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Limitation in Civil Fraud: How Cogent Should a Time-Barred Claim Be?

Author: Nicola Sharp  11 April 2023
3 min read

Nicola Sharp of Rahman Ravelli comments on a recent case in the High Court determining when a claim is time-barred in a civil fraud case.

In 2015, Wirecard purchased a collection of Indian payment businesses. But the deals that took place before the sale are now subject to high-profile scrutiny. Proceedings were brought in October 2017 alleging that minority shareholders in Hermes i-Tickets Pte Ltd (‘Hermes’) were duped out of millions of dollars. The minority shareholders (the ‘claimants’) sold their 6% holding to the majority shareholders, only to see it sold on again to Wirecard, at a vastly inflated price. 

The original claim is complex, involving an international fraud, and the proceedings are pending before the Commercial Court. Among the causes of action are allegations of deceit, intimidation, conspiracy and joint tortfeasance.

In February 2022, the minority shareholders sought to expand the circle of defendants involved in the proceedings (the ‘new proceedings’). In a hearing on 30 March 2023 in the High Court, the new defendants brought an application to set aside an order giving the claimants permission to serve the proceedings out of the jurisdiction. The basis of the challenge was that the new proceedings were time-barred. 

The limitation arguments

It was common ground that the cause of action arose on or around 9 September 2015 when claimants signed the share purchase agreement under which they sold their minority shareholding in Hermes.

After discovering alleged deceit, intimidation, conspiracy and joint tortfeasance of the defendants, the claimants issued the new proceedings on 16 February 2022. 

On the face of it, the new proceedings are time-barred. Under section 5 of the Limitation Act 1980, the claim must be brought within six years from the date on which the cause of action accrued, which would be 8 September 2021. 

The claimants relied on section 32 of the Limitation Act 1980, which provides for the postponement of the running of the limitation period in cases of fraud, concealment or mistake. The claimants contended that they could not (with reasonable diligence) have discovered the fraud and the involvement of the new defendants in it before 16 February 2016, i.e. six years before the claim form was actually issued. 

The burden on the claimants

The burden was on the claimants to show that the fraud would only be discoverable by exceptional measures, going beyond what they would reasonably be expected to take. Simon Rainey KC, sitting as the Judge, asked three questions to determine whether the claimants had met this threshold.

  1. When should the claimants have been put on notice of the need to investigate the Hermes transaction

    The claimants were first alerted to the possibility of ‘foul play’ on 27 November 2015 when they noticed an Indian press article about the Wirecard acquisition of Great Indian Retail Group for $230 million.

  2. What steps thereafter could and should the claimants have taken to investigate matters further?

    In order to plead the case by 16 February 2016, the claimants would have needed to investigate the fundamental elements of each claim and put together a cogent case of complex fraud within just two and a half months. The Judge accepted that this was particularly ambitious, especially in a case involving a carefully-planned, concealed fraud on the minority shareholders.

    The important point is not actually what the claimants did, but what they could and should have done.

    The defendants suggested that the claimants could have (a) instructed lawyers and forensic accountants to investigate matters further; (b) taken steps to enforce their contractual right to production of the SPA between the Indian entities and the investment fund by, if necessary, commencing proceedings and (c) written directly to Wirecard for information.

    None of these actions were taken. These steps are clearly cumbersome and expensive for the claimant, but the Judge accepted that a ‘highly lawyered approach’ was plausible in the circumstances.

  3. In terms of a pleadable case in respect of each tort and each defendant, what would those steps have shown and when?

    Even if the claimants could and should have done more after 27 November 2015, would they have discovered the essential facts that make up the causes of action? Could they have properly pleaded those claims before 16 February 2016?

    The revealing discoveries that led to action being taken against the new defendants came about by sight of the disclosure given by Wirecard in proceedings brought on 18 February 2019.

    The Judge considered that it was more than realistically arguable, that the new proceedings could not have been pleaded without the Wirecard information. The claim, therefore, was not able to be made out between 27 November 2015 and 16 February 2016.

Conclusion

In order to plead a claim alleging fraud or dishonesty, legal counsel must have reasonably credible material to support the allegations (Medcalf v Mardell [2003] 1 AC 120). But in circumstances of fraud, where concealment is part of the wrong, the relevant material is not always available within the normal limitation period.

Section 32 of the Limitation Act will step in to grant the victims of fraud more time to plead their case. But there is a high threshold for the claimant to overcome. Claimants need to take action and investigate as soon as they have been put on notice of a potential fraud against them. 

The action that a claimant could and should take is determined on an objective standard, and it appears that claimants can be expected to go to far-reaching and expensive lengths to investigate complex cases of alleged fraud.

Nicola Sharp C 09983

Nicola Sharp

Partner

nicola.sharp@rahmanravelli.co.uk
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Nicola is known for her fraud, civil recovery, arbitration and business crime expertise, her experience of leading the largest financial disputes and multinational investigations and her skills in devising preventative measures and conducting internal investigations for corporates.

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