Here the claimant in European Real Estate Debt Fund (Cayman) Ltd v Treon & Ors [2021], ERED issued a claim on 16 October 2017, more than six years after the firm’s investment.
The defendant’s main defence was that the claim was statute barred, relying on section 32 (1) of the Limitation Act 1980, it being outside the primary limitation period for a fraud claim of 6 years.
Postpone the limitation period
Seeking to postpone the start of the limitation period, the claimant brought an action against Treon & Ors alleging fraudulent misrepresentation when the defendants induced the claimant to subscribe to loan notes in June 2011 and a further investment in 2012.
The Defendant’s legal team argued that the Claimant could, with reasonable diligence, have discovered the matters complained of earlier than they did. As such they should have commenced the claim within the usual statutory time limits.
The defendants relied on a number of documents provided to the claimant from which they said a reasonable investor could (with the exercise of reasonable diligence) have discovered sufficient facts to enable them to plead a statement of claim.
These documents included a report and interim accounts for 2009 and they also argued that a reasonable investor could and would have called for the audited accounts for 2010 shortly after the investments and would have received and read these in early July 2011.
Statute barred
The Judge, Mr Justice Miles, agreed, ruling that the claim was ‘statute-barred and must therefore be dismissed’.
The judgment provides authority for the proposition that the Court must consider events which happened before the cause of action arose when deciding whether to postpone the commencement of the limitation period.
Mr Justice Miles made many findings that went against the defendants, but he considered here the important issue was of “reasonable diligence” under Section 32 (1) of the Limitation Act 1980 and argued that consideration of the question of reasonable diligence extends to the period before the claimant has suffered a loss.
“The question is not whether the claim is defeated by the careless failure of the claimant to spot the fraud. It is the quite distinct issue whether the claimant who brings his claim outside the primary limitation period for a fraud claim (6 years) is entitled to invoke the special statutory postponement of the limitation period.”
Postponement of the limitation period is available to a defrauded claimant who could not normally have discovered the facts, but it is clearly not available to all victims of fraud.
Where a claimant could reasonably have discovered the fraud by virtue of events, circumstances and due diligence, before the claimant actually suffered a loss, the judge argued, “there is no principled rationale for allowing it the indulgence of more than the normal six years’ period to bring its claim.”
Reasonable due diligence
In Paragon Finance Plc v DB Thakerar [1999] the judge ruled, which has been treated as authoritative:
“The question is not whether the plaintiffs should have discovered the fraud sooner; but whether they could with reasonable diligence have done so. The burden of proof is on them. They must establish that they could not have discovered the fraud without exceptional measures which they could not reasonably have been expected to take.
The state of knowledge which a claimant must have in order for it to have discovered the concealment has for the most part been regarded as the knowledge sufficient to enable it to plead a claim.
Lessons to be learned
This was a complex High Court case with more issues than highlighted here, but the upshot is that the 6 years statute of limitations in fraud cases will stand, unless the claimant can show that even with all reasonable due diligence it was not possible to discover fraudulent deceit before the cause of the legal action arose.
The case highlights the importance of thorough due diligence in any deal and timely action once knowledge of a fraudulent deceit comes to light.
The Law firm DMH Stallard welcomed the High Court ruling that a claim against its client, a £15m damages claim for deceit, should be dismissed.
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