REUTERS | Rafael Marchante

Limitation Act 1980 and fraud claims: court must examine all facts and not bind itself to events that arise after cause of action has accrued

In European Real Estate Debt Fund (Cayman) Ltd v Treon and others, Miles J examined section 32 of the Limitation Act 1980 (Limitation Act) and held that the court had to examine all the facts of an individual case and the court should not bind itself solely to events which happen immediately after a cause of action has accrued.


The claimant claimed fraudulent misrepresentation. The claimant’s main assertion was that, in 2011, the three defendants, Mr Treon, Arundel Group Limited and Dr Srinivas, induced it to buy up loans valued at almost £12 million in European Care Group (ECG). ECG’s business was care home provision. Even though ECG was one of the biggest names in its industry, it had experienced lots of financial problems.

By 2009, ECG was in need of significant funds to keep it afloat and avoid going under financially. ECG took steps to improve its financials. One such step included engaging new managers. Other steps involved capital injections and, in particular, in 2011, an investment of over £4 million.

Despite all these steps, by 2014 ECG had entered into administration. This had a dire impact on the claimant, which saw the whole of its investment wiped out. Duet Private Equity Limited (DPE) was retained as the claimant’s investment adviser, providing financial information to the claimant about ECG. Crucially, DPE reported to the claimant about the merit of investing in ECG. DPE obtained this information from two of the defendants, Treon and Srinivas. But all this information was provided to the claimant before the claimant decided to invest. As the defendants had provided all this information to DPE and the claimant relied on that, it was the claimant’s case that the defendants wilfully misled DPE about ECG’s recent financial performance and future prospects.

Before the investment, the defendants provided DPE with standard 2010 trading numbers. But significant trading costs, more specifically salaries, were omitted from these trading figures with no reference to this omission from the defendants. Another concern about these same figures was that they were outdated. In addition, the claimant alleged that later, more accurate projections for 2011 to 2013 were not a positive indicator unlike an earlier set of projections for the same period that had been provided by the defendants to DPE.

Denying all allegations, the defendants averred that the claim was statute-barred because it had been issued more than 6 years after the investment. The claimant replied that section 32 of the Limitation Act provided that, when a claim is based on a defendant’s fraud, the limitation does not run until a claimant has “…discovered the fraud…or could with reasonable diligence have discovered it…”.

The judgment

Miles J identified that the court had to determine at what point in time the claimant could have discerned that a fraud had been effected. Miles J rehearsed the relevant case law, which set out that the claimant must have a state of knowledge which was enough to formalise a claim. But he made a distinction that all cases turned on their own facts, and in a lot of cases identifying the exact point in time when a litigant found out enough information to advance a case was not easy.

Miles J acknowledged that finding out enough or all relevant pieces of information could take time and that pertinent information may only become known in stages. The court carefully examined section 32 of the Limitation Act, and its provision that in an instance of a claim being founded upon a defendant’s fraud, the limitation period does not start to run until such time as a claimant has discovered the fraud or could with reasonable diligence have discovered it.

Miles J emphasised that state of knowledge as being knowledge sufficient to enable a claimant to issue a claim. As such, any reasonable investigation as to whether a claimant could have discovered a fraud could also depend on events before and after any loss was suffered. Miles J summarised that, of course, the burden of proof lies with a claimant to show that a fraud could not have been uncovered without exceptional due diligence and investigation, which in all circumstances a claimant could not have been reasonably expected to carry out.

The claimant’s assertion that section 32 of the Limitation Act restricted the court’s enquiries to just facts arising on or after the date of the cause of action coming about was dismissed by Miles J. He held the court could rightly consider, and not ignore, all incidents and correspondence that a claimant had knowledge of or knew about. On the facts, Miles J was critical of DPE. Of the figures complained of by the claimant, there were discrepancies. He said that DPE, as a professional financial adviser, should have been alert to these discrepancies and advised its client that more due diligence and enquiries were necessary before committing to the investment. Miles J also considered that asking for updated profit and loss and balance sheet figures would have been prudent even before exceptional measures were enacted. Had such a request been made, then more comprehensive reconciliations could have been carried out. He opined that such requests were surely regular due diligence and not even exceptional measures.

Miles J held that, if DPE had effected better due diligence, enough facts could have been uncovered to better inform the claimant. DPE could have enabled the claimant to decide that figures from the defendants were not a true summary of ECG’s financial position. So, Miles J held the claim was statute-barred and dismissed the claim.

Practical implications for practitioners

When limitation is fast ticking away, always advise a client about the possibility of entering into a standstill agreement so that any case is protected. This could also buy a claimant more time to establish the merits of a claim. Whilst this case looks at section 32 of the Limitation Act, any investor needs to be advised about due diligence being crucial before making an investment.

Leave a Reply

Your email address will not be published. Required fields are marked *

Share this post on: