The Insight Group Ltd & Anor v Kingston Smith (a firm)

After expiry of the limitation period, substitution under Civil Procedure Rules 1998 r.19.5(3)(a) and Limitation Act 1980 s.35(6)(a) is permissible where the wrong party was named because of a mistake as to name. The intended party is identified by the legally material description arising from the claim. In professional-negligence proceedings, substitution may be available where the claimant mistakenly believed that the named LLP provided the services, but not where the claimant knew that the former partnership provided them and merely believed that the LLP was legally liable. The former requirement that the mistake cause no reasonable doubt about identity does not apply under r.19.5. Under r.19.5(3)(b), the original claim must be unsustainable and the same claim must continue against the new party. Harmless substitution causing no prejudice should generally be allowed.

The claimants sued Kingston Smith LLP for losses allegedly caused by negligent audit and fiduciary or administrative services. Most of the relevant services had been provided before the LLP was formed by the former partnership, Kingston Smith. Master Leslie initially ordered substitution of the former partnership for the LLP. Master Fontaine later set aside that order, leaving the claimants with no viable claim against the LLP and striking out the action.

The claimants appealed. The issues were whether substitution after expiry of limitation was available under Limitation Act 1980 s.35(6)(a) and Civil Procedure Rules 1998 r.19.5(3)(a), alternatively under s.35(6)(b) and r.19.5(3)(b), and whether the discretion to substitute should be exercised in the claimants’ favour.

1. Appeal allowed. The order of Master Fontaine was varied so that Kingston Smith was substituted for Kingston Smith LLP in relation to claims which became time-barred between 11 November 2010 and 11 April 2011. The particulars of claim were to be amended accordingly.
2. Under Limitation Act 1980 s.35(6)(a) and Civil Procedure Rules 1998 r.19.5(3)(a), the court applied the three requirements identified in Adelson v Associated Newspapers Ltd [2008] 1 WLR 585. The mistake must be made by the person responsible for issuing the claim form; the new party would have been named if the mistake had not occurred; and the mistake must be as to name rather than identity, applying the test in The Sardinia Sulcis [1991] 1 Lloyd’s Rep 201.
3. The legally material description of the intended defendant must be identified from the nature of the claim. In a professional-negligence claim, that description was the professional adviser or service provider. The evidence, particularly the pre-action correspondence, showed that the claimants mistakenly believed that the LLP had provided the relevant services. This was a mistake as to which body satisfied the relevant description, rather than a mistaken belief that the former partnership had provided the services but that the LLP had assumed its legal liabilities. The mistake therefore satisfied the applicable test. The former requirement under RSC Order 20, rule 5 that the mistake cause no reasonable doubt as to identity was not retained in r.19.5.
4. The alternative limb in s.35(6)(b) and r.19.5(3)(b) was not satisfied. Following Parkinson Engineering Services plc v Swan [2010] PNLR 17 and Irwin v Lynch [2011] 1 WLR 1364, substitution requires both that the original claim is unsustainable against the existing party and that the same claim will continue against the new party. The claims against the LLP alleged that the LLP provided the services; the claims against the former partnership alleged that the former partnership provided them. They were therefore different claims.
5. Once substitution was legally necessary, the discretion had to be exercised in accordance with the overriding objective. The court should generally permit a harmless mistake causing no prejudice to the new party. It should not effectively punish a claimant for an error by its legal representatives, and a possible claim against those representatives is not an adequate substitute for the original claim. The merits should be examined only where it is clear that a relevant claim has no real prospect of success and should be struck out. The Master’s contrary exercise of discretion was flawed.

• High Court (Queen’s Bench Division): On appeal, Mr Justice Leggatt allowed the appeal and varied Master Fontaine’s order: [2012] EWHC 3644 (QB).
• Master Fontaine: On 10 May 2012, set aside Master Leslie’s order for substitution, leaving the LLP as defendant and resulting in the claim being struck out. No separate citation is stated.
• Master Leslie: On 11 April 2011, ordered substitution of the former partnership for the LLP without a hearing. No separate citation is stated.