Section 32 of the Limitation Act: multiple lies, multiple limitation periods? (Seedo v El Gamal)
In Seedo v Gamal and others  EWCA Civ 330, the Court of Appeal clarified the way in which s32(1)(a) Limitation Act 1980 applies to claims based on fraud. Where a limitation defence is raised after trial, the 'fraud' which delays the running of time is the fraud that is judged to have taken place, not the fraud that is pleaded. Plainly, where a limitation defence is raised before trial, the court can only consider the fraud pleaded. The Court of Appeal also addressed how s32(1)(a) applies where a defendant deceives the claimant into entering into a transaction by telling two lies, one of which the claimant discovers within the limitation period, the other one after its expiry.
What are the practical implications of this case?
This judgment refines the operation of s32(1)(a) of the Limitation Act and will be of particular interest to those considering bringing or defending claims based on fraud. Of note:
Fraud found or fraud pleaded?
- The degree of knowledge a claimant must have before time starts to run in a fraud claim under s32(1)(a) of the Limitation Act is when the claimant 'has discovered enough to plead their case' (i.e. the 'statement of claim' test). The 'worthwhile claim' test derived from Test Claimants in the Franked Investment Income Group Litigation v HMRC  UKSC 31 does not apply to claims based on fraud. For more information on the distinction between the two tests, see our article here.
- Where a limitation defence is raised as a preliminary issue or on a summary application, the court assumes (for limitation purposes) the fraud pleaded by the claimant will be proved. The court therefore considers when the claimant discovered the facts necessary to plead the claim (even if the pleaded claim does not succeed).
- However, where a limitation defence is raised after the court has made a decision on the merits, the court is only concerned with the fraud which was ultimately judged to have taken place. It is 'wrong' and a 'distraction' for the court to consider when the claimant discovered allegations which in the end 'went nowhere'.
- Normally, the fraud found to have taken place will reflect the pleaded allegations. However, this distinction may be crucial in cases where the pleading contains allegations which are not pursued but where a fraud is nevertheless judged to have taken place.
Multiple lies, multiple limitation periods?
- Limitation operates by barring particular causes of action and different causes of action may have different time limits, even when based on the same set of facts.
- Where two distinct and unconnected lies are told which induce a claimant to enter into a contract, this may give rise to two different causes of action. If a claimant discovers one lie within the limitation period but does not bring a claim, they may nonetheless be able rely on s32(1)(a) to bring a claim outside the primary limitation period in relation to the second lie. The key is that the second lie must give rise to a second cause of action. If the lies are part of 'the same overall deceit', then there is no separate cause of action and the claim will be time barred.
What was the background?
The background to this claim was somewhat convoluted. In 2004, both Mr Seedo and Mr El Gamal (unbeknownst to each other) were deceived by their solicitor, Mr Salfiti, in relation to a property transaction. Mr Salfiti originally agreed with Mr Seedo to purchase a number of properties as a joint venture – with Mr Seedo contributing to the purchase price and gaining a beneficial ownership. However, after having purchased the properties at auction (using Mr Seedo's funds), Mr Salfiti approached Mr El Gamal, claiming to have personally paid the deposit but not having the requisite funds to complete. Mr Salfiti proposed that he would 'loan' Mr El Gamal the deposit he had already paid and that Mr El Gamal would be the sole legal and beneficial owner of the property, subject to an obligation to repay Mr Salfiti the loan. Mr El Gamal agreed and became the registered owner of the property. Mr El Gamal believed he owned 100% of the property, subject to an obligation to repay Mr Salfiti a loan. Mr Seedo believed he owned 50% of the property, pursuant to his agreement with Mr Salfiti.
In 2009, Mr Salfiti's law firm wrote to Mr El Gamal, ostensibly asserting a claim on behalf of Mr Seedo (although without Mr Seedo's knowledge) in relation to Mr Seedo's interest in the property. It was accepted that Mr El Gamal became aware of Mr Seedo's existence at that point but following an equivocal (and disputed) exchange of correspondence, no further steps were taken. In 2015, Mr El Gamal sold the property to his company El Gamal and Co Ltd (EGC), the second defendant. Shortly thereafter in 2016, Mr Salfiti issued proceedings in the name of Mr Seedo. When Mr Seedo became aware of the proceedings (and of Mr Salfiti's deception), his new solicitors took over the claim and added Mr Salfiti as a defendant. Mr Seedo's claim for an account of profits against Mr El Gamal and EGC succeeded and accounts were ordered against Mr El Gamal and EGC.
Mr El Gamal and EGC's claim that they had been fraudulently induced to enter into the property transaction by Mr Salfiti also succeded. Mr El Gamal claimed that Mr Salfiti had made two fraudulent misrepresentations: i) that it was Mr Salfiti (and not Mr Seedo) loaning the money to purchase the property; and ii) that Mr El Gamal would become the sole owner of the property once the loan was paid off.
The claim against Mr Salfiti was for an indemnity against Mr Seedo's claim and for the costs of the claim. Two causes of action were pleaded: i) negligence and breach of contract in relation to Mr Salfiti's performance of his retainer; and ii) fraudulent misrepresentation. Mr El Gamal accepted that he became aware of the existence of Mr Seedo in 2009 but claimed that he was not aware of the full extent of Mr Salfiti's deception (and his personal interest in the transaction) until the claim was issued in 2016. At first instance, Mr Salfiti was ordered to indemnify Mr El Gamal and EGC against Mr Seedo's claims. Mr Salfiti's limitation defence to the claims was rejected. In relation to breach of the solicitor's retainer, the court held there was no applicable limitation period, and in relation to the misrepresentation claim, it found the limitation period had been postponed (because Mr El Gamal had not become aware of the fraud until 2016).
Mr Salfiti appealed to the High Court on a number of grounds, including limitation. The appeal was dismissed on all grounds. The appeal judge found that although Mr El Gamal was made aware of some facts (and some of Mr Salfiti's lies) in 2009, he was not aware of all of the facts until 2016. In the course of the judgment, the appeal judge held that when assessing the date of knowledge for fraud pursuant to s32(1)(a) Limitation Act, this should be based on the claimant's pleaded case, not the fraud that was ultimately found. Permission was granted for a second appeal solely on the question of limitation.
What did the court decide?
The Court of Appeal dismissed the appeal, finding that the trial judge had been right to conclude that there is no limitation period applicable to a claim for fraudulent breach of fiduciary duties (one of the causes of action included in the claim).
However, it held that for the purposes of a limitation defence raised at trial, the court should consider when the claimant discovered (or could have reasonably discovered) the fraud that was found to have taken place, not the fraud that was pleaded.
The Court of Appeal also held that while it is possible for separate and distinct lies to give rise to separate causes of action (and thereby separate limitation periods), where the lies are part of 'the same overall deceit', then there is no separate cause of action and the claim will be time barred.
In this case, the court held that in order to induce Mr El Gamal to enter into the property transaction, Mr Salfiti told 'a package of related lies'. Mr El Gamal became aware that Mr Salfiti had deceived him into entering into the transaction in 2009 and the claim for deceit was therefore time-barred.
A version of this article was first published by Lexis®PSL on 12 April 2023.