Fraud fundamentals: time's up… or is it? Limitation and the fraud exception

There are few things more galling than losing a valuable right due to a technicality. There are important policy reasons for having limitation periods - people and businesses need certainty when it comes to their potential legal liabilities. But limitation is nonetheless a topic that can inspire dread in claimants and their lawyers alike because if a limitation period is miscalculated, and a claimant is out of time, that is a complete defence to the claim in question.

In part three of our 'Fraud fundamentals' series, we're shining the spotlight on limitation periods and how they can vary across different types of fraud claims. To go back a step to identify what types of fraud exist, read article one in the series: What is civil fraud?

What is a limitation period?

Think of a sand timer. In a limitation period, the timer starts running down from the moment someone is first able to bring a claim in the courts of England and Wales. The claim must be commenced before the timer runs out, but crucially, it is set for a different duration depending on the nature of the claim being pursued.

Statutory limitation periods are set out in the Limitation Act 1980. The starting point for claims in tort or simple contract is that limitation expires after six years. That is six years from the date the damage is suffered in the case of a tort claim, or six years from the date of the breach in the case of a simple contract claim. For contractual claims based on a deed, the period rises to 12 years. However, there are certain circumstances where the limitation timer doesn't automatically start running despite there being a relevant wrong. In certain scenarios, the limitation period is extended:

where an action is based on the fraud of the defendant
where a fact relevant to the claimant's right of action has been deliberately concealed by the defendant
where the action is for relief from the consequences of a mistake.

In each of these scenarios, section 32 comes into play. It has the effect of extending the limitation period to avoid an unjust scenario where a claimant is prevented from bringing a claim which they may not have discovered they had, due to the defendant's conduct. Time will start to run when the claimant discovers the fraud, concealment or mistake, or could - with reasonable diligence - have discovered it.

The term 'fraud', as used in section 32 of the Limitation Act, is defined narrowly to encompass only causes of action where fraud is an essential element of the claim. This means it would not extend to unconscionable conduct or other dishonest conduct that does not amount to fraud.

Fraud exception

The section 32 exception, and particularly the exception relating to deliberate concealment, has received its fair share of attention recently. In the case of Canada Square Operations Ltd v Potter [2021] EWCA Civ 339, the Court of Appeal considered the meaning of 'deliberate concealment' and key points arising from the case included a confirmation that there is no requirement that there is a legal duty for the defendant to disclose a fact or facts, but it is sufficient for there to be some utility or morality in providing disclosure (although determining when that might apply will be heavily fact dependent and is therefore likely to cause uncertainty for litigants). The court also held that recklessness is sufficient and that this includes both an objective and a subjective element.

When discerning whether the fraud or concealment in question could have been discovered, the test applied is how a person carrying on a business of the relevant kind would act if they had adequate (but not unlimited) staff and resources and was motivated by a reasonable (but not excessive) sense of urgency. Further, the claimant must have been put on notice of the need to investigate.

Limitation is not always easy to assess, and even less so in cases where fraud or concealment are potentially involved, so it is essential to seek advice as soon as possible if you become aware of a potential claim.

Limitation periods in fraud claims

The law on limitation periods is set out in the Limitation Act and the below table summarises some of the key sections that commonly arise in the context of fraud-related claims:

Nature of action	Starting point	Length of period	Relevant section of Limitation Act
Tort	Accrual of cause of action (the date the damage is suffered). The cause of action does not accrue on a contingent liability (a liability that may occur depending on the outcome of an uncertain future event) but accrues when a quantifiable or ascertainable loss is suffered.	Six years	Section 2
Simple contract (Restitution)	Accrual of cause of action (the date of breach of contract) There is no statutory limitation period for a common law restitutionary claim in unjust enrichment. However, case law suggests that Section 5 applies to claims in unjust enrichment.	Six years	Section 5
Action for fraudulent breach of trust, to recover trust property or proceeds of trust property from the trustee	No time limit shall apply to an action brought by a beneficiary under a trust against a trustee: in respect of any fraud or fraudulent breach of trust to which the trustee was a party or privy to recover from the trustee trust property, or the proceeds of trust property, in possession of the trustee, or previously received by the trustee and converted to his use.	Unlimited	Section 21(1)
Postponement of limitation period in the case of fraud	In certain instances, the limitation period will not automatically start running, including where: an action is based on the fraud of the defendant any fact relevant to the claimant's right of action has been deliberately concealed by the defendant the action is for relief from the consequences of a mistake.	N/A	Section 32
Actions upon a speciality (eg a deed, non-money claims under statute such as section 423 of the Insolvency Act 1986)	Accrual of cause of action	12 years	Section 8