Canada Square v Potter: Meaning of Deliberately Concealed Right of Action and Deliberate Breach of Duty for Purposes of Section 32 Limitation Act 1980

Lucas Arnold

Section 32 of the Limitation Act 1980 (“LA 1980”) is an important provision for claimants in a limitation context. It postpones the running of a limitation period where the defendant has deliberately concealed a fact relevant to the claimant’s right of action, or committed a deliberate breach of duty, until the claimant discovered the relevant fact or breach or could have done so with reasonable diligence.

The Court of Appeal recently handed down judgment in Canada Square Operations Ltd v Potter [2021] EWCA Civ 339. The judgment, arising from a complaint concerning unfair payment protection insurance (“PPI”) commissions, supports a broad reading of section 32, and  provides guidance on three main issues: the duties to which section 32(2) applies; the mental element required to establish deliberate concealment or deliberate breach in section 32(1)(b) and section 32(2); and when in the absence of active concealment there can still be a finding of concealment for the purpose of section 32(1)(b). At the same time, the reservations expressed by the Court of Appeal about the state of the authorities suggest that a further clarification on the scope of the provision by the Supreme Court may be required, particularly in relation to what amounts to ‘concealment’.

Facts

The claimant and respondent, Mrs Potter, had, in July 2006, taken out a loan with the defendant and appellant, Canada Square. When it offered her the loan, Canada Square suggested to Mrs Potter that she take out a PPI policy to ensure the loan was repaid if she became unable to do so. Unbeknownst to Mrs Potter, a significant amount of the premium for this policy was paid to Canada Square as its commission.

In December 2018 Mrs Potter filed a claim against Canada Square, claiming that the non-disclosure of the commission made the relationship unfair within the meaning of section 140A of the Consumer Credit Act 1974.

In response to Canada Square’s defence that the claim was time barred, Mrs Potter relied on section 32 of the LA 1980 to argue that time did not run until she found out about the level of commission in November 2018.

She was substantially successful relying on section 32 in both the small claims court and on appeal to a single judge of the High Court (Canada Square v Potter [2020] EWHC 672). Canada Square appealed to the Court of Appeal.

The issues before the Court of Appeal

Section 32 of the LA 1980 relevantly provides:

32. Postponement of limitation period in case of fraud, concealment or mistake.

(1) … where in the case of any action for which a period of limitation is prescribed by this Act, either –

(a) The action is based upon the fraud of the defendant; or

(b) Any fact relevant to the plaintiff’s right of action has been deliberately concealed from him by the defendant; or

(c) The action is for relief from the consequences of a mistake;

the period of limitation shall not begin to run until the plaintiff has discovered the fraud, concealment or mistake (as the case may be) or could with reasonable diligence have discovered it.

(2) For the purposes of subsection (1) above, deliberate commission of a breach of duty in circumstances in which it is unlikely to be discovered for some time amounts to deliberate concealment of the facts involved in that breach of duty.

There were three issues on appeal:

  1. Did the creation of an unfair relationship within the meaning of section 140A amount to a breach of duty by Canada Square for the purposes of section 32(2)?
  2. Was Canada Square’s failure to disclose the existence and size of the commission a ‘concealment’ of that fact pursuant to section 32(1)(b)?
  3. If there was a breach of duty for the purposes of section 32(2) and/or concealment for the purposes of section 32(1)(b), was Canada Square’s conduct ‘deliberate’ within the meaning of those provisions?

Rose LJ gave the lead judgment, dismissing the appeal, with whom Sir Julian Flaux agreed. Males LJ also agreed the appeal be dismissed, giving his own short judgment containing a number of reservations on the state of the case law on section 32.

Section 32(2): Was there a ‘breach of duty’?

Canada Square argued that there was no legal duty to disclose the commission under general law or section 140A. It argued that section 32(2) referred to breach of duty ‘in the traditional sense’, being a breach of contractual, tortious or fiduciary duty, and could not be read as including more ‘amorphous’ ‘unfairness’ as required by section 140A (at [56]).

This more restrictive approach was rejected by Rose LJ, applying the earlier Court of Appeal decision of Giles v Rhind [2009] Ch 191, a case concerning section 423 of the Insolvency Act, being a transaction defrauding creditors. In that case Arden LJ, giving the judgment of the Court of Appeal, found that the Court should not take a narrow view of breach of duty, generally upholding the first instance judgment that “the expression “breach of duty” applied to any legal wrongdoing in contradistinction to a breach of duty in a tortious or contractual sense or in the sense of a breach of an equitable or fiduciary duty.”

Adopting this reasoning, Rose LJ found that the creation of an unfair relationship by Canada Square in failing to disclose the commission was a breach of duty for the purposes of section 32(2).

Section 32(1)(b): Was there ‘concealment’?

Canada Square argued that section 32(1)(b) can only be relied upon where the claimant can show that the defendant actively concealed the relevant fact. It was an agreed fact that there was no active concealment by Canada Square.

Rose LJ embarked on a lengthy examination of the previous appellate authorities on this issue, including the Court of Appeal decision in The Kriti Palm [2006] EWCA Civ 1601. The issue in that case was whether a duty to disclose pursuant to section 32(1)(b) could arise independently of a general law duty, such as a contractual obligation, to disclose. The Court of Appeal grappled with whether, in addition to general law duties, there could be a duty arising either from implying a term of “utility and morality” into contract (Rix LJ) or from common sense (Buxton LJ, with whom Sir Martin Nourse agreed), sufficient to trigger section 32(1)(b). Buxton LJ spoke of this as a duty “in Limitation Act terms” to distinguish it from more traditional duties.

