Competition Insights

05 October 2004

Open-ended limitation periods in cartel and trade practices cases?

By Bruce Lloyd.

Key Points:
A Full Court will soon be asked to rule whether the Trade Practices Act allows damages actions to be brought in respect of cartel conduct occurring over 20 years or more.

A Full Court will soon be asked to rule whether the Trade Practices Act allows damages actions to be brought in respect of cartel conduct occurring over 20 years or more, following a recent decision.

While there is a conventional six year limitation period for the right to bring a claim for damages for a breach of the Trade Practices Act, the six year period commences from the time that damage is "suffered", not the date of the contravening conduct.

In the recent case which involved a power transformer, the Federal Court considered claims for damages suffered in the acquisition of electricity transformers at excessive prices over a 20 year period. The court held it was at least arguable that when a buyer overpays for goods or services as a result of the market having been "rigged" by a cartel, the loss is not suffered until "it was discovered that the market had been rigged". According to the applicant's argument, (which the court provisionally accepted as at least arguably correct), without knowledge of the cartel's existence, it is impossible to establish the true market value of the equipment in question, and therefore the loss. Hence, claims could be pursued over a cartel discovered in 1998 which related to capital acquisitions made over the previous 20 years.

The applicant also relied upon section 87 of the Act which permits a claim for compensation as a matter of discretion in any proceeding in which an injunction is sought. There is no specified limitation period applicable to section 87(1).

To determine limitation periods under the Trade Practices Act has always been complex. In cases of misleading representations, the High Court has ruled that relevant loss or damage may be suffered many years after the misleading representation has been made, such as when the defendant begins to act contrary to a prior representation - see for example the recent High Court decision in Murphy v Overton.

"Fraudulent concealment" of the wrongdoing?

The Federal Court also ruled that the common law doctrine of "fraudulent concealment" does not apply to the Trade Practices Act. Under the rules of "fraudulent concealment", US courts have held that in fraud and cartel cases, limitation periods do not commence to run until the fraud or cartel has been discovered.

However, these rulings are provisional, because the Federal Court ruled that all questions of limitation periods should be determined at the trial and should not be determined as a preliminary point in the proceedings as attempted by the defendants in this case, who sought to pre-empt much of the applicant's case.

The court also ruled that claims for the tort of deceit could be pursued, on the basis that the conduct of cartel members in submitting tenders in accordance with the regulated tender process constituted the making of "representations", viz, an implied representation that the process was being conducted in a proper and lawful manner and that bids lodged were genuine and competing bids.

On appeal, we expect that the Full Court will also allow these questions to go to trial. However, if the current case is settled, as occurred in other recent cases on these issues, the question of the true limitation periods under the Act will remain a continuing area for debate, and uncertainty, and a stumbling block to cartel members trying to settle their liability and "to put their conduct behind them".

For further information, please contact Bruce Lloyd.

Clayton Utz communications are intended to provide commentary and general information. They should not be relied upon as legal advice. Formal legal advice should be sought in particular transactions or on matters of interest arising from this bulletin. Persons listed may not be admitted in all states or territories.