Section 32 Limitation Act: an evolving yet difficult route for claimants

An earlier version of this article first appeared in the March 2022 issue of Butterworths’ Journal of International Banking and Financial Law.

Introduction

The financial crisis of 2008 and its aftermath is disappearing rapidly over the horizon. However, events of a decade or more ago continue to form the basis of claims before the courts. With most causes of action having a limitation period of six years, many claimants are forced to rely on section 32 of the Limitation Act 1980 in order ensure that their claim is brought in time. A number of recent cases have demonstrated that this is not always a route to success for claimants.

Section 32

In circumstances where:

• an action is based on the fraud of the defendant
• any fact relevant to the claimant's right of action has been deliberately concealed by the defendant
• the action is for relief from the consequences of a mistake

the limitation period does not begin to run until the claimant has discovered the fraud, concealment or mistake, or could with reasonable diligence have discovered it.

Much of the caselaw has focussed on the concept of reasonable diligence. Following the decisions in Boyse (International) Limited -v- NatWest Markets Plc ¹ and OTC Computers Limited (in liquidation) v Infineon Technologies AG and Micron Europe Limited ² this involves a 2 stage objective test to ascertain, firstly when the claimant became aware that there was something to investigate, and secondly the point at which it would have had sufficient information to plead a case in fraud. Time starts to run from the second date.

Section 32 “knowledge”: a broad canvas

Although the word “knowledge” does not appear in section 32, it is a convenient label to describe the point in time at which a claimant knows enough about the claim to plead it and to set time running. As several recent cases have shown, the enquiry is wide-ranging in terms of timing.

In European Real Estate Debt Fund (Cayman) Ltd v Treon and others ³ the defendants deliberately manipulated a company’s trading figures in order to secure funding from the claimant lender during a difficult period. The primary limitation period had expired and the claimant relied on section 32. It argued that in considering what constituted its knowledge, only facts and matters arising after the date of the relevant loan should be considered. That submission was rejected with the court concluding that there was no principled reason to ignore matters of which the claimant was aware during negotiations. As there were a number of pre completion indicators of fraud, the court concluded that the claimant had the requisite knowledge by completion which meant that the claim was out of time.

LibyanInvestment Authority v CreditSuisse International ⁴ is in a similar vein. The case related to an investment made in 2008 but which was not investigated until after the Libyan revolution in 2011. The claimant argued that certain transactional documents should be disregarded because the employees involved in 2008 had either forgotten about them or had left LIA’s employment. The argument failed. Knowledge acquired in 2008 remained the claimant’s knowledge irrespective of subsequent events.

In ECU Group Plc v HSBC Bank Plc ⁵ the claimant was found to have knowledge sufficient to plead a case in 2006. It made a formal complaint to HSBC about certain FX trades but elected not to pursue it for commercial reasons. The court also pointed out that the test is one of being able to plead a sufficient case that is not then struck out for lack of detail; at this stage it does not have to be a winning case with all the supporting evidence to hand.

In a further recent High Court case, one where the defendant’s limitation argument failed albeit at an early stage in the proceedings, the court assessed reasonable diligence by reference to the claimant’s characteristics. Some attributes are relevant (the size of the claimant’s business) while others are to be disregarded (personal traits such as whether the claimant is slothful, naive, shy, nervous, uncurious or ill-informed). In the case in question, the claimants were all professionally managed institutional investors, however, there were enough differences between them for the court to decline to accede to an application to strike out the claims at an early stage; there would have to be a detailed investigation at trial to determine the limitation defence.

Conclusions

The law on section 32 is still evolving and is becoming more nuanced over time. For a claimant, Section 32 is a gateway to bringing a claim that would otherwise be time-barred whereas for a defendant consideration will need to be given to see if the claim or parts of it can be struck-out. Careful consideration should be given to:

• Whether any pre cause of action events can be relied upon to demonstrate knowledge which could defeat a limitation argument;
• What might have been known to former as well as current employees;
• Any historic complaints made by the claimant that might demonstrate knowledge of relevant facts at the time;
• The relevant characteristics of the claimant.

¹ [2020] EWHC 1264 upheld on appeal at [2021] EWHC 1387

² [2021] EWCA Civ 501

³ [2021] EWHC 2866

⁴ [2021] EWHC 2684

⁵ [2021] EWHC 2875