In its judgment of 10 June 2022, the Court of Appeal upheld the High Court's decision that a €480 million claim against manufacturers of smart card chips ("SCCs") found to have infringed EU competition law was time-barred.
This was a case where issues of limitation were not governed by the different rules introduced by the EU "Damages Directive" in 2017, and where it was common ground that there had been "deliberate concealment" of facts relevant to the cause of action of the Claimants ("Gemalto"). Mrs Justice Bacon ruled that the essential elements of Gemalto's claim could, on the facts, have been identified upon the announcement of a Statement of Objections (the "SO") by the European Commission (the "Commission") in Smart Card Chips in combination with other materials available to Gemalto. The six-year statutory limitation period was therefore deemed to have started running from at least around the time of the SO being announced.
In upholding this decision, the Court of Appeal has provided some interesting commentary on limitation issues in follow-on damages claim. This briefing takes a closer look at the Courts' analyses and considers the extent to which issues of limitation may be viewed in a different light in future cases.
In the Commission's decision of 3 September 2014 (the "Decision"), various manufacturers of SCCs, including Infineon and Renesas, were found to have infringed competition law by coordinating the pricing of SCCs and exchanging competitively sensitive information between September 2003 and September 2005. A non-confidential version of the Decision was published on 16 December 2016.
Prior to adopting its Decision, the Commission had taken several steps in its investigations of the potential infringement. Dawn raids were carried out on 7 January 2009 on a number of suspected participants. The Commission made a press-release on the same day regarding the investigations; this announcement gathered press attention and was discussed internally at Gemalto.
In July and September of 2012, Gemalto received two requests for information ("RFIs") from the Commission owing to its status as a purchaser of SCCs. The RFIs identified the market being investigated (SCCs in the EU/EEA) and raised questions about particular SCC providers (including Infineon and Renesas) in relation to the period 2003 to 2006.
The Commission issued its SO to the suspected participants to the infringement (identifying the Commission's preliminary view that that they may have breached EU competition rules) on 22 April 2013. Whilst that was not a public document, on the same day the Commission issued a press release identifying that an SO had been issued to "a number of suppliers of smart card chips". Although the press release did not name those suppliers, it was the subject of press attention and Bloomberg reported the same day that certain SCC suppliers, including Infineon and Renesas, had received the SO.
Gemalto subsequently brought a follow-on damages claim in relation to SCCs that were the subject of the infringement against entities in the Renesas and Infineon groups (the "Defendants"). The claim was issued on 19 July 2019.
A preliminary issue hearing took place in January 2022 to determine whether Gemalto's claim was time-barred.
The applicable statutory rules
In circumstances where Gemalto's cause of action accrued prior to 9 March 2017, the applicable statutory limitation period is set out in the Limitation Act 1980 (the "Limitation Act"). Different limitation rules, set out in the Competition Act 1998 (the "Competition Act") following the implementation of the Damages Directive, apply to causes of action accruing on or after 9 March 2017.
The ordinary rule applicable to tort claims, set out in section 2 of the Limitation Act, is that claims are time-barred six years from the date on which the cause of action accrued. As the infringement in Smart Card Chips ended in September 2005, it was common ground that Gemalto's claim would be time-barred under the ordinary rule.
However, in circumstances where there is "deliberate concealment" of facts relevant to the cause of action (which is frequently alleged in follow-on damages claims of this nature and indeed was agreed between the parties in this case), the effect of section 32(1)(b) of the Limitation Act is that the limitation clock only starts to run from the time a claimant discovered, or could with reasonable diligence have discovered, the relevant facts.
The key issues considered by the High Court and the Court of Appeal were:
- What test should be applied in determining at what point the limitation clock will start to run where there has been deliberate concealment?
- Was Bacon J right to place reliance on the SO as founding a reasonable belief in the existence of the infringement?
- Was adequate information available to Gemalto about the facts relevant to its cause of action at the time of the issuance of the SO in April 2013, such that its claim would be time-barred six years later?
Issue 1: What test should be applied in cases of deliberate concealment?
Two alternative tests were considered by both Bacon J and the Court of Appeal:
- The "statement of claim test", which was summarised by the Court of Appeal as "whether 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".
- The so-called "FII test" (established by the Supreme Court in Franked Investment Group Litigation v HMRC  UKSC 47). As summarised by the Court of Appeal, under this test the claimant must know about 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."
Bacon J applied the statement of claim test at first instance, although noted that neither Gemalto nor the Defendants had identified any difference that would result from the application of either of the tests over the other. There was however some debate before the Court of Appeal as to whether that was right.
In the Court of Appeal's lead judgment, the Master of the Rolls concluded that in most cases (including this one) there was unlikely to be a real difference between the two tests, although he chose to apply FII in circumstances where the Supreme Court in that case had recently and comprehensively dealt with the application of section 31(2) of the Limitation Act.
In a case of this kind, it was held that limitation begins to run when the claimant realises that it has a worthwhile claim; a worthwhile claim arises "when a reasonable person could have a reasonable belief that (in a case of this kind) there had been a cartel". The Master of the Rolls emphasised that what constitutes a "worthwhile claim" requires a common-sense application and does not, as Gemalto sought to argue, require "a complex balance of the chance of success".
The Master of the Rolls further went on to say that, following the FII decision, it is no longer necessary, in concealment cases, for the claimant to have discovered every essential element of the claim that has been concealed in order for the limitation clock to start running. Provided that, in a case such as this, the claimant knows that there may have been an infringement of competition law and who participated in it, that is sufficient in order to embark on bringing a claim. It is not necessary to know all of the details.
Issue 2: Was it right to place reliance on the SO?
