UK: Anti-Competitive Cartels, Mistakes Of Law, And Unfair Credit Relationships: Deliberate Concealment And Mistakes Under The Limitation Act 1980

In the recent case of Gemalto Holding BV & Ors v Infineon Technologies Ag & Ors [2022] EWCA Civ 782, the Court of Appeal held that the correct approach to postponing the start of the limitation period in cases of deliberate concealment is that set out by the UKSC test set out in Test Claimants in the Franked Investment Group Litigation v HMRC [2020] UKSC 47 for cases of mistake, and not the 'statement of claim' test set out in Arcadia Group Brands v. Visa [2015] EWCA Civ 883. In this post, we consider why the Court of Appeal in Gemalto considered it appropriate to apply an analogy between deliberate concealment and mistake, and the more practical questions of how much a prospective claimant needs to have discovered of what has been deliberately concealed from him such that time begins to run. We also consider the wider implications of Gemalto in other areas of law; in particular, PPI claims and postponing the start of the limitation period where an unfair relationship under the Consumer Credit Act 1974 by virtue of undisclosed commissions earned by lenders is alleged.

Background

The Defendants were producers of smart card chips, who had been the suppliers of these chips to the Claimant ('Gemalto').

On 7 January 2009, the EU Commission published press releases stating that a surprise inspection had been conducted at the premises at several unnamed producers of smart card chips in EU Member States. The press releases were qualified with statement that inspections of this sort were a preliminary step in investigating suspected cartels but did not mean there had been a cartel.

Nevertheless, on the same day, Gemalto began internal processes and soon learned that both Defendants had been raided by the Commission. By 16 January 2009, Gemalto had consulted with a law firm with 'heavyweight' experience in competition law.

On 3 July 2012 and 25 September 2012, Gemalto received two Requests for Information (RFIs) from the Commission regarding the suspected cartel. These RFIs identified a time period of between 2003 and 2006 for their inquiries. Gemalto promptly responded to both RFIs within a matter of weeks.

The Commission then published a press release on 22 April 2013, which referred to its having sent a Statement of Objections to the participants in the alleged cartel. This was followed by an infringement decision dated 3 September 2014 finding that between 2003 and 2005 various named suppliers of smart card chips, including the Defendants, had unlawfully coordinated their pricing behaviour and exchanged competitively sensitive information.

Accordingly, Gemalto issued proceedings on 19 July 2019 claiming losses arising from the unlawful cartel in which the Defendants had participated.

The Law and the Issues

The Defendants accepted there had been deliberate concealment such that s 32(1)(b) of the Limitation Act 1980 was in principle engaged. The issue in dispute between the parties was when Gemalto had 'discovered' the concealment such that time started to run under that section.

Section 32 of the Limitation Act 1980 provides as follows:

(1) ... 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.

The Court Below

The Judge (Bacon J) identified two tests for determining when time starts to run in concealment cases for the purpose of s 32(1)(b):

1. The "Statement of Claim" test applied in Arcadia Group Brands v. Visa [2015] EWCA Civ 883 and in other cases: time starts to run when the claimant had, or could with reasonable diligence have, obtained such knowledge as would allow it and its professional advisors properly to plead a claim that would not be liable to be struck out as unarguable or lacking a sufficient evidential basis.

2. The "FII" test in Test Claimants in the Franked Investment Group Litigation v. HMRC [2020] UKSC 47 (FII)). This case concerned a mistake of law, but the test adumbrated by the UKSC was that time starts to run when the claimant knows, or could with reasonable diligence know, that it has a worthwhile claim. The claimant must know about the mistake (or in this case the concealment) with sufficient confidence to justify embarking on the preliminaries to the issue of proceedings, such as submitting a claim to the proposed defendant, taking advice and collecting evidence.

Neither side had, however, identified any practical difference between the two tests. Accordingly, the Judge applied the 'statement of claim test' and determined that Gemalto could legitimately have pleaded a cartel covering 2003–2006 from 22 April 2013 when the Commission's press statement regarding the Statement of Objections was published.

