Introduction
Facts
Applying section 32 of Limitation Act
Decision
Comment
In Libyan Investment Authority v Credit Suisse International,(1) the Commercial Court granted summary judgment, dismissing the Libyan Investment Authority's (LIA's) claims against Credit Suisse International and others on the grounds that they were time barred.
The Court found that the LIA could not rely on section 32 of the Limitation Act 1980 to bring its claims more than six years after the alleged wrongdoing. In doing so, the Court applied the orthodox approach that the limitation period started to run only from the point that the LIA could with "reasonable diligence" have properly pleaded its case in fraud, and affirmed that this involves a significantly higher threshold than recently applied in a judgment concerning a claim for mistake.
The LIA brought claims against Credit Suisse and others for breach of fiduciary duty, undue influence, recission for illegality and unconscionable receipt in relation to loan notes issued by Credit Suisse to the LIA on 2 June 2008 and then restructured in 2009. The LIA claimed that the loan notes were voidable and/or unenforceable as a result of certain undisclosed payments made by Credit Suisse that were alleged to have been made as a bribe in exchange for one of the defendants, Walid Mohamed Ali Al-Giahmi, influencing certain officials at the LIA to acquire the loan notes.
The LIA issued its claim on 11 November 2019, over 10 years after the notes were issued and then restructured. The applicable limitation period for each cause of action relied on was six years after the cause of action arose. Credit Suisse applied for summary judgment to dismiss the LIA's claims on the basis that they were time barred. The question for the Court was whether the LIA could rely on section 32 of the Limitation Act to bring its claim.
Applying section 32 of Limitation Act
Section 32 of the Limitation Act provides that:
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.
When considering the point at which a claimant could with reasonable diligence have discovered the facts to plead its case, the court applies a two-stage test:
- whether and, if so, when, with reasonable diligence, the claimant was put on notice of a need to investigate the potential wrongdoing; and
- what a reasonably diligent investigation would have revealed, and at what time.
Reasonable diligence is an objective test. The court will consider:
how a person carrying on a business of the relevant kind would act if he had adequate but not unlimited staff and resources and was motivated by a reasonable but not excessive sense of urgency.(2)
Credit Suisse sought to argue that the point at which the LIA could have had sufficient knowledge to plead its case should be determined by applying the same principles as in claims for mistake (such as in FII Group Litigation v HMRC)(3) as being the point when the claimant could with reasonable diligence have known about (in that case, the mistake) with "sufficient confidence to justify embarking on the preliminaries of the issue of proceedings".
The Commercial Court rejected this argument and applied the conventional principles in relation to claims of fraud as used in Playboy Club London v Banca Nazionale Del Lavoro SpA.(4) Given the seriousness of allegations of fraud or dishonesty, the court requires that parties plead such allegations only in circumstances where they have a solid basis for doing so. This means that the court applies a much higher threshold in determining the point at which a claimant would have been able to discover the information constituting the necessary elements to properly plead its claim in cases of fraud. Were it otherwise, victims of fraud or concealment could lose their right to claim too easily or be incentivised to bring speculative claims for fraud in order to avoid being time barred.
The test is highly fact sensitive and, often, will not be suitable for summary judgment, especially where there is a serious dispute regarding the relevant facts. The court will require clear evidence that the test is satisfied.
As Credit Suisse was seeking summary judgment, all the LIA had to establish was that it had a real prospect of demonstrating at trial that it could not with reasonable diligence have discovered the necessary elements to plead its claims more than six years before issuing its claim form – namely, by 12 November 2013. However, and despite the high thresholds applied to claims of fraud under section 32 of the Limitation Act and for summary judgment, in this particular case, the Court found that:
- the LIA had had sufficient information available to it by the end of July 2012 to trigger an investigation into the loan notes; and
- had the LIA conducted such an investigation with reasonable diligence at the time, it would have discovered the necessary information to plead its case.
The decision turned heavily on its quite extraordinary facts. The Court found that there had been a series of failings by the LIA to investigate the nature and purpose of the payments made under the loan notes; the LIA had been aware of issues of corruption both in relation to such alternative investments generally and, specifically, in relation to Credit Suisse.
In particular, the LIA had failed to act upon recommendations made by external forensic accountants and its own problem asset committee to investigate such payments in 2010 and 2012. The LIA had also identified, and issued proceedings in respect of, third-party payments linked to Al-Giahmi in relation to similar alternative investment products with other financial institutions several years before issuing its claim against Credit Suisse. In this context, the Court found that the LIA could, with reasonable diligence, also have discovered the necessary information to plead its claim for fraud against Credit Suisse more than six years before it issued its claim again Credit Suisse – such that it was time barred.
The judgment seems to be the concluding chapter in the history of the LIA claims, which have been a constant feature in the Commercial Court since 2014, starting with previous claims against Goldman Sachs International issued in January 2014 and Société Générale in March 2014. The case against Credit Suisse was the final LIA claim in this sequence, issued over five-and-a-half years after its first claims against Goldman Sachs International and Société Générale, a factor that the judge was well aware of when considering the issues around the diligence of the inquiries regarding Credit Suisse.
For further information on this topic please contact Christopher Wheatley or Jake Hardy at RPC by telephone (+44 20 3060 6000) or email ([email protected] or [email protected]). The RPC website can be accessed at www.rpc.co.uk.
Endnotes
(2) Paragon Finance Plc v DB Thakerar & Co [1999] 1 All ER 400 at 418.