When does the limitation clock start ticking in cartel damages claims?

In a case which has important ramifications for cartel damages claims and insolvency practitioners, on 25 February the High Court handed down a judgment which could make it harder for claimants seeking to bring such actions under English law.

As previously reported, the Commercial Court recently heard a preliminary issue trial on the question of when the limitation clock starts running in cartel damages claims relating to the DRAM cartel. (DRAM is a form of memory widely used in PCs.) Foxton J found that the claims of one claimant were not time-barred but that the claims of the other two (related) claimants were time-barred.

All the claimants are now in liquidation but they went into liquidation at different times. The arguments were about:

• what knowledge was necessary to start the limitation period running where the wrongdoing had been concealed; and
• the extent to which a claimant should search for information available in the public domain in order to be able to plead its case.

What was the case about?

On 19 May 2010, the European Commission published a decision detailing the settlement (involving fines of over EURO 300 million) which it had reached in a cartel case involving 10 producers of DRAM memory chips used in PCs and servers. The Commission found that the producers had engaged in an unlawful cartel from 1998 to 2002 in the DRAMs market. The producers had co-ordinated the prices that they charged to major PC manufacturers (“major OEMs”).

The three claimants – all companies engaged in the assembly and sale of PCs and notebooks ("OTC", "Granville" and "VMT) - sought damages from the cartelists in respect of the alleged price-increases from the cartel.

Limitation period issue

The proceedings were commenced on 18 May 2016, within six years of the date of the Commission's decision. Although this was more than six years from the date of the infringements by the defendants, the claimants sought to rely on section 32(1)(b) of the Limitation Act 1980. In cases where the right of action has been deliberately concealed by the defendant – as is necessarily the case where a cause of action has arisen as a result of actions by a secret cartel – the commencement of the limitation period is delayed until the date of actual discovery of the facts necessary to plead the claim or the date on which the claimants could with "reasonable diligence" have discovered the necessary facts.

The claimants' argument was that they could only have discovered the existence of the cartel and been able to plead their claim when the European Commission published its decision. The defendants argued that the facts necessary to plead the claim could with “reasonable diligence” have been discovered before the publication of the Commission’s decision; they relied on public information available about a US Department of Justice investigation into a price-fixing conspiracy between a number of DRAM suppliers in the period from 1999 to 2002.

(The case was not subject to the new limitation rules in the Damages Directive.)

The Commercial Court judge (Foxton J), determined that:

• The limitation period for the claims of the first and second defendants, Granville and VMT, began from a date which preceded the publication of the Commission's decision and were therefore time-barred. This was based on a finding that the information available prior to the Commission's decision was sufficient to plead a claim based on reasonable inferences. The judge noted the measure of generosity given to claimants in strike out applications in these forms of claims where the information is all in the hands of the defendants.
• The limitation period for the claims of the third claimant, OTC, did not start to run until the publication of the European Commission decision. Its claims are therefore not time-barred. This different outcome was based on the fact that there was no reason for a company which had ceased trading and entered into administration to be put on notice of a potential claim (hence giving rise to a duty to investigate further) by the relatively limited information that became public at a later date.

What constitutes "reasonable diligence"?

Central to the decision was the question of what constitutes "reasonable diligence", and in particular what constitutes reasonable diligence in the context of a liquidation; all the claimants had ceased trading and went into liquidation at different times between 2002 and 2005. The question before the judge was to what extent the particular circumstance of the claimant is relevant to the concept of reasonable diligence: does the fact that a company has ceased to trade affect its obligation to exercise reasonable diligence in pursuing potential claims?

Existing case law establishes that a claimant can only be expected to exercise reasonable diligence in instances where it has been put on notice of the need to investigate a potential claim. In circumstances where the claimant's loss is not readily apparent, this need for a trigger event is important. The judge found that the fact that a company is in liquidation will be most significant when determining whether it was reasonably put on notice that there was something that merited investigation.

