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


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;

The limitation period normally begins to run on the date when
the cause of action accrues. It is not postponed until the claimant
has consulted a solicitor, carried out investigations, and is in a
position to plead a statement of claim. For example, a pedestrian
who is knocked down and injured by a car while using a zebra
crossing has a cause of action against the driver, which accrues on
the date of the accident. It will take time before he can issue a
claim: he will need to consult solicitors, and counsel may have to
be instructed to draft the claim. There may be many matters which
have to be investigated, and that may take time. And it may be that
his claim will fail in the end, if, for example, it is found that
he suddenly ran into the path of the car, or that the driver had a
heart attack and lost control of the vehicle. Nevertheless, the
limitation period begins to run on the date of the accident. It is
not postponed until he has completed his investigations, or until
he knows that his claim is guaranteed to succeed.

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]):

It makes no sense to say that the test for whether the
limitation period has begun to run is when the claimant recognises
that it has a worthwhile claim, and then to say that it does not
have a worthwhile claim when it knows there may have been a cartel,
but did not know, for example, the period during which the cartel
operated. The formulation for the necessary knowledge is
“knowing with sufficient confidence to justify embarking on
the preliminaries to the issue of a writ”. One can embark on
the preliminaries to the issue of a writ once one knows that there
may have been a cartel without knowing chapter and verse about the
details. That is what one either finds out when making
investigations or will only find out upon disclosure within the
eventual proceedings.

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.



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