Ingram v Little

B e f o r e :

MR ROGER TER HAAR QC Sitting as a Deputy High Court Judge ____________________

____________________

Carlo Taczalski (instructed by Clyde & Co) for AIG Europe SA James Davison (instructed by Clarkslegal) for the Defendants James Watthey (instructed by DAC Beachcroft) for the Third Party Hearing date: 12 March 2020 ____________________

HTML VERSION OF JUDGMENT ____________________

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Covid-19 Protocol: This judgment will handed down by the judge remotely by circulation to the parties' representatives by email and release to Bailii. The date and time for hand-down is deemed to be 10.30am on Tuesday 21 st April 2020.

Mr Roger ter Haar QC :

AIG Europe SA applies to be substituted as the Claimant in this action. The application is opposed both by the Defendants and the Third Party.

On 31 August 2013 a fire broke out at 58 Fenchurch Street, London EC3M 4AB. AIG Europe Limited was then the leaseholder of that property.

The Particulars of Claim in these proceedings allege that the fire started in the course of works to convert a flat roof to a roof terrace. There is no dispute that the First and/or Second Defendants were involved in that work. It is the Defendants' case that their involvement was minimal.

The case against the Defendants is that the fire was caused by the negligence of one or other or both of the Defendants.

The Third Party was joined to these proceedings by an order made on 19 February 2020. The Third Party is the First and/or Second Defendant's liability insurer. As set out in the order, it was joined to this litigation with permission to:

The proceedings were started by a Claim Form issued on 27 August 2019. It named the Claimant as "AIG Europe Ltd". The brief details of the claim were stated as follows:

The Claim Form was served on 20 December 2019. It was accompanied by Particulars of Claim which pleaded the following in paragraphs 2 to 5:

As the Particulars of Claim indicated would be done, the service of the Claim Form and the Particulars of Claim was accompanied by an Application Notice attaching a draft order that:

Accompanying AIG's skeleton argument for the hearing before me was a draft Amended Claim Form. As was necessary, the amendments to the brief details of claim went further than a simple substitution of name:

Supporting the application was a witness statement from Mr. Viran Ram, a partner in the firm of Clyde & Co., the Claimant's solicitors. The details at paragraphs 11 to 22 below come from that witness statement.

Transfer of the cause of action

AIG Building Limited and AIG Europe Limited were subsidiaries of American International Group Inc.

The Property was the subject of a lease between The Mayor and Commonalty and Citizens of the City of London and AIG Building Ltd dated 15 July 2003.

On 22 March 2013, as part of a corporate re-structure that led to the dissolution of AIG Building Ltd, the lease was assigned to AIG Europe Ltd and AIG Europe Ltd was the entity which primarily carried on business at the Property.

I was told by Mr. Taczalski that when he was drafting the Particulars of Claim that he identified that American International Group Inc's European business had gone through a Brexit driven restructure in 2018.

AIG Europe carried on a range of insurance related business in the UK which included business written in the UK, and business which relied upon passporting rights into the EU. As part of the restructure, the UK business was transferred to a new insurer AIG UK Ltd before the remaining business of AIG Europe Ltd was merged into AIG Europe SA.

On 1 December 2018, AIG Europe Limited and AIG Europe SA entered into a Merger Agreement. Article 3 of the Merger Agreement provided:

This (together with the balance of the Merger Agreement) gave effect to the intention of a specific carve-out in respect of the UK business (specifically defined), with the subsequent transfer of the entire remainder of AIG Europe Ltd to AIG Europe SA.

The Scheme by which the UK business was to be carved out from AIG Europe Ltd was appended to the Merger Agreement as Schedule 6. Section 3 of the Scheme sets out the assets and liabilities that were to be transferred to AIG UK Ltd. The lease for the property fell within the definition of "Transferring UK Properties" which were transferred to AIG UK Limited. However, such accrued cause of action (if any) in respect of the damage caused by the fire in 2013 was not caught by the transfer to AIG UK Limited.

In consequence, any such cause of action remained with AIG Europe Limited after the UK Transfer at the point of merger with AIG Europe SA. The effect of Article 3 of the Merger Agreement was that any cause of action then passed to AIG Europe SA.

AIG Europe Limited ceased to exist on 5 December 2018.

The long and short of these corporate manoeuvres is that the Claim Form should have named AIG Europe SA, not AIG Europe Limited.

