By : Michelle Stevens-Hoare
The Court of Appeal took the opportunity presented by Parsons & anr v George & anr  EWCA Civ 912 to undertake a comprehensive review of the principles affecting the substitution of defendants after the expiry of a limitation period.
Parsons involved an application for a new tenancy under the Landlord and Tenant Act 1954. The judgment has implications beyond those applications. The lead judgment given by Dyson LJ, current Chair of the Civil Procedure Rules Committee, clarifies how the rules dealing with the substitution of parties relate to one another and the tests to be applied when the application to substitute is made after limitation has expired.
The practical consequence is that for the vast majority of claims, whether or not the Limitation Act 1980 applies, the Court has power to substitute the correct defendant after expiry of a limitation period and will apply criteria strikingly similar to those set out in Section 35(5) of the Act in deciding whether or not to exercise that power. The criterion focusing on "mistake" has been clarified; however, the opportunity to consider the remainder of the criteria was not taken.
In Parsons a section 25 notice was served by the executors of the original lessor's estate who were the competent landlord at that time. A counternotice was served on the executors. Subsequently the tenant was notified that the property had vested in the beneficiary under the original lessor's will. The same solicitors were acting for the executor and the beneficiary. It was clear from the correspondence that the beneficiary had been treated as the solicitor's client prior to the property vesting in her. In error the tenant's application named the executors as defendants notwithstanding the fact that the beneficiary was the competent landlord by then and the tenant had been notified of her interest.
In Parsons it was argued, successfully at first instance, that the CPR makes no provision for the substitution of the correct landlord in 1954 Act applications issued against the wrong person in error. The rules considered were CPR 19 r2, CPR 19 r5 and CPR 3 r10.
Substitution after Expiry of Limitation - Generally
Since the implementation of the Limitation Act 1980 there has existed a statutory framework for the substitution of new parties after the expiry of a limitation period. Section 35 provides that the substitution of a party to an existing claim amounts to the making of a new claim. Section 35 then provides that such a substitution is permissible if certain criteria are satisfied, namely that the substitution is necessary in the sense that the new party is substituted for a party whose name was given in mistake for the new party's name or the claim cannot be maintained by or against an existing party unless the new party is joined or substituted. Most importantly, the Act provides that once substitution has occurred the new party will be treated as if it had been a party to the proceedings from the outset.
Prior to the introduction of Section 35 the Courts had grappled with the question of whether they had power to substitute and thereby save such claims from failure. Historically the rule of practice operated in favour of defendants so as to prevent the saving of such claims by substitutions out of time. The injustice of that approach where the wrong defendant was named as a result of a genuine mistake, the correct defendant was not misled and suffered no prejudice by the mistake but stood to take a significant advantage from the mistake was recognised.
RSC Ord 20 r 5 was introduced to correct that injustice. It permitted substitution of the correct defendant after the end of "any relevant limitation period" if the Court was "satisfied that the mistake sought to be corrected was a genuine mistake and was not misleading or such as to cause any reasonable doubt as to the identity of the party intended to sue or, as the case may be, intended to be sued." The introduction of RSC Ord 20 r 5 was challenged on the basis that the Rules Committee had acted in excess of its powers by purporting to confer on the Courts the power to permit such substitutions when previous authority demonstrated that there was no such power. That challenge was rejected by the Court of Appeal in Mitchell v Harris Engineering Co Ltd  2 QB 703. It is a necessary consequence that the Court has an underlying power to permit such substitutions subject to any constraints introduced by particular statutory provisions or rules of the Court.
Support for that conclusion has been demonstrated by such applications in the context of 1954 Act applications. The 1954 Act contains no provision equivalent to Section 35 of the Limitation Act 1980, nor is section 35 imported into the 1954 Act. Nevertheless the Court has repeatedly confirmed the power, within the terms of RSC Ord 20 r5, to permit substitutions; Evans v Charrington & Co Ltd  1 QB 810 and Signet Group plc v Hammerson Properties plc Times 15 December 1997.
CPR 19 r5
The precise language of RSC Ord 20 r5 was not carried forward into the CPR although the concept of a "mistake" was. CPR 19 r5 has always had the heading "Special provisions about adding or substituting parties after the end of a relevant limitation period". CPR 19 r5(1) defines the circumstances in which the rule applies. In its original form CPR 19 r5(1) provided that it applied to changes of parties after the end of a limitation period under the Limitation Act 1980, the Foreign Limitation Periods Act 1984 and any other statutory provision". That sub-rule was amended in 2001 so that instead of referring to "any other statutory provision" it now refers to "any other enactment which allows such a change, or under which such a change is allowed."