On this issue Rose LJ found that (at [75]):

Section 32(1)(b) does not refer to a duty to disclose, it refers only to concealment. Inherent in the concept of ‘concealing’ something is the existence of some obligation to disclose it. To construe section 32(1)(b) as being satisfied only if there is a pre- existing legal duty to disclose seems to me to add an unwarranted and unhelpful gloss on the clear words of the statute. For the purposes of the Act that obligation need only be one arising from a combination of utility and morality to adopt Rix LJ’s phrase.

Rose LJ found that the focus needed to be on the conduct which was alleged to amount to the concealment and on an analysis of whether the defendant was, at that point, under a sufficient obligation (contractual or otherwise) to disclose (at [76]).

In agreeing with this reasoning, Males LJ, feeling bound to follow The Kriti Palm, found that a duty to disclose was to some extent ‘a matter of common sense’, although had reservations about how helpful such a term was, and whether it was what the section required.

Ultimately, the Court of Appeal concluded that the obligation to act fairly imposed on Canada Square by section 140A was sufficient to find that failure to disclose the commission amounted to concealment within the meaning of section 32(1)(b).

Was Canada Square’s concealment ‘deliberate’

Section 32(2) and 32(1)(b) both require there to be deliberate concealment and deliberate breach, respectively. There has been long debate in the authorities as to the meaning of deliberate, and whether a recklessness would be sufficient.

As a first matter, Rose LJ considered, if recklessness was sufficient, the test for recklessness. Her Ladyship adopted the formulation of Lord Bingham in R v G [2004] AC 1034 that:

the correct test was that a person acts recklessly with respect to a circumstance when he is aware of a risk that it exists or will exist and it is, in the circumstances known to him, unreasonable to take that risk. A person acts recklessly with respect to a result when he is aware of the risk that it will occur and it is, in the circumstances known to him, unreasonable to take that risk.

Recklessness had been sufficient under the predecessor of section 32, section 26 of the Limitation Act 1939. That section had referred to the equitable doctrine of concealed fraud, something not found in the LA 1980. Following a careful analysis of the cases under section 26, Rose LJ found that they remained relevant to determining the meaning of ‘deliberate’ in section 32 LA 1980 and that recklessness was sufficient.

Returning to the case before her, her Ladyship held (at [137]):

  1. Mrs Potter could rely on section 32(2) if she could show that Canada Square realised that there was a risk that their failure to disclose the fact and extent of the commission resulted in their relationship with her being unfair within the meaning of section 140A, and it was not reasonable for them to take that risk of creating an unfair relationship; or
  1. Mrs Potter could rely on section 32(1)(b) if she could show that Canada Square realised that there was a risk that they had a duty to tell Mrs Potter about the commission charge, such that their failure to do so meant that they deliberately concealed that fact from her.

Considering the subjective element, Rose LJ reviewed the history of various regulatory and government enquiries into PPI policies, concluding that Canada Square must have appreciated that failure to disclose the commission gave rise to a risk that the relationship between it and Mrs Potter would be regarded as unfair (at [157]). Similarly, applying the objective ground, Rose LJ could find no reason why a reasonable person, aware of the risk that Canada Square must have apprehended, would have decided not to disclose the commission to Mrs Potter (at [160]).

As such, Canada Square’s appeal was rejected: Mrs Potter’s claim was brought in time pursuant section 32(1)(b) or alternatively 32(2) of the LA 1980.

Analysis

The decision provides important guidance as to (i) what amounts to a breach of duty for the purposes of section 32(2) and (ii) that recklessness will be sufficient to establish that concealment or breach of duty was deliberate. Albeit, as Rose LJ acknowledged, there will still likely be disputes on whether recklessness in fact arises, for example “how serious does the risk have to be? How is the appreciation of risk to be proved?” (at [136])

Claimants will welcome however this confirmation that section 32(2) can be relied on is cases where the conduct of the defendant falls short of outright dishonesty.

One issue however that remains contentious is when will ‘mere non-disclosure’ as opposed to taking active steps amount to concealment for the purpose of section 32(1)(b)?

Males LJ in particular noted the complexity and “unsatisfactory state” of the authorities on this issue. His Lordship highlighted that the approach required by a long line of appellate case law had “travelled a very long way from the statutory language”. In particular, the words ‘deliberately concealed’ were ordinary English words and a trial judge should not have difficulty in determining on the facts whether the conduct of the defendant did satisfy this requirement. As the authorities presently stand however, a trial judge is requires to:

  • draw a distinction between ‘active concealment’ and ‘mere non-disclosure’;
  • in the case of mere non-disclosure, determine whether there was a duty to disclose;
  • in considering duty to disclose, consider whether a legal obligation to disclose was required, or whether a more general duty or obligation in ‘Limitation Act terms’ would suffice.

Such an approach is unnecessarily complex, particularly where section 32(1)(b) makes no reference to a duty to disclose, let alone different kinds of duty.  The uncertainty and difficulty as to what amounts to concealment for the purposes of section 32(1)(b) will likely continue to be a point of legal and factual contention, at least until the Supreme Court considers this issue.

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