England and Wales Court of Appeal (Civil Division) Decisions

IN THE COURT OF APPEAL (CIVIL DIVISION)
ON APPEAL FROM
His Honour Judge Moloney QC
Norwich County Court

		Royal Courts of Justice Strand, London, WC2A 2LL
		02/05/2017

Lord Justice Burnett:

Introduction

1. The issue in this appeal is whether a defendant joined to proceedings by way of amendment outside the limitation period, and sued in the alternative to the existing defendant, has been added to the claim as a new party or has been substituted for the existing defendant, for the purposes of the Civil Procedure Rules ("CPR"). Substitution is permitted, but simple addition is not.
2. Godfrey Morgan Solicitors ("the Firm") were joined as second defendant after the expiry of the applicable limitation period of six years to an existing professional negligence claim by Mr Armes ("the claimant") against Godfrey Morgan Solicitors Limited ("the Company"). They were joined as a party after the proceedings had been issued but before they were served. That is permitted by CPR Part 17.1. Permission of the court was not required. The proceedings had been issued in time, if only just, against the Company. By the amendment, the claimant wished to pursue the two parties jointly or in the alternative. Pursuant to CPR Part 17.2 the Firm applied for the amendment to be disallowed, on the ground that the amendment was outside the strict confines of the circumstances stipulated by CPR Part 19.5 and section 35 of the Limitation Act 1980 ("the 1980 Act") in which a party may be added as a new party after the expiry of a limitation period. By order of District Judge Rogers on 8 June 2015 the Firm's application was dismissed. Their appeal against that order was dismissed by His Honour Judge Moloney QC on 6 November 2015.
3. This is the Firm's second appeal brought with permission of Tomlinson LJ. Judge Moloney QC identified the question he had to determine as:

"If one amends to add a claim against D2 in the alternative is one adding a defendant, or substituting one?"

The question flowed from the parties' recognition that for this amendment to stand it had to be characterised as a substitution rather than an addition. The judge concluded that it was a "substitution in the alternative". It is that conclusion which is attacked in this appeal by Mr Carpenter on behalf of the Firm. Mr Asquith for the claimant accepts that the claim arises from a single cause of action for professional negligence. The underlying question is which legal entity is responsible. But he submits on behalf of the claimant that by amending the claim form to join the Firm as a defendant in addition to the Company, the proper analysis is that the two parties were substituted for one, even though one of the two parties was the original sole defendant. For reasons which I shall develop below, I am unable to accept that submission. In my view the claimant added the Firm outside the limitation period in circumstances which are not sanctioned by the 1980 Act and the CPR. The Firm's application to disallow the amendment should have succeeded.

The Statutory Scheme

4. The governing statutory provision is section 35 of the 1980 Act. That provides:

"New claims in pending actions: rules of court.

(1) For the purposes of this Act, any new claim made in the course of any action shall be deemed to be a separate action and to have been commenced—

(a) in the case of a new claim made in or by way of third party proceedings, on the date on which those proceedings were commenced; and

(b) in the case of any other new claim, on the same date as the original action.

(2) In this section a new claim means any claim by way of set-off or counterclaim, and any claim involving either—

(a) the addition or substitution of a new cause of action; or

(b) the addition or substitution of a new party;

and "third party proceedings" means any proceedings brought in the course of any action by any party to the action against a person not previously a party to the action, other than proceedings brought by joining any such person as defendant to any claim already made in the original action by the party bringing the proceedings.

(3) Except as provided by section 33 of this Act or by rules of court, neither the High Court nor the county court shall allow a new claim within subsection (1)(b) above, other than an original set-off or counterclaim, to be made in the course of any action after the expiry of any time limit under this Act which would affect a new action to enforce that claim.

For the purposes of this subsection, a claim is an original set-off or an original counterclaim if it is a claim made by way of set-off or (as the case may be) by way of counterclaim by a party who has not previously made any claim in the action.

(4) Rules of court may provide for allowing a new claim to which subsection (3) above applies to be made as there mentioned, but only if the conditions specified in subsection (5) below are satisfied, and subject to any further restrictions the rules may impose.

