The Supreme Court has allowed an appeal by investors in the Belfry property schemes, set aside the Court of Appeal’s order and restored the High Court order on when certain negligence claims accrued for limitation purposes.
The judgment, delivered by O’Donnell J. on 10 December 2020, concerned eight “pathfinder” proceedings selected from more than 300 investor cases. The investors alleged negligence relating to the sale and management of Belfry 2 to 6 investments, including the use of loan-to-value covenants. The appeal addressed a preliminary limitation issue, not whether the alleged negligence occurred.
The court held that an increased risk of loss, by itself, was not enough to complete a negligence claim when the investment was made or the loan covenant agreed. Applying the Supreme Court’s earlier decision in Gallagher v ACC Bank, O’Donnell J. said the question was whether actual damage had occurred, taking a practical approach to the evidence and the value of the investment.
For the misselling claims, the High Court had treated damage as occurring when an investment’s value first fell below the amount invested. The Supreme Court considered that approach broadly correct. It held that the claims concerning Belfry 2 and 3 had not been shown to accrue more than six years before proceedings began, so they were not established as time-barred. The court declined to reopen the High Court’s finding that the misselling claims concerning Belfry 4, 5 and 6 were time-barred: those findings had not been appealed to the Court of Appeal and were final between the parties.
The court also upheld the High Court’s conclusion that the loan-to-value claims had not been shown to be time-barred. On the investors’ pleaded case, damage attributable to the covenants arose when they negatively affected the investment’s value. The evidence did not show that this effect occurred more than six years before the relevant proceedings began.
The appeal did not concern the High Court’s dismissal as time-barred of the contract and fiduciary-duty claims. Nor did it determine the investors’ separate allegation of fraudulent concealment, which was left for a further High Court hearing. The court restored the High Court order; it did not decide the underlying negligence allegations or resolve all the investors’ claims.