Sidestepping Limitation: A Cautionary Tale
The defendants were able to make a contribution claim from a third party after settling a competition damages claim with the claimant, even though the third party had a limitation defence against the claimant, which could have extinguished both the defendant's and the third party's liability to the claimant.
Under the English Civil Liability (Contribution) Act 1978 (the Contribution Act), a defendant may recover some of his liability to the claimant from a third party who is also responsible for the loss to the claimant (a so-called contribution claim).
On 20 September 2006, the European Commission found that IMI Plc and IMI Kynoch Limited (together, IMI) and Delta Limited and Delta Engineering Holdings Limited (together, Delta) (amongst others) had participated in an unlawful price-fixing cartel between 31 December 1988 and 1 April 2004 in the market for copper and copper alloy fittings (in breach of Article 101(1) of the Treaty on the Functioning of the EU) (see findings here). IMI was found to have participated in the cartel from the start until 22 March 2001, and Delta from the start until 23 November 2001. On 12 May 2012, 22 claimants brought follow-on damages claims against IMI and one other cartel participant, Legris Industries SA. The claimants comprised members of the group of companies owned by Travis Perkins Plc (together the Claimants). The Claimants claimed loss against IMI (but not Delta) under various heads, including that the effect of the cartel was unlawfully to inflate prices so as to lead to overcharging as compared with the competitive price. The Claimants quantified their loss as in excess of £390 million.
IMI advanced various defences, including a limitation defence on the basis that "the causes of action [had] accrued at the latest at the end of the pleaded Cartel Period, namely 1 April 2004", and the Claim Form had been issued over six years later. In their Reply, the Claimants denied that the claim was time barred, relying on section 32(1)(b) of the Limitation Act 1980 (which provides that where there has been deliberate concealment of a fact relevant to the cause of action which is subject to a prescribed limitation period, the period of limitation shall not begin to run until the claimant has discovered the concealment or could have discovered it with reasonable due diligence). The Claimants' position was that the earliest that they could have discovered the concealment and sufficient facts to plead a right of action was the date of the Summary Decision published in the EU's Official Journal.
IMI also issued claims against 23 other entities which the European Commission had found to be participants in the cartel (the Part 20 Defendants), including Delta, for a contribution towards any amount IMI became liable to pay the Claimants (known procedurally as a Part 20 claim). Delta defended the Part 20 claim against it on the grounds that:
- Any overcharge paid by Claimants had been passed on by the Claimants to their customers (thereby not resulting in any loss to the Claimants); and
- In terms of limitation, the Claimants failed to satisfy the conditions of section 32(1)(b) of the Limitation Act on the basis that the Claimants were aware or could with reasonable due diligence have been aware of the price co-ordination between Delta and IMI (as particularised in Delta's Defence at paragraph 18) from as early as 1988.
In July 2014, IMI applied for a direction that the limitation issue should be tried as a preliminary issue. Delta suggested that IMI should adopt its positive case on limitation; IMI disagreed with this suggestion. The Claimants and IMI suggested that Delta should take the lead in prosecuting the issue on limitation (having advanced a positive case on this point); Delta did not oppose the application but did object to this suggestion that it should take the lead. In the end this application was not pursued, and no direction was given for limitation to be dealt with as a preliminary issue.
As a result of various settlement agreements and stays, by December 2014 the only remaining live substantive claim was IMI's Part 20 claim against Delta (which had now become a claim for contribution towards the amount for which IMI had settled the Claimants' claim). The settlement terms were confidential but IMI provided the court and Delta with a confidential note setting out its amount.
At a CMC on 18 December 2014, the limitation issue arose again. Delta's position was that it should remain able to advance its pleaded limitation defence (namely that IMI was never liable to the Claimants because the claim was time barred). IMI's position was that, following the settlement of the main claim, its claim for contribution against Delta was governed by section 1(4) of the Contribution Act 1978, which provides:
"A person who has made or agreed to make any payment in bona fide settlement or compromise of any claim made against him in respect of any damage (including a payment into court which has been accepted) shall be entitled to recover contribution in accordance with this section without regard to whether or not he himself is or ever was liable in respect of the damage, provided, however, that he would have been liable assuming that the factual basis of the claim against him could be established." (emphasis added).
This issue was heard in May 2015, and on 18 June 2015 Mrs Justice Rose ordered that this provision operated to preclude Delta from arguing that the Claimants' claims were time barred (for the reasons it had set out in its pleadings). Delta appealed this decision.
Appeal and Outcome
The key point which was challenged in Delta's appeal was whether Delta should be able to resist IMI's Part 20 contribution claim on the basis that IMI was not, or would not have been, liable to the Claimants because the claim against IMI was time barred.
The Court of Appeal unanimously upheld the High Court's decision that section 1(4) prevented Delta from avoiding contributory liability to IMI by arguing that the Claimants claim against IMI would have been time barred, although it applied different reasoning in reaching this view.