(5) The conditions referred to in subsection (4) above are the following—

(a) in the case of a claim involving a new cause of action, if the new cause of action arises out of the same facts or substantially the same facts as are already in issue on any claim previously made in the original action; and

(b) in the case of a claim involving a new party, if the addition or substitution of the new party is necessary for the determination of the original action.

(6) The addition or substitution of a new party shall not be regarded for the purposes of subsection (5)(b) above as necessary for the determination of the original action unless either—

(a) the new party is substituted for a party whose name was given in any claim made in the original action in mistake for the new party's name; or

(b) any claim already made in the original action cannot be maintained by or against an existing party unless the new party is joined or substituted as plaintiff or defendant in that action.

(7) …

(8) …"

5. The claimant in these proceedings brought a new claim for the purposes of section 35(2)(b) because he introduced a new party. By virtue of section 35(3) that can be done only so far as it is allowed by rules of court. Those rules must satisfy section 35(5). The introduction of the Firm into these proceedings was not governed by section 35(5)(a) because there was no new cause of action, but rather by section 35(5)(b). The rules can permit the addition or substitution of a new party only if it is "necessary" as defined by section 35(6). The operative part for the purposes of this appeal is section 35(6)(a).
6. CPR Parts 17 and 19 contain the current rules which flow from section 35 of the 1980 Act. They provide:

"Amendments to statements of case

17.1

(1) A party may amend his statement of case at any time before it has been served on any other party.

(2) If his statement of case has been served, a party may amend it only –

(a) with the written consent of all the other parties; or

(b) with the permission of the court.

(3) If a statement of case has been served, an application to amend it by removing, adding or substituting a party must be made in accordance with rule 19.4. …

Power of court to disallow amendments made without permission

17.2

(1) If a party has amended his statement of case where permission of the court was not required, the court may disallow the amendment.

(2) A party may apply to the court for an order under paragraph (1) within 14 days of service of a copy of the amended statement of case on him.

Amendments to statements of case after the end of a relevant limitation period

17.3 …

17.4

(1) This rule applies where –

(a) a party applies to amend his statement of case in one of the ways mentioned in this rule; and

(b) a period of limitation has expired under –

(i) the Limitation Act 1980;

(ii) the Foreign Limitation Periods Act 1984; or

(iii) any other enactment which allows such an amendment, or under which such an amendment is allowed.

(2) The court may allow an amendment whose effect will be to add or substitute a new claim, but only if the new claim arises out of the same facts or substantially the same facts as a claim in respect of which the party applying for permission has already claimed a remedy in the proceedings.

(3) The court may allow an amendment to correct a mistake as to the name of a party, but only where the mistake was genuine and not one which would cause reasonable doubt as to the identity of the party in question.

(4) The court may allow an amendment to alter the capacity in which a party claims if the new capacity is one which that party had when the proceedings started or has since acquired.

(Rule 19.5 specifies the circumstances in which the court may allow a new party to be added or substituted after the end of a relevant limitation period.)

[…]

Special provisions about adding or substituting parties after the end of a relevant limitation period

19.5

(1) This rule applies to a change of parties after the end of a period of limitation under –

(a) the Limitation Act 1980;

(b) the Foreign Limitation Periods Act 1984; or

(c) any other enactment which allows such a change, or under which such a change is allowed.

(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;

(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; or

(c) the original party has died or had a bankruptcy order made against him and his interest or liability has passed to the new party.

(4) …

(Rule 17.4 deals with other changes after the end of a relevant limitation period)."

7. CPR Part 19.5(3)(a) replaced the old RSC Order 20 r 5(3). Before 1965 amendments that introduced a new cause of action or new party outside the limitation period were not permitted but the new Order 20 r 5 allowed both in limited circumstances. An amendment to correct the name of a party was covered by rule 5(3). It provided:

"An amendment to correct the name of a party may be allowed under paragraph (2) notwithstanding that it is alleged that the effect of the amendment will be to substitute a new party if the Court is satisfied that the mistake sought to be corrected was a genuine mistake and was not misleading or such as to cause any reasonable doubt as to the identity of the party intending to sue or, as the case may be, intended to be sued."

