Dalmare SpA v Union Maritime Ltd [QBD]
| Jurisdiction | England & Wales |
| Judge | Leggatt J |
| Judgment Date | 18 December 2012 |
| Court | Queen's Bench Division |
| Date | 18 December 2012 |
Queen's Bench Division.
Leggatt J.
David Halpern QC and Rupert Allen (instructed by Jirehouse Capital) for the claimants/appellants.
Christopher Parker QC (instructed by Fishburns LLP) for the defendants/ respondents.
The following cases were referred to in the judgment:
Adelson v Associated Newspapers LtdWLR [2008] 1 WLR 585.
Fannon v Backhouse, 30 July 1987.
Horne-Roberts v SmithKline Beecham plcWLR [2002] 1 WLR 1662.
International Bulk Shipping and Services Ltd v Minerals and Metals Trading Corp of IndiaUNK [1996] 1 All ER 1017.
Irwin v LynchWLR [2011] 1 WLR 1364.
Kesslar v Moore & Tibbits (a firm) [2005] PNLR 17.
Lockheed Martin Corp v Willis Group Ltd [2010] PNLR 34.
Morgan Est (Scotland) Ltd v Hanson Concrete Products LtdWLR [2005] 1 WLR 2557.
Nemeti v Sabre Insurance Co LtdUNK [2012] EWHC 3355 (QB).
O'Byrne v Aventis Pasteur MSD LtdWLR [2008] 1 WLR 1188.
Parkinson Engineering Services plc v Swan [2010] PNLR 17.
Ramsey v Leonard Curtis (a firm) [2001] BPIR 389.
Rodriguez v ParkerELR [1967] 1 QB 116.
Sardinia Sulcis, The[1991] 1 Ll Rep 201.
Welsh v Parnianzadeh (t/a Southern Fried Chicken)UNK [2004] EWCA Civ 1832.
Limitation — Partnership — Substitution of party — Party named in claim form by mistake — Claim against accountants for negligent advice — Previously existing firm becoming LLP — Claim issued against LLP — Allegedly negligent acts committed by members of firm before LLP had come into existence — Whether firm should be substituted as defendant in place of LLP — Expiry of limitation period — Whether claimants sued LLP in mistaken belief that LLP provided allegedly negligent services or that LLP had taken over liabilities of firm — Court had power to order firm to be substituted for LLP as defendant on basis of mistake as to name rather than identity — Substitution should be ordered in exercise of court's discretion — Limitation Act 1980, s. 35(6) — Civil Procedure Rules 1998, r. 19.5(3).
This was an appeal by the claimants from an order of the master setting aside an order for substitution of the respondent firm (KS) as defendant.
The second claimant, which was a subsidiary of the first claimant, was in the business of developing and selling accounting software. KS audited the second claimant's accounts from 1999 to 2006 and was said to have provided other fiduciary or administrative services during that period. The claimants sought damages in contract and tort for losses allegedly 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 claimants during that period. The action was begun in November 2010, by which time any causes of action which accrued before November 2004 were already time-barred. In May 2006 KS had become a limited liability partnership and the defendant named in the claim form was the LLP. As appeared from the particulars of claim, almost all the allegedly negligent acts were committed by members of KS, before the LLP had come into existence. In April 2011 the claimants obtained an order to substitute KS as defendant in place of the LLP. KS applied successfully to the master to set aside the order for substitution.
On appeal, the claimants relied principally on the Limitation Act 1980, s. 35(6)(a) and CPR r. 19.5(3)(a), arguing that when the action was commenced the LLP was named in the claim form “in mistake” for KS. They also, in the alternative, relied on s. 35(6)(b) and CPR r. 19.5(3)(b), arguing that the relevant claims could not properly be carried on by them unless KS was substituted as defendant in the action.
Held, allowing the appeal:
1. In order to fall within CPR r. 19.5(3)(a), the mistake had to be as to the name of the party rather than as to the identity of the party. (The Sardinia Sulcis [1991] 1 Ll Rep 201 and Adelson v Associated Newspapers LtdWLR[2008] 1 WLR 585 applied.)