Rationale and application of relevant principles
The focus of the appeal centred on the proviso element within section 1(4) of the Contribution Act, specifically what should be assumed by the court as part of its requirement to assume "that [the original defendant/ Part 20 claimant] would have been liable assuming that the factual basis of the claim against him could be established".
The status of the various limitation pleadings in the present case were as follows:
- IMI's Defence asserted that the Claimants' claim was time barred;
- The Claimants' Reply asserted that the time bar did not apply because there had been deliberate concealment; and
- Delta's Part 20 Defence asserted a positive case that there had been no concealment such that the main claim against IMI was time barred.
As a starting point, the Court of Appeal considered the reasoning and recommendations set out in the Law Commission's Report on Contribution which led to the enactment of the Contribution Act. The rationale behind the section 1(4) was to avoid a perverse situation whereby a Part 20 claimant who had legitimately compromised a claim against him/her would be required to prove their own negligence in order to advance a Part 20 claim and recover contribution from others. Taken to its natural conclusion, this could otherwise have resulted in a Part 20 defendant calling the Part 20 claimant's own factual witnesses in order to disprove liability, and might even result in a situation whereby a defendant who settles the original claim but who in fact was not negligent (or otherwise liable) would be unable to recover in contribution from a Part 20 defendant who was the real wrongdoer. The Law Commission had concluded in its Report:
"We recommend… that contribution should also be recoverable by a person who has made a bona fide compromise of a claim against him; that it should be a defence to such a claim that the compromise was not made bona fide but that it should not be a defence, without more, that the plaintiff's claim would have failed if it had not been compromised."
The Court of Appeal noted that in fact section 1(4) does not go quite as far as this recommendation, in that it goes on to include the proviso (indicated in italics above) which qualifies the effect of the provision at least to some extent. The issue to be decided was therefore the nature and extent of that qualification. The Court of Appeal referred in this context to the judgment in Arab Monetary Fund v Hashim and others (Hashim).
In Hashim, Mr Justice Chadwick (as he then was) had held that the proviso at the end of section 1(4) required the court to assume that the facts which are pleaded in the statement of claim would have been established; however, the court was not required to assume that a "collateral defence" would have failed. By "collateral defence" he meant a defence which depends on allegations of fact which are not inconsistent with the facts alleged in the statement of claim (which, for example, could include a defence based on limitation). The judge had concluded that in such cases "it will be necessary for the court hearing the contribution proceedings to investigate the allegations of fact which are said to support that collateral defence."
In reaching the decision at first instance in the present case, the court at first instance had sought to apply Hashim and had found that "a collateral defence is one where the burden of establishing the facts that would determine that issue would be on the defendant in the main action", and that this did not apply in this case in the manner proposed by Delta. The court at first instance concluded the "factual basis of the claim" which had to be assumed in favour of the Claimants included the factual basis of the substantive claim, and the 'deliberate concealment' case which they had pleaded in the Reply.
While the Court of Appeal upheld the first instance decision, it disagreed with her reasoning. Principally it held that "to the extent that Hashim decided that the section 1(4) proviso permits a [Part 20 defendant] to raise an inquiry as to whether, in light of any collateral defence raised by [the [defendant to the main claim to the main claim itself], the [defendant in the main claim] would not have been actually liable to the [claimant]… it was wrongly decided."
The Court of Appeal held that the construction of the section 1(4) proviso in Hashim was in fact "repugnant to the express intention of the primary provision of section 1(4)". Rather, the proviso had been designed to provide "expressly that there is to be no inquiry as to whether [the defendant to the main claim] was or was not actually liable to [the claimant] and the proviso cannot therefore fairly be read as impliedly qualifying that prohibition so as to let in an inquiry directed at showing that [the defendant to the main claim] was not actually liable".
A cautionary tale for Part 20 Defendants
Contribution claims can be a useful weapon in the hands of defendants facing a large liability for which they are not the only ones responsible. However, while the provisions on which this decision turned were introduced in the interests of fairness, one can easily imagine how they may in fact lead to an unfair outcome. Defendants' budgets and appetites to litigate a matter to trial can vary considerably, and a Part 20 defendant may find themselves in a position whereby a primary defendant is able to levy a contribution claim upon them in circumstances where the Part 20 defendant considers it (or the primary defendant) has viable defences which have not been fully tested or determined, and/or where the Part 20 defendant played no part in the settlement negotiations and was not able to influence the final settlement value achieved.
One way in which a Part 20 defendant could seek to reduce this risk would be to have its position on limitation, or indeed other points of defence, determined at an early stage so that they could have a bearing on settlement negotiations (if not wholly exclude their role in the proceedings). This was envisaged but not ultimately pursued in this case.Ultimately, however, both primary and Part 20 defendants may need to have an eye to the specific limitation period for contribution claims: two years from the date of settlement of (or judgment on) the substantive claim.
 Paragraph 37 of IMI's Defence dated 14 February 2014
 The Law Commission Law of Contract Report on Contribution (Law Com. No. 79, 9 March 1977)
 The Law Commission Report paragraph 81(e)
 28 May 1993, unreported.