8. The CPR provisions reflect the statutory scheme of the 1980 Act, although the language is not identical. New claims that add or substitute a new cause of action after the expiry of the limitation period (section 35(2)(a)) are governed by CPR Part 17.4; and new claims which involve the addition or substitution of a new party (section 35(2)(b)) by CPR Part 19.5.
9. The amendment to bring in the Firm occurred after the expiry of the limitation period. Although such an amendment was permitted without permission because the proceedings had not been served, the court was obliged to apply CPR Part 19.5 when considering the subsequent application to disallow it. The limitation period was current when the proceedings were issued and so the condition in CPR Part 19.5(2)(a) was satisfied. The question was whether the amendment was "necessary" for the purposes of CPR Part 19.5(2)(b). For that purpose, CPR Part 19.5(3) provides the exhaustive definition of what is "necessary". The claimant relies upon CPR Part 19.5(3)(a). Unless, to paraphrase that rule, the Firm was to be substituted for the Company who was named in the claim form in mistake for the Firm, the amendment should have been disallowed.

The Background Facts

10. The claimant was employed by Norfolk County Council. His underlying claim against his employers was for injuries resulting from work-related stress between 2002 and 2006. In 2006 he consulted a Mr Clegg who worked at that time for the Firm. The claimant retained the Firm to act for him in respect of the personal injury claim and also in an employment law claim. The Council were sympathetic to a settlement and made various offers. On 9 October 2007 Mr Clegg sent the Council a signed compromise agreement. That compromised both the employment and personal injury claim. The claimant contends that the compromise should have been of the employment claim only and that Mr Clegg was negligent in compromising the personal injury claim at the same time.
11. The Company had been incorporated in February 2007 (under a different name) but on 10 October 2007 changed its name to its present one. In December 2008 Mr Clegg issued proceedings on behalf of the claimant in respect of the personal injury claim. On 15 March 2010 that claim was struck out on the basis that it had been settled as part of the compromise agreement of 9 October 2007. The question arose whether Mr Clegg's conduct was negligent. The claimant consulted his present solicitors, Irwin Mitchell, in connection with a proposed professional negligence claim.
12. On 14 June 2012 a detailed letter before action was sent to the Company by Irwin Mitchell. It was written on the premise that the Company was responsible for Mr Clegg's alleged negligence but with no apparent consideration of whether that was right or not. Mills and Reeve responded to that letter on 9 January 2013 in accordance with the Professional Negligence Pre-action Protocol. They identified their client as the Firm.
13. In entirely separate proceedings the Company sued the claimant for unpaid fees. He successfully resisted those proceedings at a hearing before Deputy District Judge Bell on 20 March 2013 on the basis that he had no contractual relationship with the Company. His case was that his retainer was with the Firm.
14. The correct position relating to the responsibility of the Company and the Firm, at least as it emerged in the evidence before the judge, is that the claimant's retainer was indeed throughout with the Firm. He entered into an agreement with the Firm in August 2006 and at no time entered into any contractual arrangement with the Company. The Firm was run as a partnership until September 2007 with Mr Morgan thereafter the sole principal. The Company started trading on 10 October 2007. Until 31 December 2007 all new clients were clients of the Firm. Thereafter, new clients were clients of the Company. The two entities then ran in parallel as distinct businesses with, for example, different VAT registration numbers. They were regulated as different entities by the Solicitors Regulation Authority.
15. The professional negligence proceedings were issued in the County Court on 8 October 2013. The time limit for bringing such proceedings provided for by the 1980 Act is six years. It is common ground that the cause of action arose on the date on which the compromise agreement was entered into. It follows that these proceedings were issued on the last available day. The Claim Form provides very brief details of the claim ("negligence … in representing the claimant in relation to a claim in personal injury") and indicated a value of less than £250,000. The rules provide that a claimant has four months to serve his claim form. The amendment was made on 6 February 2014. The Company had the number "1" placed by it with the addition of "2. Godfrey Morgan Solicitors (a firm)" followed by its address. Particulars of Claim were drafted by Mr Asquith. The claim form and Particulars of Claim were served on 7 February 2014. The application to disallow the amendment was made within the 14 days prescribed by CPR Part 17.2.

