The recent High Court decision in American Leisure Group Limited v Olswang LLP demonstrates that if a Claimant issues proceedings on the eve of limitation but gets the Defendant’s name wrong, it runs a very serious risk (as here) of not being allowed to substitute the correct Defendant. Claimants and their lawyers beware.
Olswang was a solicitors’ partnership and it acted for ALG. It later converted to LLP status and became Olswang LLP. The LLP was the successor practice of the former partnership. ALG wanted to sue its lawyers and issued a claim shortly before the six-year period of limitation expired, wrongly naming Olswang LLP as the defendant in the claim. The LLP applied to strike out the claim as it had not been incorporated at the time of the alleged negligence. ALG accepted that the correct defendant should be the partnership, and applied to substitute the partnership for the LLP. At the first-instance hearing of the applications, the Master determined that he had jurisdiction under the CPR to substitute the partnership for the LLP, but that he was not going to exercise his discretion to do so.
The appeal considered three questions:
1 Had the Master erred in determining that he had jurisdiction?
The Master had jurisdiction if the requirement set out in CPR 19.5(3)(a) was satisfied, i.e. that “the new party is to be substituted for a party who was named in the claim form in mistake for the new party“.
There are two possibilities in cases such as this where the LLP is a “successor practice” to the partnership:
• where the claimant sues the LLP in the mistaken belief it was the LLP which provided the services in question and not the partnership (in which case the Court does have jurisdiction), or
• where the claimant knows that the services were provided by the partnership but mistakenly believes that the LLP is legally liable (as a successor practice) (in which case the Court does not have jurisdiction)
The appeal court concluded that the Master had correctly identified that this claim fell into the former category.
NB The concept of the “successor practice” is only relevant to professional indemnity insurance and has no bearing on the identity of the defendant.
2 If the Master had jurisdiction, can the appeal court interfere with the exercise of his discretion?
The appeal court determined that the Master’s decision had been a “case management decision” (which include decisions about “adding a party to a claim”). The threshold for interference is therefore higher, for example if there had been an error of principle or if an unreasonable conclusion had been reached.
Whilst this conclusion complies with the CPR, it should be noted that this “case management decision” has led to the strike out of a $400 million claim.
3 If the appeal court is entitled to interfere, was the exercise of discretion wrong?
The Master took eight factors into account when exercising his discretion. Of these, the appeal court highlighted the Claimant’s:
• delay in (i) issuing the Claim Form (days before the limitation period expired), (ii) serving Particulars, (iii) dealing with the LLP’s strike-out application, and (iv) making the substitution application;
• failure to enter into any pre-action correspondence with Olswang LLP.
The appeal court therefore concluded that the Master did not err when he decided that these factors caused prejudice to the partnership: “by their inaction, ALG was indicating that there was no claim to be brought against Olswang and, once limitation had passed, the partners of Olswang were entitled to consider themselves protected by having a limitation defence”.
This decision is a sombre warning to claimants and their lawyers. Professional negligence claims often come to light many years after the negligent act, and many defendants have ceased to exist or become part of a different entity.
In such circumstances, it is absolutely normal for claimants to be unsure as to the identity of the correct defendant, to be unable to correspond with the prospective defendant pre-action, and to have to issue protective proceedings at short notice to protect limitation.
The Courts will, it seems, have no sympathy for a claimant who accidentally gets the name wrong. The message is clear:
• Do all you can to identify the correct defendant – i.e. the legal entity that provided you with the negligent advice. If possible, get them to confirm in writing the name of the correct defendant.
• Do not be fooled by the “successor practice” point. It is a figment of insurance law and SRA regulation and has no effect upon the choice of defendant. You cannot sue the successor practice.
• If in doubt, name all likely defendants on the Claim Form. You can always discontinue against the wrong ones later.