Limitation on summary determination: Libyan Investment Authority v Credit Suisse & Ors

Background

The LIA's claims related to its investment, in June 2008, in US$200 million of notes issued by Credit Suisse. The notes had 90% capital protection upon maturity and their return tracked the performance of a fund managed by GLGP. Credit Suisse paid GLGP US$6 million shortly after the notes were issued, and GLGP then made a payment in the same amount to Lands Company Limited ("LCL"). 

The notes were restructured in June 2009, linking them to the performance of different funds, including funds managed by Frontier Investment Management Partners Ltd ("FIMP") whilst removing their 90% capital protection. Credit Suisse paid US$6 million to FIMP shortly after the restructuring, and the LIA alleged that FIMP then made a payment in the same amount to Walid Al-Giahmi (who was said to control and/or be the ultimate beneficial owner of LCL).

The LIA alleged that the payments made to LCL and to Mr Al-Giahmi were in return for fraudulent and corrupt services provided by Mr Al-Giahmi to Credit Suisse and/or GPLG in respect of the original notes, and to Credit Suisse and FIMP in respect of the restructured notes. Those alleged services included the bribing or intimidating of at least three LIA officials. The LIA claimed that the notes were voidable (for breach of fiduciary duty and/or undue influence) and/or unenforceable (for illegality).

The litigation follows proceedings brought by the LIA against other banks in relation to its international investments, with two of such proceedings - against Société Générale and JP Morgan Chase - involving similar allegations against Mr Al-Giahmi. The claim against Société Générale settled prior to trial in 2017. In the JP Morgan proceedings, the claims against LCL and Mr Al-Giahmi were held to be statute barred, and the claim against JP Morgan later settled. 

The judgment handed down by HHJ Pelling QC on 3 December 2021 relates to applications by Credit Suisse and GLGP for summary judgment against the LIA, with both of those parties arguing that the LIA's claim had no real prospect of success because it was statute barred. The judgment also deals with applications by the third to fifth defendants to set aside orders (i) extending the validity of the Claim Form and (ii) granting permission for the proceedings to be served out of the jurisdiction.

Limitation principles

Where a limitation defence is raised in support of an application to set aside service out of the jurisdiction, the test is the same as the summary judgment test itself. All of the applications therefore faced the same hurdles.

Whether or not disputes regarding actual or constructive knowledge under s32 of the Act can be decided on a summary basis, however, will always depend on the facts of the case². In this case, the court concluded it was possible to do so.

As the parties agreed that the LIA did not have actual knowledge of the alleged fraud prior to the limitation cut-off date, the question was whether it could, with reasonable diligence, have discovered it. This required the court to answer two questions:

1. whether (and if so when), the claimant (acting with reasonable diligence) would have been put on notice of the need to investigate (the "trigger issue"); and
2. what that reasonably diligent investigation would have revealed (and when).

While the degree of diligence with which the claimant should have acted is to be judged objectively, it must also be judged "in the context in which the claimant finds itself"³. The court accepted that the LIA found itself in difficulties investigating corruption by those close to the Gaddafi regime prior to the revolution, and that it would not be suitable to determine that issue summarily. However, it did not accept that such constraints applied after the revolution (from at least May 2012 onwards).

The court also found that the limitation clock should not start to run until the alleged fraud could be properly pleaded in a statement of case. It rejected Credit Suisse's argument that the less stringent formulation found in the Supreme Court's decision in the Franked Investment⁴ litigation was the appropriate test (that is, that time should begin to run as soon as the claimant could embark on the "preliminaries to the issue of proceedings"). Differentiating that decision (which related to mistake and not fraud), the court held that the stricter test of when a claimant was actually in a position to plead fraud was the appropriate one because: i) otherwise victims of fraud could too easily lose claims by effluxion of time; ii) pleading fraud on a speculative basis would become more common (which was to be discouraged); and iii) because it is unnecessary to be too sympathetic to defendants who have committed fraud.

Corporate knowledge

The judgment also considers the attribution of knowledge of directors and other senior officials to a corporate entity. Whilst the knowledge of, or ability to discover, the fraud could not be attributable to the LIA by reason of the knowledge of wrong-doers within the LIA, the court held there was no reason why the knowledge of non-wrong-doing directors or agents of the LIA should not be attributed to it. Those directors or agents, would, the court held, owe a duty (to the LIA) to report relevant knowledge about its affairs.

The court went on to consider the consequences of those individuals whose knowledge was attributable either forgetting a fact or matter or leaving the entity concerned. The court made clear that this issue should not be confused or elided with attribution issues. The general proposition is that, for limitation purposes, a matter remains known even if forgotten⁶. There was no basis for distinguishing this principle simply because the knowledge concerned was that of a corporation rather than an individual⁶. Once knowledge was attributed to the LIA for limitation purposes, it was to be treated as remaining with the LIA, even if the relevant individual subsequently forgot or left the entity. In this case, this meant that knowledge acquired prior to the revolution was nonetheless knowledge of the LIA.

The decision

On the facts, the court concluded that a party in the position of the LIA ought to have been on notice of the need to investigate the alleged fraud by the end of July 2012 at the latest. Amongst other things, the court noted that a report by KPMG in April 2010 had advised the LIA to initiate a forensic investigation within 3 months to decide "whether to pursue counterparties". As explained above, the court accepted a delay in investigating until May 2012 resulting from the revolution in Libya. However, the court rejected the suggestion that investigations could be further delayed because of the erroneous belief of the new chair of the LIA's board that the notes continued to have 90% capital protection. This was immaterial as personal attributes of the claimant and its agents "… bearing on the likelihood of the particular claimant discovering facts which a person in his position could reasonably be expected to discover, such as whether the claimant is slothful, naïve, shy, nervous, uncurious or ill informed, are not relevant" and in any event it simply demonstrated a deliberate decision not to investigate.

The court concluded that had the LIA acted with reasonable diligence and carried out the investigations from and after May 2012, it would have been in a position to plead the alleged fraud. Those investigations should have included interviewing a former LIA official involved in the transaction in mid-2012 (rather than November 2013) and shortly thereafter making enquiries of Credit Suisse and GLGP. Had the LIA requested information from a regulated financial institution such as GLGP, the court held it was "unreal" to suggest it would not have been provided.

Conclusion

This judgment provides another instance in short succession of the court deliberating whether to summarily strike out a claim on the grounds of limitation where the application of s32 of the Limitation Act is in issue. Whereas in Allianz Global Investors v RSA Insurance Group Limited⁷ (see our article here) the court held that it could not decide the question of 'reasonable diligence' on a summary basis, in this case the court was content that it could decide, without a trial, when the LIA was put on enquiry and how the defendants would have responded to enquiries by the LIA.  The decision provides an important reminder of the potentially devastating impact of not investigating suspicions of fraud promptly if you have the resources to do so. The court in this case was unimpressed by the explanation from the LIA that it delayed investigating the Credit Suisse notes because it was focussing on other, larger, trades. The LIA clearly had the resources to carry out the necessary investigation.  

Practitioners and parties to litigation should also take note of the judgment's postscript, which contains a stinging criticism of the time estimates given for pre-reading and the hearing ("manifestly too short", with inevitable consequences) and the volume of material presented to the court (which would have justified a trial measured in weeks rather than days, rather than an application hearing listed as it was). 

Authors

Sue Millar
Stephen Ashley
Harriet Campbell
Alexander Goodman