In this case, the Court considered whether it has jurisdiction to correct a claim that was mistakenly bought against an LLP instead of a former partnership, once the limitation date has expired.

Facts:

The Claimant brought a claim arising from negligent advice given/and or acts committed by the Defendant and its agents in the course of its duties as an accountant and professional advisor to the Claimant. From the Particulars of Claim, it was apparent that almost all of the negligent acts were committed before the LLP had come into existence by members of the partnership. Unfortunately, the Claimant brought the claim against the LLP rather than the former partnership.

On noting their error, the Claimant applied for an Order to substitute the partnership as the Defendant in place of the LLP. Such an Order was made on the same day without a hearing. The partnership subsequently applied to set aside the Order. At the hearing, Master Fontaine set aside the Order for substitution, leaving the LLP as the Defendant, and the Claimant with no route of recovery.

Appeal:

The Claimant appealed the Master’s decision on the grounds that the action was commenced in the name of the LLP by mistake and that the relevant claims could not be properly carried on unless the partnership was substituted as the Defendant in the action.

CPR 19.5 and the Limitation Act 1980 s 35 (the ”Act”) grant the court jurisdiction to substitute a party in proceedings when the limitation date has expired. Albeit using slightly different wording, CPR 19.5 gives effect to s35 of the Act.  CPR 19.5(2) and (3) states as follows:

(2) The court may add or substitute a party only if –

(a) the relevant limitation period was current when the proceedings were started; and

(b) the addition or substitution is necessary.

(3) The addition or substitution of a party is necessary only if the court is satisfied that –

(a) the new party is to be substituted for a party who was named in the claim form in mistake for the new party; or

(b) the claim cannot properly be carried on by or against the original party unless the new party is added or substituted as claimant or defendant.

The Court assessed whether the “necessity” requirement set out in CPR 19.5(2)(b) and s35(5)(b) of the Act was fulfilled by considering the test set down in the landmark case of Sardinia Sulcis [1991] 2 Lloyds Rep 201. In that case, it was held that the correct test is to determine whether the mistake was as to the name of the party, rather than the identity of the party.  The Court noted that this test is not without its weaknesses, the obvious being that it is possible to describe the person whom the claimant intends to sue at many different levels of generality. Nonetheless, it was confirmed that the distinction between a mistake as to identity, and a mistake as to name, is one which the law still requires to be drawn.

Applying this test to the facts, the key question that the Court had to determine was whether the Claimant:

a)         held a mistaken belief that the LLP provided the services which are said to have been performed negligently, failing to recognise that the services were provided by the partnership and not the LLP (a mistake as to name) or;

b)         knew that the services were provided by the former partnership but mistakenly believed that the LLP was legally liable for the negligence of the earlier firm (a mistake as to identity).

To determine the answer, the Court looked carefully at all the available evidence. In particular, the Court cautiously considered all pre-action correspondence, the Statement of Case, and all subsequent correspondence from both parties. On the facts, the Court concluded that all the correspondence evidenced that the Claimant had proceeded on the basis that the LLP had provided all the professional services, which were the subject of the claim. The Court stated that it was likely that this belief was “undoubtedly ill-considered, or more likely unconsidered”. Further, in taking into account the conduct of the Defendant’s solicitors in this matter, the Court concluded that they did nothing to disabuse the Claimant’s solicitors of the assumption, and appear to have made the same mistake themselves. Accordingly, the Court found that Master’s conclusions were incorrect and that the LLP was named in mistaken belief that it had provided the services which were subject to the claim.

The Appeal Court exercised its discretion and granted the appeal to substitute the Defendant. Interestingly, in obiter, the Court commented that a court should generally be willing to “excuse such mistakes” in the sense of permitting substitution, even if there is no good explanation, where there is no prejudice to the party who is substituted. Furthermore, it was stated that a court should not exercise its discretion in a way that amounts to punishing the party for the harmless error of its legal representatives; the mere fact that the claimant has a potential remedy against its legal representatives is not an adequate substitute for the loss of the original claim.

Further the Court took into account the commercial reality and concluded that it is likely that the former partners of the firm will have the benefit of an indemnity from the LLP for any liability they may incur, and more than likely the same insurance cover and legal representatives as the LLP.

Conclusion

Although the judgment provides some clarification as to a court’s jurisdiction to add/substitute parties to proceedings when the limitation date has expired, it also demonstrates that the Court is able to apply a fairly generous interpretation to the law. In addition, it acts as a stark reminder to all practitioners entering into litigation to take great care when ascertaining who the correct party was on the date that the cause of action accrued.

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