The explanation given by Mr. Ram for this mistake is as follows:

The Relevant Rules

The application is made under CPR rules 17.4 and 19.5.

CPR rule 19.5 provides:

CPR rule 17.4 provides:

In his written submissions, Mr. Taczalski for AIG said that CPR rule 17.4 is unlikely to add a great deal in this case in that it is unlikely to be satisfied if neither of the limbs relied upon under CPR 19.5 is satisfied. He repeated this in his oral submissions. I agree, and therefore treat this application as being made under CPR rule 19.5 (3)(a) and/or 19.5(3)(b).

CPR rule 19.5(3)(b)

Both CPR rule 19.5(3)(a) and (b) are gateway provisions. Unless AIG can bring itself within one or other of these provisions, the application will fail. Even if they do so, then they must persuade me that I should exercise my discretion to allow the substitution. I consider first whether AIG can bring themselves within one or other of those provisions.

The gateway provision in CPR rule 19.5(3)(b), as set out above, requires the Court to be satisfied that:

I was referred to relevant authority.

First, Parkinson Engineering Services plc v Swan [2009] EWCA Civ 1366 ; [2010] Bus LR 857 . In that case, the claimant company was the subject of an administration order made in May 2003 and the defendants were appointed the joint administrators. In November 2003 the administration order was discharged and the company ordered to be wound up. Under that order the defendant administrators were released from liability under section 20 of the Insolvency Act 1986 with effect from February 2004. By a Part 7 claim form issued in April 2009 in the Chancery Division the liquidator caused the company to commence proceedings against the defendants claiming damages for negligence in the performance of their duties as administrators. The defendants pleaded that the claim was barred by the effect of the statutory release under section 20. To defeat that plea the liquidator applied in June 2009 for an order permitting the amendment of the existing proceedings by substituting himself as claimant and adding a claim for compensation under section 212(3) of the Insolvency Act 1986, a claim which could proceed, notwithstanding the release, provided the court gave permission pursuant to section 212(4). The judge at first instance allowed the application.

On appeal, that decision was upheld. Lloyd L.J. said at paragraph [28]:

In Roberts v Gill & Co. [2010] UKSC 22 ; [2011] 1 AC 240 the claimant, in his personal capacity as a beneficiary of his late grandmother's estate, commenced proceedings for damages in negligence against two firms of solicitors who had advised the estate's former personal representatives. After the relevant limitation period had expired, the claimant applied to amend the proceedings in order to continue them both in his personal capacity and on behalf of the estate as a derivative action. The Supreme Court considered the application of both CPR rules 17.4 and rule19.5(3)(b). The Supreme Court held that an amendment to treat the claimant's claim as a representative action rather than a personal claim would be an amendment to alter the capacity in which he sued (paragraph [40]) and that the representative claim is a claim involving a new cause of action since the capacity in which the claimant made the claim was an essential part of the claim (paragraph [41]).

On the facts of that case, the Supreme Court upheld refusals by the judge at first instance and the Court of Appeal to amend as requested.

However, it is significant to note that in the judgment of Lord Walker of Gestingthorpe JSC at paragraph [104] he said:

Roberts v Gill is a somewhat special case because of the law as to who can pursue a derivative action. However, it seems to me distinguishable from Parkinson Engineering in that what the claimant was attempting to do was to introduce a new cause of action rather than to regularise the pursuit of an already pleaded cause of action which had been pursued by the wrong person.

In Irwin v Lynch [2010] EWCA Civ 1153 ; [2011] 1 WLR 1364 the directors of a company entered into a contract with that company under which the company would carry out work to a property belonging to the directors. The company subsequently went into administration and the directors appointed an administrator. The administrator applied for, inter alia, a declaration that the contract was a transaction at an undervalue and that the directors were guilty of misfeasance and breach of trust in causing the company to enter into the contract and were therefore liable to compensate the company. The directors applied to strike out the claim against them personally on the ground, inter alia, that the administrator was not entitled to make such a claim by reason of section 212 of the Insolvency Act 1986. In response the administrator applied for leave to add or substitute the company as claimant under CPR rules 17.4(4) and 19.5. The judge refused the application, but the Court of Appeal allowed the administrator's appeal.

