Limitation & the worthwhile test
- The Court of Appeal has clarified the applicable test for determining limitation under s 32(1)(b) of the Limitation Act 1980, finding that time began to run when the claimant recognised that it had a worthwhile claim.
- A claimant in a deliberate concealment case would be advised not to delay in bringing its claim, given that time may have begun to run at an earlier stage than anticipated.
There has been a spate of recent cases where the courts have grappled with the question of the correct test to apply to determine when time starts to run for limitation purposes in the context of claims involving fraud, deliberate concealment or mistake. The latest decision on the topic comes courtesy of the Court of Appeal in Gemalto Holding BV and others v Infineon Technologies AG and other companies  EWCA Civ 782,  All ER (D) 36 (Jun) in a judgment that usefully pulls together what had started to look like diverging strands of case law, and provides clear guidance for prospective claimants on when the limitation trigger may be pulled.
Gemalto is engaged in the manufacture and supply of smart card chips. Smart card chips are physical electronic authorisation devices that are used to control access to information. They are found in a variety of applications including SIM cards, bank cards, identity cards and passports.
Gemalto’s claim arises out of an unlawful cartel in which the defendant parties had participated. Investigations into the cartel began in 2008 when European Commission (EC) officials carried out inspections at the premises of various smart card chip producers. The EC announced its inspections on 7 January 2009, thus putting the world and its media on notice of the EC’s enquiries.
In short, the EC was concerned that some smart card chip suppliers may have participated in a cartel putting them in breach of Art 101 of the Treaty on the Functioning of the European Union (TFEU) and Art 53 of the European Economic Area (EEA) Agreement on the basis that they had agreed or co-ordinated their behaviour in the EEA in order to push up and keep up the prices of smart card chips.
In July 2012 and September 2012, companies within the Gemalto group received two requests for information (RFIs) from the EC. Those RFIs contained additional information relevant to the EC’s investigation, including identification of the period that the EC was concerned with (stated as being from 2003 to 2006).
On 22 April 2013, the EC made a further announcement, this time that it had sent a statement of objections (SO) to a number of suppliers of smart card chips that it suspected had participated in the cartel. An SO is a formal step in the EC’s investigations into suspected violations of EU competition rules. They are used to enable the EC to inform the parties concerned in writing of the objections raised against them.
On 3 September 2014, the EC announced that it had fined Renesas (a joint venture between Hitachi and Mitsubishi), Infineon, Samsung and Philips a total of just over €138m for anticompetitive practices. The EC found that they, in their capacity as producers of smart cards, had entered into mutually beneficial bilateral agreements between September 2003 and September 2005 and, by those agreements, had unlawfully coordinated their pricing behaviour by actions such as agreeing to exchange commercially sensitive information on price and customer details. Those agreements served to restrict competition on innovation and price, in breach of the aforementioned EU competition rules.
On 19 July 2019, Gemalto issued a damages claim against Infineon and Renesas in respect of the losses that it said that it had suffered arising out of the defendants’ involvement in the cartel. Gemalto relied on the EC’s findings,
arguing that the facts necessary to enable it to prove its claim had been deliberately concealed from it by the defendants. The date of issue of Gemalto’s claim was within six years of the EC’s 2014 infringement decision, but more than six years after 22 April 2013, when it became public knowledge that the EC had issued a SO.
The defendants’ position & the legislation
The defendants contended that Gemalto’s claim was time-barred by virtue of the provisions of s 32(1) of the Limitation Act 1980 (LA 1980). That section provides inter alia that where, in the case of an action for which a period of limitation is prescribed, either:
a) the action is based upon the fraud of the defendant; or
b) any fact relevant to the claimant’s right of action has been deliberately concealed 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 claimant has discovered the fraud, concealment or mistake (as the case may be) or could with reasonable diligence have discovered it.
Section 32(2), LA 1980 goes on to provide that 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.
The defendants’ position, in short, was that while they accepted that there had been deliberate concealment such that s 32(1)(b), LA 1980 was in principle engaged, Gemalto’s claim had been issued more than six years after the date on which its cause of action began, and it was therefore out of time.
The question then was when had time started to run for the purposes of s 32(1) (b)? Was it when the EC announced the adoption of the cartel decision (the position adopted by Gemalto), in April 2013 when the EC announced that it had sent a SO to suspected participants in the cartel (the position adopted by the Defendants), or some other date?
What did the High Court say?
Limitation was considered by the High Court as a preliminary issue ( EWHC 156 (Ch)). In giving her judgment, Mrs Justice Bacon considered the application of two tests:
a) the statement of claim test; and
b) the worthwhile claim test.
The former requires an analysis of whether a claimant had, or could with reasonable diligence have, obtained such knowledge as would allow it to properly plead a claim which would not be liable for strike out as unarguable or lacking in sufficient evidential detail (see its application in competition law cases such as Arcadia Group Brands Ltd and others v Visa Inc and others  EWCA Civ 883,  All ER (D) 43 (Aug) and DSG Retail Ltd and another v Mastercard Incorporated and others  EWCA Civ 671).
