A recent High Court decision has considered the operation of section 32(1) of the Limitation Act 1980, which can postpone the start of the limitation period in fraud claims until the time when the claimant has discovered the fraud “or could with reasonable diligence have done so”.  The court held that, when determining the stage at which a claimant could reasonably have discovered the fraud, the court can take into account circumstances and facts known to the claimant prior to the time when the cause of action accrued (which will often be the time at which loss was first sustained): European Real Estate Debt Fund v Treon [2021] EWHC 2866 (Ch).

Where, as in this case, a fraud involved a transaction that was preceded by a due diligence exercise, the court may therefore examine that exercise in detail to assess whether the information made available (i) would have caused a reasonably diligent investor in the claimant’s position to raise questions or request further information, and (ii) whether the likely response would have put them on notice of the fraud.  Having concluded that that was the case here, the court held that the claimant could not assert a later date of discovery (actual or deemed) to which section 32(1) could apply.  Accordingly, although a claim for fraudulent misrepresentation would have otherwise succeeded, it was time-barred and therefore dismissed.

It is of course a well known principle in English law that fraudsters cannot defend a claim by pleading that their victim failed to take reasonable care to detect the fraud. However, the “reasonable diligence” provision in section 32(1) is not concerned with the substantive merits of fraud claims. As the court noted, it is limited to the distinct question of whether claimants bringing such claims outside the primary limitation period are entitled to invoke the special statutory postponement. If a claimant could reasonably have discovered the fraud by virtue of events and circumstances occurring before it actually suffered a loss, the court considered there was no principled rationale for allowing it the indulgence of more than the normal six year period to bring its claim.

For more detail on the decision, see the report on our Banking Litigation Notes blog, here.