Paragon Finance PLC v D B Thakerar & Co (1998)
Amendments after expiry of the limitation period alleging intentional wrongdoing ie fraud, where previously only negligence had been alleged, constituted the introduction of a new cause of action and were statute-barred by the Limitation Act 1980.
Conjoined appeals from judgments of Chadwick J and Timothy Lloyd J respectively sitting in the Chancery Division. The defendants in the original actions ('Thakerar' and 'Thimbleby' respectively) were firms of solicitors who acted for the plaintiff ('Paragon') and mortgagees in a number of mortgage fraud cases, and also acted for, and in concert with, fraudsters. In 1994 Paragon brought proceedings against the defendants alleging negligence, but not fraud. Part of the loss sustained by Paragon arose from the collapse of the property market, and this loss could only be recovered if fraud was alleged and proved. Paragon sought to amend its pleadings to allege fraud, but ran into limitation problems. In the Thimbleby case leave was granted by Timothy Lloyd J on 25 March 1997, but in the Thakerar case leave was refused by Chadwick J on 4 June 1997. Thimbleby appealed against the judge’s finding that for the purposes of s.32 of the Limitation Act 1980 the lenders could not with reasonable diligence have discovered the fraud before 21 March 1991 and therefore the limitation period did not run until that date. Paragon appealed against the opposite finding in the other conjoined appeal.
(1) As a general proposition, any new claim made in the course of existing proceedings which involved the addition or substitution of a new cause of action was treated as a separate action commenced on the same date as the original proceedings (s.35(1) and (2) Limitation Act 1980). (2) In this case, non-contentious amendments not introducing a new cause of action, and which the defendants had no objection to, would be allowed. (3) An allegation of actual knowledge of fraud was not an allegation of fraud, and such amendments would be allowed. (4) Amendments introducing a new cause of action but in respect of which Paragon alleged that there was no applicable limitation period would not be allowed. The court held that for a new action by beneficiaries under a trust where fraud was performed by the trustee, the normal limitation period applied. Section 21 of the Act did not apply to a wrongdoer who committed fraud and in the present situation the defendants would not be deprived of an arguable limitation defence. For a similar reason, application for leave to plead fiduciary duty also failed and the court distinguished the authority of Nelson v Rye (1996) 1 WLR 1378, relied on by the plaintiffs. (5) The test in s.32 of the Act was not whether the plaintiffs should have discovered fraud sooner, but whether they could with reasonable diligence have done so. Thus, amendments introducing a new cause of action but in respect of which Paragon alleged that there was an extended limitation period would not be allowed as this would deprive the defendants of the right to argue the question of an extended limitation period. (6) Relying on the House of Lords in South Australia Asset Management Corp v York Montagues Ltd (1996) 3 WLR 87 and Smith New Court Securities Ltd v Scrimgeour Vickers (Asset Management) Ltd (1996) 3 WLR 1051, part of the loss sustained by Paragon arose from the collapse of the property market, and this loss could only be recovered if fraud was alleged and proved. (6) Amendments to add allegations of fraud where previously mere negligence had been alleged amounted to a new cause of action, and were more than six years after the last of the transactions took place and were thus statute barred. (7) Amendments alleged to arise out of the same or substantially the same facts as already pleaded would not be allowed, as, following Welsh Development Agency v Redpath Dorman Long Ltd (1994) 1 WLR 1409, it was "contrary to common-sense" to hold that allegations of fraud could arise out of the same facts as allegations of negligence.
Appeal in the Thakerar case dismissed.
Appeal in the Thimbleby case allowed.