Finance litigation update - July 2022

FINANCE LITIGATION UPDATE – JULY 2022 8 Whether or not disputes regarding actual or constructive knowledge under s32 of the Act can be decided on a summary basis, however, will always depend on the facts of the case1. In this case, the court concluded it was possible to do so. As the parties agreed that the LIA did not have actual knowledge of the alleged fraud prior to the limitation cut-off date, the question was whether it could, with reasonable diligence, have discovered it. This required the court to answer two questions: 1. whether (and if so when), the claimant (acting with reasonable diligence) would have been put on notice of the need to investigate (the "trigger issue"); and 2. what that reasonably diligent investigation would have revealed (and when). While the degree of diligence with which the claimant should have acted is to be judged objectively, it must also be judged "in the context in which the claimant finds itself"2. The court accepted that the LIA found itself in difficulties investigating corruption by those close to the Gaddafi regime prior to the revolution, and that it would not be suitable to determine that issue summarily. However, it did not accept that such constraints applied after the revolution (from at least May 2012 onwards). The court also found that the limitation clock should not start to run until the alleged fraud could be properly pleaded in a statement of case. It rejected Credit Suisse's argument that the less stringent formulation found in the Supreme Court's decision in the Franked Investment3 litigation was the appropriate test (that is, that time should begin to run as soon as the claimant could embark on the "preliminaries to the issue of proceedings"). Differentiating that decision (which related to mistake and not fraud), the court held that the stricter test of when a claimant was actually in a position to plead fraud was the appropriate one because: i) otherwise victims of fraud could too easily lose claims by effluxion of time; ii) pleading fraud on a speculative basis would become more common (which was to be discouraged); and iii) because it is unnecessary to be too sympathetic to defendants who have committed fraud. 1 Easy Air Ltd v Opal Telecom Ltd [2009] EWHC 339 (Ch) 2 OT Computers Limited v Infineon Technologies AF [2021] EWCA Civ 501 Corporate knowledge The judgment also considers the attribution of knowledge of directors and other senior officials to a corporate entity. Whilst the knowledge of, or ability to discover, the fraud could not be attributable to the LIA by reason of the knowledge of wrong-doers within the LIA, the court held there was no reason why the knowledge of non-wrong-doing directors or agents of the LIA should not be attributed to it. Those directors or agents, would, the court held, owe a duty (to the LIA) to report relevant knowledge about its affairs. The court went on to consider the consequences of those individuals whose knowledge was attributable either forgetting a fact or matter or leaving the entity concerned. The court made clear that this issue should not be confused or elided with attribution issues. The general proposition is that, for limitation purposes, a matter remains known even if forgotten4. There was no basis for distinguishing this principle simply because the knowledge concerned was that of a corporation rather than an individual5. Once knowledge was attributed to the LIA for limitation purposes, it was to be treated as remaining with the LIA, even if the relevant individual subsequently forgot or left the entity. In this case, this meant that knowledge acquired prior to the revolution was nonetheless knowledge of the LIA. 3 FII Group Litigation v. HMRC [2020] UKSC 47 4 Ezekiel v. Lehrer [2002] EWCA Civ 16 5 OT Computers Limited v Infineon Technologies AF