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In this post, Phil Woodfield and Elizabeth Lombardo of CMS comment on the Supreme Court’s decision in Canada Square Operations Ltd v Potter [2023] UKSC 41, which was handed down on 15 November 2023. The issue before the Supreme Court was the meaning of “deliberately concealed” for the purpose of the Limitation Act 1980 (“LA 1980”), s 32(1)(b) and of “deliberate commission of a breach of duty” for the purpose of s 32(2) of that act.

Background

In 2006, Mrs Potter entered into a regulated loan agreement with Egg Banking plc (later known as Canada Square Operations Ltd, “Canada Square”). Part of the loan was a payment protection insurance policy (the “PPI Policy”) taken out with an insurer in the AXA group. Canada Square acted as the insurance intermediary and retained 95.24% of the policy premium as its commission for the sale of the PPI Policy. Mrs Potter was not informed that Canada Square would receive commission.

In April 2018, Mrs Potter complained to Canada Square that the PPI Policy had been mis-sold to her and was paid partial redress. Mrs Potter issued proceedings against Canada Square on 14 December 2018 to recover the balance of the sums paid under the PPI Policy. The claim was based on the provisions of the Consumer Credit Act 1974 (“CCA 1974”), ss 140 A-D, alleging that the failure to disclose commission had rendered the credit relationship between the parties unfair.

Canada Square accepted that it had failed to disclose the commission but argued that the claim was time-barred as it had been issued more than six years after the loan agreement had terminated.

In turn, Mrs Potter claimed that Canada Square had deliberately concealed the commission within the meaning of the LA 1980, s 32, such that time did not start to run until the commission had been discovered in November 2018. Mrs Potter pleaded reliance on both deliberate concealment pursuant to the LA 1980, s 32(1)(b), and deliberate concealment of a breach of duty within the meaning of the LA 1980, s 32(2).

Decision of the lower courts

Recorder Murray Rosen QC heard the matter at first instance. Canada Square accepted that the relationship between the parties was unfair pursuant to the CCA 1974, s 140(1), as Mrs Potter had not been made aware of the commission and its amount. Accordingly, the only issue to be determined at first instance was limitation.

Canada Square offered no evidence. Mrs Potter, on the other hand, made a witness statement that was not challenged. The Recorder accepted Mrs Potter’s evidence that Canada Square had not disclosed the existence or amount of commission at the time the PPI Policy was sold to her and that she only become aware of the existence of excessive commissions on receipt of advice from her solicitors in November 2018 (so that she could not with reasonable diligence have ascertained the position earlier).

The Recorder also held that the non-disclosure of commission “was intentional or at least reckless” and involved a breach of duty on the part of Canada Square.

Canada Square’s appeal to the High Court was heard by Mr Justice Jay.

In dismissing the appeal, Mr Justice Jay held that Mrs Potter could not rely on the LA 1980, s 32(1)(b) by itself (as there was no duty to disclose the commission under the general law) but could rely on the LA 1980, s 32(2). In particular, Mr Justice Jay found that Canada Square’s continued non-disclosure of the excessive commission it received constituted a breach of duty and that this breach of duty was deliberate for the period between the CCA 1974, ss 140 A-C coming into force on 6 April 2007 and the end of the loan in March 2010.

Canada Square’s deliberate decision not to disclose commission in that period “in circumstances where it was obvious that the existence of the commission would not be discovered for some time” meant that there was “some degree of blameworthiness” and “unconscionable conduct”.

In determining the nature of the mental element required, Mr Justice Jay concluded that “conduct which is reckless is sufficient”.

Decision of the Court of Appeal

Canada Square appealed the decision to the Court of Appeal, again unsuccessfully.

The Court of Appeal gave judgment on three issues.

First it considered whether Canada Square’s failure to disclose the existence and amount of the commission amounted to a “concealment of a fact” within the meaning of the LA 1980, s 32(1)(b). The Court of Appeal found it was inherent in the concept of “concealing” something that there exists some obligation to disclose it but there was no requirement to show “a free-standing contractual, tortious or fiduciary duty” to disclose. It held that the obligations to act fairly imposed on Canada Square by the CCA 1974, s 140A was“sufficient to mean that their failure to disclose the commission amounted to concealment of that commission within the meaning of section 32(1)(b)”. The Court of Appeal therefore disagreed with Mr Justice Jay’s finding that Mrs Potter could not rely on the LA 1980, s 32(1)(b).

