Allison & Anor v Horner

For section 32(1) of the Limitation Act 1980, discovery means discovery of the precise deceit alleged, rather than knowledge of fraud in a general sense. The claimant’s agent’s knowledge, or ability to discover the deceit through reasonable diligence, is not attributed to the claimant.

The constructive-discovery question is whether the claimant could, rather than should, have discovered the fraud with reasonable diligence. The claimant must show that discovery would have required exceptional measures which could not reasonably have been expected. What diligence requires depends on the claimant’s circumstances and the practical need for investigation. A private investor need not commence an unusually prescient forensic investigation while the relevant tax authority’s own inquiry remains inconclusive.

Following an 18-day trial, HHJ Seymour QC found that Ms Allison had fraudulently induced Mr Horner to participate in a film tax scheme. Mr Horner later had to repay his tax refund, interest and penalties. The judge entered judgment for £185,832.25 plus interest but dismissed the claim against the second defendant.

The deceit claim was commenced more than six years after the representations. The High Court nevertheless held in [2012] EWHC 3626 (QB) that it was timely under section 32(1) of the Limitation Act 1980. Mr Horner neither discovered, nor could with reasonable diligence have discovered, the pleaded fraud until after 19 July 2004.

The sole issue on appeal was whether that conclusion was factually sustainable. The parties agreed that, if the appeal succeeded, a separate issue under section 21 would be remitted.

1. Appeal dismissed. Aikens LJ, with whom Davis and Richards LJJ agreed, held that Mr Horner proved that he neither discovered nor could with reasonable diligence have discovered the pleaded fraudulent misstatements before 19 July 2004. The claim was therefore in time under section 32(1) of the Limitation Act 1980.

2. Discovery under section 32(1) concerns the precise deceit alleged. General awareness that fraud may have occurred does not start time running. A claimant’s agent’s knowledge, or capacity to discover the deceit through reasonable diligence, is not attributed to the claimant.

3. The statutory question is whether the claimant could, rather than should, have discovered the fraud with reasonable diligence. The burden rests on the claimant to show that discovery would have required exceptional measures which could not reasonably have been expected. The trial judge had used the language of whether fraud should have been “obvious”, but the effective factual conclusion remained valid when the correct test was applied.

4. The correspondence before 19 July 2004 revealed concerns about the legitimacy of the film schemes and a risk that tax refunds would be reclaimed. It did not establish that Ms Allison knowingly made the specific false representations later pleaded. Correspondence concerning other schemes did not amount to a “smoking gun”, and the Revenue’s investigation of the relevant scheme remained incomplete.

5. Reasonable diligence was assessed in context. Mr Horner was a qualified but non-practising accountant acting as a private investor. It was reasonable for him to rely on his tax consultant while the Revenue investigated. Even a forensic inquiry begun around 30 April 2004 was unlikely to have produced sufficient information before 19 July 2004. Requiring him to initiate such an investigation would have exceeded reasonable diligence, particularly because the Revenue itself reached a firm conclusion only later.

6. Ms Allison was ordered to pay Mr Horner’s appeal costs, summarily assessed at £23,000.

1. Court of Appeal (Civil Division): In [2014] EWCA Civ 117, unanimously dismissed Ms Allison’s appeal and affirmed the conclusion that the deceit claim was timely under section 32(1) of the Limitation Act 1980.
2. High Court, Queen’s Bench Division: HHJ Seymour QC held in [2012] EWHC 3626 (QB) that Ms Allison was liable in deceit and that section 32(1) postponed commencement of the limitation period. Judgment was entered for £185,832.25 plus interest. The claim against Mr Ross was dismissed.