Cartel litigation: important ruling that limitation can begin to accrue in advance of a regulator making an infringement decision

On 25 February 2020, the High Court handed down an important ruling: Granville Technology Group Limited (In Liquidation) and Others v Elpida Memory (Europe) Gmbh and Others [2020] EWHC 415 (Comm). This is the first ruling by an English Court on how the Limitation Act 1980 should be applied to secret cartel claims.

The claimants in this case alleged that the defendants had participated in illegal anti-competitive conduct in the DRAM market. The claimants contended that this behaviour had artificially inflated the prices of DRAMs which they had purchased, and they sought damages accordingly. As a “follow-on” damages claim, the claimants sought to rely on the European Commission’s DRAM infringement decision dated 19 May 2010.

The judge concluded that the claims of the first two claimants were time barred, but that the third claimant’s claim was not time barred.

Background

A variety of DRAM producers were investigated by competition authorities in the 2000s. In May 2004 the U.S. Department of Justice fined one of the defendants in the present case $160 million, which was at that time the third largest anti-trust fine in U.S. history.

The claimants in the present case issued their claim on 18 May 2016, just under 6 years from the date of the Commission’s DRAM decision. The first two claimants were termed the Granville Companies, and the third claimant was OTC. All three had entered into liquidation significantly in advance of their claims being issued, and this impacted on the analysis of whether their claims were time barred.

The defendants sought to have the claims time barred at a trial of preliminary issues. The starting position under the Limitation Act 1980 is that a claim found in tort (such as a follow-on damages claim) must be brought within six years of when the cause of action arises. However, section 32(1) postpones accrual of the limitation period where “any fact relevant to the plaintiff’s right of action has been deliberately concealed from him by the defendant”, in which case “the period of limitation shall not begin to run until the plaintiff has discovered the fraud, concealment or mistake… or could with reasonable diligence have discovered it”.

The principal issues for the judge, Foxton, J, to decide on, were: (i) what are the “facts relevant to the plaintiff’s right of action”; (ii) what is meant by “reasonable diligence” in this context; (iii) whether, applying the reasonable diligence test, these claims were time barred; and (iv) whether the claimants’ liquidation impacted the analysis.

Judgment

What are the facts relevant to the plaintiff’s right of action?

Having regard to Arcadia Group Brands Limited and others v Visa Inc and others [2014] EWHC 3561 (Comm) and DSG Retail Limited v MasterCard Incorporated [2019] CAT 5.,[1] Foxton, J, determined that the “relevant facts” comprised those essential matters for a claimant to plead a claim, being: (i) an agreement or concerted practice between the undertakings; (ii) having as its object or effect the prevention or distortion of competition which is appreciable; (iii) which affects trade between member states, or within the United Kingdom, or within Ireland; and (iv) which has caused some loss and damage to the claimant.

Furthermore, the claimant’s actual or constructive knowledge of those facts need only be that which is sufficient to plead a claim to the strike out standard. Foxton, J, had regard to Nokia v AU Optronics Corporation, where it was held that a “measure of generosity” is afforded to claimants in assessing whether they fulfil the strike out standard. This low pleading standard means that limitation can begin to accrue relatively early.

Reasonable diligence

Unless the defendant can prove that the claimant has actual knowledge (perhaps through an admission from the claimant) of the “relevant facts”, the Court will consider whether the claimant could have known those facts had it exercised “reasonable diligence”. This raised two specific issues.

First, did there need to be a “trigger event” which would put the claimant on notice to exercise “reasonable diligence”? Arcadia suggested that there was an “assumption” that a claimant was on notice of a need to investigate, i.e., there was no need to point to an extraneous trigger event. Foxton, J, observed that such an assumption of a need to investigate “would make it very difficult for many claimants to satisfy the s32(1) test”. Accordingly, he held that there needed to be a “trigger” event to put a claimant on notice of the need to investigate and that assessing whether such an event had occurred “must be determined on an objective basis.”

Second, what is expected in terms of “reasonable diligence”? To this issue, Foxton, J, referred to earlier case law concerning fraud including Paragon Finance plc v D B Thakerar & Co [1989] 1 All ER 400, “[The plaintiff] must establish that they would not have discovered the fraud without exceptional measures which they would not reasonably have been expected to take” and Law Society V Sephton & Co (a firm) [2005] QB 1013, “There must be an assumption that the claimant desires to discover whether or not there has been a fraud… Further, the concept of ‘reasonable diligence’ carries with it, as the judge said, the notion of a desire to know, and indeed, to investigate”. Thus, “reasonable diligence” assumes active investigation by claimants.