The Judgments Below

16. Before the District Judge the claimant relied upon the decision of this court in Adelson v Associated Newspapers Ltd [2007] EWCA Civ 701, [2008] 1 WLR 585 for the proposition that there can be a partial substitution of parties for the purposes of CPR Part 19.5(3). The District Judge acceded to that submission but it became common ground before the judge (and remained so before us) that the Adelson case was concerned with different circumstances. The original claimants in the libel action were the chairman of a company, and the company itself. That was the parent company of a number of subsidiaries. Outside the limitation period they sought to add two of those subsidiaries as additional claimants. Each of the four claimants had his, or its, separate cause of action. In principle, therefore, a new claimant could be added even though the existing claimants were not removed from the proceedings: see paras 58 to 66 of the judgment of the court. For the purposes of substitution one must look separately at each cause of action. A party may be substituted in respect of one cause of action but not others. The amendment was, however, disallowed on the basis that no qualifying mistake had been made.
17. This claim is concerned with a single cause of action for professional negligence. The issue, assuming that there was negligence on Mr Clegg's part, is whether the Firm and/or the Company would be vicariously liable for it. In the amended proceedings the claim was advanced jointly against both defendants and also in the alternative. Were it not for his accepting the "partial substitution" argument, the District Judge would have held that the claimant could not bring himself within CPR Part 19.5(a) because the Firm was not being substituted for the Company.
18. The District Judge gave permission to appeal. The Firm argued that the reason relied upon by the District Judge for refusing to disallow the amendment was erroneous. The Firm submitted that for the purpose of the rules it was not "necessary" to bring them in as a defendant, because there was no substitution being made. The claimant was adding the Firm as a defendant. The Firm also contended that the evidence did not support the suggestion that a relevant mistake had been made.
19. The judge accepted that there was only one cause of action and that the Adelson case was not directly in point. As I have indicated, the claimant did not press that point. The judge continued:

"5.3 I would also accept that the rule does not permit one to join D2 as a party jointly liable with D1, because in such a case D1 would still remain as a defendant to the same cause of action, and there would not have been a mistake as to the name of D1 such as to require the substitution of D2.

5.4 But here … I have held that the mistake arose from a failure to appreciate when settling the claim form that there were two "Godfrey Morgans", either of which might (at least theoretically) have been responsible for Mr Clegg at the material time. If Irwin Mitchell had fully appreciated that at the time of issuing the Claim Form, their evidence (which I accept) is that they would have named both entities as defendants. The Particulars of Claim, settled after the amendment, formulate the claim on an "and/or" basis: the Claimant's contract was with the Firm, but no distinction needs to be drawn between the Defendants and "to the extent that the [Company] acted for him, it owed him the same duties as [the Firm] owed him."

5.5 It appears to me that this is primarily pleaded as a claim against each Defendant in the alternative, on the basis that "it is unclear to the Claimant when precisely [the Firm] transferred its business to [the Company] (if ever)"; … (the possibility of joint liability is left open, but no factual basis for it is alleged, and as stated at 5.3 above I do not consider that that an amendment to add a jointly liable defendant after the limitation date is permitted by the rules.)

5.6 So the question arises: if one amends to add a claim against D2 in the alternative, is one adding a defendant, or substituting one? The answer would appear to lie in the fact that an alternative claim against a different defendant is to that extent a different cause of action from the original claim against D1. In Adelson the Court permitted a partial substitution so as to allow D2 to be defendant to some of the causes of action formerly brought against D1, while leaving D1 as defendant to the others. In this case, a different form of partial substitution has taken place; depending on the court's ultimate findings of fact, either [the Company] will be held liable for Mr Clegg's negligence, or (in substitution) [the Firm] will. This "substitution in the alternative" is necessary in order to correct the original mistake as to nomenclature, and as in Adelson the fact that it leads to a claim against two defendants rather than one does not prevent the case falling with CPR 19.5(a).