The Court of Appeal (whose judgment was again given by Lloyd L.J.) followed Parkinson Engineering . Lloyd L.J. said at paragraph [26]:

In Insight Group Ltd v Kingston Smith [2012] EWHC 3644 (QB) ; [2014] 1 WLR 1448 , Leggatt J. referred to Parkinson Engineering and Irwin v Lynch and said at paragraph [96]:

In his submissions before me, Mr. Taczalski put his submissions first in respect of CRP rule 19.5(3)(a), to which I turn below. However, applying the guidance in the authorities that I have referred to above, it seems to me that rule 19.5(3)(b) is the more natural place to start: the problem is that the original claim cannot be maintained against the existing defendants unless AIG Europe SA is substituted for AIG Europe Limited.

The opposition to this came principally from Mr. Watthey for RSA. Mr. Davison for the Defendants primarily directed his fire at the exercise of my discretion, although naturally adopting Mr. Watthey's submissions. The one point as to the gateway provisions which Mr. Davison made separately was to argue that because AIG Europe Ltd had ceased to exist at the time that proceedings were commenced, the proceedings were a nullity.

In my judgment that argument should be rejected: a situation where the proceedings would otherwise be a nullity is well within the situation in respect of which CPR rule 19.5(3)(b) is intended to provide a remedy.

For the Third Party, RSA, Mr Watthey submitted:

As to the arguments in paragraph 39.1 to 39.3, it seems to me that they misread CPR rule 19.5(3)(b). That rule envisages substitution where

RSA's argument assumes that there cannot be a substitution of a new claimant for the original "party". This is contrary to the terms of the rule.

I may be unfair to the subtlety of RSA's argument, but perhaps the most important submission on its behalf is that in paragraph 39.4, namely that "the whole basis of the application is that the Claimant in fact has no claim because it has been assigned". It is, of course, true that the basis of the application is that the Claimant in fact has no claim because it has been assigned, as that paragraph asserts. However, as the Supreme Court recognised in Roberts v Gill (see paragraphs 32 to 35 above) an assignment is very much the situation where rule 19.5(3)(b) will apply.

In my judgment, the application made to substitute AIG Europe SA for AIG Europe Limited passes the gateway provision on CPR rule 19.5(3)(b).

CPR rule 19.5(3)(a)

AIG also makes its application also under CPR rule 19.5(3)(a). As set out above, that permits the Court to permit substitution of a party where the court is satisfied that:

There is a substantial body of authority on this rule and its predecessor, Order 20 rule 5. There was an important review of the authorities and statement of principle in the Court of Appeal decision in Adelson v Associated Newspapers Limited [2007] EWCA Civ 701 ; [2008] 1 WLR 585 . At paragraphs [29] to [33] of the judgment of the Court, Lord Phillips of Worth Matravers CJ, said this:

An important case under the pre CPR rules considered by the Court of Appeal was The Sardinia Sulcis [1991] 1 Lloyd's Rep. 201. At paragraph [37] Lord Phillips commented that that case was particularly important for two reasons:

At paragraph [38] he referred to a passage in the judgment of Lloyd L.J. in that case which has become known as "the test in The Sardinia Sulcis" :

The Court then considered the extent to which "the test in The Sardinia Sulcis" applies to CPR rule 19.5(3)(a) and concluded at paragraphs [55] to [57]:

Applying the general principles discussed to the facts of the case before it, the Court said at paragraph [69]:

I have referred above in the context of CPR rule 19.5(3)(b) to the decision of Leggatt J. in Insight Group Ltd v Kingston Smith . In that case Leggatt J was primarily concerned not with limb (b) but with limb (a) of rule 19.5(3).

At paragraphs [34] and [35] he said:

After an extensive review of the authorities, he said at paragraph [55]:

Applying those general principles to the case before him, Leggatt J. said at paragraphs [56] and [57]:

The final authority on CPR rule 19.3(5)(a) to which I need to refer is the decision of Mr. Andrew Henshaw Q.C. in Rosgosstrakh Ltd v Yapi Kredi Finansal Kiralama A.O. and another [2017] EWHC 3377 (Comm) . In that case the claimant, Rosgosstrakh Ltd, was, or should have been, a protection and indemnity policy underwriter. As a result of a corporate reorganisation, Rosgosstrakh Ltd was subsumed into another legal entity, Public Joint Stock Company Rosgosstrakh which was the full legal successor of Rosgosstrakh Limited.

At paragraph [73] Mr Henshaw commented as follows:

Unsurprisingly, AIG relies heavily upon this decision.

