15 January 2008

Deliberate concealment and limitation

The issue of limitation periods, and most interestingly when time begins to run under s32 of the Limitation Act 1980, has recently been explored in these two cases.

Facts of the Case

In the JD Wetherspoon case, the defendants, Van De Berg and its directors, had been retained to act as a property finder and advisor.  JD Wetherspoon alleged that Van De Berg had made secret profits behind its back in relation to a number of transactions all of which were completed before 1998.  The defendants applied to strike out the claim on the grounds that it was statute barred (i.e. it was subject to the general 6-year limitation period).  It was therefore down to JD Wetherspoon to show that the claim was not statute barred and that, in the circumstances, the general 6-year limitation period could be extended in accordance with s32 of the Limitation Act 1980.  Section 32 provides (so far as relevant):

1)      … where in the case of any action for which a period of limitation is prescribed by this Act, either -

a) the action is based upon the fraud of the defendant; or

b) any fact relevant to the plaintiff’s right of action has been deliberately concealed from him by the defendant; or

c) the action is for relief from the consequences of a mistake;the period of limitation shall not begin to run until the plaintiff has discovered the fraud, concealment or mistake (as the case may be) or could with reasonable diligence have discovered it.

References in this subsection to the defendant include references to the defendant’s agent and to any person through whom the defendant claims and his agent.

2)      For the purposes of subsection (1) above, deliberate commission of a breach of duty in circumstances in which it is unlikely to be discovered for some time amounts to deliberate concealment of the facts involved in that breach of duty.

The Decision

The relevant part of s32 is that concerning ‘deliberate concealment’ and whether the fraud is ‘unlikely to be discovered for some time’ (see s32(2)).  Section 32(1) then raises the question; when could the claimant have discovered the concealment with ‘reasonable diligence’?  Therefore, in his judgment, Mr Justice Lewison  considered the key question to be:  ‘when could JD Wetherspoon have discovered the breach with reasonable diligence?’

In addressing this question, it was held that the defendants had, in correspondence, deliberately put JD Wetherspoon ‘off the scent’ in relation to the fraudulent transactions.  As this took place during the usual limitation period, it in effect prevented time from running until the concealment could have been discovered with reasonable diligence; and it was not suggested that once JD Wetherspoon was alerted to the fraudulent transactions that it then acted otherwise than with reasonable diligence.  Accordingly, Mr Justice Lewison found against the limitation defence that was being advanced by Van De Berg and dismissed the applications.

Facts of the Case

Similarly, in the later Barnstaple Boat case, in the Court of Appeal, Lord Justice Waller also considered the issue of ‘deliberate concealment’ on the part of the respondent (Jones) and whether with ‘reasonable diligence’ the appellant (Barnstaple) could have found out about the fraud sooner, as the claim had been commenced outside the usual 6-year limitation period.

In summary, Barnstaple appealed against a decision that part of its claim for damages for deceit, fraud and fraudulent misrepresentation against Jones was out of time.  Barnstaple alleged that, in May 1998, Jones had fabricated an invoice pretending to sell a boat when he had not and that it had paid Jones for a second boat when Jones knew that the engine was beyond economic repair.  Barnstaple claimed it had only become aware of Jones’ fraud in relation to the first boat when its director had inspected documents in 2005 and, in relation to the second boat, it had been told by an engineer in 1999 that the engine was beyond repair. 

The Decision

The appeal was allowed.  Lord Justice considered that it was strongly arguable that Barnstaple would succeed in showing the use of reasonable diligence in seeking to obtain the documents that disclosed the fraud when it found out in February 2005.  In relation to the engine that was beyond repair, it was also held that limitation did not begin to run until Barnstaple had had a chance encounter with an engineer in late 1999, unless reasonable diligence would have enabled Barnstaple to know earlier.  There was no suggestion that there was any failure to use such reasonable diligence.

Points of Interest

In both cases, the court held that the general 6-year limitation period could be extended following careful analysis of s32 of the Limitation Act 1980.  In essence, in circumstances such as those outlined above, time starts to run as soon as the party seeking to rely on s32 could have discovered the fraud, with reasonable diligence.

Category: Article