• OTC, which ceased trading nearly six months before any reports of the DoJ investigation, did not have any actual knowledge of the US DRAM investigations either prior to its administration or, through its administrators and liquidators, at a later date (before the Commission decision). Furthermore, the material available in the public domain after its administration was not sufficient to be that which a reasonably diligent liquidator would have been expected to discover (absent any knowledge of the need to investigate); it was not, therefore, sufficient to put OTC on notice of a potential claim.
• OTC should not be treated as though it were any other computer manufacturer still trading in the DRAM market. This was significant because the judge considered that a trading company purchasing DRAM would have become aware in the ordinary course of the events in the US.
• A liquidator should not be expected to have read and taken note of every article in every mainstream news publication. For OTC, therefore, the limitation period commenced no earlier than the date of publication of the Commission's decision.
• However, when it comes to considering whether a claimant had acted with reasonable diligence in investigating matters once it had (objectively) been put on notice, there was unlikely to be any substantial distinction between companies that were in liquidation compared to those that were not. Liquidators should be treated much the same as directors in terms of applying reasonable diligence to investigate claims.
• Foxton J found that both Granville and VMT had, prior to administration, actual knowledge of certain aspects of the US investigations from which they could have inferred sufficient details about the European investigation to plead a claim. The matter of entering administration did not change the position, as the fact of entering administration does not serve to wipe a corporate memory clean (a point which was not disputed).

Statement of claim test

A further question central to this case was the extent of the knowledge a claimant must either have, (or be able to discover by exercising reasonable diligence), in order to plead its claim. The existing law is summarised by Simon J in Arcadia Group Brands v Visa:

"What a claimant has to know before time starts running against him under s.32(1)(b) are those facts which, if pleaded, would be sufficient to constitute a valid claim, not liable to be struck for want of some essential allegation"

Where a claimant does not have possession of the relevant facts, the question arises as to what extent they should be expected to rely on inferences based on those facts that are available. Here, the question arose in the context of whether publically available information on the US investigation DOJ investigation provided sufficient information to enable the claimants to plead a claim that relied on the cartel being broader in scope that just a cartel affecting the US market, and specifically that it extended to the European Market. Similarly, in order to be able to plead the claim, the claimants would have to make inferences as to the parties involved, the conduct of the conspirators and the impact on the broader market (rather than just the market for major PC manufacturers, as referred to in the US investigation).

Foxton J held that Granville and VMT could have drawn a number of reasonable inferences from the publically available information, which would have enabled them to plead a claim. He relied to a certain degree on the fact that that for strike out applications in relation to competition claims, the courts have afforded a "generous approach" towards claimants when considering whether a claim should be struck out on the basis that it is sufficiently detailed.
Furthermore, the fact that there had been no reference in the US investigation to the Micron company that was the defendant in the English claim did not prevent the claimants from pleading their case against it. Again, an inference could have been drawn that the UK-registered Micron company (being a seller of DRAM in Europe) was liable.

The judge did not accept the claimants' submission that it cannot have been intended by the courts that the generous approach afforded by the courts in respect of strike out applications to assist claimants in follow on actions could be used as a "sword" against claimants for limitation purposes. Nor did he accept the submission that the inference must be the only reasonable inference that could be drawn from the known facts/information.

Contrast with EU decisions?

The decision in this case stands in apparent contrast to the decision in a recent Dutch judgment. In Kemira, the Dutch Appeal Court concluded that an EU law-compatible interpretation of various national laws (Swedish, Spanish and, Finnish law) meant that a claimant was entitled to await the final decision of competition authority, and in so far as applicable, the outcome of any appeals to the decisions. The decision relied on a decision by the Court of Justice of the European Union (CJEU) in Cogeco, in which it found itself similarly troubled by the suggestion that a limitation period might expire before the time a regulatory body had reached its decision as to whether there had been a cartel infringement, and in particular, where potential claimants were uncertain who the infringers might be.

In the light of the Kemira decision, one cannot help but wonder whether the Dutch Appeal Court, applying English law, would have come to the same conclusion as the English court.

Osborne Clarke comment

While the decision has provided useful guidance on the application of the Limitation Act to cartel damages claims and, in particular, companies that have become insolvent, it may encourage defendants to scour the internet for information that could have been sufficient to plead a claim based on inferences.

From a claimant's perspective, it could also be said to impose an unduly harsh burden on those who have only limited knowledge of a possible claim. Claimants may be put in the unenviable position of having to decide whether to pursue claims based on inferences, which although they may be reasonable, may equally be incorrect, or risk their claim being time-barred. In such a situation, the generous approach to claimants in relation to strike-out applications will not serve to help them if the inferences that they were required to draw turn out to be incorrect.

Osborne Clarke act for the claimants in the case.