Preserving Causes Of Action In An Insolvency Context: Reasonable Diligence And The Limitation Act

• Published date: 11 August 2021
• Subject Matter: Corporate/Commercial Law, Anti-trust/Competition Law, Insolvency/Bankruptcy/Re-structuring, Corporate and Company Law, Insolvency/Bankruptcy, Cartels, Monopolies
• Law Firm: Gatehouse Chambers
• Author: Mr James Shaw

What is reasonable diligence when a company has entered an insolvency process and has abandoned its trading functions?

The Court of Appeal considered this issue in OT Computers Ltd v Infineon Technologies Ag & Anor [2021] EWCA Civ 501, in interpreting the statutory postponement of a primary limitation period by s.32 Limitation Act 1980 ("LA 1980") in circumstances where facts relevant to the cause of action were deliberately concealed from the Claimant/Respondent ("OTC"). This case is part of a slew of recent reported decisions on limitation issues.

In this case, the wrongdoing giving rise to the proposed claim (the "Relevant Facts") had occurred when OTC was a trading company, but actual knowledge of the same did not arise until long after OTC had entered administration and ceased trading. The central question for the Court was whether, for the purposes of s.32 LA 1980, the fact that OTC had ceased trading before the Relevant Facts became public knowledge should be ignored by the Court in assessing whether OTC had exercised 'reasonable diligence' in that period in seeking to discover the concealed Relevant Facts.

Background

OTC was a company involved in the business of assembling and selling desktop computers. It purchased parts from the Appellants ("Micron" and "Infineon" respectively) for this purpose, before entering administration in January 2002 (pursuant to which its business and assets were sold to competitors). OTC remained a shell entity with neither business nor assets until February 2004 when it entered into liquidation.

Between 1998 and mid-2002, unknown to OTC (and others), Micron and Infineon had participated in a price-fixing cartel in the computer parts industry, in respect of which they were eventually the subject of adverse findings by the European Commission in a decision adopted on 19 May 2010 and resulting in regulatory fines of approximately EUR 331 million (the "Regulatory Decision"). It was also common ground, however, that events leading up to the Regulatory Decision had begun in mid-2002, including Micron's subpoena from a Grand Jury and attendant press reports regarding investigations by the US Department and the EU Commission into Micron, Infineon, and others for anti-competitive practices.

On 18 May 2016, OTC and some other customers of Micron and Infineon (the "Granville Companies") brought 'follow-on' proceedings alleging infringements of Art 101 TFEU. The particularly astute reader will have noticed that these claims were issued one day before the expiry of six years from the date of the Regulatory Decision.

Defending the claims, Micron and Infineon argued, inter alia, that the claims were time-barred under the LA 1980, the cause of action having first accrued between 1998 and 2002 during the operation of the cartel.

The section 32 argument

In response, OTC and the Granville Companies relied on s 32 LA 1980 which, they argued, suspended the running of time for limitation purposes (such that their respective claims were not time-barred).

Section 32 LA 1980 provides, inter alia:

(1) [...], where in the case of any action for which a period of limitation is prescribed by this Act, [...]

(b) any fact relevant to the plaintiff's right of action has been deliberately concealed from him by the defendant;

[...]

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 [...]

(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".

OTC and the Granville Companies therefore contended that, although the cause of action accrued between 1998 and 2002, time had been suspended by s.32 as a...