Secondly it agreed with Mr Justice Jay that the creation of an unfair relationship pursuant to the CCA 1974, s 140A amounted to a “breach of duty” for the purposes of the LA 1980, s 32(2).

Thirdly, the Court of Appeal considered the mental element required to establish that the concealment for the purposes of both s 32(1)(b) and s 32(2) had been “deliberate”. The court considered four different tests of mental element: 1) Canada Square’s subjective knowledge or actual awareness that it was concealing a relevant fact or committing a wrongful act; 2) subjective knowledge in a wider sense; 3) recklessness with both a subjective and objective element; and 4) recklessness in a purely subjective sense.

Having decided that there was no sufficing natural meaning for “deliberate”, the Court of Appeal reviewed the relevant case law and Parliamentary materials to assist in its interpretation of the meaning of deliberate. The Court of Appeal construed “deliberately” as including “recklessly” and so found that recklessness with both a subjective and objective element, as described in R v G and Anor [2003] UKHL 50, would be sufficient to establish that concealment was deliberate.

The Court of Appeal therefore held that Mrs Potter could rely on s 32(1)(b) if she could show that Canada Square realised there was a risk that it had a duty to tell her about the commission, such that its failure to do so meant that it deliberately concealed that fact. While accepting that there was no duty to disclose commission, the Court of Appeal also held that Mrs Potter could, further, rely on the LA 1980, s 32(2) if she could show that Canada Square “must have appreciated that… there was a risk at least after April 2008 that the credit relationship … would be regarded as unfair” as a result of the failure to disclose the commission and there was “no reason why a reasonable person, apprehending [that] risk …, would have decided not to disclose the commission”.

Decision of the Supreme Court

The Supreme Court considered in turn the meaning of “deliberately concealed” for the purposes of the LA 1980, s 32(1)(b) and of “deliberate commission of a breach of duty” for the purposes of the LA 1980, s 32(2). First, though, it conducted a detailed examination of the legal background to the LA 1980, s 32 following its development through statute and case law.

Legal Background

Starting with the doctrine of concealed fraud, the Supreme Court noted that the courts of equity had longtime permitted an action to proceed after the expiry of the statutory limitation where the cause of action was founded on or concealed by fraud (Booth v Earl of Warrington [1714] 4 Bro PC 163). That doctrine was developed in Bulli Coal Mining Co v Osborne [1899] AC 351 which found that limitation would not be applied “in the case of concealed fraud, so long as the party defrauded remains in ignorance without any fault of his own” and also rejected the idea that “active concealment was essential”.

The scope of the rules on concealed fraud were reviewed in the Report of the Law Revision Committee of 1934, following which the Limitation Act 1939 (“LA 1939”), s 26 introduced express wording on the “postponement of limitation period in case of fraud or mistake”. This section formed the basis of what would subsequently become the LA 1980, s 32.

The meaning of the LA 1939, s 26 was developed in case law. The case of Beaman v ARTS Ltd [1949] 1 KB 550 explored the question of whether fraud was a necessary allegation in order to constitute a cause of action under the LA 1939, s 26, holding that fraudulent concealment “may acquire its character as such from the very manner in which that act is performed”. In that case, “the defendants had knowingly acted in breach of their duties [and] … had ensured that [the claimant] remained in ignorance of what they had done. That amounted to fraudulent concealment”. The case of King v Victor Parsons & Co [1973] 1 WLR 29 examined the situation where a person acted recklessly “like the man who turns a blind eye” determining that a person who “refrained from further inquiry lest awareness of a risk should prove to be correct, was said to be in the same position as a person who acted knowingly”.

Commenting that the courts’ approach to the LA 1939, s 26 had “strained the language of the provision”, the Supreme Court then followed the development of the law of limitation through the report of the Law Reform Committee of 1977 and the Limitation Amendment Act 1980 to the LA 1980 which introduced s 32 and the express wording “deliberately concealed” and “deliberate commission of a breach of duty”.

Further case law had arisen from interpreting that legislation. The case of Sheldon v RHM Outhwaite [1996] AC 102 emphasized the importance of “giving the language of section 32(1)(b) its ordinary meaning, rather than reading it as a continuation of the pre-1980 law”, save where there was any “real difficulty or ambiguity incapable of being resolved by classical methods of construction”.

