LIMITATION AND THE CLAIMANT’S STATUS: COURT OF APPEAL NOT TOO SYMPATHETIC TO DEFENDANTS WHO HAVE COMMITTED FRAUD

In OT Computers Ltd v Infineon Technologies Ag & Anor [2021] EWCA Civ 501 the Court of Appeal upheld a decision that an action brought by a company that was in liquidation was not statute barred.

 

“It is, moreover, unnecessary to be too sympathetic to defendants who have committed fraud (section 32(1)(a)) or who have deliberately concealed wrongdoing (section 32(1)(b)) and who, if they wish to ensure that the limitation period begins to run, can always make a clean breast of their wrongdoing by contacting their victims”

THE CASE

It was alleged that the defendant companies ran an unlawful price fixing cartel. The claimant company had gone into liquidation shortly before details of this cartel became public.   The primary limitation period had passed.

EXTENSION OF THE LIMITATION PERIOD

The Court was concerned with the provisions of Section 32 of the Limitation Act 1980.
    1. It is also common ground that at the material time the primary limitation period for the claimants’ action was six years from the date when the cause of action accrued, in accordance with section 2 and/or section 9 of the Act. The cause of action accrued when the cartel was in existence between 1998 and 2002. The primary limitation period therefore expired, at latest, in 2008. However, section 32 of the 1980 Act postpones the running of the limitation period when a fact relevant to a claimant’s right of action has been deliberately concealed by the defendant:
“(1) Subject to subsections (3) and (4A) below, where in the case of any action for which a period of limitation is prescribed by this Act, either—
(a) the action is based upon the fraud of the defendant; or
(b) any fact relevant to the plaintiff’s right of action has been deliberately concealed from him by the defendant; or
(c) the action is for relief from the consequences of a mistake;
the period of limitation shall not begin to run until the plaintiff has discovered the fraud, concealment or mistake (as the case may be) or could with reasonable diligence have discovered it. References in this subsection to the defendant include references to the defendant’s agent and to any person through whom the defendant claims and his agent.
(2) For the purposes of subsection (1) above, deliberate commission of a breach of duty in circumstances in which it is unlikely to be discovered for some time amounts to deliberate concealment of the facts involved in that breach of duty”

THE FINDINGS OF THE JUDGE AT FIRST INSTANCE

The judge at first instance held that the limitation period had not expired.  The claimant company had not been trading when the concealed information came to light.

Foxton J held that, in those circumstances, the fact in question (the existence of a price-fixing cartel to which the appellants were party) could not with reasonable diligence have been discovered by the claimant respondent (“OTC”), so that the running of time for limitation purposes continued to be suspended until such time as it was discovered or could have been discovered by a reasonably diligent insolvency practitioner. As that had only occurred within six years before the commencement of proceedings, OTC’s claim was not time-barred.”