The latter is the test set out by the Supreme Court in Test Claimants in the Franked Investment Income Group Litigation and others v HMRC  UKSC 47 (FII). That test provides that time will begin to run when a claimant knows, or could with reasonable diligence know, that it has a worthwhile claim. A claimant must have sufficient knowledge of the mistake or concealment (as the case may be) with sufficient confidence to enable it to pursue a claim and commence the preliminary steps towards issuing proceedings.
The High Court used the statement of claim test for the purpose of determining the issue (noting that there was in most cases unlikely to be a real difference between the application of the two tests). It held that at the point that the EC announced the issuance of its SO, Gemalto had sufficient information available to it to form a reasonable belief that it had a claim against the defendant parties and that such information was sufficient to enable it to plead a claim—ie it did not need to wait for the EC’s final decision. As such, time had begun to run in April 2013 which was more than six years before the date of issue of Gemalto’s claim. Thus, Gemalto was out of time.
Gemalto sought, and obtained, permission to appeal.
What did the Court of Appeal decide— and why?
Unfortunately for Gemalto, the Court of Appeal (acting by Sir Geoffrey Vos, Master of the Rolls, Lord Justice Green and Lord Justice Birss) unanimously dismissed the appeal.
In his judgment, the Master of the Rolls identified three key issues to be determined:
(1) What the applicable test is to determine when time begins to run in a case where any fact relevant to a claimant’s cause of action has been deliberately concealed by a defendant
FII concerned mistake as opposed to concealment. In his judgment in Gemalto, the Master of the Rolls rehearsed the reasoning given by the Supreme Court in FII, stating that it was necessary to take proper account of that reasoning in considering the proper construction of s 32, LA 1980, even when a case was concerned with deliberate concealment (as was the case here) and not mistake.
The premise of the reasoning given in FII was that there was a paradox that a claimant might be unable to ‘discover’ the existence of their cause of action for the purposes of s 32 until long after they had (a) commenced their claim; and (b) succeeded in it. This ultimately led to the adoption of the FII test for mistake cases, namely that time runs from the point in time when a claimant has discovered (or could with reasonable diligence have discovered) that it had been mistaken with sufficient confidence to justify embarking on the preliminaries of commencing proceedings or its mistake in the sense of recognising that a worthwhile claim arose.
In Gemalto, the Master of the Rolls said that the reasoning adopted in FII should apply equally to fraud and deliberate concealment cases. He went on to say that the most difficult part of this particular aspect of Gemalto’s claim was the question of whether, in a concealment case, the worthwhile claim test required a claimant to have discovered every essential element of its claim that had been concealed. The pre-FII cases were clear that that was necessary. However, post-FII, that could no longer be necessary, in cases of concealment at least.
Thus, the position after FII must be that limitation will begin to run in a deliberate concealment case when a claimant recognises that it has a worthwhile claim. A worthwhile claim arises when a reasonable person could have a reasonable belief that, as in a case such as Gemalto’s, there had been a cartel.
While the Court of Appeal held that the appropriate test to apply was different to that applied by the High Court, it was also held that that made little difference in practice—the statement of claim test (as applied by the High Court) being ‘little more than a gloss on the FII test’.
(2) Whether the High Court Judge had been right to place reliance on Gemalto’s knowledge of the SO
The High Court found that Gemalto could properly have pleaded a claim following the announcement of the SO because the announcement, combined with the other material then available, allowed it to identify the essential elements of the cartel. Part of the rationale provided was that, by the time the EC adopted a SO, it would have a far fuller evidential base for the infringements alleged than would normally be available to an individual claimant bringing a standalone cartel damages claim, without the extensive investigatory powers of the EC. The Master of the Rolls agreed with that analysis, noting that the FII test does not require a claimant to have everything it needs to succeed in its claim on the day that limitation begins to run. Instead, it needs to have discovered the facts relevant to its right of action which have been deliberately concealed from it. A public statement by a regulator, made following a four-year investigation, that they believe that there is evidence that a cartel was in place can only be powerful evidence in support of that knowledge.
(3) Whether Gemalto had sufficient knowledge of the period of the cartel in order to allow time to start to run in April 2013
The High Court held that Gemalto could legitimately have pleaded the period of a cartel on the basis of the information provided in the EC’s RFIs. The Master of the Rolls also agreed with this, noting that a pleading that the cartel had taken place ‘in or around 2003 to 2006’ would have been a worthwhile claim and would not have been struck out.
The Court of Appeal’s judgment neatly pulls together case law that had been heading in two directions on which test to apply when interpreting s 32, LA 1980. It provides crucial guidance for any claimant looking to allege that there has been deliberate concealment on the part of a defendant, particularly in the context of cartel-related damages claims.
What is now clear is that, when dealing with a case concerning deliberate concealment, for the purposes of s 32, time will begin to run when a claimant recognises that it has a worthwhile claim. It does not need to know all of the intricate details about the subject matter of its claim, nor does it need to wait for a final decision and finding of infringement from the regulator in the relevant field. In practical terms, this means that a claimant may well find that time begins to run at an earlier stage than it otherwise would have anticipated, and it should not necessarily wait until it feels it has all the pieces of the puzzle before bringing a claim.
This article was first published in the New Law Journal in September 2022.