5.7 It follows that the appeal under Ground 1 succeeds to this limited extent: so much of the amendment as would permit a joint claim against the Defendants is disallowed, but the new claim against [the Firm] in the alternative to [the Company] stands."

The Appeal

20. The appellants advance two grounds of appeal:

i) That "substitution in the alternative" is not contemplated by section 35(6)(a) of the 1980 Act or CPR Part 19.5(3)(a). The Firm was simply added as a party, which is not permitted by these provisions.

ii) In any event, that there was no evidence of a relevant mistake for the purposes of these provisions.

21. The respondent supports the judge's reasoning in connection with Ground 1. By a respondent's notice he seeks additionally to support the judge's conclusion by analysing the amendment as a substitution of the Company and the Firm for the Company alone, thereby avoiding the conclusion that the Firm was added as a defendant. In the event that the appellant succeeds on Ground 1, the respondent alternatively asks for an order from this court "not to disallow the … amendment to the Claim Form, but to permit the amendment if [the respondent] agrees to delete reference to the other defendant." In short, the respondent is now content to sue the Firm alone and abandon the claim against the Company.
22. In view of my conclusion on ground 1, which I have already foreshadowed, it becomes unnecessary to consider ground 2. I am also unpersuaded that the additional order sought by application in the respondent's notice is one we could make. This part of the respondent's notice does not provide an additional reason for upholding the order made by the judge. It is a fresh application never made in the proceedings in the County Court which has been raised for the first time in the Court of Appeal. The respondent might have made a cross application in response to the appellant's original application before the District Judge to disallow the amendment. But that did not happen. One well understands why. At the time, the respondent's advisers were unsure which defendant would be responsible for any negligence established against Mr Clegg, and thought that both might be. That was precisely why the amendment introduced the new defendant whilst leaving the other in the proceedings. The claimant's advisers did not want to risk letting the Company out of the proceedings only to discover that, all along, they had the right defendant. At least in theory, the claimant could even now make a fresh application to amend the proceedings outside the limitation period by substituting the Firm for the Company. Mr Carpenter has indicated that such an application would be resisted, including on the basis that it would be wrong as a matter of discretion to allow such an amendment. I would not wish to prejudge any such application by expressing any view on its merits.

Discussion

23. For the purposes of section 35(6)(a) of the 1980 Act and CPR Part 19.5(3)(a) the question was whether the judge could be satisfied that the Firm was "substituted" for the Company which had originally been named in the Claim Form as defendant in mistake for the Firm. These provisions draw a clear distinction between addition, on the one hand, and substitution on the other. The ordinary meaning of the word substitution connotes the replacement of one person or thing by another. As Pearce LJ observed in Davies v Elsby Brothers [1961] 1 WLR 170 at 173, when considering the substitution of a party permitted under the rules in different circumstances, "substitution involves the addition of a party in replacement of the party that is removed."
24. The power to allow an amendment by substitution because of a mistake in nomenclature now found in CPR Rule 19.5(3)(a), reflecting section 35 of the 1980 Act, did not make a substantive change to the earlier approach found in RSC 20 r.5(3). The 1980 Act followed the recommendations of the Law Reform Committee. In the Adelson case Lord Phillips of Worth Matravers CJ noted at para 23:

"So far as the amendment of the names of parties in order to correct the effect of mistake is concerned, there is reason to doubt whether the 1980 Act was intended to make any change in the law. The preamble to the Bill, which became that Act without relevant amendment, stated that it implemented most of the recommendations made in the Law [Reform] Committee's 21^st Report on Limitation of Actions (Cmnd. 6923). That Report, published in September 1977 referred to O.20, r 5(3) at paragraph 5.16 and commended its wording and the result that it achieved. The Report recommended that the law should be changed in a number of respects to allow the addition of parties in order to validate a claim and Brooke LJ drew attention to these in Martin v Kaisary (No 1) [2005] EWCA Civ 594; [2006] PIQR 5. In general, however, the Report made it plain that the Committee did not recommend any relaxation of the restrictive effect that the Limitation Act 1939 had had on the grant of permission to amend pleadings out of time."

