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21-04-2021

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The decision of the Court of Appeal in OT Computers Ltd v Infineon Technologies AG [2021] EWCA Civ 501 does not give an insolvency practitioner a free pass as regards limitation, but it does give him or her a sporting chance.

The company had, it was alleged, been a victim of a cartel. This only emerged in 2002, shortly after it went into administration. Foxton J ([2020] EWHC 415 (Comm) held that the existence of the cartel could not with reasonable diligence have been discovered by the company, so that time did not run for limitation purposes until it was discovered or could have been discovered by a reasonably diligent insolvency practitioner. The company’s position, he held, differed from that of other claimants who were also victims of the cartel but who were still in business when the facts began to emerge, so their claims were time-barred. The judge gave permission to appeal, which was duly made, the appellants contending that he had been wrong in taking into account the company’s insolvency in considering whether it could have discovered enough about the existence of the cartel to enable it to bring proceedings.

Males LJ identified the issue before the court thus:

“This appeal is concerned with the words ‘until the plaintiff has discovered the … concealment … or could with reasonable diligence have discovered it’ in section 32(1) of the Limitation Act 1980. Specifically, how does that section apply when the defendant deliberately conceals a relevant fact so that (1) it cannot reasonably be discovered by the claimant at the time of the concealment, (2) by the time it could be discovered by a person carrying on business of the relevant kind (here, the assembly and sale of computers), the claimant is in administration, and (3) the matters which would have put a person who continued to carry on such a business on notice of the need for further enquiry would not have come to the notice of a reasonably diligent insolvency practitioner?”

The question, he said, raised a new point by reason of the fact that the company had been carrying on business at the time when the wrong was committed but had ceased to do so by the time the fact of it had begun to emerge. That was a situation that had not been covered by the substantial body of case law on limitation, nor was it contemplated when Paragon Finance plc v DB Thakerart & Co was decided or by any of the later cases in which the approach in Paragon had been applied. Thus, Males LJ felt able to say,

“To treat the terms of a judgment as laying down a rule of law applicable to circumstances which were never in contemplation runs counter to the whole approach of the common law, which develops flexibly as new factual situations arise. What was said in Paragon Finance has rightly been described as ‘authoritative guidance,’ and no doubt will provide the answer in many cases, but it can be no more than guidance. To treat it as providing an answer to the present case would be to force a square peg into a round hole.”

That meant that it was  necessary to consider whether treating the company as if it had continued in business when in fact it had not gave effect to or defeated the purpose of section 32, which was “to ensure that the claimant is not disadvantaged by reason of being unaware of the circumstances giving rise to his cause of action as a result of fraud, concealment or mistake.” He dealt with that by looking at the approach taken to sections 11 and 14 Limitation Act under which the running of the limitation period in personal injury cases could be postponed until the date on which the claimant acquired or might reasonably be expected to have acquired knowledge of the facts relevant to the prospective cause of action.

Among the many authorities considered, Males LJ drew on Adams v Bracknell Forest Borough Council [2004] UKHL 29, [2005] 1 AC 76:

“33. Section 14(3) uses the word ‘reasonable’ three times. The word is generally used in the law to import an objective standard, as in ‘the reasonable man’. But the degree of objectivity may vary according to the assumptions which are made about the person whose conduct is in question. Thus reasonable behaviour on the part [of] someone who is assumed simply to be a normal adult will be different from the reasonable behaviour which can be expected when a person is assumed to be a normal young child or a person with a more specific set of personal characteristics. The breadth of the appropriate assumptions and the degree to which they reflect the actual situation and characteristics of the person in question will depend upon why the law imports an objective standard.”

Males LJ thought that a similar approach should be adopted to section 32:

“The section requires an objective standard (what the claimant could have discovered with the exercise of reasonable diligence) but what assumptions are appropriate in the case of a claimant from whom wrongdoing has been deliberately concealed and the degree to which they reflect the actual situation of that claimant will depend upon why the law imports an objective standard. Here, the purpose of the section is to ensure that the claimant – the actual claimant and not a hypothetical claimant – is not disadvantaged by the concealment. In achieving that purpose it is appropriate to set an objective standard because it is not the purpose of the law to put a claimant which does not exercise reasonable diligence in a more favourable position than other claimants in a similar position who can reasonably be expected to look out for their own interests. Rather, claimants in a similar position should be treated consistently. However, a claimant in administration or liquidation which is no longer carrying on business is not in a similar position to claimants which do continue actively in business and it is unrealistic to suggest otherwise.”

Dealing with a submission from counsel for the second appellant that it was necessary to treat a claimant in administration or liquidation as if it were still carrying on business in order to achieve certainty, and thereby avoid injustice, for defendants who might otherwise be exposed to claims by companies in administration or liquidation many years after the event, the judge accepted that there was “an element of uncertainty…inherent in section 32, but added,

“It is…unnecessary to be too sympathetic to defendants who have committed fraud (section 32(1)(a)) or who have deliberately concealed wrongdoing (section 32(1)(b)) and who, if they wish to ensure that the limitation period begins to run, can always make a clean breast of their wrongdoing by contacting their victims. This latter consideration does not apply in the case of section 32(1)(c) (relief from the consequences of a mistake) where the running of limitation may be postponed without wrongdoing by the defendant. However, as the facts of FII demonstrate, it may be many years before a mistake comes to light and, even then, there may be considerable uncertainty as to precisely when time begins to run.”

Accordingly the judgment of Foxton J was upheld and the appeal was dismissed.

The judgment gives some latitude as regards limitation in the case of a supervening insolvency, but every case will depend on its facts. Whilst it is plainly of assistance to an office-holder, that assistance may be limited. The message for the cautious IP is to get on and investigate the affairs of any company in respect of which he or she is appointed as soon as possible so as to uncover what may have been carefully concealed. That is easier said than done: it is hard to investigate when one does not necessarily know what one is looking for.

 

Frances Coulson
Senior Partner, Head of Insolvency & Litigation

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