Godfrey Morgan Solicitors (A Firm) v Michael Armes
Court of Appeal
2 May 2017
The issue arose from the change in the legal entity of a firm of solicitors, when Godfrey Morgan Solicitors ("the Firm") became Godfrey Morgan Solicitors Limited ("the Company").
In 2006 the claimant instructed the Firm to issue a claim against his employer for injuries arising out of work related stress. He also instructed the Firm to pursue an employment law claim against his employer.
The Company was incorporated in February 2007. Until 31 December 2007 all new clients were clients of the Firm, after which all new clients were clients of the Company. The claimant's retainer was with the Firm and dated August 2006. He did not have a contractual relationship with the Company.
In October 2007 a solicitor of the Firm signed a compromise agreement compromising both the claimant's employment and personal injury claims. The claimant alleged that only the employment claim should have been compromised and that in settling the personal injury claim his solicitor had acted negligently.
In June 2012 the claimant via new solicitors sent a letter before action to the Company alleging negligence. The professional negligence claim was issued against the Company within the limitation period (albeit only just). The Firm was then added to the claim as second defendant just before service of the claim form, four months later. The Firm made an application to disallow the amendment on the basis that it did not satisfy the grounds set out in CPR r.19.5 and s.35 Limitation Act 1980. Substitution of parties after the expiration of the limitation period is permitted under certain circumstances but simple addition is not allowed. The claimant argued that he wished to pursue the two parties "jointly or in the alternative". At first instance the district judge dismissed the Firm's application, as did HHJ Moloney QC on appeal, and the claimant's claim was allowed to proceed against both parties.
The Firm appealed to the Court of Appeal.
Court of Appeal findings
The relevant provisions were s.35(6)(a) Limitation Act 1980 and CPR r.19.5. These provisions allow amendments to statements of case after the expiration of the limitation period to add or substitute parties if the addition or substitution is necessary.
S.35(6)(a) of the 1980 Act states that the addition or substitution of a party will not be necessary unless "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".
Under CPR r.19.5(3):
"The addition or substitution of a party is necessary only if the court is satisfied that:
a) the new party is to be substituted for a party who was named in the claim form in mistake for the new party;
b) the claim cannot properly be carried on by or against the original party unless the new party is added or substituted as claimant or defendant; or
c) the original party has died or had a bankruptcy order made against him and his interest or liability has passed to the new party."
The Firm's grounds for appeal were two-fold. Firstly, "substitution in the alternative" is not contemplated by s.35(6)(a) or by CPR r.19.5(3)(a). The Firm was added as a party which is not allowed. Secondly, there was no evidence of a relevant mistake as required by the 1980 Act or by the CPR.
Although new clients from 1 January 2008 were clients of the Company, the claimant's contract was with the Firm. Lord Justice Burnett noted that the two entities "ran in parallel as distinct businesses with, for example, different VAT registration numbers. They were regulated as different entities by the Solicitors Regulation Authority".
The court noted that when sending the letter before action, there had been no apparent consideration of whether the Company was responsible for the solicitor's allegedly negligent actions. The court referred to separate proceedings in which the claimant successfully defended a claim against him by the Company for unpaid legal fees on the basis that his retainer was with the Firm and he had no contractual relationship with the Company.
The court did not accept the claimant's argument that the one original party was substituted for two parties (one of which was the original defendant). The ordinary meaning of the word "substitution" is the replacement of one thing with another. The key was that the claimant must have intended to sue the Firm instead of the Company, not as well as. The concept of "substitution in the alternative" had no place in CPR r.19.5(3)(a). The Firm had been added into proceedings.
CPR r.19.5(3) provides an exhaustive list of what is deemed necessary. Lord Justice Burnett stated that "Unless…the Firm was to be substituted for the Company who was named in the claim form in mistake for the Firm, the amendment should have been disallowed." He went on to say that the relevant provisions "do not invest a court with power to allow an amendment to proceedings to bring in a new party after the expiry of a limitation period whenever it considers it equitable to do so".
The claimant had added the Firm into proceedings in circumstances not permitted under the Limitation Act 1980 or the CPR and therefore in granting the Firm's appeal the amendment to the claim form was disallowed.
The Court of Appeal in this case made it clear that "parties are entitled to rely upon limitation as providing protection". This is good news for defendants and demonstrates that it is worthwhile considering a challenge to the addition of a new party into proceedings after limitation has expired.
The principle in this case applies to all personal injury claims but is particularly relevant when considering historic long tail disease claims where claimants often issue proceedings against the wrong company when complex company histories are involved.
Claims handlers and solicitors must differentiate between claimants substituting parties because of a genuine mistake in respect of the company name on the claim form and attempts to simply add new parties into the proceedings once limitation has expired, which is not permitted.
The claimant in this case had successfully argued in the separate proceedings for unpaid fees that he had no contractual relationship with the Company. In addition there had been no consideration of whether the Company was vicariously liable for the solicitor's actions prior to commencement of proceedings. Ultimately the claimant was unable to show that he had mistaken the Company for the Firm when issuing his claim.
Whilst the Limitation Act 1980 and the CPR restrict the addition of parties after the expiration of limitation, Lord Justice Burnett pointed out that claimants may issue proceedings against whomever they choose before limitation expires. "If he has joined a party who can demonstrate that it cannot be liable, a claim may be struck out, or summary judgment obtained. There may be costs implications." In those cases applications to disallow amendments to the claim form will often be fruitless but solicitors should consider whether it would be appropriate to apply for summary judgment, or strike out at a later date, seeking payment of the costs of defending the claim from the claimant.
Defendants should continue to take a robust stance from the outset where claimants attempt to add new parties to proceedings after limitation has expired. Applications must be made within 14 days of service of the amended claim form in accordance with CPR r.17.2.
For further information please contact Lucy Fazackerley.