In response, as to the applicability of CPR rule 19.5(3)(a), as in respect of CPR rule 19.5(3)(b), Mr. Davison contends that the claim should be dismissed on the basis that, as AIG Europe Ltd had ceased to exist at the time that proceedings were commenced, the proceedings are a nullity. The problem with that submission is that the self same argument was put forward in the Sardinia Sulcis and rejected. The decision of Mr. Henshaw in Rosgrosstrakh is also directly contrary to that submission, and I reject it.

For the Third Party, Mr. Watthey did not support Mr. Davison's nullity submission. He took the lead in oral argument in arguing that the case does not fall within CPR rule 19.5(3)(a). He submitted that AIG had to satisfy a three stage test asking the following questions:

There was no dispute between the parties as to the first of these questions, both as to it being a relevant question, and that the answer to that question is "yes".

There was no dispute between the parties as to the materiality of the third question, which I address below.

There was a disagreement between the parties as to whether the second question is a relevant question, other than in respect of the exercise of discretion.

There was no dispute between the parties that that question is a relevant element of CPR rule 17.4 (see in this context Best Friends Group v Barclays Bank Plc [2018] EWCA Civ 601 at paragraph [3]). It was also an element of the old Ord 20 r. 5. However, I agree with Leggatt J. at paragraph [40] of Insight Group that it is not a part of CPR rule 19.5(3) and to that extent there has been a liberalisation of the law.

Mr. Watthey's principal argument was that the mistake was not a mistake as to name, but as to identity. In his submission:

As he developed his argument, Mr. Watthey pointed out that the proposed amendments to the Claim Form (see paragraph 9 above) go further than a simple change of name. This is necessary because AIG Europe SA was not the party who entered into the original contract nor the party who suffered the loss, but is the party in whom any cause of action is now vested.

In paragraph 25 of his skeleton argument he set out his arguments as follows:

I do not accept the submission that there was a deliberate decision to sue in the name of the Claimant in any relevant sense: of course, a decision was made to sue in the name of AIG Europe Ltd, but that was a genuine mistake, as conceded.

The footnote to paragraph 25 raises the question as to whether the Court can look at the Particulars of Claim in deciding whether or not there was a mistake made. In support of its position that I should not have regard to the full pleading, Mr. Watthey refers to paragraph [71] of the judgment of Behrens J. in G E Money Home Lending Ltd v H C Wolton & Sons (t/a Wolton Chartered Surveyors) [2010] EWHC 1011 (Ch) ; [2010] P N L R 28 at paragraph [71]:

Obviously, insofar as the court is considering what was the state of mind of the person who drafted the Claim Form, a document produced at a later date once the mistake is known may be of limited assistance in deciding what was the mistake and why the original mistake was made. However, I do not accept that the Particulars of Claim is a document to which reference cannot be made. Certainly, in deciding the effect of the contents of the Claim Form upon its recipient a document served at the same time as the Claim Form is relevant: see Mitchell v Harris Engineering Co. Ltd [1967] 2 QB 703 at p. 709, cited at paragraph [34] of the judgment in Adelson , paragraph [26] of the judgment of Toulson LJ in Evans v Cig Mon Cymru [2008] EWCA Civ 390 ; [2008] 1 WLR 2675 and paragraph [58] of the judgment of Leggatt J. in Insight Group (referring to considering "subsequent correspondence in so far as it sheds light on what the reason was for naming the LLP as the defendant").

However, in my judgment, reference to the Particulars of Claim is of limited assistance in this case in deciding whether the case falls within CPR rule 19.5(3)(a), but is relevant in deciding whether I should exercise my discretion in so far as the Particulars of Claim were served with the Claim Form.

Subject to those points, there seems to me to be some strength in the points made by Mr. Watthey, which is why I have first considered CPR rule 19.5(3)(b), which appears to me to be the more natural provision to deal with the situation before the court.

However, it also seems to me on the authorities that a mistaken decision to sue in the name of the original party entitled to sue rather than in the name of an assignee is a mistake as to name rather than as to identity. In that respect I refer to paragraph [48] of the judgment of Leggatt J. in Insight Group and paragraph [75(viii)] of the judgment of Mr. Henshaw in Rosgrosstakh .