THE COURT OF APPEAL UPHELD THE JUDGE’S DECISION

The Court of Appeal agreed that the action of this particular claimant was not statute barred.
    1. I begin with the terms of section 32 itself. The issue is whether “the plaintiff … could with reasonable diligence have discovered” the concealment of a price-fixing cartel which distorted competition within the European Union, affecting trade between member states and causing loss and damage to OTC. The following considerations are relevant.
    1. First, as Mr Jowell submitted, the same issue arises whether a case is concerned with fraud, concealment or mistake, so that any test of “discoverability” by the exercise of reasonable diligence must be capable of being applied in all three circumstances.
    1. Second, although the question what reasonable diligence requires may have to be asked at two distinct stages, (1) whether there is anything to put the claimant on notice of a need to investigate and (2) what a reasonably diligent investigation would then reveal, there is a single statutory issue, which is whether the claimant could with reasonable diligence have discovered (in this case) the concealment. Although some of the cases have spoken in terms of reasonable diligence only being required once the claimant is on notice that there is something to investigate (the “trigger”), it is more accurate to say that the requirement of reasonable diligence applies throughout. At the first stage the claimant must be reasonably attentive so that he becomes aware (or is treated as becoming aware) of the things which a reasonably attentive person in his position would learn. At the second stage, he is taken to know those things which a reasonably diligent investigation would then reveal. Both questions are questions of fact and will depend on the evidence. To that extent, an element of uncertainty is inherent in the section.
    1. Third, while the use of the words “could with reasonable diligence” make clear that the question is objective, in the sense that the section is concerned with what the claimant could have learned and not merely with what he did in fact learn, the question remains what the claimant (or in the terminology of the section, “the plaintiff”) could have learned if he had exercised such reasonable diligence. That must refer to the actual claimant, in this case OTC, and not to some hypothetical claimant.
    1. Fourth, the section applies to all kinds of claim where there is fraud, concealment or mistake. There is no warrant in the language of the section for a different test to be applied in certain kinds of case, such as cases where the claimant is carrying on business. The application of the test will differ according to the circumstances, but there is a single test.
    1. Fifth, it follows that it is the appellants who need to read into the section a requirement that a claimant which is not in fact carrying on business at the time when facts begin to emerge which would lead to the discovery of the concealment should be treated as if it were. It is not easy to find that requirement in the language of the section, which says nothing about whether the claimant is carrying on business at all, let alone whether it is continuing to do so.
    1. Mr Jowell seeks to find that requirement, not in the statutory language but in the burden of proof, the submission that the status and characteristics of the claimant are fixed once and for all at the date when the concealment occurs, and the Paragon Finance test. I deal with these in turn.
    1. The first two can be taken together. It is common ground that the burden lies on the claimant to prove not only that it did not know but that it could not have known the relevant facts and that this burden falls to be discharged from the outset when a wrong is committed. If the claimant knows about or could with reasonable diligence have discovered the wrong at the time when it is committed, section 32 will have no application and the primary limitation period will apply. In order for the section to be engaged, therefore, the claimant must prove that it did not know about and could not have discovered the wrong from the outset, which in this case means that OTC could not have discovered that it was suffering loss as a result of purchasing DRAM at artificially inflated prices between 1998 and 2002 when it was still in business. Mr Jowell submitted that this serves to fix the status and characteristics of the claimant at the time of the wrongdoing and that later changes, such as going into administration, are irrelevant.
    1. To my mind this conclusion does not follow from the premise. It is for the claimant to prove that it did not know about and could not have discovered the wrongdoing at the time when it was committed, but this does not mean that at all subsequent times the claimant must be treated as if it were still carrying on the same business as it was when the wrong was committed. Before January 2002 OTC was an active purchaser of DRAM, engaged in the assembly and sale of computers. Any consideration of what it could have discovered with the exercise of reasonable diligence would therefore depend upon what could reasonably have been discovered by a company carrying on that business and acquiring the information which such a company could reasonably be expected to acquire from contacts in the business and from trade publications. In the case of a corporate claimant such as OTC, the question will be what could reasonably have been discovered by the officers and employees of OTC whose knowledge was to be attributed to the company. But from January 2002 onwards OTC was in administration and had sold its business and assets. It is not, therefore, a case where the administrators were seeking to rescue the company and the business continued to be carried on under the auspices of the administrators. If it had been, different considerations would have arisen. But as it was, OTC had no remaining officers or employees other than the administrators. Consideration of what OTC could have discovered from January 2002 onwards (in circumstances where it is not suggested that it had acquired any relevant information about the cartel up to that date) must depend upon what information would have been acquired as a result of the exercise of reasonable diligence by its administrators. It could not learn anything in any other way. There is nothing in the fact that it was carrying on business at the time when it suffered the wrong (or while the appellants succeeded in suppressing all relevant facts) which requires it to be treated as if it was still carrying on business at the time when facts about the cartel began to emerge. Section 32 says nothing of the kind.
    1. Ultimately, therefore, Mr Jowell was forced to take his stand on the Paragon Finance test and its approval as “authoritative guidance” in later cases, culminating in its approval by the Supreme Court in the FII case. For convenience I set out again the test stated by Millett LJ:
“The question is not whether the plaintiffs should have discovered the fraud sooner; but whether they could with reasonable diligence have done so. The burden of proof is on them. They must establish that they could not have discovered the fraud without exceptional measures which they could not reasonably have been expected to take. In this context the length of the applicable period of limitation is irrelevant. In the course of argument May LJ observed that reasonable diligence must be measured against some standard, but that the six-year limitation period did not provide the relevant standard. He suggested that the test was how a person carrying on a business of the relevant kind would act if he had adequate but not unlimited staff and resources and were motivated by a reasonable but not excessive sense of urgency. I respectfully agree.”