Accordingly, the Judge held that the claims, issued more than 6 years after this date, were statute barred.

The Present Appeal

On Gemalto's appeal, the Court of Appeal considered three issues:

1. what, after FII, is the applicable test to determine when time begins to run in a case where any fact relevant to the claimant's right of action has been deliberately concealed by the defendant;
2. whether the judge was right to place reliance on Gemalto's knowledge of the existence of the Statement of Objections; and
3. whether Gemalto had sufficient knowledge of the period of the alleged cartel to allow time to run at the end of April 2013.

(i) Issue 1: Concealment Cases

Vos MR, with whom Green and Birss LJJ agreed, considered that, even if FII was a case on mistake, it was necessary to take "proper account" of the reasoning of the Supreme Court regarding the proper construction of s 32 of the Limitation Act 1980 when considering subsection (1)(b) concerning concealment. In particular, the Court of Appeal should take care to adumbrate a test consistent with the reasoning of the majority in FII.

Hence, Vos MR considered it sufficient to observe that much of the Supreme Court's reasoning in FII was expressly and directly applicable to cases of fraud and concealment. Vos MR referred in particular at [34] to the majority's example of a pedestrian injured in a road traffic accident;

Hence, if there were any differences between the three subsections of s 32(1), such differences would be found either (i) in the stricter rules of pleading in fraud in contrast to pleading mistake or concealment; or (ii) the fact that the event relevant to a s 32(1)(c) postponement in mistake is based on discovering something affecting how the claimant has acted, whilst ss 32(1)(a) and (b) postponement in deliberate concealment and fraud cases is generally based on discovering conduct by the defendant. Vos MR, however, considered that (i) did not apply to competition cases, as "if anything, the secret nature of a cartel leads to a more liberal approach to pleading in advance of disclosure;"' and (ii) appeared to be a "distinction without a real difference" where the meaning of "discover" is concerned.

Vos MR therefore applied the test in FII and considered that time starts to run in a deliberate concealment case when the claimant knows he has a worthwhile claim; and that "discovery" of the concealment in this context means "to have a reasonable belief,' not 'ascertain the truth,' in relation to what has been concealed. In the case of a cartel, a claimant discovers he has a worthwhile claim when he has a reasonable belief that there has been a cartel.

From this, Vos MR considered that the most difficult aspect of the present case was whether, in a concealment case (and perhaps in a fraud case also), the FII test requires that the claimant has discovered "every essential element of the claim that has been concealed." In practical terms, does the FII test require Gemalto to know all the essential details of the cartel, including, for example, the period during which the cartel was in existence?

Vos C recognised that the pre-FII cases made clear that that was necessary, however, expressed the view that "post-FII, that can no longer be necessary at least in a concealment case." In Vos MR's view (at [50]):

Hence, a claimant in a cartel case can begin preliminary investigations when it knows there may have been a cartel and the identities of the participants. Once the claimant knows objectively thus that a cartel has been concealed, it does not need to have certainty about its existence or about the details of that cartel; this is what is discovered upon making the investigations that precede the issue of any claim or in the disclosure process.

Issues 2 and 3: The Present Facts

Vos MR considered the Judge had been right both to rely on the Statement of Objections as founding a reasonable belief in the existence of a cartel; and to have held that Gemalto had sufficient knowledge of the time in during which the cartel was in existence such that time began to run at the end of April 2013.

Vos MR further considered it worth commenting on the status of the Statement of Objections following FII. In his view, it was 'obvious' that once the regulator publicises the fact that it believes, subject to defences, that there is prima facie case that certain persons have participated in an unlawful cartel, a claimant knows that it has a worthwhile claim. Vos MR considered that "a claim pleaded on the basis of that information and inferences drawn from it would never be struck out without the court being able to see the Statement of Objections itself, which would provide many of the details that a claimant from whom the cartel had previously been concealed would be lacking."

Commentary

The Court of Appeal has now made it clear that the test outlined in the FII case is applicable to cases of deliberate concealment and not confined to cases concerning mistakes of law. The decision provides further clarity on the application of Section 32 of the Limitation Act 1980 and will, no doubt, be of interest to practitioners working on cases concerning the sale of Payment Protection Insurance (PPI) and alleged unfair relationships under the Consumer Credit Act 1974 by virtue of undisclosed commissions earned by lenders.

