Insight Group Ltd and another v Kingston Smith (A Firm)[Queen's Bench Divison]
| Jurisdiction | England & Wales |
| Judgment Date | 2014 |
| Date | 2014 |
| Year | 2014 |
| Court | Queen's Bench Division |
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 -
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 35–37, 52, 56–57, 82–83, 85, 105, 113–114).
The following cases are referred to in the judgment:
Adelson v Associated Newspapers Ltd
Fannon v Backhouse The Times, 22 August 1987; [1987] CA Transcript No 829,
Horne-Roberts v SmithKline Beecham plc
International Bulk Shipping and Services Ltd v Minerals and Metals Trading Corpn of India [
Irwin v Lynch
Kesslar v Moore & Tibbits
Lockheed Martin Corpn v Willis Group Ltd
Morgan Est (Scotland) Ltd v Hanson Concrete Products Ltd
Nemeti v Sabre Insurance Co Ltd
O’Byrne v Aventis Pasteur MSD Ltd
Parkinson Engineering Services plc v Swan
Ramsey v Leonard Curtis [
Rodriguez v RJ Parker (Male) [
Sardinia Sulcis, The [
Welsh v Parnianzadeh (trading as Southern Fried Chicken)
No additional cases were cited in argument.
The following additional cases, although not cited, were referred to in the skeleton arguments:
Powdrill v Watson [
Tanfern Ltd v Cameron-MacDonald [
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
Christopher Parker QC (instructed by
The court took time for consideration.
18 December 2012. LEGGATT J handed down the following judgment.
A. Introduction1 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 proceedings3 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:
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.“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.”
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 claims8 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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