Pleadings – Amendment – Limitation – Claimant commencing action against defendant solicitors after dishonest partner leaving jurisdiction – Claimant joining applicant insurers in seeking to re-amend pleading to include additional claim – Whether amendment statute-barred – Whether court exercising discretion to allow amendment – Application dismissed
S, a solicitor, was involved with a number of small conveyancing practices (the BJ group). He transferred the accounting functions of each practice in the group to a central accounting office. On 22 September 2000, the Office for the Supervision of Solicitors (OSS), acting under delegated powers from the claimant Law Society, intervened in the BJ group because it suspected dishonesty on the part of S. The OSS found that around £12.5m had been misappropriated from client accounts. S left the jurisdiction.
The claimant used its compensation fund to reimburse the affected clients and subsequently commenced 12 actions against solicitors who were allegedly partners or had held out to be partners in the group’s constituent practices. The defendant solicitors had, until 1 September 2000, been provided with professional indemnity cover by the Solicitors’ Indemnity Fund (SIF). From that date, they should have obtained professional indemnity insurance in the open market, but had not done so. Accordingly, they were covered by the assigned risk pool operated by the market participants (the applicant insurers). Three defendants were discharged bankrupts who pleaded that their bankruptcy and discharge provided them with a defence to the claims.
When the bankruptcy point was raised, the claimant sought to amend its claim to seek a declaration that the bankrupt solicitors were liable to the claimant prior to their discharge from bankruptcy. It also issued originating applications in the individual bankruptcies, seeking an order joining the trustees in bankruptcy as a defendant to establish the claimant’s right to prove in the relevant insolvency and claim payment from the bankrupt solicitors’ insurers under the Third Parties (Rights against Insurers) Act 1930 after the bankrupt had been discharged.
The applicant insurers were joined as defendants to the proceedings in respect of the bankruptcy point and applied to re-amend their defence. They wanted to add an additional claim for damages against the claimant with regard to its failure to notify the SIF of concerns involving S and its delay in investigating his activities. An issue arose as to whether: (i) the application was statute-barred by virtue of section 35(3) of the Limitation Act 1980; and (ii) the court should exercise its discretion pursuant to CPR 17 to allow the amendment. The applicants contended, inter alia, that their claim came within the exception to the general rule in section 35(3) since it was an original counter-claim in the claimant’s action.
Held: The application was dismissed.
On its true construction, section 35(3), in referring to “an original… counterclaim”, was referring to any cause of action that might be asserted by an existing defendant against a claimant. There was no warrant in the words of the section for adopting a more restrictive meaning. The counter-claim was essentially a procedural device. The nature of the cause of action upon which the counter-claim was founded was not integral to the concept of “counterclaim”. All that mattered was that the parties requisite to assert the cause of action were on one side of the record and one of the persons against whom the cause of action might be asserted was on the other: Hodson v Mochi (1878) LR 8 Ch D 569 considered.
Therefore, the applicants’ counter-claim was “an original counterclaim” for the purposes of section 35(3), notwithstanding that: (i) the claimant was suing as a subrogee or assignee of the claim, by virtue of having made payments from the compensation fund; and (ii) the claimant was not seeking explicit relief against the applicants, but merely wanted them to be bound by the outcome of the action against the defendant solicitors.
The applicants could re-amend only with the permission of the court pursuant to CPR 17, which should be applied so that the case was dealt with fairly. Amendments in general ought to be allowed provided that: (i) any prejudice caused by the amendment could be compensated in costs; and (ii) the public interest in the administration of justice was not consequently harmed.
However, in the instant case the court would exercise its discretion to refuse the amendment sought; it exploited a procedural quirk. The applicants became parties not so that any substantive relief could be claimed against them, but to afford them a real opportunity to defend the claims being brought against the defendant solicitors. The applicants were deploying the new additional claim as an offensive weapon, which was not the basis upon which consent was obtained to their joinder.
There was no substantial merit in treating the actions in which the bankruptcy point arose so differently from those in which it did not arise, and it was not fair to introduce a new claim that was so radically different from anything already in the action.
Sue Carr QC and Helen Evans (instructed by Reynolds Porter Chamberlain LLP) appeared for the applicant defendant; David Edwards QC and Michael Holmes (instructed by Russell Cooke LLP) appeared for the claimant.
Eileen O’Grady, barrister