AIC Ltd v ITS Testing Services (UK) Ltd "The Kriti Palm"

Deceit requires a clearly identified false representation and proof of dishonesty. Knowledge of information inconsistent with a statement does not itself establish conscious knowledge of the statement’s falsity.

A certifier must disclose material of its own creation which it knows casts doubt on its certificate. That specific obligation does not impose a general duty of continuing investigation. Deliberately withholding such material in breach of a known duty can postpone limitation without establishing deceit.

For section 32(1)(b) of the Limitation Act 1980, concealed facts must be essential to complete a cause of action. Evidence which merely strengthens an existing claim is insufficient. Different breaches of distinct duties can constitute separate causes of action, although they concern the same certification process and may produce overlapping losses.

AIC bought gasoline from Mobil and resold it to Galaxy. AIC and Mobil jointly instructed ITS, an independent inspection company, to certify its quality at the loading port. ITS used the wrong vapour-pressure test and issued a certificate stating that the fuel met specification. Tests at the discharge port subsequently indicated that the gasoline was outside specification.

ITS commissioned internal retests of previously opened loading samples. Those results also indicated excessive vapour pressure, but ITS did not disclose them to AIC until disclosure in these proceedings. During an earlier telephone conversation, ITS’s general manager had said that the company would stand by its certificate, while expressing uncertainty about the accuracy of the results.

AIC commenced proceedings more than six years after the certificate and conversation. Cresswell J, in [2005] EWHC 2122 (Comm), found ITS liable in deceit and also found deliberate concealment capable of postponing limitation. ITS appealed. The principal questions were whether the evidence established deceit and whether the undisclosed retests preserved otherwise time-barred claims.

1. The appeal was allowed in part. All three judges held that the findings of deceit could not stand. Buxton LJ and Sir Martin Nourse upheld the decision on deliberate concealment; Rix LJ dissented on that issue.

2. Deceit required identification of the particular false representation and proof that it was dishonestly made. The conversation had to be considered as a whole. The statement that ITS would stand by its certificate was accompanied by express uncertainty about the accuracy of its values. It therefore did not establish the positive representation found by the judge. The recipient’s contemporary written account supported that conclusion.

   Being told about the retests also did not establish the conscious appreciation of falsity required by Derry v Peek and Armstrong v Strain. The judge had omitted that essential step. The claim based on subsequent failure to correct the conversation likewise failed: the necessary representation and dishonesty had not been established.

3. Appellate restraint remained necessary when reviewing primary findings of fact. It did not prevent scrutiny of deductions from documents or the logical process supporting a finding of fraud. The findings that ITS’s managers knew about the retests, regarded them as significant and consciously withheld them survived that scrutiny for the separate limitation issue.

4. Per Buxton LJ and Sir Martin Nourse, ITS owed a specific duty to disclose material of its own creation known to cast doubt on its certificate. Certificate finality did not authorise the certifier to withhold information and decide its significance for the client. The duty did not establish a general continuing obligation to investigate every contractual performance. A threatened claim did not release ITS from an existing disclosure duty.

5. Deliberate concealment under section 32(1)(b) of the Limitation Act 1980 did not require proof of deceit or dishonesty. The deliberate withholding of information in breach of a known disclosure duty satisfied the relevant requirement.

6. The binding approach in Johnson v Chief Constable of Surrey required concealed facts essential to complete the particular cause of action. Merely improving the evidence was insufficient. The majority nevertheless held that different breaches of distinct duties generated separate causes of action. The retests enabled new complaints about withholding actual knowledge, negligent representation which disregarded those results, and incompetent testing. Knowledge sufficient to plead another complaint about the certification process did not defeat those claims.

7. Rix LJ would have allowed the appeal entirely. He considered that no disclosure duty arose and that the retests supplied further evidence rather than essential facts for separate claims. He also rejected reliance on continuing duties.

   The deceit claim was to be dismissed. The court proposed remitting the remainder to the trial judge for reconsideration, subject to submissions on the precise order. Causation, remoteness and recoverable loss remained for consideration.

• Court of Appeal (Civil Division): In [2006] EWCA Civ 1601 , unanimously reversed the findings of deceit. By a majority of two to one, upheld deliberate concealment and proposed remitting the remaining action for reconsideration.
• High Court, Queen’s Bench Division, Commercial Court: Cresswell J, in [2005] EWHC 2122 (Comm) , found ITS liable in deceit and found deliberate concealment capable of postponing limitation. Judgment and permission to appeal were given on 7 October 2005.