Law Society of England and Wales & Ors v Wemyss & Ors

For Section 35(3) of the Limitation Act 1980, an “original counterclaim” may be any cause of action asserted by an existing defendant against an existing claimant. It is not necessary that the claimant has sought substantive relief against that defendant. The court must nevertheless control amendments under CPR 17.1(2)(b) fairly. Permission may be refused where the amendment exploits the procedural character of a counterclaim, falls outside the purpose for which the defendant was joined, introduces materially different issues, or disproportionately complicates the proceedings. Alternatively, CPR 17.4(2) requires the party seeking to add a new claim already to have claimed a remedy in the proceedings.

The Law Society had brought claims against solicitors connected with the BJ Brandon Group after client-account losses. Some defendants were discharged bankrupts. Insurers were joined in certain actions to protect their interests and bind them to the determination of the Law Society’s entitlement to prove in the bankrupt estates.

The Insurers sought permission to introduce a new additional claim alleging that the Law Society owed them duties concerning notification of risks to the Solicitors Indemnity Fund and professional indemnity arrangements. The application raised issues under the Limitation Act 1980, the meaning of an original counterclaim, and the amendment rules in CPR Part 17.

1. The court held that the Insurers’ proposed claim was an “original counterclaim” within Section 35(3) of the Limitation Act 1980. The provision refers to any cause of action asserted by an existing defendant against a claimant where the necessary parties are on opposite sides of the record. It does not require an existing substantive claim against the counterclaiming party.

2. That conclusion did not entitle the Insurers to amend as of right. Under CPR 17.1(2)(b), permission was required. Applying the guidance in Cobbold v Greenwich LBC (CA August 9, 1999), the court considered fairness, compensability of prejudice, and the public interest in the administration of justice.

3. Permission was refused. The Insurers had been joined for the limited purpose of defending the claims against the solicitors’ estates and being bound by the result. The proposed claim was an offensive claim for damages, based on materially different facts, duties and causation issues. It would substantially complicate already complex proceedings and unfairly distinguish the eight bankruptcy-related actions from the other four actions.

4. Alternatively, if the proposed claim was not an original counterclaim, it could not satisfy CPR 17.4(2). That rule requires the party seeking permission to have already claimed a remedy in the proceedings. The Insurers had not crossed that threshold. Goode v Martin [2002] 1 WLR 1828 and Charles Church Developments Limited v Stent Foundations Limited [2007] 1 WLR 1203 did not assist because the applicants in those cases had already made claims. The approach in Lloyds Bank v Wojcik (Court of Appeal, 19 December 1997) and JFS (UK) Ltd v Dwr Cymru Cyf [1999] 1 WLR 231 supported the threshold analysis.

5. The Insurers’ amendment introducing the new additional claim was dismissed, although the agreed amendment concerning limitation was allowed. Amendments to the Defence and to the solicitors’ existing additional claim were allowed. The Defendants were provisionally ordered to pay the Claimants’ costs of the amendment application.