The recommendations referred to by Lord Phillips found legislative form in sections 35(5)(b) and 35(6)(b) of the 1980 Act. But there is continuity between the old RSC and the new CPR as they apply to substitution as a result of misnomer.

25. RSC 20 r.5(3) in specified circumstances allowed the correction of a name of a party notwithstanding that the effect of the correction might be to substitute a new party outside the limitation period. A common example would be the naming of a corporate entity as the employer defendant in a personal injury action, when the employer was part of a group with multiple component parts. The claimant makes a mistake and identifies the wrong company within the group. The error is one of nomenclature. Mitchell v Harris Engineering Co Ltd [1967] 2 QB 703 was such an employment related case. The rule was not concerned with cases of uncertainty about which of two (or more) different legal persons was responsible for the alleged wrong giving rise to the cause of action, with the consequence of allowing new parties to be added outside the limitation period. Substitution was the key. That appears, for example, from the judgment of Donaldson LJ in Evans Construction Co Ltd v Charrington & Co Ltd [1983] QB 810 at 821:

"In applying Ord 20, r 5(3) it is, in my judgment, important to bear in mind that there is a real distinction between suing A in the mistaken belief that A is the party who is responsible for the matters complained of and seeking to sue B, but mistakenly describing or naming him as A and thereby ending up suing A instead of B. The rule is designed to correct the latter and not the former category of mistake."

The key under the old rule was that the claimant must have intended to sue A instead of B, not in addition to B. In my judgment, it remains the key when applying CPR Part 19.5(3)(a).

26. The provisions of section 35 of the 1980 Act and the CPR do not invest a court with power to allow an amendment to proceedings to bring in a new party after the expiry of a limitation period whenever it considers it equitable to do so. That would be to replicate the provisions of section 33 of the 1980 Act (the power to disapply the limitation period in personal injury actions) in much wider circumstances. Parties are entitled to rely upon limitation as providing protection, save in so far as legislation and rules of court otherwise provide. The position is different before the limitation period expires: a claimant may issue proceedings against whomsoever he chooses. If he has joined a party who can demonstrate that it cannot be liable, a claim may be struck out, or summary judgment obtained. There may be costs implications. Equally, amending to join an additional party within the limitation period is not subject to the same strictures.
27. In my opinion, the concept of "substitution in the alternative" does not have any basis in CPR Part 19.5(3)(a). The introduction of the Firm as a defendant amounted to the addition of a new party outside the limitation period not sanctioned by the rules. Its purpose was to allow the claimant to pursue both defendants for so long as necessary to establish which was vicariously liable for any negligence on the part of Mr Clegg at the time he entered into the compromise with the Council on the claimant's behalf. Whilst the judge contemplated that issue not being resolved until trial, in reality it is likely that the position would have become clear when the defences were served. At that point, no doubt, the claimant would have discontinued against one of the defendants. It was only because the claimant's solicitors had not reached the stage of being able to decide between the Company and the Firm as the time for service of the proceedings approached that the Firm was added on an "and/or" basis.
28. CPR 19(5)(a) is concerned with substitution. Save for the limited circumstances envisaged in the Adelson case, where an existing party may remain in the action after another has been substituted on a cause of action by cause of action basis, that rule requires the party named by mistake to fall out of the proceedings and for the new correctly named party to stand in its place. The argument that the Company and the Firm have been substituted for the Company whilst an ingenious attempt to circumvent the obvious meaning of "substitute", does not assist the claimant. It remains an addition.
29. The Firm's application for the amendment to be disallowed should have succeeded. I would allow the Firm's appeal and disallow the amendment.

Lord Justice Henderson

30. I agree.

Lord Justice Beatson

31. I also agree.