Insight Group v Kingston Smith

16 Jan 2013

18 December 2012

Insight Group Limited “Insight” developed certain software and, on advice from Kingston Smith, transferred the rights in that software to a third party company. When that company was struck off the register, Insight lost ownership of the rights. In 2010, Insight therefore issued a claim seeking damages for losses arising between 1999 and 2006 from various alleged failures in the performance of its function as an auditor and in the provision of fiduciary or administrative services, which had resulted in the loss of rights.
However, Insight sued the wrong defendant. The claim was mistakenly issued against Kingston Smith LLP, which had been formed in 2006, after the majority of the alleged acts of negligence had taken place.
Insight applied for and obtained an order substituting the defendant Kingston Smith in place of the LLP. That order was then set aside and, as Insight had no viable claim against the LLP, its claim was struck out.
Insight appealed to Leggatt J, arguing in reliance on section 35 (6) (a) of the Limitation Act 1980 and CPR r.19.5(3)(a), that the LLP had been named "in mistake" for Kingston Smith’s name when the claim was commenced. In the alternative, Insight relied s.35 (6)(b) of the Limitation Act and CPR r.19.5(3)(b) in arguing that it could not carry on the relevant claims unless Kingston Smith was substituted.
The relevant provisions provide (with emphasis supplied):

Limitation Act 1980, section 35:

(1) For the purposes of this Act, any new claim made in the course of any action shall be deemed to be a separate action and to have been commenced—

(a) in the case of a new claim made in or by way of third party proceedings, on the date on which those proceedings were commenced; and

(b) in the case of any other new claim, on the same date as the original action.

(3) Except as provided by section 33 of this Act or by rules of court, neither the High Court nor any county court shall allow a new claim within subsection (1)(b) above, other than an original set-off or counterclaim, to be made in the course of any action after the expiry of any time limit under this Act which would affect a new action to enforce that claim.

For the purposes of this subsection, a claim is an original set-off or an original counterclaim if it is a claim made by way of set-off or (as the case may be) by way of counterclaim by a party who has not previously made any claim in the action.

(4) Rules of court may provide for allowing a new claim to which subsection (3) above applies to be made as there mentioned, but only if the conditions specified in subsection (5) below are satisfied, and subject to any further restrictions the rules may impose.

(5) The conditions referred to in subsection (4) above are the following—

(a) in the case of a claim involving a new cause of action, if the new cause of action arises out of the same facts or substantially the same facts as are already in issue on any claim previously made in the original action; and

(b) in the case of a claim involving a new party, if the addition or substitution of the new party is necessary for the determination of the original action.

(6) The addition or substitution of a new party shall not be regarded for the purposes of subsection (5)(b) above as necessary for the determination of the original action unless either—

(a) 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; or

(b) any claim already made in the original action cannot be maintained by or against an existing party unless the new party is joined or substituted as plaintiff or defendant in that action.


Rule 19.5 CPR:

19.5— Special provisions about adding or substituting parties after the end of a relevant limitation period

(1) This rule applies to a change of parties after the end of a period of limitation under–

(a) the Limitation Act 1980…

(2) The court may add or substitute a party only if–

(a) the relevant limitation period was current when the proceedings were started; and

(b) the addition or substitution is necessary.

(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.

Leggatt J allowed the appeal, substituted Kingston Smith as defendant, and restored the claim. 
Dealing with rule 19.5(3)(a), the “mistake” had to be as to the name, not the identity of the party sued. The test derived from Owners of the Sardinia Sulcis v Owners of the Al Tawwab [1991] 1 Lloyd's Rep. 201 as to whether it was possible to identify the intended party "by reference to a description which was more or less specific to the particular case", continued to govern. What the court had to identify the relevant description of the intended defendant by reference to what description mattered (from a legal point of view) to the claim made. In the instant case, the relevant description of the defendant was that of professional adviser, because it was that capacity which potentially gave rise to legal liability.
On the evidence, it was apparent that Insight had sued the LLP in the mistaken belief that it was the LLP which provided the negligent services, not Kingston Smith. The mistake was therefore as to which body satisfied the description of auditor and provider of fiduciary services during the relevant period. The error was as to the name of the defendant only and the the court had power to grant relief. In contrast, had Insight known that the professional services had been provided by Kingston Smith but had mistakenly believed that the LLP was legally liable for Kingston Smith’s negligence, then there would have been no such power. This would have been an error of law, not of name.
Obiter, the Court held that it did not, however, have power in the present case to permit substitution under s.35(6)(b) of the Act and CPR r.19.5(3)(b). That power only arose if a claim made in the original action was not sustainable by or against the existing party, and the same claim would be carried on by or against the new party: see Parkinson Engineering Services Plc (In Liquidation) v Swan [2009] EWCA Civ 1366, [2010] Bus. L.R. 857 and Irwin v Lynch [2010] EWCA Civ 1153, [2011] 1 W.L.R. 1364. That was not so here; on the facts the claims against Kingston Smith were different from those brought against the LLP.
The master’s decision to refuse the substitution order would therefore be varied under rule 19.5 (3)(a) only.


This content is provided free of charge for information purposes only. It does not constitute legal advice and should not be relied on as such. No responsibility for the accuracy and/or correctness of the information and commentary set out in the article, or for any consequences of relying on it, is assumed or accepted by any member of Chambers or by Chambers as a whole.


Please note that we do not give legal advice on individual cases which may relate to this content other than by way of formal instruction of a member of Gatehouse Chambers. However, if you have any other queries about this content please contact: