Finance litigation update - July 2022

FINANCE LITIGATION UPDATE – JULY 2022 9 The decision On the facts, the court concluded that a party in the position of the LIA ought to have been on notice of the need to investigate the alleged fraud by the end of July 2012 at the latest. Amongst other things, the court noted that a report by KPMG in April 2010 had advised the LIA to initiate a forensic investigation within 3 months to decide "whether to pursue counterparties". As explained above, the court accepted a delay in investigating until May 2012 resulting from the revolution in Libya. However, the court rejected the suggestion that investigations could be further delayed because of the erroneous belief of the new chair of the LIA's board that the notes continued to have 90% capital protection. This was immaterial as personal attributes of the claimant and its agents "… bearing on the likelihood of the particular claimant discovering facts which a person in his position could reasonably be expected to discover, such as whether the claimant is slothful, naïve, shy, nervous, uncurious or ill informed, are not relevant" and in any event it simply demonstrated a deliberate decision not to investigate. The court concluded that had the LIA acted with reasonable diligence and carried out the investigations from and after May 2012, it would have been in a position to plead the alleged fraud. Those investigations should have included interviewing a former LIA official involved in the transaction in mid-2012 (rather than November 2013) and shortly thereafter making enquiries of Credit Suisse and GLGP. Had the LIA requested information from a regulated financial institution such as GLGP, the court held it was "unreal" to suggest it would not have been provided. 1 [2021] EWHC 2950 (Ch) Conclusion This judgment provides another instance in short succession of the court deliberating whether to summarily strike out a claim on the grounds of limitation where the application of s32 of the Limitation Act is in issue. Whereas in Allianz Global Investors v RSA Insurance Group Limited1 (see our article here) the court held that it could not decide the question of 'reasonable diligence' on a summary basis, in this case the court was content that it could decide, without a trial, when the LIA was put on enquiry and how the defendants would have responded to enquiries by the LIA. The decision provides an important reminder of the potentially devastating impact of not investigating suspicions of fraud promptly if you have the resources to do so. The court in this case was unimpressed by the explanation from the LIA that it delayed investigating the Credit Suisse notes because it was focussing on other, larger, trades. The LIA clearly had the resources to carry out the necessary investigation. Practitioners and parties to litigation should also take note of the judgment's postscript, which contains a stinging criticism of the time estimates given for prereading and the hearing ("manifestly too short", with inevitable consequences) and the volume of material presented to the court (which would have justified a trial measured in weeks rather than days, rather than an application hearing listed as it was). Sue Millar, Stephen Ashley, Harriet Campbell and Alexander Goodman