Insight Group Ltd and another v Kingston Smith (A Firm)[Queen's Bench Divison]

JurisdictionEngland & Wales
Judgment Date2014
Date2014
Year2014
CourtQueen's Bench Division
Queen’s Bench Division *Insight Group Ltd and another v Kingston Smith (a firm) [2012] EWHC 3644 (QB) 2012 Nov 30; Dec 18 Leggatt J

Practice - Parties - Substitution - Claimants mistakenly bringing negligence claim against limited liability partnership instead of former partnership whose business taken over by limited liability partnership - Claimants applying after expiry of limitation period to subsitute former partnership as defendant - Whether mistake as to name or description of intended defendant - Proper approach to determining description of intended defendant - Whether court having discretion to make substitution - Limitation Act 1980 (c 58), s 35(6)(a) - CPR r 19.5(3)(a)

The claimants commenced an action against a limited liability partnership of accountants (“the LLP”), seeking damages in contract and tort for losses arising from negligent advice given and/or acts committed by the LLP in the course of its duties as the claimants’ accountant and professional adviser. Most of the alleged acts of negligence had in fact been committed before the LLP came into existence, by members of the partnership which later became the LLP. After the limitation period in respect of some of the claims had expired, the claimants obtained an order pursuant to section 35(6)(a) of the Limitation Act 1980F1 and CPR r 19.5(3)(a)F2 substituting the former partnership as defendant in place of the LLP on the grounds that the LLP had been named in the claim form in mistake for the former partnership. The master subsequently set that order aside, holding that the claimants’ mistake had been one of law in believing that a limited liability partnership was liable in law for the negligence of the partnership whose business the limited liability partnership had taken over, and that being so there was no power to order substitution.

On the claimants’ appeal—

Held, allowing the appeal, that following the introduction of CPR r 19.5(3), a new party could be substituted for a party who was named in the claim form in mistake for the new party, notwithstanding that the mistake was misleading or was such as to cause reasonable doubt as to the identity of the person intended to be sued; that the power under rule 19.5(3)(a) was exercisable only if the mistake was as to the name of the intended party, rather than as to its description, such description to be identified by reference to the description that was material from a legal point of view to the claim made; that, where a claim for damages for professional negligence was mistakenly brought against a limited liability partnership rather than the partnership whose business the limited liability partnership had taken over, the relevant description of the defendant was that of professional adviser, since it was that capacity which potentially gave rise to legal liability; that the pre-action correspondence, the claim form and all subsequent correspondence consistently demonstrated that the claimants’ mistake was as to which body satisfied the description of professional adviser to the second claimant, rather than being an error of law as to the legal liability of the LLP for prior negligence of the former partnership, and, therefore, it could be characterised as being a mistake as to name rather than description; and that, accordingly, the court had a discretion under section 35(6)(a) of the Limitation Act 1980 and CPR r 19.5(3)(a) to substitute the former partnership as defendant to the claims which were not time-barred when the claim form was issued but had become so by the time the original order for substitution was made, and that such an order would be made (post, paras 3537, 52, 5657, 8283, 85, 105, 113114).

The Sardinia Sulcis [1991] 1 Lloyd’s Rep 201, CA and Adelson v Associated Newspapers Ltd [2008] 1 WLR 585, CA applied.

Horne Roberts v SmithKline Beecham plc [2002] 1 WLR 1662, CA considered.

The following cases are referred to in the judgment:

Adelson v Associated Newspapers Ltd [2007] EWCA Civ 701; [2008] 1 WLR 585; [2007] 4 All ER 330, CA

Fannon v Backhouse The Times, 22 August 1987; [1987] CA Transcript No 829, CA

Horne-Roberts v SmithKline Beecham plc [2001] EWCA Civ 2006; [2002] 1 WLR 1662, CA

International Bulk Shipping and Services Ltd v Minerals and Metals Trading Corpn of India [1996] 1 All ER 1017; [1996] 2 Lloyd’s Rep 474, CA

Irwin v Lynch [2010] EWCA Civ 1153; [2011] 1 WLR 1364; [2011] Bus LR 504, CA

Kesslar v Moore & Tibbits [2004] EWCA Civ 1551; [2005] PNLR 286, CA

Lockheed Martin Corpn v Willis Group Ltd [2010] EWCA Civ 927; [2010] PNLR 738, CA

