Santa Claus and Section 32 of the Limitation Act – a lot in common?

Section 32 of the Limitation Act 1980 has seen some focus in recent years and next year we could see an even sharper focus given its potential importance in the area of undisclosed commission cases dependent on the outcome of the appeal to the Supreme Court. A recent case rejecting a claimant's amendments to their pleadings on grounds they were out of time and s.32 did not save them provides a useful reminder of some of the guiding principles – but to start with what can we learn from Santa Claus when it comes to s.32.

Section 32 and Santa Claus

Section 32 of the Limitation Act 1980 applies in cases where (1) a defendant commits a deliberate breach of duty or an action is based on fraud by the defendant, (2) a defendant later discovers a breach then deliberately conceals that from the claimant or (3) the action is for relief from the consequences of mistake.  The impact of Section 32 is that it suspends the usual limitation periods until such time as when a claimant discovers the fraud, concealment or mistake or could with reasonable due diligence have discovered it.  So, when children are told they have to 'be good' otherwise Santa will not come that arguably falls until a (1) – a deliberate breach of duty.  When children come down the stairs on Christmas day and question why the carrot still remains intact (as face it carrots are not that appetising at midnight) and are told that Rudolph was not hungry, arguably that's an example of a concealment of a breach i.e. (2) – hiding a breach of duty.  

In Media Trust SPA (a company incorporated under the laws of Italy) as trustee of the Jacaranda Trust v BGB Weston Limited, Lorenzo Galluci and Gennaro Pinto (2024) EWHC 3277 (KB)

The case involved an appeal where the underlying application was an application by the claimant trust to amend their pleadings. The Master permitted amendments by the claimant outside of the limitation period on the basis that he considered that the claimant had an "unanswerable argument" that s.32 of the Limitation Act applied.  The central issue before the Master and on appeal was the correct interpretation of when the claimant trust "or could with reasonable due diligence have discovered [the breach]" – notably the breaches relied upon in the amendments.

The facts of the case centred around investments made by the claimant trust.  The Defendants being the financial services company and managing director of the financial services company and the third defendant the investment manager (and whether the investment manager was an agent of the financial services company was a disputed fact).  Investments of the trust's assets were made in funds in which the financial services company was manager and investment adviser to parts of those funds.  Investments were made between December 2014 and March 2015.  

By September 2015 the investments had fallen by over 50%.  The drop in value was questioned and the investment manager falsely told the claimant trust that the drop in value was due to a technical issue with the valuation of certain assts.  Further false explanations were provided by the investment manager in October 2015.  This false representations by the investment manager continued until early 2020 and included forged account statements – broadly the investment manager asserted that the funds had made a private equity investment and produced statements purporting to support that assertion when it was that investment did not exist.  Notably when a redemption request was made in April 2018 to release monies from the private equity investment, the redemption request was met seemingly by the investment manager's own funds.  The fact that the private equity investment did not exist was identified in 2020.  The trust's investment of c. 9.55m EUR was lost save for the redemption and c. 333,000 EUR.

Proceedings were issued on 4 September 2020 following the trust obtaining a worldwide freezing order on 28 August 2020.  Amendments to the pleadings were made by the claimant trust in January 2022 alleging that; (1) the financial services company acted as investment adviser and breached its duties by recommending investments in high risk and illiquid funds, (2) there was a conspiracy between the defendants to misrepresent the investments made as being low risk investments when they were not and (3) there was a conspiracy between the defendants whereby false statements were made between 2015 and 2020 that an investment had been made in a private equity investment when that in fact did not exist.  The defendants alleged that the amendments were out of time as time started to run in late 2015 being when the funds lost value and questions were first raised about the investments.

The Master permitted the amendments on the basis that they had a real prospect of success and s.32 applied.  The Defendants appealed both findings.

The High Court set out the principles behind s.32 – first the trust had to establish beyond reasonable argument – that there was a fact relevant to its cause of action that was deliberately concealed, the deliberate concealment of the fact or the relevant fraud was carried out of the defendant or its agent and finally that the claimant did not discover or could not with reasonable due diligence have discovered the concealment or fraud prior to the relevant date.  The relevant date was 6 years before the Master permitted the amendments so 25 July 2017.

The High Court found that the Master had misdirected himself as to the correct application under s.32.  In particular, misinterpreting the words "could with reasonable due diligence".  Citing from Paragon Finance Plc v DB Thakerar & Co (1999) the High Court noted that the test was "… not whether the plaintiffs should have discovered the fraud sooner; but whether they could with reasonable due diligence have done so.  The burden of proof is on them.  They must establish that they could not have discovered the fraud without exceptional measures which they could not reasonably have been expected to take…The test was how a person carrying on a business of the relevant kind would act if he had adequate but not unlimited staff and resources and were motivated by a reasonable but not excessive sense of urgency…".

On the facts of the case the initial trigger was the drop in value and the questions that followed in September 2015 – "… The error which the Master fell into was to look at what [the Trust] did rather than to look at what [the Trust] did not do: if [the Master] had asked whether [the Trust] could, exercising reasonable diligence, have carried out an audit, or could have compared the number of shares which the documents produced which [the investment manager] produced showed had been held with the documents already in [the Trust's] possession [the Trust] would have discovered the fraud.  The work being done by the words "with reasonable diligence" at this stage is shown by considering: could discovering those matters have been achieved by exercising reasonable diligence, or would they have required exceptional measures?…".  The High Court also rejected the argument that the misrepresentation of the investment manager changed the analysis -  "… It is not suggested that there is any principle that lies told by a trusted person can qualify the words of s.32 so that even if the fraud could have been discovered with reasonable diligence, a Claimant is excused for not doing so by the trusted person's lies…".

The importance of s.32 in 2025

 As noted at the outset, it is anticipated that the Supreme Court will hear the appeal from the Court of Appeal's decision against a number of banks in discretionary commission cases in the vehicle finance sector during 2025.  The decision has wide ranging implications for financial services generally given the prevalence of commissions.  The Supreme Court will not consider limitation (as it was not argued in the courts below) and instead that will remain an open question. 

he High Court decision addressed in this blog arguably indicates a willingness to find that claimants put on notice of an issue should not be in a position to extend the limitation period under s.32.  So if the fact of a commission is mentioned but not spelt out that would appear to be enough such that the usual limitation periods apply and not s.32 – so commissions entered into over 6 years ago are arguably out of time for limitation purposes.  There may also be arguments over tied providers and whether that should have led to enquiries around commission arrangements – the fact there is a tied provider could be seen as a trigger and asking about commissions is arguably not an "exceptional measure" to take.  The importance of s.32 presupposes that the Court of Appeal decision is upheld – but we will have to see if that remains the case.  All that said, how FOS approach these issues where there is no long stop (albeit that is back under review in the Call for Input) and where the test is when the complainant ought reasonably to have become aware they had cause for complaint, is an open question.

When talking about Santa tonight don’t forget s.32 and its relevance for 2025.