2. It was not easy to derive from the authorities any clear guidance as to where and how the line was to be drawn between those mistakes which on the Sardinia Sulcis test the court had power to correct by substitution and those which it did not. It seemed, however, that the only way in which the Sardinia Sulcis test was workable at all was to identify the relevant description of the intended claimant or defendant by reference to what description was material from a legal point of view to the claim made. On that basis, the present case concerned a claim for damages for alleged professional negligence which had been mistakenly brought against the LLP rather than the partnership whose business the LLP took over. Applying the Sardinia Sulcis test, the relevant description of the defendant was that of professional adviser. It was the fact that the defendant had provided professional services and had allegedly done so negligently which potentially gave rise to legal liability. In order to decide whether the claimants' mistake could be regarded as one of name rather than description, it was thus necessary to decide whether the claimants had sued the LLP in the mistaken belief that the LLP provided the services which were said to have been performed negligently, in which case the court would have the power to grant relief, or whether the claimants knew that that the services were provided by KS but mistakenly believed that the LLP was legally liable for KS's negligence, in which case the court had no power to grant relief.
3. The master had applied the correct test but came to the wrong conclusion in finding that the claims were originally brought against the LLP in the mistaken belief that it taken over the liabilities of KS. All the pre-action correspondence proceeded on the basis that the LLP had provided all the professional services which were the subject of the claim. That belief was undoubtedly ill-considered or, more likely, unconsidered. When read against the background of the pre-action correspondence, it was clear that the claim form was intended to allege that the LLP had been negligent in the course of acting as auditor and professional adviser to the claimants throughout the period. It was only at some point after the claim form had been served that the claimants realised that KS had provided the relevant professional services and, as such, was the appropriate defendant to the claim. The correspondence was inconsistent with the suggestion that the claimants thought that the LLP had assumed the liabilities of KS. The mistake was therefore as to which body satisfied the description of auditor of the second claimant and provider of fiduciary services during the relevant period. It was not simply an error of law as to the legal liability of the LLP for prior negligence of KS. The mistake accordingly satisfied the Sardinia Sulcis test. The court accordingly had power under s. 35(6)(a) of the Limitation Act 1980 and CPR r. 19.5(2)(a) to order the substitution of KS for the LLP as the defendant.
4. The court had power to order substitution of a necessary party under s. 35(6)(b) and r. 19.5(3)(b) if (i) a claim made in the original action was not sustainable by or against the existing party; and (ii) it was the same claim which would be carried on by or against the new party. Applying that test, it was common ground that the claims made in the action were unsustainable against the LLP. However, the second requirement was not satisfied, because the claims which the claimants sought to carry on against KS were not the same claims as were made against the LLP, which alleged that the LLP, and not KS, had been negligent in auditing the accounts of the second claimant and providing administrative and fiduciary services during the relevant period. (Parkinson Engineering Services plc v Swan[2010] PNLR 17 and Irwin v LynchWLR[2011] 1 WLR 1364 applied.)
5. As a matter of discretion, none of the factors identified by the master was reasonably capable of justifying the court's refusal to permit substitution. The error in naming the LLP as defendant had caused no prejudice, since those representing KS had been aware of the claim since long before the proceedings were issued and had done nothing to disabuse the claimants of their error. In commercial reality the change of party made no difference to the defence of the claim. The point taken by KS was a purely technical one which if successful would give a windfall to KS and the LLP. If there was power to order substitution, the justice of the case was overwhelmingly in favour of doing so. The court would order substitution in relation to those claims which were not time-barred when the claim form was issued but had become so when the order for substitution was made.
Leggatt J: A. Introduction
1. Since the Limited Liability Partnerships Act 2000 came into force, it has become increasingly common for professional firms which used to practise as partnerships to transform themselves into limited liability partnerships (LLPs). Unlike a partnership, an LLP is a corporate body with a legal personality separate from that of its members. In the absence of agreement, an LLP has no liability to third parties for any contract made or wrongful act done by its members before the LLP was formed. A claim which is founded on such a contract or wrongful act (for example, a claim alleging professional negligence) must therefore be brought against the members of the old partnership, and not the LLP.
2. If a claim is mistakenly brought against an LLP which should have been brought against the former partnership, and before the error is recognised the limitation period for starting a new action has expired, can the error be corrected by substituting the former partnership for the LLP as the defendant to the claim? That is the principal question raised by this appeal.
3. This action was begun on 11 November 2010...
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