The Granville Companies as well as OTC had entered into liquidation prior to their claim being filed, and the Court considered whether their status in administration and subsequent liquidation impacted on the “reasonable diligence” standard to be applied. Foxton, J, decided that “the fact that a claimant is a company in liquidation is likely to be most significant in determining whether it can be said that the claimant was reasonably put on enquiry” – i.e., whether there was a trigger event. However, “the question of what constitutes reasonable diligence is unlikely to admit of any substantial distinction between companies which are, and are not, in liquidation.”

Were these claims time barred?

The judgment sets out, in significant detail, the information that was available in the public record concerning possible breaches of competition law in the DRAM market. The first such incidents were June 2002 news reports that a U.S. grand jury had issued a subpoena and that the U.S. Department of Justice was investigating possible anti-competitive practices in sales of DRAM. From July 2004, there were press reports that the Commission was investigating the DRAM market and that Infineon had provisioned €212 for possible fines. The judgment sets out further details on subsequent press reports and events.

In addition to reviewing information available in the public domain, the Court also considered facts that were actually known to the claimants. In particular, in March 2005 a U.S. law firm approached the Granville Companies to propose joining a DRAM class action in the U.S. The evidence showed that Granville’s in-house lawyer had discussions with the U.S. firm, and that the firm provided a draft retainer and a draft complaint setting out allegations.

Against this background, Foxton, J, found that the Granville Companies had been “triggered” prior to July 2005. Furthermore, based on the facts actually known to the Granville Companies or those that were discoverable upon reasonable inquiry, they could have pleaded a claim to the strike out standard.

OTC was in a different position. It entered administration in January 2002, prior to the first public reports concerning DRAM investigations in the U.S. in June 2002. Thus, there was no triggering event for OTC prior to its entering administration. Foxton, J, went on to find that the public information and press reports subsequently available did not put OTC on notice to inquire, applying a less exacting “reasonable diligence” test due to OTC’s being in administration and then liquidation.

Accordingly, the claims brought by the Granville Companies were time barred but OTC’s claim was not.

Comment

This is a significant judgment. In relation to the Granville Companies, the judge ruled that the trigger point for engaging the reasonable diligence test occurred over five years prior to the Commission decision. This approach creates difficulties for would-be claimants. Typically, such claimants will prefer to wait for an infringement decision from the Commission prior to deciding whether to issue proceedings. This is because infringement decisions are binding on the national courts and obviate the need for claimants to prove their allegations – at least insofar as they are within the scope of the infringement decision. This ruling, that limitation can begin to accrue in advance of a Commission infringement decision, will require some would-be claimants to make a decision on whether or not to seek recovery prior to an infringement decision.

Other key points to bear in mind are as follows:

1. Facts are important. The Courts are willing to conduct a detailed inquiry both of facts actually known to claimants and also facts available in the public domain.
2. Once a “trigger event” takes place, the claimant will be treated as knowing the facts it could have known had it exercised reasonable diligence. Limitation will begin to accrue against a claimant with actual or constructive knowledge of the requisite facts to plead to the strike out standard. The strike out pleading standard is low, and the reasonable diligence standard requires active steps. Thus, the key battle is over when and where the “trigger” event took place. In this connection, it is unfortunate that Foxton, J, did not state precisely when the trigger event took place for the Granville Companies (or indeed specifically identify the relevant event). The ruling states only that the event took place prior to June 2005. Consequently, we do not know, for example, whether the June 2002 press reports of the DoJ investigation were, in and of themselves, sufficient to put potential claimants on notice to investigate.
3. It is tactically astute for defendants to seek to have a limitation defence tried as a preliminary issue. If they prevail then they dispose of the case. If they fail, then there is still a settlement window before full trial and a possible award of damages.
4. It is unclear whether the defendants made specific denials of wrongdoing or harm to the claimants in this case. In ECU Group plc v HSBC [2017] EWHC 3011 (Comm) the claimant was seeking pre-action disclosure. The judge did not need to decide whether or not that claim was time barred, but the issue of time bar was relevant to the judge’s exercise of discretion on whether to order disclosure. The judge noted that the defendant had specifically denied any wrongdoing to the claimant, and that this was relevant to assessing limitation.

Limitation is a complex subject, particularly in cartel litigation. An a priori question is to determine the substantive law of the dispute, as those limitation rules should be applied. Even within English Law there are different regimes, with the Competition Appeals Tribunal applying its own limitation rules for claims where the cause of action accrued prior to October 2015. Finally, the Antitrust Damages Directive provides that limitation periods are delayed whilst a competition authority is investigating. But this aspect of the Damages Directive does not have retrospective effect under English law and so did not apply to this case. That all said, this ruling does bring some welcome clarity to how the Limitation Act 1980 applies to cartel cases.

[1] These were both claims which contended breach of Article 101 TFEU, but they were not “secret cartel” claims.