CPR 19 r5(2)(b) provides that applications to substitute will only be permitted where the substitution is necessary. CPR 19 r5(3) provides that the requirement for necessity will be met only if the Court is satisfied that either:
- The new party is to be substituted for a party named in the claim form in mistake for the new party
- The claim can not properly be carried on by or against the original party unless the new party is added or substituted
- The original party has died, is subject to a bankruptcy order or his interest or liability has passed to the new party.
It is to be noted that the language of s35 of the Limitation Act 1980 provides two of the three ways to meet the necessity requirement.
The Scope of CPR 19 r15
The Court of Appeal's starting point in Parsons was that it would be very surprising if the effect of the CPR or the revisions to it was to remove the jurisdiction the Court had previously had to permit substitution after expiry of limitation in 1954 Act applications. It was noted that in its initial form CPR 19 r5(1) applied to all statutory limitation periods whether there was express statutory permission for such a substitution or not. Indeed, it was suggested that the amendment to that provision may have been driven by the possibility that in its original form the rule appeared to be capable of including cases where the statutory provisions imposing a limitation period went so far as to bar substitution.
Whilst on first reading it might appear that the amendment to CPR 19 r5(1) so as to read that it applies to "any other enactment which allows such a change, or under which such a change is allowed" excludes any situation where the applicable statutory limitation provision does not expressly allow substitution. Such a conclusion would have removed many causes of action from the ambit of CPR 19 r5 leaving applications for substitution after the expiry of limitation to be dealt with under CPR 19r2 or CPR 3 r10 without any specific criteria being applied.
In the circumstances the Court concluded that CPR 19 r5 was to be construed as applying wherever the applicable statutory limitation regime did not expressly prohibit substitution. The word "allow" in this context is taken to mean not expressly barred, so includes active and passive permitting. It follows that applications to substitute after the expiry of limitation in all matters under the Limitation Act 1980 plus those under the 1954 Act, the Inheritance Act 1976 and a long list of statutory claims to which the 1980 Act does not apply (such as discrimination and various employment claims) will be covered.
The Meaning of Mistake
Whilst RSC Ord 20 r5 required the mistake being corrected by substitution to be "a genuine mistake" and one that "was not misleading or such as to cause any reasonable doubt as to the identity of the party intending to sue…" CPR 19 r5 is simply expressed in terms of a party who was named in the claim form in mistake for the new party.
Pre-CPR the type of mistake giving rise to the power to permit substitution was the subject of considerable dispute. Many argued for mistake in the sense of strict misnomer; however, a more liberal approach was established as the proper approach in case such as Evans and Signet.
The test applicable was whether the Claimant always intended to sue the person(s) who answered the description of the correct defendant whether they named the wrong defendant because of a typing error or other confusion or because they mistakenly believed that they answered the description of the person whom they intended to sue. The Court of Appeal concluded that mistake in the context of CPR 19 r5 had the same meaning and was wider than pure misnomer.
The Other Grounds Substitution will be necessary in two instances besides the making of a mistake. CPR 19 r5(3)(c) provides for the situation where following death or bankruptcy the interest or liability of the original named defendant has in fact passed to the party to be substituted. That provision is not expressly time sensitive. It remains to be seen whether that ground alone will be sufficient if the death or bankruptcy occurred before issue of proceedings.
CPR 19 r5(3)(b) provides for substitution where the claim in question cannot properly be carried on by or against the original party unless the new party is added or substituted as claimant or defendant. Given the Court of Appeal's conclusion on the meaning of mistake, it was not necessary for it to consider the meaning of that ground and it elected not to do so. If r5(3)(b) is taken simply to mean that the claim cannot be properly carried on against the original party in the sense that the relief sought cannot be obtained against the original party only against the party to be added or substituted, it is hard to imagine a case where the criteria for the power to substitute would not apply.
Parsons provides hope for those who had inadequate or incorrect information about the correct defendant, and for the negligent litigation solicitor who makes errors in this regard. Wherever the wrong defendant is sued, the possibility of substituting the correct defendant will exist unless there is an express statutory bar to such a substitution.
In order to turn the possibility into a reality, the claimant will have to establish necessity in one of the three ways set out in the rules. Where the original party has died or been adjudged bankrupt, it appears that the power to substitute the person to whom the relevant interest or liability has passed arises automatically. Necessity in the context of mistake can be established by showing either that the named defendant was named because of a misnomer in the strictest sense or that because whilst intending to sue the person meeting the description of the correct defendant, the name of the wrong defendant was given. However, it may be that the third way of establishing necessity: the need to substitute for the proper carrying on of the claim, will apply in those and most other instances when a claimant wishes to substitute a new party whom he is satisfied is the correct defendant in place of the defendant who is currently joined to the proceedings.