    1. Mr Jowell submitted that it was necessary to identify the “business of the relevant kind” being carried on by the claimant and that in this case that meant the business of assembling and selling computers. In my judgment, however, it is a mistake to read this passage as creating a special test applicable to business cases (whatever precisely those may consist of), and a still greater mistake to treat the phrase “a business of the relevant kind” as if it were some kind of statutory test applicable in all circumstances where section 32 has to be considered in a business context. As Lewison LJ said in Butters v Hayes [2021] EWCA Civ 252 at [42], “it is a mistake to read a judgment as if it were a statutory text, especially on a point that was not in issue”.
    1. The question which we face in the present case, where a claimant was carrying on business at the time when a wrong was committed, but had ceased to do so by the time when facts began to emerge which might have enabled the wrongdoing to be discovered, did not arise in Paragon Finance or in any of the later cases in which it has been applied. To treat the terms of a judgment as laying down a rule of law applicable to circumstances which were never in contemplation runs counter to the whole approach of the common law, which develops flexibly as new factual situations arise. What was said in Paragon Finance has rightly been described as “authoritative guidance”, and no doubt will provide the answer in many cases, but it can be no more than guidance. To treat it as providing an answer to the present case would be to force a square peg into a round hole. What matters are the language and purpose of section 32.
    1. Accordingly it is necessary to consider whether treating OTC as if it continued in business when in fact it did not gives effect to or defeats the purpose of section 32. As I have explained, the purpose of the section is to ensure that the claimant is not disadvantaged by reason of being unaware of the circumstances giving rise to his cause of action as a result of fraud, concealment or mistake. As the majority of the Supreme Court explained in the FII case, the rationale for the section is the same as that for sections 11 and 14, under which the running of the limitation period in personal injury cases may be postponed until the date on which the claimant acquires or might reasonably be expected to acquire knowledge of facts forming the cause of action. Accordingly these sections also require an objective approach, but nevertheless an approach which is concerned with what the claimant might reasonably be expected to ascertain. It is therefore helpful, by way of analogy, to consider how the court has approached the application of these sections.
    1. In Adams v Bracknell Forest Borough Council [2004] UKHL 29[2005] 1 AC 76 the adult claimant brought an action for damages suffered as a result of the defendant’s failure to diagnose his dyslexia when at school. The House of Lords held that his claim was barred by limitation because a person experiencing serious problems as a result of difficulties with reading and writing could reasonably be expected to have sought professional advice more than three years before the date when the action was commenced. For present purposes, the interest of the case lies in Lord Hoffmann’s approach to the question of what assumptions needed to be made about the claimant. He said:
“33. Section 14(3) uses the word ‘reasonable’ three times. The word is generally used in the law to import an objective standard, as in ‘the reasonable man’. But the degree of objectivity may vary according to the assumptions which are made about the person whose conduct is in question. Thus reasonable behaviour on the part [of] someone who is assumed simply to be a normal adult will be different from the reasonable behaviour which can be expected when a person is assumed to be a normal young child or a person with a more specific set of personal characteristics. The breadth of the appropriate assumptions and the degree to which they reflect the actual situation and characteristics of the person in question will depend upon why the law imports an objective standard.”
    1. In my judgment a similar approach applies to section 32. The section requires an objective standard (what the claimant could have discovered with the exercise of reasonable diligence) but what assumptions are appropriate in the case of a claimant from whom wrongdoing has been deliberately concealed and the degree to which they reflect the actual situation of that claimant will depend upon why the law imports an objective standard. Here, the purpose of the section is to ensure that the claimant – the actual claimant and not a hypothetical claimant – is not disadvantaged by the concealment. In achieving that purpose it is appropriate to set an objective standard because it is not the purpose of the law to put a claimant which does not exercise reasonable diligence in a more favourable position than other claimants in a similar position who can reasonably be expected to look out for their own interests. Rather, claimants in a similar position should be treated consistently. However, a claimant in administration or liquidation which is no longer carrying on business is not in a similar position to claimants which do continue actively in business and it is unrealistic to suggest otherwise.
    1. Mr Jowell protested that it is necessary to treat a claimant in administration or liquidation as if it were still carrying on business in order to achieve certainty, and thereby avoid injustice, for defendants who might otherwise be exposed to claims by companies in administration or liquidation many years after the event. However, as I have explained, an element of uncertainty is inherent in section 32. It is, moreover, unnecessary to be too sympathetic to defendants who have committed fraud (section 32(1)(a)) or who have deliberately concealed wrongdoing (section 32(1)(b)) and who, if they wish to ensure that the limitation period begins to run, can always make a clean breast of their wrongdoing by contacting their victims. This latter consideration does not apply in the case of section 32(1)(c) (relief from the consequences of a mistake) where the running of limitation may be postponed without wrongdoing by the defendant. However, as the facts of FII demonstrate, it may be many years before a mistake comes to light and, even then, there may be considerable uncertainty as to precisely when time begins to run.
    1. For these reasons I conclude that there is nothing in the language of section 32 which requires the claimant to be treated as if it were still carrying on business at the time when facts concerning the wrongdoing begin to emerge and that achieving the purpose of the section does not require any such assumption to be made. As Lord Hoffmann put it in Peconic, it does not follow that because an objective standard is applied, the claimant must be assumed to have been someone else.