Mrs. Iman Said Abdul Aziz Al-Rawas v Hassan Khan & Company (A Firm)and Another (Claimants/Respondent)
| Jurisdiction | England & Wales |
| Judge | Lady Justice Sharp,Mr Justice Green,Lord Justice Elias |
| Judgment Date | 01 February 2017 |
| Neutral Citation | [2017] EWCA Civ 42 |
| Docket Number | Case Nos: A2/2015/0573 |
| Court | Court of Appeal (Civil Division) |
| Date | 01 February 2017 |
[2017] EWCA Civ 42
Lord Justice Elias
Lady Justice Sharp
and
Mr. Justice Green
Case Nos: A2/2015/0573
A2/2015/0572
IN THE COURT OF APPEAL (CIVIL DIVISION)
ON APPEAL FROM THE HIGH COURT OF JUSTICE
QUEEN'S BENCH DIVISION
(Mrs Justice Elisabeth Laing)
ON APPEAL FROM THE HIGH COURT OF JUSTICE
QUEEN'S BENCH DIVISION
(Master Yoxall)
HQ13X03903/HQ13X03907
Royal Courts of Justice
Strand, London, WC2A 2LL
Mr Philip Rainey QC and Marc Glover (instructed by Neumans LLP) for the Appellants
Ms Leigh-Ann Mulcahy QC and Ron Chatterjee (instructed by The Khan Partnership LLP) for the Respondents
Hearing date: 7 July 2016
Approved Judgment
Introduction
This appeal concerns the construction of section 35(3) of the Limitation Act 1980 (the Limitation Act).
Section 35 of the Limitation Act provides as follows:
"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 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 any county court shall allow a new claim within section 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."
The question of construction that arises is this. C brings a claim against D, which is in time. D (not having previously made any claim in the proceedings) wants to counterclaim against C, but a fresh action to advance that counterclaim would be out of time at the time when C's claim is brought. Does section 35 of the Limitation Act, in particular subsections (1) and (3) of section 35, nevertheless allow D to bring the counterclaim, as a matter of right?
On 11 November 2014, Master Yoxall held that as a matter of construction, it did. On 31 January 2015, Elisabeth Laing J, came to the contrary view. In my judgment she was right to do so, and for the reasons given below, I would dismiss this appeal.
In view of the narrow issue of construction on which this appeal turns, the facts can be dealt with relatively shortly.
The claimants in both cases are firms of solicitors. They sue the defendants who are husband and wife and former clients of theirs, in two separate actions, for unpaid legal fees and/or disbursements arising out of various retainers.
Mrs Al-Rawas, the defendant in the first action, retained the claimants to act on her behalf in proceedings against a Mauritian company called Pegasus Energy Limited, in relation to a share issue which occurred in February 2005 which she alleged prejudiced her rights as a shareholder (the Pegasus Retainer). The claimants, acting on her behalf made two ex parte applications in those proceedings; the first, for an injunction and a search and seizure order, which was granted by Dobbs J on 27 July 2006; and the second, for a worldwide freezing order which was granted by Langstaff J on 14 August 2006. An affidavit from Mr Al-Shanfari, the defendant in the second action, was relied on in support of both applications. On 6 September 2006, at an inter partes hearing, Ramsey J discharged the search and seizure order and the freezing order; he also made an order for damages and costs against Mrs Al-Rawas, and an order joining Mr Al-Shanfari to the proceedings for the purpose of obtaining a costs order against him.
In the case of Mr Al-Shanfari, the claimants provided legal services in respect of two separate retainers. The first retainer related to a property dispute which concerned a property Mr Al-Shanfari owned in Trevor Street in London (the Trevor Street retainer); the second retainer related to sanctions imposed on Mr Al-Shanfari by the Office of Foreign Assets Control Department of the United States Treasury ("OFAC") on the grounds of his support of the regime in Zimbabwe (the OFAC retainer).
On 1 August 2013, the claim forms in the actions before us, were issued. The claimants' claim was for disbursements of £354,151 plus interest against Mrs Al-Rawas, in respect of the Pegasus retainer; and for legal fees and disbursements of £285,968 plus interest, against Mr Al-Shanfari in respect of the Trevor Street retainer and the OFAC retainer. On 4 April 2014, Mrs Al-Rawas and Mr Al-Shanfari each served a defence and counterclaim. Both counterclaims alleged that the claimants had been guilty of professional negligence in relation to the Pegasus retainer. The counterclaim for Mrs Al-Rawas was made in both contract and tort. Mr Al-Shanfari's counterclaim was made in tort only, because he had no contractual relationship with the claimants in respect of the Pegasus retainer.
Both counterclaims 'over-top' the claims in value. In the case of Mrs Al-Rawas, she claims (i) damages paid to Pegasus, and other parties in excess of £573,337; (ii) costs paid to Pegasus and other parties in a sum to be confirmed (which the claimants estimate to be in the region of £735,000, based on the interim costs certificate); (iii) wasted expenditure in fees and expenses paid to the claimants, and interest on the foregoing amounts. In the case of Mr Al-Shanfari, he also claims (i) the costs paid to Pegasus and other parties in a sum to be confirmed; (ii) general damages to be assessed and (iii) wasted expenditure in fees and expenses paid to the claimants, plus interest on the foregoing amounts.
On 15 May 2014, the claimants filed and served a reply and defence to each counterclaim. The defence to counterclaim in each case pleaded amongst other things, that the counterclaim was time-barred by 6 September 2012 at the latest. Neither of the defendants served a reply to the defence to counterclaim. There was therefore no pleaded response from either defendant to the limitation defence relied on by the claimants.
The hearings below
On 30 September 2014, the claimants applied for summary judgment or for an order striking out the defendants' counterclaims on the ground that they were time-barred. Those applications were opposed at the hearing before Master Yoxall on 22 October and on 11 November 2014.
A number of matters were common ground at that stage, as they have been subsequently. Firstly, that the defendants had each pleaded an "original set-off 1 and counterclaim" within the meaning of section 35(3) of the Limitation Act. Secondly, that for limitation purposes, the defendants' causes of action in the counterclaims (in contract and in tort for Mrs Al-Rawas, and in tort for Mr Al-Shanfari) accrued at the latest by 6 September 2006, pursuant to section 2 of the Limitation Act (for tort) and section 5 of the Limitation Act (for contract). Thirdly, that it therefore followed that the counterclaims were time-barred if commenced as separate actions at the date of the issue of the claims on 1 August 2013. And fourthly, that Mrs Al-Rawas was
entitled to rely on an equitable set-off by way of defence to the claimants' claim against herMaster Yoxall dealt with two principal issues, only the second of which is the subject of this appeal. The first was whether Mr Al-Shanfari could rely on the defence of equitable set-off; the Master held he could not do so, because there was not the...
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