The meaning of “deliberately concealed” and “deliberate commission of a breach of duty” were examined in the case of Cave v Robinson Jarvis & Rolf [2002] UKHL 18. In that case, Lord Millett found that “concealment and non-disclosure are different concepts” and so drew a binary distinction between the LA 1980, s 32(1)(b) for cases of active concealment and the LA 1980, s 32(2) for cases of non-disclosure. Lord Scott, however, disagreed with this approach (as did the Supreme Court in Potter).  Lord Scott affirmed that “as a matter of ordinary English, the verb “to conceal” means to keep something secret, either by taking active steps to hide it, or by failing to disclose it”; accordingly, for the purposes of the LA 1980, s 32(1)(b), Lord Scott held that “concealed” can encompass “both active concealment and concealment by non-disclosure”. Lord Scott further found that “deliberately concealed”, whether by positive action to conceal or by a withholding of information, must be “an intended concealment”. The wording “deliberate commission of a breach of duty” for the purposes of the LA 1980, s 32(2) was equally clear, with a distinction to be drawn “between the case where the actor knows he is committing a breach of duty and where he does not”.

The Supreme Court then turned to address more recent case law, starting with Williams which, it noted, had“began a process in which the Court of Appeal has moved progressively further away from the clear language of the provisions”.

The case of Williams v Fanshaw Porter & Hazelhurst [2004] EWCA Civ 157 confirmed that “deliberate commission of a breach of duty” pursuant to the LA 1980, s 32(2) “involves knowledge of wrongdoing”, and that the concealment for the purposes of the LA 1980, s 32(1)(b) “must be an intended result”. Williams had, however, also introduced the question of whether it was necessary to show that there had been a duty to disclose, in order to establish a deliberate concealment of a relevant fact for the LA 1980, s 32(1)(b). The Supreme Court commented that this “has no basis in the terms of s 32(1)(b)”. The judgment in Williams further considered whether it was necessary to show that the defendant was aware of a duty to disclose a relevant fact and knowingly breached it.

The Supreme Court followed the “process of embellishment of s 32(1)(b)” through to the case of AIC Ltd v ITS Testing Services (UK) Ltd (The Kriti Palm) [2006] EWCA Civ 1601 which “brought together (1) the distinction between active concealment and concealment by non-disclosure, drawn by Lord Millett in Cave and discussed by Mance LJ in Williams, (2) the requirement of a duty to disclose, which had been introduced in Williams, and (3) a requirement of knowledge of that duty, following Mance LJ’s lead in Williams”. The Kriti Palm was held as authority by Mr Justice Jay in the High Court appeal of Potter that “absent positive concealment, there must be a duty of disclosure under the general law”, whereas Rose LJ in the Court of Appeal found that it was sufficient that there be a “duty in Limitation Act terms”, such duty arising “from a combination of utility and morality”.

The Supreme Court finally examined how the case law, in particular Williams and The Kriti Palm, had influenced the Court of Appeal’s decision in Potter. As detailed above, the Court of Appeal held that the creation of an unfair relationship pursuant to the CCA 1974, s 140A amounted to a “breach of duty” for the purposes of the LA 1980, s 32(2) and that the failure to disclose the existence and amount of the commission amounted to a “concealment of a fact” within the meaning of the LA 1980, s 32(1)(b). The Court of Appeal also construed “deliberately” as including “recklessly” to conclude that Canada Square had deliberately concealed the commission “since it must have known that there was a risk that non-disclosure of the commission would make the parties’ relationship unfair within the meaning of section 140A of the 1974 Act and it was not objectively reasonable for it to have taken that risk”.

Deliberately concealed – the LA 1980, s 32(1)(b)

The Supreme Court found that the progressive embellishments in case law to the concept of deliberate concealment for the purpose of the LA 1980, s 32(1)(b) had resulted in a strained interpretation that“reads far more into the provision than Parliament enacted”. This was not only unnecessary but also “wholly inconsistent with the emphasis … on giving clear language its ordinary meaning” set out in Sheldon and Cave.

S 32(1)(b) requires the defendant to have deliberately concealed “a fact relevant to the plaintiff’s right of action”. The Supreme Court disagreed with the Court of Appeal’s assertion that “inherent in the concept of ‘concealing’ something is the existence of some obligation to disclose it” finding that it was a departure from the ordinary meaning of “concealment”. To support this the Supreme Court provided examples of facts being concealed (by intentional hiding or by withholding information) where there was no inherent obligation to disclose the concealed fact. For instance, an elderly lady concealing her pearls would be under no obligation to leave them in plain sight, nor would anyone diagnosed with cancer be under an obligation to share that information.

