The Court of Appeal has handed down judgment following the defendants' appeals of the first instance decisions allowing substitution after expiry of limitation. Whilst this decision provided welcome clarity to defendants, permission to appeal to the Supreme Court has been granted.
In both cases, the claimants alleged that Pitmans LLP (Pitmans) had provided negligence advice. Pitmans had subsequently changed name to Adcamp LLP (Adcamp), but proceedings were issued against BDB Pitmans LLP (BDB) which the claimants mistakenly believed had taken on the liabilities of Pitmans. This mistake was realised after expiry of limitation, and the claimants sought to substitute Adcamp into the proceedings. In each case, Adcamp objected to those amendments.
The gateways to substitution
The substitution of a party after the expiry of the limitation period is governed by section 35 of the Limitation Act 1980 and rule 19 of the Civil Procedure Rules. It may only take place if necessary for the determination of the original claim and either, the new party is being substituted for a party who was named in mistake (referred to by the Court of Appeal as the "first gateway") or the claim cannot be maintained unless the new party is joined or substituted (the "second gateway").
It was accepted that the first gateway did not apply because the claimants’ mistake related not to a name but to identity. The claimants knew that it was Pitmans that had provided the advice now complained of, but had sued BDB, mistakenly believing it had inherited Pitmans’ liabilities. Established case law draws a firm distinction between misnaming and misidentifying a party and, bound by Adelson v Associated Newspapers Ltd [2008] the Court of Appeal accepted that a mistake as to the identity of a party falls outside the ambit of the first gateway.
The question for the Court of Appeal therefore concerned the application of the second gateway. It had to decide whether the claims could be properly continued unless Adcamp was added or substituted as defendant.
The High Court decisions had relied on obiter dicta comments in Insight Group Ltd v Kingston Smith (Insight Group). In Insight Group, Leggatt J suggested that a claimant who sued the wrong entity as it mistakenly believed it to be the successor to the negligent party could be saved by the second gateway if the "same claim" was advanced against the substituted party.
The "same" claim
The parties disagreed over what was meant by the "same" claim. The claimants contended that the claims against BDB and Adcamp were the same, as they were founded on Pitmans' alleged negligence. Adcamp contended that the claims were not the same, as the claim against BDB included the allegation relating to the transfer of liabilities, whereas the claim against Adcamp did not.
In these cases the substitution would involve a substantive change to the entity against which the claim was brought. The essential facts of these claims would not remain the same following the substitution of the defendants. There was therefore a significant distinction from a case where, for example, the liquidator of a company was included as a claimant to allow an alternative method of pursuing the company's cause of action. This effectively overruled Leggatt J's obiter dicta comments, narrowing the circumstances in which substitution could take place.
The Court of Appeal emphasised that Parliament had deliberately limited the circumstances in which addition or substitution can be made after the expiry of the limitation period. The first gateway permitted circumstances where a mistake had been made. Following Adelson, that meant a mistake as to name, not identity.
Whilst the defendants' appeals were allowed and the substitutions were not permitted, the Court of Appeal has granted the claimants permission to appeal to the Supreme Court to determine whether Adelson was decided correctly.
Summary
In a landscape where mergers and acquisitions of professional service firms are becoming more and more prevalent, claimants need to take care that the correct defendant is identified and that proceedings are issued in time. Whilst the Supreme Court may interpret the Limitation Act 1980 more generously, limitation will always create a tension between a claimant's right to pursue its claim, and a defendant's right to certainty.