Morgan Est (Scotland) Ltd v Hanson Concrete Products Ltd [2005] EWCA Civ 134; [2005] 1 WLR 2557; [2005] 3 All ER 135, CA

Nemeti v Sabre Insurance Co Ltd [2012] EWHC 3355 (QB)

O’Byrne v Aventis Pasteur MSD Ltd [2007] EWCA Civ 966; [2008] 1 WLR 1188; [2008] Bus LR 993, CA

Parkinson Engineering Services plc v Swan [2009] EWCA Civ 1366; [2010] Bus LR 857, CA

Ramsey v Leonard Curtis [2001] BPIR 389, CA

Rodriguez v RJ Parker (Male) [1967] 1 QB 116; [1966] 3 WLR 546; [1966] 2 All ER 349

Sardinia Sulcis, The [1991] 1 Lloyd’s Rep 201, CA

Welsh v Parnianzadeh (trading as Southern Fried Chicken) [2004] EWCA Civ 1832, CA

No additional cases were cited in argument.

The following additional cases, although not cited, were referred to in the skeleton arguments:

Powdrill v Watson [1995] 2 AC 394; [1995] 2 WLR 312; [1995] ICR 1100; [1995] 2 All ER 65, HL(E)

Tanfern Ltd v Cameron-MacDonald [2000] 1 WLR 1311; [2000] 2 All ER 801, CA

APPEAL from Master Fontaine

By a claim form dated 11 November 2010 the claimants, Insight Group Ltd and Insightsoftware.com Ltd, issued a professional negligence claim. The defendant named in the claim form was Kingston Smith LLP. By an order dated 11 April 2011, Master Leslie granted the claimants’ ex parte application to substitute Kingston Smith (a firm) for Kingston Smith LLP as the defendant. On 10 May 2012 Master Fontaine set aside the order for substitution and struck out the claims against the defendant. The claimants appealed on the grounds that the master had erred as a matter of law in her application of section 35(6)(a) of the Limitation Act 1980 and CPR r 19.5(3)(a) and that the name of the LLP had been given in mistake for the name of the firm when the action was commenced; alternatively, that the master had erred in her application of section 35(6)(b) of the 1980 Act and CPR r 19.5(3)(b) and that the relevant claims could not properly be carried on unless the firm was substituted as defendant.

The facts are stated in the judgment.

David Halpern QC and Rupert Allen (instructed by Jirehouse Capital) for the claimants.

Christopher Parker QC (instructed by Fishburns LLP) for the defendant.

The court took time for consideration.

18 December 2012. LEGGATT J handed down the following judgment.

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.

The proceedings

3 This action was begun on 11 November 2010. The defendant named in the claim form was Kingston Smith LLP (“the LLP”), a firm of chartered accountants. Prior to 1 May 2006 its members had practised as a partnership under the name of Kingston Smith (“the firm”).

4 The brief details of the claim given in the claim form state that:

“The claimants seek damages for losses 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 adviser to the claimants.”

As appears from the particulars of claim dated 15 April 2011, almost all the allegedly negligent acts were in fact committed before the LLP had come into existence by members of the firm.

5 On 11 April 2011 the claimants applied for an order to substitute the firm as defendant in place of the LLP. Such an order was made the same day by Master Leslie without a hearing.

6 On 26 May 2011 the firm applied to set aside the order. That application was heard in January 2012 by Master Fontaine who gave judgment on 10 May 2012. By her order dated 10 May 2012, the master set aside the order for substitution. That left the LLP as the defendant. As the claimants accepted that they had no viable claim against the LLP, their whole claim was consequently struck out.

7 This is the claimants’ appeal against the order of Master Fontaine, brought with permission of Eady J.

The claims

8 As pleaded in the particulars of claim, the second claimant, which is a subsidiary of the first claimant, is in the business of developing and selling accounting software. Until 1997 the second claimant was the owner of the intellectual property rights in the software (“the IPR”). In 1997, allegedly on the advice of the defendant, the IPR were transferred to Designsoft, a company incorporated in Nevis. Designsoft was wholly owned by Shamrock LLC, another Nevis company. Designsoft and Shamrock are together referred to in the particulars of claim as “the Nevis entities”.

9 Unknown to the claimants, the Nevis entities were struck off the register of companies in Nevis on 1 November...

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