The Supreme Court disagreed with the Court of Appeal’s finding that, in addition to acting in breach of duty giving rise to the right of action, a defendant must also have acted in breach of a duty to disclose that first breach. This had the effect of reducing the scope of s 32(1)(b). Rose LJ had sought to address this issue by finding that “something less than a legal duty would suffice” (“a combination of utility and morality”) but the Supreme Court considered that this solution was not acceptable as it “raises serious problems of justiciability and legal certainty. The courts are courts of law, not of moral or social norms”. Rejecting the reasoning in Williams and The Kriti Palm, the Supreme Court therefore held that there is no requirement under the LA 1980, s 32(1)(b) for the concealment to be in breach of either a legal duty, or a duty arising from a combination of utility and morality.

The Supreme Court also rejected the suggestion in Williams and The Kriti Palm that a defendant must know that the concealed fact was relevant to the right of action or was reckless as to that possibility. Instead, the Supreme Court held that it was sufficient that the defendant “deliberately ensures that the claimant does not know about the facts in question and therefore cannot bring proceedings within the ordinary time limit”.

Turning to the meaning of “deliberate” in the LA 1980, s 32(1)(b), the Supreme Court rejected the Court of Appeal’s finding that “deliberately” included “recklessly” and that it was sufficient for the claimant to show that the defendant “realised that there was a risk that it was under a duty to disclose the information about the commission, and took that risk in circumstances where it was unreasonable for it to do so”. Instead, the Supreme Court reaffirmed the need for the concealment to be “an intended result” (as per Lord Scott’s findings in Cave) and the need for the defendant to “have considered whether to inform the claimant of the relevant fact and decided not to” (Williams). This approach balanced the interest of both claimant and defendant which the Supreme Court deemed had been the intention of Parliament.

Summarising the requirements for “deliberately concealed” in the LA 1980, s 32(1)(b), the Supreme Court affirmed that there needs to be (1) a fact relevant to the claimant’s right of action, (2) the concealment of that fact (by positive act or withholding information), and (3) an intention by the defendant to conceal that fact.

Deliberate commission of a breach of duty – the LA 1980, s 32(2)

The Supreme Court rejected the Court of Appeal’s interpretation that “deliberate” includes “reckless” for the purposes of the LA 1980, s 32. Instead, it reiterated the distinction between the two terms.

The Supreme Court found a distinction between “deliberate” and “reckless” in the ordinary use of language and as defined in the dictionary.

It also found there to be a distinction in the legal context, noting that there was no evidence in either legislation or case law of “recklessness” being a synonym of “deliberate”. In support of this, the Supreme Court observed that “deliberate” and “reckless” are treated as distinct in the drafting of legislation. It referred to case law which had similarly found those terms to be different in meaning, such as the case of Burnett or Grant v International Insurance Co of Hanover Ltd [2021] UKSC 12 (which held that a deliberate act “involves a different state of mind to recklessness”).

Applying the interpretation of “deliberate” to the LA 1980, s 32, the Supreme Court reiterated that “recklessness is insufficient”. A number of examples from case law were listed as confirmation of this approach, including Cave (“there must be an intentional breach of duty”), Grace v Black Horse Ltd [2014] EWCA Civ 1413 (the defendant had “[to know] that what he was doing was a breach of duty” for the purpose of the LA 1980, s 32(2)), and Primeo Fund v Bank of Bermuda (Cayman) Ltd [2019] CICA JO613-1 (“recklessness did not suffice” to render a breach of duty “deliberate” within the meaning of the LA 1980, s 32(2)).

The Supreme Court also examined whether the LA 1980, s 32 should be construed as a restatement of the old law of concealed fraud. Having considered examples of previous cases and Parliamentary materials, the Supreme Court held that these did not “elucidate the mental element required for deliberate concealment or a deliberate breach of duty”.

The Supreme Court rejected the approach favoured by the Court of Appeal (that “deliberate” includes “awareness that the defendant is exposed to a claim”) stating this could result in practical problems, not least for professional people. By the nature of their work, professionals often know that they are exposed to claims. The Court of Appeal approach would leave those professionals exposed to claims for the indefinite future, well after their indemnity insurance had expired, defeating the object of the LA 1980 to protect defendants from having to litigate stale claims.