If a failure to sue in the name of an assignee is a mistake of name, as those authorities decide, then it is inevitable that changes of the sort necessitated in the amendments to the "brief details of claim" will have to be made, but will not change the nature of the mistake made.

For his part, Mr. Davison argued in his skeleton argument:

In my judgment, these points are no more than explaining the circumstances in which an assignment happened, and the different characteristics between the assignor and assignee. However, as with Mr. Watthey's submissions, these submissions reinforce my view that this case, whilst falling within limb (a) as interpreted by the authorities, falls more naturally within limb (b) of CPR rule 19.5(3).

For these reasons, if I am wrong as to the application of CPR rule 19.5(3)(b), I hold that CPR rule 19.5(3)(a) applies.

Discretion

Having decided that this application passes the gateway provisions of CPR rule 19.5(3)(b) and/or (a), I must now consider whether to exercise my discretion in AIG's favour.

It was to the exercise of my discretion that Mr. Davison for the Defendants devoted the greater part of his oral submissions, and understandably so.

To my mind, the most important point made by Mr. Davison concerns the effect of this claim upon the Defendants and those behind the Defendants. There were placed before me two witness statements from Judith McCormick and one from Ronald McCormick. These emphasise that the Defendants are small family owned companies already in a precarious state of financial health, a state which can only have been made considerably worse by the national emergency which has required dramatic government interventions in the period between the hearing before me and the delivery of this judgment.

Mr. Davison emphasises that the amount of work carried out by the Defendants was minimal, particularly compared to the scale of the claim made.

The Defendants' position is made worse and more worrying by the insurance position: the cover under the RSA policy is only £1 million, and even that is quite possibly not available given that RSA has belatedly refused to indemnify under their policy.

The strain of this litigation is having a direct effect on the mental well being of the McCormicks, particularly Mr. McCormick.

In addition to those points, Mr Davison points to the following:

Mr Davison graphically expresses the conclusion of his submissions as follows:

For the Third Party, Mr. Watthey makes the following points:

As to the first of these six points, Mr Watthey submits in his skeleton argument as follows:

For AIG Mr Taczalski submits in his skeleton argument:

I have found the exercise of my discretion in this case a matter of considerable difficulty. In the event, I have decided that the application should be granted.

Firstly, I recognise that doing so will deprive the Defendants of an accrued limitation defence, but that is so in the overwhelming majority, if not all, the cases where there is a contested application under CPR rule 19.5.

Secondly, I fully accept that these proceedings will place considerable strain upon the McCormicks personally, but that would have been so even if the mistake had not been made. In my judgment this case is primarily a dispute between the insurers standing behind AIG, and RSA who may or may not be require to indemnify the Defendants. It seems highly improbable that any recovery will be made against the Defendants except to the extent that the monies come from RSA. As a matter of humanity, it may well be that AIG and their insurers might wish to confirm what appears to me to be the reality, namely that no attempt will be made to make a recovery except to the extent that insurance monies are available: I cannot make any such order, but would suggest that urgent consideration be given to this.

Thirdly, this is a case in which, perhaps unusually, investigations involving the Defendants' workmen were made very soon after the incident. Although the extent of pre-action correspondence was very limited, these early investigations are, in my view, a relevant factor.

Fourthly, at no time were the Defendants misled by the mistake, since the Claim Form when served was accompanied by the Particulars of Claim which fully explained the mistake which had been made.

Fifthly, this was an unfortunate, but innocent, mistake.

For these reasons the application will be allowed.

Note 1 In a footnote Mr Watthey said “The Particulars of Claim which have been served in this case must be disregarded; it is a document which came into existence after the expiry of the limitation period and after the mistake had come to light (see GE Money Home Lending Limited v H C Wolton & Sons Limited t/a Wolton Chartered Surveyors [2010] EWHC 1011 ; [2010] PNLR 28 at [71] on precisely this point).” [Back]

Note 2 Horne-Roberts v SmithKline Beecham plc [2001] EWCA Civ 2006 ; [2002] 1 WLR 1662 [Back]

Note 3 Horne-Roberts v SmithKline Beecham [2001] EWCA Civ 2006 [Back]

Note 4 Mr Davison’s witness statement sets this out and appends the correspondence (p217, pp219 – 228). There is no suggestion in the witness statements of Mr Ram or Ms Poonia that there was any earlier correspondence. [Back]

Note 5 See the witness statement of Mr McCormick at paragraph 19 (p360). [Back]