A gateway closes – Adcamp LLP and substituting defendants

A claimant issues a claim at the end of the limitation period, only to realise after limitation has expired that it has pursued the wrong party. In what circumstances will the court permit the claimant to substitute the correct defendant party for the wrongly named one?

The Court of Appeal’s decision in Adcamp LLP v Office Properties PL Ltd has clarified that the court has very limited powers to allow a claimant to substitute the correct party as the named defendant in this scenario. This decision is relevant to claims against professional firms, which often change their corporate structure over time, leading to the risk of naming the wrong defendant party for claimants and offering wrongly named defendants an opportunity for a procedural victory.

The rules

The Limitation Act 1980 restricts the court’s power to allow the addition or substitution of parties after the expiry of limitation, so as not to allow parties to circumvent the relevant limitation period.

The Limitation Act is interpreted by CPR rule 19.6(3) which governs the addition or substitution of parties after the expiry of limitation. CPR rule 19.6(3), is split into two main “gateways” through which a claimant must fit its explanation for why the error occurred. For both gateways, a claimant must be able to show that the relevant limitation period hadn't expired when the claim was first brought and that the substitution is “necessary”.

The First Gateway

The “First Gateway” in CPR rule 19.6(3) is available where “the new party is to be substituted for a party who was named in the claim form in mistake for the new party” (with added emphasis).

It was held in the The Sardinia Sulcis [1991] and later approved by the Court of Appeal in Adelson v Associated Newspapers Ltd [2007] that the First Gateway is only available where a claimant has made an error as to the name of the party pursued rather than its identity. But a claimant who contracts with an ordinary partnership but pursues a successor practice LLP in the mistaken belief that it inherited the liabilities of the partnership isn't able to use the First Gateway. In this scenario, the claimant has made an error as to the identity of the party that it believes is liable for the claim, which is an error of law that the court does not have the power to correct under the First Gateway.

The Second Gateway

The “Second Gateway” is available where “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”.

The Second Gateway has been successfully used in the past to substitute claimant parties in cases concerning insolvent companies. In Parkinson Engineering Services Plc (in liquidation) v Swan [2009], a firm of liquidators was permitted to substitute the company on whose behalf they acted. The claim was pursued against the administrators of the company and the claim as brought by the liquidators was bound to fail due to a limited release from liability. However, the company wasn't bound by the release and had a potential claim against the administrators.

In Irwin v Lynch [2010] the court permitted the use of the Second Gateway in a claim brought by the administrators of a company against its former directors. The claim brought by the administrators couldn't succeed because they had no standing. On appeal, the court permitted the administrators to use the Second Gateway to substitute the company as the correct claimant party.

Notably, before Adcamp, the Court of Appeal held in Nemeti v Sabre Insurance Co Ltd [2013], that claimants who had made a personal injury claim against the insurer of a deceased driver weren't permitted to use the Second Gateway to substitute the deceased’s estate as the correct defendant, because the claim would be significantly different after the substitution. The state of the caselaw on the Second Gateway prior to Adcamp had therefore not considered whether it might be used to correct an error as to the identity of the defendant.

The decision in Adcamp

The claimants sued a limited liability partnership that was the successor practice to the firm of solicitors that had contracted with the claimants in the mistaken belief that the LLP had inherited the firm’s liabilities. The High Court permitted the claimants to substitute the correct defendant parties using the Second Gateway. The defendants appealed to the Court of Appeal.

The Court of Appeal held that the Second Gateway cannot be used to correct errors as to the identity of the defendant who is liable to a claimant after the expiry of limitation. The court reasserted the narrow scope of the Second Gateway. It rejected the argument that the claims brought by the respondents against the LLP in the mistaken belief that it was liable for the actions of the correct defendant party would remain the same claim after the substitution.

In making its ruling the Court of Appeal acknowledged that there is a lack of coherence in allowing claimants who have mistakenly named the wrong party to substitute the correct one after limitation has expired, but not doing the same for claimants who have mistakenly issued against a party they wrongly believe to be liable for the actions of the party with whom they contracted.

Practice points

Following Adcamp, the court will only permit substitutions of the correct defendant party for a wrongly named one after the expiry of limitation where the claimant can show it made a mistake as to the name of the party it pursued, not the identity of the party it considers to be liable for the claim.

Claimants would be best advised to ask questions about the correct party to pursue before issuing their claims and to do so well in advance of the expiry of limitation.

Defendants should be on the lookout for claims which have been wrongly pursued against successor practices and to consider applying to strike out claims where the limitation period has expired.  

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