A High Court decision delivered on 26 June 2014 focused on the 7 June 2012 Supreme Court ruling in Gallagher v ACC and dealt with a potential prospect of circumventing that ruling by delaying the applicable 6 year limitation period commencement date.
In Gallagher v ACC Mr. Gallagher had issued proceedings after it became evident at the end of an investment bond term that the bond had not grown sufficiently to offset the loan interest payments. In 2012, the Supreme Court determined that the claim was statute barred as the 6 year limitation ran from the date the cause of action accrued, being the date of the investment.
In Komady, the plaintiffs pleaded fraudulent concealment in the context of alleged mis-selling of financial products by a bank. If the plaintiffs proved fraudulent concealment, they could delay the limitation period commencement date.
The parties entered into a Swap agreement in July 2006 pursuant to which the plaintiffs obtained interest rate hedging. In addition, a previous interest cap agreement with a third party was novated to Ulster Bank Limited, the purpose of which was to protect the plaintiffs from any interest rise above 5%. In early 2012, it became clear to the plaintiffs that they had suffered significant losses on foot of the Swaps.
The plaintiffs claimed that the Swaps (the effective dates of which were agreed as 18 July 2006) were mis-sold to them by the bank and proceedings issued on 23 November 2012. In order to circumvent the 6 year limitation period risk in respect of claims for breach of contract and claims arising from tort (excluding personal injuries), as decided in Gallagher v ACC, the plaintiffs sought to rely on Section 71(1)(b) of the Statute of Limitations 1957 (as amended).
If Section 71(1)(b) was applicable, it was argued that the period of limitation did not run until the plaintiffs could have discovered the fraud or could with reasonable due diligence have discovered it, in circumstances where;
“the right of action is concealed by the fraud of any such person (in this case the defendant or its agent)”
The plaintiffs made the point during the hearing that the word “fraud” referenced in Section 71(1)(b) should not be confused with the definition of fraud in the conventional or ordinary sense and that they were not alleging there was any fraud on the part of the bank in the conventional sense.
However, the plaintiffs did assert that they had made it clear to the bank that they did not wish to invest in anything high risk, unstable or financially complex and wished to follow a conservative financing arrangement pursuant to which they relied on the bank’s advices to enter into the Swap agreements. It was alleged that the bank had been aware of their requirements, was aware that no separate legal advice had been obtained and that:
“… by non-disclosure of vital elements of the Swaps and by false representations of facts intended to induce the plaintiffs to enter into the Swaps, facts were concealed from the plaintiffs that would have enabled them to know that they had a right of action against the bank.”
In addition, it was asserted that:
“…the absence of any advice as to any alternative types of instrument that might have been suitable to the plaintiffs’ circumstances and objectives, as well as the representation that the Swaps were suitable for and/or consistent with the plaintiffs’ financial objectives are said to be facts supporting the “concealment by fraud” for the purposes of Section 71(1)(b) of the Act”.
The plaintiffs also asserted that the bank had breached the Code of Conduct for Investment Business as applicable to the Swaps and had breached its obligations pursuant to the Market in Financial Instruments Directive (“MiFID”).
Judge Peart took the view that “everything that the plaintiff needed to know in order to get any advice on these Swaps was known to them by 18 July 2006” and observed that, as inGallagher v ACC, the plaintiffs had failed to commence the proceedings within 6 years of the date on which their cause of action had accrued, which was the date the plaintiffs alleged they were mis-sold the Swaps.
He then considered whether or not an issue of fraudulent concealment could “rescue” the plaintiffs from the fatal effects of the 6 year limitation period and observed that the correct meaning of fraudulent concealment for the purposes of the subsection was that;
“…where the facts necessary to found a cause of action have been concealed from a plaintiff by the defendant so that it would be unfair for that plaintiff to be held to have had knowledge of them, or to be expected to have made enquiry in that regard, and where it would be unconscionable for the defendant to be permitted to rely upon the plaintiff’s delay in discovering those necessary facts, time will not be considered to have commenced for the purpose of the statute until the facts became known.”
Again, he reiterated that the plaintiffs had sufficient information available at the outset to ground a claim, regardless of how they might have reacted to any new information obtained, to include any alleged Code of Conduct or MiFID issues, and so the actual “facts necessary to found a cause of action” had not been concealed. The court held that Section 71(1)(b) did not impact on the Statute in the circumstances and dismissed the proceedings accordingly.
As submitted during the hearing by counsel for the bank, if the plaintiffs were entitled to rely on Section 71(1)(b) then there was the potential that “any plaintiff who brings a claim on the basis of a failure to advise would in effect face no limitation period under the Statute”. The court’s ruling on this issue avoids the uncertainties that would arise in such a scenario and should serve to stamp out the possibility of future litigation arising in connection with similar derivative instruments which pre-date the current financial crisis.