The recent Court of Appeal decision in Seedo v Fahmy El Gamal, El Gamal and Co Ltd and Amjad Salfitti  EWCA Civ 330 has provided helpful guidance on limitation in fraud claims and the operation of section 32(1)(a) of the Limitation Act 1980 (“s32 (1)(a)”), explained here by senior associate Ilyas Bulut and paralegal Ryan Ho.
The court held that:
- Where limitation has been raised before trial, the question of what the fraud is must be assessed by reference to the pleaded case as no facts have yet been determined at trial. However, where limitation is being considered after the judge has found there to have been a fraud, what the fraud is must be assessed by reference to the essential facts of the fraud found by the judge rather than with reference to the claimant’s pleaded case.
- Where there have been multiple lies, a later lie will only start the running of a new limitation period if it gives rise to a different cause of action. Whether it does so depends on whether the lies were distinct and unconnected as opposed to being designed to conceal the same thing and so part of the same overall deceit.
Section 32(1) LA 1980 – fraud found or fraud pleaded?
The court focused on the wording “action […] based upon the fraud of the defendant” in s32(1)(a). It held that it is well established that this does not mean any action in which the defendant is alleged to have acted fraudulently, but only one where fraud is a necessary allegation to establish the cause of action (Beaman v ARTS Ltd  1 KB 550). This meant that in the present case, s 32(1)(a) could only apply to the claim based on fraudulent misrepresentations, that being in effect a claim for damages for the tort of deceit, and not to claims in contract and negligence.
The court then considered how to assess when the claimant has discovered, or could with reasonable diligence have discovered, the fraud. Following Test Claimants in the FII Group Litigation v HMRC  UKSC 47, the limitation period under s32(1) starts to run when the claimant knows, or could with reasonable diligence know enough to plead their case. This was applied in a concealment context in Gemalto Holding BV v Infineon Technologies AG  EWCA Civ 782, where it was held that time begins to run in a deliberate concealment case when the claimant recognises they have a worthwhile claim.
Based on these authorities, the court decided that in a fraud case, time starts to run when the claimant has discovered enough to plead their case.
This led the court to consider what the “fraud” the claimant needs to discover is.
- It held that where limitation has been raised before trial, it must be assessed by reference to the pleaded case, as at that stage, no facts have been determined.
- However, in cases where limitation is being considered after the judge finds there has been a fraud, the fraud must be assessed by reference to the essential facts of the fraud found by the judge. There will be some instances where allegations of fraud made in the claimant’s pleaded allegations are not pursued or turn out not to be well-founded, but the judge nevertheless finds there to have been a fraud. After the judge has decided there was a fraud, it would be wrong in that scenario to ask when the claimant discovered allegations that in the end went nowhere; the proper question is when they discovered the essential facts of the fraud found by the judge.
Multiple lies – how does s32(1)(a) apply in such a case?
The court had to decide how s32(1)(a) applies to a case where a defendant deceives the claimant into entering into a transaction by telling two lies, and the claimant discovers one of them, but not the other, more than six years before bringing the claim.
The court noted that the ordinary time limits laid down in Part 1 of the Limitation Act 1980 are drafted by reference to the accrual of a particular cause of action, and limitation operates by barring particular causes of action. The relevant question is, therefore, whether the second lie gives rise to a different cause of action.
The judge stated that in a case where in order to induce a purchaser to buy an asset, the seller tells the purchaser two distinct and unconnected lies, then the judge would readily accept that they gave rise to different causes of action. However, it is not obvious the same applies if the seller tells two related lies as part of the same overall deceit.
In this case, at first instance, the judge had found that Mr El Salfiti had told Mr El Gamal two lies:
- First, he told Mr El Gamal that he would be the sole owner of the property, when in reality, Mr El Gamal would hold the property on trust for himself and Mr Seedo in equal shares.
- Second, he told Mr El Gamal that he would loan him £69,500 of his own money when in fact that money was held by Mr El Safiti on trust for Mr Seedo to use towards the purchase price.
The Court of Appeal decided that both lies were part of the same deceit as both were directed at persuading Mr El Gamal to complete the purchase of a property on the false basis that he would be the sole owner. It was all designed to conceal the same thing, namely Mr Seedo’s involvement in the purchase.
Accordingly, the Court of Appeal determined that Mr Gamal’s claim for deceit was time-barred.
Relevance to s90/s90A Financial Services and Markets Act 2000 (“FSMA”) cases
Limitation is often an issue in cases under s90/s90A FSMA (which make issuers of securities liable to shareholders in respect of untrue or misleading information contained in or omissions from prospectus material / published information). In such cases, frequently, the behaviour that gives rise to the misleading statements or omissions in a prospectus or market announcement has been concealed for a considerable time period. Therefore, it will be important for claimants to make it clear that where there are multiple “lies” by the defendant, separate causes of actions are pleaded for the later lies, if possible.
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