Extra time for D&O claims?

This decision is indicative of the approach that the courts of England and Wales will follow in relation to limitation issues and the knowledge of…

Julian & Ors v Evolving Tecknologies & Enterprise Development Co Ltd (“Eteck”) [2018] UKPC 2

This decision by the Judicial Committee of the Privy Council is of particular interest as the statute in question (The Limitation of Certain Actions Act (Trinidad and Tobago) 1997) is in materially identical terms to the Limitation Act 1980.

Both Acts provide that where an action is either based on the fraud of the defendant; the defendant has deliberately concealed information from the claimant; or the action concerns relief from the consequences of a mistake, the limitation period shall not begin to run until the claimant has discovered the fraud, concealment or mistake (section 14 The Limitation of Certain Actions Act (Trinidad and Tobago) 1997/section 32 of the Limitation Act 1980 Postponement of limitation period in case of fraud, concealment or mistake).

The case concerned a state-owned company, Etech, whose sole shareholder was Trinidad and Tobago’s Finance Minister. In 2005, Etech invested $5 million in a technology company and made an immediate loss.

By 2010, a new government was in power and Etech’s operations were audited. It was discovered that Etech’s directors had been negligent and that they had failed to carry out proper due diligence into the 2005 investment.

An action founded in tort was brought against the directors who contended that the claim was time-barred. In particular, the directors asserted that the alleged negligent acts were always known or discoverable by the Minister of Finance and that his knowledge was attributable to Eteck. In the event, there was no reason to postpone the running of time under section 14(1) for a claim brought against the directors by Eteck itself.

However, the Court of Appeal upheld the first instance decision and found that the directors had deliberately breached their fiduciary duties in circumstances where the breach was unlikely to be discovered for some time. As the directors were the wrongdoers, their knowledge of the breach could not be attributed to Etech. Also, there had been no “trigger” which was sufficient to put the Finance Minister on enquiry as to the directors’ breach. In any event, what the Finance Minister knew or could have discovered was not attributable to Etech. It followed that the claim against the directors was not time-barred.

The Appellants argued against the Court of Appeal’s decision and made reference to comments made by Lord Hoffman in Meridian Global Funds Management Asia Ltd v Securities Commission [1995] 2 A.C. 500 that, in principle, the knowledge of shareholders was capable of attribution to a company.

However, the Privy Council was not persuaded by the Appellants’ arguments and upheld the decision of the Court of Appeal. It was held that Lord Hoffman’s comments were in the context of criminal liability and were obiter. The knowledge of a sole shareholder should not be regarded as knowledge of the company. Specifically, the knowledge of the Finance Minister as sole shareholder of Etech was not attributable to the company and so time did not start to run when he knew about or could potentially have discovered the wrongdoing. Instead, time started to run when the directors were replaced.  

This decision is indicative of the approach that the courts of England and Wales will follow in relation to limitation issues and the knowledge of sole shareholders. It will be of interest to SMEs and D&O insurers writing risks in the UK and the Commonwealth.

For further information and advice please contact Christy Devon, Solicitor on 020 7822 1940 or email christy.devon@weightmans.com or Ling Ong, Partner on 020 7822 1985 or email ling.ong@weightmans.com.

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