Supreme Court confirms that the expectation of liquidators to identify 'concealed' claims is not the same as that of trading companies

In April 2021 we reported that the Court of Appeal had confirmed that, in claims involving fraud or deliberate concealment (such as cartel damages claims), liquidators of an insolvent company will not be treated as having constructive knowledge of concealed claims that they would only have discovered if they were in the position of a director of a trading company. Osborne Clarke acted for OT Computers, the insolvent claimant (represented by Nick Wood, insolvency practitioner at Grant Thornton UK LLP) in the proceedings, OT Computers Limited (In Liquidation) v (1) Infineon Technologies AG and (2) Micron Europe Limited. 

The defendants in the claim, which relates to a cartel for the sale of dynamic random-access computer memory (DRAM), then sought permission from the Supreme Court to appeal against the Court of Appeal's judgment, after the Court of Appeal refused to grant the permission.

The Supreme Court has now also refused permission to appeal (in a decision dated 4 April 2022), meaning that the Court of Appeal judgment stands. The Supreme Court does not need to give detailed reasons for its decision and its ruling simply states that the application for permission is refused because it "does not raise an arguable point of law".

The legal issue

Claimants seeking damages must generally bring their claim within six years of the damage arising. However, where the conduct giving rise to the damage is "concealed" by the wrongdoers, the clock does not start ticking until the claimant could "with reasonable diligence" have discovered and pleaded the claim. The application of the "reasonable diligence" test can be contentious when there was information in the public domain that the claimant was not in fact aware of.

It is now settled law that, in the case of a company being administered by an insolvency practitioner, it cannot be expected to be aware of the same degree of information as if it had still been trading. The defendants' argument that this approach would lead to an unacceptable distinction between trading and insolvent companies has been rejected. However, it remains the case that, once on notice of a potential claim, a liquidator is expected to undertake further investigations in much the same way as a trading company.

Osborne Clarke comment

The decision will be welcomed by insolvency practitioners who might otherwise have been put in the unrealistic and impractical position of having to actively monitor the trade press and maintain industry connections even after a company stopped trading to avoid the risk of concealed claims becoming time-barred. More generally, the decision not to allow the appeal confirms that although claimants in "concealed damage" cases should be judged objectively on what steps they should have taken to identify claims, this does not mean that they must all be treated as being the same or as having their characteristics fixed at a single point in time. It therefore seems likely that the question of what constitutes "reasonable diligence" will continue to be debated in cartel damages claims, particularly where collective ("class") actions are brought by representatives.