Current trends in fraud: Crypto scams
In the case of Allison & Anor v Horner  EWCA Civ 117, the Court of Appeal has found that the first instance judge had correctly determined the requisite date of knowledge when applying section 32(1) of the Limitation Act 1980 (“the Act”) in order to extend the limitation period in a claim for deceit.
The appellant (T) appealed against a judgment ( EWHC 3626 (QB)) entered in favour of the respondent (H) on his claim against her for damages for deceit.
In the 2000/2001 and 2001/2002 tax years, H had paid a considerable amount of income tax. T, who claimed to be a tax specialist, promoted an investment scheme whose purported effect was to reduce the tax liabilities of its investors.
Judge Richard Seymour QC found that, T had made a number of fraudulent representations to H in January 2003 that had induced H to enter the scheme. He held T liable to H in deceit, subject to limitation. Ordinarily, the limitation period for deceit would have expired in January 2009, but H had not commenced proceedings until July 19, 2010. However, the judge held that section 32(1) of the Act applied. He found that H could not, with reasonable diligence, have discovered the fraud until August 2004, and that consequently, limitation did not expire until August 2010.
Although the Revenue had announced in January 2004 that it would be making inquiries into H's claim for tax relief under the scheme, it had not begun its investigations until later that year. It was not until August 2004 that it concluded that the scheme was a sham, and required H to repay the monies he had obtained through it by way of tax relief.
At trial, T argued that H had been aware of the fraud by May 2004 and that his claim had been brought out of time.
The Court of Appeal upheld the first-instance decision of Judge Richard Seymour QC.
In reaching a decision on the applicability of section 32(1) of the Act, Lord Justice Aikens confirmed that the first question was whether, on or before 19 July 2004, H had discovered the precise fraud that he subsequently pleaded. Lord Justice Aikens emphasised that the question was not whether the fraud was obvious, but whether H had discovered it. Moreover, knowledge of fraud in a more general sense was not sufficient; he had to have discovered the precise fraud pleaded.
If H had not discovered the fraud, the question was then whether he had proved that he could not have discovered it with the exercise of reasonable diligence. Lord Justice Aikens held that whether H knew that T had made fraudulent misstatements depended on whether H knew the true state of affairs, and there was no evidence that he did. He went on further to state that it was only in August 2004 that the Revenue concluded definitively that the scheme was a sham and that the tax relief that H had obtained would have to be repaid.
Lord Justice Aikens concluded that H had proven that he could not, within the bounds of reasonable diligence, have discovered the fraudulent misstatements before 19 July 2004. Consequently, Judge Richard Seymour QC had not erred in his application of section 32(1) of the Act.
This decision is encouraging for individuals who have fallen victim to these schemes, as it is all too often the case that such scams are not discovered until years after being entered into. It should provide comfort to investors to know that, so long as reasonable due diligence is applied in respect of discovering the fraud; they are unlikely to fall foul of the rules of limitation.
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