Before the High Court, Gemalto argued that an SO cannot be relied upon in principle as the basis for pleading a claim in damages because it only represents a preliminary step by the Commission in the context of an investigation; attempting to do so would make the pleading liable to be struck out. Gemalto argued that claimants cannot rely on the inference of an infringement without direct knowledge of the primary facts. Furthermore, Gemalto argued that the judicial policy objective of avoiding the filing of speculative claims meant that such a claim should be struck out.
Bacon J accepted that an SO is a preparatory stage of the Commission's decision-making process. The Defendants were also not seeking to argue that the announcement of an SO by the Commission would, in all cases, provide sufficient information to plead a claim. However, Bacon J confirmed that, in the context of the Commission's in-depth investigative processes, it is reasonable in principle for a claimant to rely upon the announcement of the SO as a basis for a belief in the existence of the infringement referred to in that SO. The extent to which further information may be needed in order to bring a claim will vary on a case-by-case basis (on which, see Issue 3 below). In reaching that conclusion, Bacon J highlighted prior case law establishing that, in cases involving an alleged secret cartel, the courts will take a generous approach to the sufficiency of a pleading.
The Court of Appeal agreed with Bacon J on the reliance that may be placed on an SO. Indeed, putting to one side the information beyond that in the SO that was available to Gemalto in this case (which, as explained below, was important to the outcome), aspects of the Court of Appeal's judgment appear to lend significant weight to the role that an SO might play in allowing a claimant to identify that they have a worthwhile claim. For example, at paragraph 58, the Master of the Rolls noted "It is, in my judgment, 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. 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". Lord Justice Green also noted at paragraph 84 that whilst the fact of an SO having been issued will not, standing alone, start the limitation clock owing to the minimum amount of information the claimant needs to know about their claim, "In practice, however, the minimum details are usually covered in the press release announcing the issuance of the SO and if not are routinely available in the specialist and trade press".
But what are the "minimum details" in a case of this nature, and how did they become available to Gemalto in this case?
Issue 3: Could Gemalto have identified the essential elements of the cause of action when the SO was announced in April 2013?
In the context of a damages claim arising out of a competition law infringement, it was common ground that the essential elements of Gemalto's cause of action were: (i) an agreement or concerted practice between undertakings; (ii) having as its object or effect a prevention or distortion of competition that is appreciable; (iii) which affects trade between EU Member States, or within the UK; and (iv) which has caused loss and damage to the claimant.
It was also common ground that, in order to be able to plead elements (i) and (ii), which go to the identifying elements of an infringement, the following matters need to be identified:
- the identity of the undertakings;
- the coordination of market behaviour;
- the geographic scope of the coordination; and
- the time period that the coordination took place in.
If, as was found to be the case, Gemalto was wrong that the SO could not be relied on in principle for the purposes of pleading its case, Gemalto accepted that items 2 and 3 above (the identification of the potential coordination of market behaviour and the geographic scope of any such coordination) could be ascertained from the SO press release. Item 1 (the identity of the undertakings), whilst not available from the press release, was subsequently reported in a press article.
However, Gemalto argued that item 4 (the time period of the potential coordination) was not available to it as at the date of the SO press release in April 2013. The time period was not identified in the Commission's press release or the surrounding news reports. However, as identified above, the RFIs received by Gemalto in 2012 did identify a period of 2003 to 2006 for the purposes of the questions asked of Gemalto. Gemalto's case was that that period was not sufficiently precise for the purposes of pleading a claim, as the RFIs (which were in any event historic) did not indicate that the Commission's allegations related to the whole of that time period. Indeed, the infringement period ultimately landed on by the Commission was September 2003 to September 2005.
Bacon J again ruled in favour of the Defendants, stating that it is typical for follow-on damages claims to rest on substantially incomplete information, and that identifying all key elements of a cartel with precision would be an impossible burden for a claimant prior to disclosure. Bacon J held that Gemalto could have legitimately pleaded an infringement covering the period 2003 to 2006 on the basis of the period identified in the two RFIs. The Court of Appeal concurred with Bacon J in stating that to embark on the preliminaries to the issue of a writ, the complete details of the infringement do not need to be known, including as to the precise period of the infringement.
The Court of Appeal's judgment potentially gives defendants more cause for optimism when considering limitation arguments that may be available to them in competition follow-on damages claims. Although the point at which the limitation clock begins in any given case (where deliberate concealment of relevant facts is established) will turn on its own facts, confirmation that Commission press releases regarding SOs may give claimants adequate information to plead a claim, and can in principle be relied on for the purposes of bringing that claim, serves as a warning to claimants that they cannot assume that the limitation clock will only start to run once the Commission has publicised its finding of an infringement. Whilst this may be regarded as something of a pendulum swing, it is perhaps unsurprising when viewed against the very high-level way in which competition follow-on damages are initially pleaded by claimants in most cases of this nature.
It is of interest that the position reached in Gemalto appears to be materially at odds with the way in which the law has developed for later competition law infringements. As noted at the outset of this briefing (and in Lord Justice Green's judgment), different limitation rules in the Competition Act apply to causes of action accruing on or after 9 March 2017. The effect of those rules is that the period of investigation by the relevant competition authority is not to be counted for limitation purposes. If a finding of infringement is made, the investigation period is only deemed to end one year after the competition authority's decision becomes final. Had those rules applied to Gemalto's claim, it would not have been time-barred. However, in view of the length of time that can pass between a competition law infringement taking place, its subsequent investigation by a competition authority, and resulting follow-on damages claims, the application of the Limitation Act regime in Gemalto may not be consigned to the history books just yet.