The Court of Appeal today handed down a judgment of considerable importance to insolvency practitioners in a case concerning the limitation periods applicable in cases of fraud or deliberate concealment. Osborne Clarke acted for the insolvent company in its successful defence of the appeal.
The Court of Appeal's decision relates to a follow-on damages claim by OT Computers (in liquidation)('OTC') relating to a cartel to fix the price of DRAMs (computer memory chips). It was undisputed that the cartelists had concealed their illicit behaviour and it was therefore a number of years before any information about the cartel became public. Special rules apply to claims where there has been deliberate concealment, which extend the limitation period to protect claimants who would otherwise be unfairly prevented from bringing claims because of the delay before the losses are known. The rule means that the limitation period does not start running until the claimant could, applying "reasonable diligence", have discovered the wrongdoing giving rise to the claim.
In this case the Appellants (chipmakers Infineon Technologies AG and Micron Europe Limited) sought to argue that the court must treat an insolvent company as if it were still trading when considering whether or not it could have discovered the wrongdoing. If correct, this would have placed an impossible burden on insolvency practitioners, requiring them to undertake investigations into potential claims that they had no knowledge of, at the expense of creditors.
At first instance the Commercial Court found that OTC's claim was not time-barred because the liquidator could not have been aware of the facts needed to bring the claim at the date asserted by the defendants, even if he had exercised "reasonable diligence". Meanwhile, a similar claim by a company that did continue to trade was found to be time-barred on the basis that, applying 'reasonable diligence', it could have discovered the relevant facts in the context of its ongoing dealings with DRAM manufacturers.
The Defendants (represented by Allen & Overy and Slaughter and May) appealed the judgment on the grounds that the wording of the Limitation Act did not allow a company to be treated differently simply because it had ceased to trade before the information became discoverable. The specific question of how to treat companies in administration or liquidation had not previously been considered in this context.
The Court of Appeal rejected the appeal unanimously, finding that a company which has ceased to trade (and is in an insolvency process) cannot necessarily be expected to discover the same sort of information as a trading company. The Court stated that "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".
This does not change the fact that once an insolvent company is aware of the need to investigate a potential claim it will be expected to do so, irrespective of the insolvency. However, what it does mean is that insolvency practitioners will not be treated as being aware of claims that the company would only have discovered had it continued to trade.
Andrew Bartlett, Osborne Clarke Partner in the case acting for OTC (through Nick Wood, the insolvency practitioner at Grant Thornton), comments: "This judgment is a clear victory for our client and for insolvency practitioners more generally. It is also a victory for a common-sense interpretation of the Limitation Act. This is the first Court of Appeal decision on this issue and brings welcome clarity. Had the appeal succeeded, insolvency practitioners would have been put in an impossible position where compliance with their statutory duties would risk resulting in claims relating to concealed wrongdoing becoming time-barred."
Link to the judgment here.