Out of business, but not out of time: insolvent companies and limitation periods in competition damages claims

In its recent decision in OT Computers Ltd v Infineon Technologies Ag & Anor [2021] EWCA Civ 501, the Court of Appeal has, in the context of follow-on competition law damages claims, provided some helpful clarification on the interpretation of section 32 of the Limitation Act 1980  (LA 1980).  The Court of Appeal has confirmed that, when considering what constitutes “reasonable diligence” to uncover relevant facts under s.32(1)(b) LA 1980 it is appropriate to take into account the particular circumstances of the claimant.  This has important implications in competition damages claims, given that cartels are inherently secretive, and also for insolvency practitioners who may be slower to identify a potential claim than the trading company, but who may now be encouraged to bring more follow-on competition damages claims.

The case concerned a European Commission decision from May 2010, which found that the Defendants, who produced and sold a type of computer memory (DRAM), participated in a cartel from 1998 to 2002. In May 2016, just under six years from the date of the Commission’s decision, OTC and a number of other computer manufacturers who purchased products from the Defendants, issued follow-on competition damages claims against them. 

At a preliminary issue trial on limitation, the Defendants argued that all of the claims were time-barred, since enough information had become known or knowable about their cartel behaviour to enable a claim to be brought by the Claimants before the Commission decision, as there had been an investigation by the US Department of Justice.  However, the Claimants argued that, pursuant to s.32(1)(b) LA 1980, it was only upon the publication of the Commission decision that facts sufficient to bring a claim were known or could with reasonable diligence have been known by them.

At first instance, Mr Justice Foxton held that two of the Claimants’ claims were time-barred, because a viable claim could have been brought by them sooner than the Commission decision, on the basis of what had become known or knowable by them at that time. However, Foxton J held that the same was not true for OTC, as that company had ceased trading before any information had become available about the Defendants’ wrongdoing.  By the time that information began to emerge, OTC had been placed into administration and a reasonably diligent administrator would not have been on notice of any facts triggering a need to investigate further . For that reason Foxton J held that OTC’s claim was not time-barred. 

Having been refused permission to challenge Foxton J’s decision of fact, that a reasonably diligent administrator would not have been on notice of any need to investigate further, the Defendants’ appeal focussed on Foxton J’s finding that it was permissible, when considering what constitutes “reasonable diligence” under s.32(1)(b) LA 1980 to take into account the circumstances of the Claimant’s situation – such as whether it is in administration or liquidation.

The Court of Appeal unanimously dismissed the Defendants’ appeal and held that the objective test in s.32(1)(b) does not mean that a claimant must be taken to be something it is not.  To do so would be to ignore both the purpose of s.32(1)(b) and the wording of the section, which focuses on what is known or knowable by the particular claimant before the court.  In OTC’s case, this meant acknowledging that, when information about the Defendants’ cartel activities began to emerge, the company was being run by insolvency practitioners who were not in the business of trading the relevant product and so could not with reasonable diligence has discovered the relevant facts.  The Court of Appeal also noted that the Supreme Court decision in FII Group Litigation v Revenue and Customs Commissioners [2020] UKSC 47, which dealt with s.32(1)(c) LA 1980, was “far removed” from the issue in OTC’s case and was therefore of “no real value”. 

The Court of Appeal’s decision will be welcomed by insolvency practitioners (and creditors) who, as a result of competition and other regulatory investigations and decisions, may only become aware of potential follow-on claims which the insolvent entity could pursue, many years after the offending conduct, at a time when claims might otherwise be time-barred.  The Court of Appeal’s decision may well buoy insolvency practitioners to pursue further follow-on damages claims, and they will no doubt be assisted in so doing by the sophisticated and liquid litigation funding market in the UK which provides a ready source of capital to pursue actions which an insolvent estate may otherwise be unable to support.