The 2018 transaction involved a complex corporate restructuring where the claimants exchanged their majority ownership in Wakanow for a minority stake in a new holding company, Wazobia. Carlyle, in turn, received 40,000,000 convertible preference shares in Wazobia.
The claimants alleged that Orrick was negligent in failing to advise them on the “toxic” and onerous nature of the deal’s terms. These terms included provisions that allowed Carlyle to take 100% control of the business upon “material underperformance” and left the claimants’ original company, 3R, liable for millions in deferred payments to former shareholders. Within 15 months, Carlyle exercised its rights, citing underperformance. The founders were dismissed, and a “Conversion Notice” was served in January 2020, which resulted in the transfer of the claimants’ entire shareholding to a Carlyle entity for nominal consideration.
After an initial claim was issued but not properly served, the claimants brought a new action in November 2025. Orrick applied to have the claim struck out, arguing it was filed outside the six-year limitation period, which they contended began on the date the disadvantageous agreements were signed in November 2018.
The Court’s Holding
The court considered the defendant law firm’s application to strike out the professional negligence claim on the grounds that it was time-barred. The judgment focused on two key issues under the Limitation Act 1980: when the primary limitation period began, and alternatively, when the claimants acquired the necessary knowledge for the secondary limitation period to commence under section 14A of the Act.
The claimants argued that actionable loss was not suffered upon signing the agreements in November 2018, as the harm was merely a future contingency. They contended that the loss only crystallized on 10 January 2020, when Carlyle served the Conversion Notice that extinguished their shareholding, meaning their claim filed in November 2025 was within the six-year period. In contrast, the defendant firm argued that measurable financial damage was sustained immediately in 2018 when the claimants entered into the “toxic” agreements, exchanged valuable shares for “largely paper consideration,” and became exposed to massive liabilities.
As a secondary argument, the claimants sought to rely on section 14A, which allows a claim to be brought within three years of acquiring knowledge of the material facts. They asserted they only gained this knowledge in September 2022 following a conference with Carlyle’s lawyers. The defendant countered that the claimants had constructive knowledge of a potential claim much earlier, at the latest by January 2020 when they lost their employment and shareholding, which would have led a reasonable person to investigate the advice they had received.
Key Takeaways
- In professional negligence claims arising from transactional advice, the start date for the statute of limitations is often disputed and turns on when “actionable loss” is first suffered.
- A central legal question is whether entering into an agreement with inherently disadvantageous or “toxic” terms constitutes immediate, measurable damage, or if the damage only occurs when a specific, harmful provision is later triggered.
- Claimants may try to rely on the alternative limitation period under s.14A of the Limitation Act, which runs for three years from the date of actual or “constructive” knowledge. Constructive knowledge is determined by when a reasonable person in the claimant’s position would have had enough information to justify investigating a potential claim.
Why It Matters
This case serves as a critical reminder of the strict time limits for bringing professional negligence claims in the United Kingdom. It highlights the high stakes involved in determining when a financial loss legally occurs following a complex corporate transaction. For founders and companies, the decision underscores the importance of acting diligently to investigate potential claims when a deal goes wrong, as waiting too long can result in a valid claim being permanently barred by the statute of limitations.
The court’s analysis of when a “contingent” risk crystallizes into an “actionable loss” provides important guidance for clients and legal practitioners navigating the fallout from allegedly poor transactional advice. It emphasizes that the moment a party is locked into a financially disadvantageous position may be when the clock starts ticking, not necessarily when the full, disastrous consequences of that position are realized.