Conclusion

The Supreme Court held that there had been “deliberate concealment” pursuant to the LA 1980, s 32(1)(b). In particular, it found that (1) the existence and amount of commission were facts relevant to Mrs Potter’s right of action; (2) Canada Square deliberately concealed those facts by consciously deciding not to disclose the commission to Mrs Potter (even after the CCA 1974, s 140A had come into effect); and (3) Mrs Potter did not discover the concealment until November 2018 (no argument having been advanced that she could have discovered the concealment before then with reasonable diligence).

Disagreeing with the Court of Appeal’s judgment, the Supreme Court found that the requirements for the LA 1980, s 32(2) had not been met as it had not been proven that Canada Square “knew [it] was committing a breach of duty, or intended to commit the breach of duty”.

By rejecting the complexity and embellishments of recent case law, the Supreme Court has returned to a simpler test for “deliberate concealment” and “deliberate commission of a breach of duty”, founded on the ordinary meaning of the words and on a reaffirming of the long-established distinction between the concepts of “deliberate” and “recklessness”.

In doing so, the Supreme Court’s judgment strikes a balance between the interests of both claimants and defendants. On the one hand, it has removed the need to establish a duty to disclose the facts (be it a legal duty or a combination of utility and morality) which will assist the claimant in satisfying the requirements of the LA 1980, s 32(1)(b). On the other, it has confirmed the need for the defendant’s breach of duty to be intentional (not merely reckless) for the purpose of the LA 1980, s 32(2), thereby making it more difficult for the claimant to meet the necessary threshold for “deliberate” and restricting the potential application of that provision.

As acknowledged by the Supreme Court, its decision in Canada Square v Potter will directly impact a substantial number of active PPI claims. Its findings, however, have the potential for much wider application well beyond the scope of unfair relationship claims under the CCA 1974, s 140A. The judgment (in particular, the mental element required for a concealment to be deliberate) will be particularly welcomed by professionals who, as defendants, could otherwise be at risk of being exposed indefinitely to stale claims.

While not considered in detail (as not in issue in this case), the Supreme Court accepted that “if the claimant can plead a claim without needing to know the fact in question, there would appear to be no good reason why the limitation period should not run”. This is significant in the context of PPI cases as, in practice, claimants have not considered it necessary to know the precise amount of commissions to issue their claims. Instead, claims have been routinely issued on standard templates in which claimants allege that commissions were substantial in relation to the PPI premia without providing case specific particulars.        

The Supreme Court’s judgment did not directly address the question of when the claimant discovered (or could with reasonable diligence have discovered) the concealment. In the present case, the Recorder had already accepted Mrs Potter’s evidence at first instance that she had not become aware of commission until November 2018, so the point was not in issue in the appeal. The provision, however, remains relevant in determining limitation, and evidence on the point can be determinative of the outcome of the LA 1980, s 32 challenge. In the sphere of PPI, for instance, it will likely be increasingly difficult for claimants to discharge the burden of proof of showing that they could not, with reasonable diligence, have discovered the concealment of commission earlier in the light of (amongst other things) the widespread media coverage of the existence and amounts of PPI commissions following the Competition Commission reports on its market investigation of PPI in 2008/9, the Supreme Court judgment in Plevin v Paragon Personal Finance Ltd [2014] UKSC 61 and the subsequent advertising campaign conducted by the Financial Conduct Authority following the publication of its Policy Statement 17/3 in 2017.

Finally, it is worth noting that the judgment in this case follows shortly after another Supreme Court judgment in respect of a PPI claim in the case of Smith & Anor v Royal Bank of Scotland plc [2023] UKSC 34. That case was not concerned with s 32 deliberate concealment but with limitation under the LA 1980, s 9, which the Supreme Court found would not start to run until the credit agreement had terminated. That said, in Smith,the Supreme Court also affirmed the court’s unfettered discretion to make an order under the CCA 1974, s 140B, stating that “it would be […] inconceivable that a court would think it just” to make such an order where the claimant had delayed issuing the claim and “[sat] on his or her hands in knowledge of the relevant facts”. In the context of unfair relationships, it would be unwise of claimants to measure delay by reference to the same time periods which run for limitation purposes. On the basis that delay is operative for as long as a claimant sits on his or her hands in knowledge of the relevant facts, in the absence of a persuasive explanation of the reason for the delay, a claim issued before the expiry of the limitation period could still be regarded as stale and dismissed accordingly.