The Court of Appeal has now held that the so-called "statement of claim test" acts as a gloss on the test identified in FII (i.e. that limitation begins to run when the claimant recognises that it has a worthwhile claim). However, the Court did recognise that it was possible that applications of the differing tests could, in principle, make a difference to whether or not a claim is time-barred.

In cases of concealment, the trigger to start time running is the Claimant's discovery of the concealment. It is not necessary for the Claimant to know the intricacies of the matters concealed. In this case, the fact that a cartel had been concealed was sufficient to start time running. Applying this reasoning to where an unfair relationship is alleged to have arisen under the Consumer Credit Act 1974, the discovery of the concealment of an element rendering the relationship unfair (e.g. undisclosed commission) may be sufficient to start time running (providing, of course, that the failure to disclose amounts to concealment); ignorance of the precise details of the matter allegedly concealed (e.g. the amount of commission) may not postpone the start of the limitation period. Of course, much will depend on the facts of any case.

The Court also held (at [46]) that a claim in respect of a concealed event would not be a worthwhile one if it were pure speculation, but would be if, an authoritative regulator had thought it sufficiently serious, having investigated all the evidence available, to lay charges or issue a statement of objections. Again, applying this by analogy to cases concerning unfair relationships due to undisclosed PPI commission, the publication of the Competition Commission's Market Investigation Into Payment Protecting Insurance on 29 January 2009, might well be sufficient to establish that a given claimant had sufficient knowledge that it had a worthwhile claim.

The Court made it clear (at [47]) that the question as to whether a claim is worthwhile is not a complex balance of the chance of success. However, if the putative claim would have been struck out, then the claim cannot be said to have been one that was worthwhile. The Court, however, observed (at [85]) that no legal representative seeking to strike out a claim could, in accordance with that person's overriding and primary professional duty to the Court, properly advance an argument that the pleading was premature or inadequate knowing that its client was aware of the details of the relevant concealed matter. Moreover, the Court indicated (at [85]) that the courts will adopt a relaxed approach to the pleading requirements where it is known that the detailed facts relevant to the cause of action have been, and remain, largely concealed.

The fact that there is an ongoing dispute as to the wrongdoing is insufficient to postpone the limitation period. In particular, it is in the nature of litigation that facts and law are disputed. A dispute as to an element of a cause of action does not mean that a claimant cannot know it has a worthwhile claim. The test is not one of certainty.

Finally, the Court addressed the risk that its decision would prejudice unwary consumers. It held (at [89]) that the application of the test in FII was fact and context sensitive and took into account the nature of the claimant (corporate or otherwise). It held that the position of a consumer relative to that of a corporate litigant may be very different. In particular, it drew attention to the fact that a typical consumer might be unlikely to have specialist advice or resources to investigate and understand matters. It remains to be seen, what the position is in relation to consumers who allege unfair relationships arising out of the sale of PPI in circumstances where there has been widespread media attention on the topic since the early 2000's. Of course, much will depend on the particular consumer claimant.

The decision shines light on the application of Section 32. However, it is by no means the last important decision likely to have an impact on cases concerning alleged unfair relationships. In June this year, the Supreme Court heard submissions in the appeal of Canada Square Operations Ltd v Potter [2021] EWCA 339. The Supreme Court will soon decide on the meaning of "deliberate" and "concealment" under Section 32. It is hoped that the decision will provide much-needed further clarity on the application of Section 32 in disputes concerning the sale of PPI. In the event that the Court holds that Canada Square's failure to disclose the amount of commission amounts to deliberate concealment, one will still expect arguments to be raised by both sides in reliance on the decision in Gemalto. Should the Court hold that it did not amount to deliberate concealment, it may be that Claimants in cases concerning undisclosed commissions will no longer be able to rely on Section 32 at all. The obvious consequence would be a reduction in the large volume of such cases before the County Courts.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.