A recent decision in a competition law case before the Scottish Court of Session has added some welcome clarity as to how time bar operates in relation to claims arising out of conduct concealed by the defender. The decision is also useful in adding clarity on when time begins to run when the pursuer is unaware it has suffered loss.

The law of time bar in Scotland

In Scotland, the law of time bar (prescription) is governed by the Prescription and Limitation (Scotland) Act 1973 (the “Act”). The Act sets out two periods of prescription: short negative prescription (five years) and long negative prescription (20 years).

Generally speaking, claims for loss, injury or damage caused by an act, neglect or default will become time barred as a result of short negative prescription five years after the loss, injury or damage occurs. However, the five-year period can be extended in two ways:

  • the onset of the five-year period can be delayed where the creditor was not then “aware, and could not with reasonable diligence have been aware” of its claim (section 11 (3) of the Act); and

  • the five-year period can be paused where a creditor has been “induced to refrain” from making its claim by fraud or error induced by the debtor (section 6(4) of the Act).

In some cases, long negative prescription of 20 years will also be relevant to such claims. Long negative prescription cannot be extended or paused.

Background – Trucks cartel

The recent decision of VFS Financial Services Ltd & others [2020] CSOH 92 related to two follow-on actions raised by Scottish local authorities against various truck producers for losses sustained as a result of anti-competitive practices.

Prior to the actions being raised, the European Commission had carried out an investigation and determined that, between 17 January 1997 and 18 January 2011, market participants accounting for around 90% of the European Economic Area’s medium and heavy truck market had participated in a price fixing cartel.

The existence of the trucks cartel was revealed in September 2010 when one of the participants disclosed the cartel to the European Commission in an application for leniency. On 19 July 2016, the Commission made its formal finding that there had been a cartel and identified the affected market and cartel participants.

The defenders of the two actions argued that the pursuers’ claims were time barred as the relevant loss, injury or damage had been incurred at the time of the purchase or lease transactions in question. All of the transactions were more than five years old when the cases commenced and some were more than 20 years old. The defenders relied on both short and long negative prescription.

The short negative prescription argument

The pursuers argued that the claims had not prescribed under short negative prescription as the five-year period had been paused due to the concealment of the cartel. This concealment induced the pursuers to refrain from making a claim within the meaning of section 6(4) of the Act. The pause only came to an end when the European Commission published its decision in July 2016.

The defenders argued in response to this that there was sufficient information in the public domain to allow the pursuers, had they been reasonably diligent, to discover the cartel more than five years before they commenced their claims, and accordingly those claims were time barred.

The information in relation to this cartel – and thus to the potential losses sustained by the pursuers -gradually emerged over a period of years. The key issue that the court required to grapple with was at what point the protection afforded by section 6(4) came to an end.

The Court held that the protection given to a pursuer by section 6(4) comes to an end when sufficient facts are revealed that establish a prima face case that could be properly and relevantly plead by the pursuer. In reaching this view, the Court adopted the English law approach to a similar provision in the Limitation Act 1980. The Court emphasised the distinction between the essential facts that allow litigation to commence and facts that merely enhance the pursuer’s case; section 6(4) only operates until the former is discovered, not the latter. In the present case, the Court noted that the essential facts that had to be discovered included the nature of the competition law infringement and the identity of one or more of the alleged participants.

The Court acknowledged that a pursuer could, in principle, have sufficient knowledge of a cartel for the purposes of time bar prior to the finding of infringement by the Commission. However, this was not one of those cases. In particular, the information in the public domain prior to the Commission’s determination of infringement on 19 July 2016 did not disclose the identity of the cartel participants, the affected market, the accuracy of the infringement allegations, or the geographical area affected so as to permit the pursuers to commence litigation. The Court held that the material in the public domain would not have prompted a reasonably diligent pursuer to make further investigation to discover the infringement and that any investigation would have likely been fruitless in any event, given the participants’ need to keep the leniency process with the Commission confidential.

The Court therefore concluded that the pursuers’ claims were made within time for the purposes of short negative prescription.

The long negative prescription argument and the EU law principle of effectiveness

The next question that arose was whether the pursuers’ claims in respect of the transactions that were more than 20 years old had nevertheless time barred since the long negative prescription cannot be paused or have its onset delayed.

In response to this argument, the pursuers sought to rely on the EU law principle of effectiveness, which requires EU law rights to not be “excessively difficult or practically impossible” to exercise. The pursuers argued that the principle of effectiveness required the court to disapply the relevant national law provision (i.e. section 7 of the Act).

The court rejected this argument, noting that it had been observed in the case of Haahr Petroleum v Havn [1997] ECR I-4085 that “the laying down of reasonable limitation periods is an application of the principle of legal certainty which does not breach the effectiveness principle even if the expiry of those periods necessarily entails the dismissal, in whole or in part, of the action.”

The Court also noted that the Competition Appeal Tribunal (“CAT”) permits follow on claims that arose before 1 October 2015 to be made through the CAT within 2 years of the determination of the relevant competition law body (Rule 119, preserving rule 31 of the now superseded CAT Rules 2003). As such, long negative prescription did not leave the pursuers without a remedy; they could have brought their claim to the CAT.

Consequently, the elements of the pursuers’ claims that related to trucks purchased or leased more than 20 years prior to the current cases being commenced were time barred.

Discoverability – the section 11(3) argument

The pursuers put forward an alternative argument to their section 6(4) argument under section 11(3) of the Act. They argued that the pursuers “were not aware, and could not have with reasonable diligence have been aware” that they had suffered loss. Lord Tyre noted that, given his decision on the section 6(4) point, that issue became academic, however, he nevertheless took the opportunity express his view on the matter.

In recent years, section 11(3) has been interpreted by the Supreme Court in a way that has been recognised (including by the Supreme Court itself in the case of Gordon’s Trustees[1]) as “harsh” on pursuers. This has resulted in conflicting first instance decisions in the cases of Midlothian[2], and WPH Developments[3]. In the present case, Lord Tyre took the opportunity to explicitly disagree with WPH Developments and confirm his view that Midlothian is the correct approach. WPH Developments has been appealed and the case remitted to the Inner House – Scotland’s highest civil court below the Supreme Court. That decision will be awaited with keen interest.

It should also be noted that the Prescription (Scotland) Act 2018, once in force, will go some way towards addressing the issues raised by these cases (see our separate Law-Now here). The Scottish Government has recently consulted on the transitional arrangements for the 2018 Act and a final decision on the appropriate approach is awaited.

Comment

Had the Court decided in favour of the defenders in this action, claims against cartel participants would have been much harder – and often impossible – to advance. In that sense, the decision promotes the effectiveness of private enforcement of competition law rights.

The Court’s decision on section 6(4) is of wider application, setting out helpful guidance on how to analyse when the section 6(4) suspension comes to an end.

We expect further case law developments in this area next year, both from the WPH Developments appeal and, in relation to the scope of section 6(4) in the Loretto[4] case, currently scheduled for a hearing in August 2021.

The authors would like to acknowledge the contribution of Finn O’Neill, Trainee Solicitor, in preparing this article.