1st Option Consulting Services Limited v Peter George Rutherford

This is an appeal against an order made by Mr Recorder Geraint Jones KC (“the Recorder”) on 14 October 2024, substituting the appellant as defendant in place of Lizst Price Accounting Ltd (“Lizst Price”). Permission to appeal on 5 grounds was granted by Ritchie J on 7 March 2025.

I also have before me an application to set aside a Notice of Discontinuance, to which I return below.

The background facts can be summarised as follows:

By the surviving grounds of appeal the appellant contends that:

The grounds of appeal are all opposed. By a respondent’s notice, the respondent contends in the alternative that:

The claimant has also issued an application, dated 4 April 2025, to set aside the Notice of Discontinuance against Lizst Price dated 26 April 2024. The application states that his previous solicitors made a mistaken decision to serve the Notice, not intending it to make the substitution impossible, and relying on the Court’s power to remedy errors under CPR 3.10.

It is common ground that the claim for professional negligence was subject to a 6-year limitation period under section 2 and/or section 5 of the Limitation Act 1980. Tortious and contractual causes of action may have run from different dates but that is not material on this appeal.

The material parts of section 35 of the 1980 Act provide:

The material parts of CPR rule 19.6 provide:

CPR Part 38 provides inter alia:

At the hearing before the Recorder, the claimant conceded that the limitation period against the appellant had expired as I have said.

The Recorder rejected a submission on behalf of the appellant that the court had no jurisdiction to hear the application because the claim had never been served on the first defendant and had been discontinued against the second defendant. He noted that where a defendant has not been served in time, it remains possible for a claimant to make a retrospective application to extend time for service. The case law referred to such a claim as being “in limbo” but not as being “dead and buried or no longer on foot so far as the court is concerned”.

The Recorder rejected a further contention by the appellant that the claimant’s application could not fall within CPR 19.6 because, as a result of the discontinuance against the Second Defendant, there was no defendant for whom the appellant could be substituted as a new party. He accepted a submission on behalf of the claimant that it should not matter whether a notice of discontinuance was served the day before, or the day after, the application to substitute a party. He held that that conclusion followed from the words in rule 19.6(3)(a) “… the new party is to be substituted for a party who was named in the claim form in mistake for the new party” (emphasis added in the judgment). That was despite CPR 38.5.2 stating that the effect of service of notice of discontinuance is to bring the claim to an end.

The Recorder held that Lizst Price is “a party who was named in the claim form” and therefore the appellant could be substituted for it. The opposite view, he held, would involve reading those words in the rule as if they were in the present tense rather than the past tense.

Having found, for those reasons, that he had jurisdiction, the Recorder then considered the position under section 35 of the 1980 Act and CPR 19.6. He rejected a submission that the claim against the appellant would remain statute barred if substitution was permitted, holding that the effect of rule 19.6.2(a) is based on the “doctrine of relation back” i.e. its effect is that the substituted claim is deemed to have been commenced when the original claim was commenced.

The Recorder considered the background facts and concluded that the claimant’s original intention had been to sue the accountants who had prepared the company’s final accounts. The claimant or his solicitors, he found, had made a mistake of fact by naming Lizst Price as defendant because it was the successor company to 1^st Option Accounting Services Ltd, failing to appreciate that the accounts had in fact been prepared by the appellant, 1^st Option Consulting Services Ltd (and also believing that Brookson Ltd at some point had somehow taken over).

On the basis of that finding of a mistake of fact, the Recorder concluded that both of paragraphs (a) and (b) of rule 19.6.3 were satisfied. He noted that there had not been, and in his view could not have been, a submission that the pre-condition in rule 19.6.3(b) was not satisfied.

Having decided that he was empowered to permit the substitution, the Recorder went on to consider how to exercise his discretion. Rejecting arguments that the claim against the appellant was bound to fail and that there had been unreasonable delay in making the application, he permitted the substitution. That was in particular because of his view that the company providing the original accountancy services was at least partly to blame for the confusion as to its identity. He also concluded that allowing the application would not cause the appellant any prejudice other than the loss of its limitation defence.

Although the application to set aside the Notice of Discontinuance under CPR rule 3.10 post-dated the Recorder’s decision, it would render the appeal against the Recorder’s decision academic if it succeeded. At the beginning of the hearing I heard argument on whether I should hear that application at all, and if so, when. For reasons given in a separate ex tempore judgment on 17 June 2025, I ruled that I would not hear the application, essentially because (1) I doubt that it is an application “in relation to an appeal” which I have the power to decide under CPR 52.20 and (2) in any event Lizst Price were not before the Court but would be a necessary party to that application. Instead, I proceeded to hear the appeal and to decide whether the Recorder’s decision was right or wrong, a question which itself is unaffected by the application to set aside.

I have therefore not resolved any of the issues raised in relation to the rule 3.10 application, of whether such an application can be entertained at all and, if it can, of whether it is properly to be treated as an application for relief from sanction engaging the Denton criteria and, more generally, how it should be decided in the circumstances of the case including the time taken to make the application.

With reference to ground 1, the appellant’s counsel Ms Veerabathran submits that when the application to permit the substitution came before the Recorder, the appellant could not be substituted for Lizst Price because, by operation of the Notice of Discontinuance and CPR 38.5.2, Lizst Price was no longer a party to the claim.

She submits that the Recorder was therefore wrong to decide that CPR 19.6 could be applied to the situation and that that rule, even with its reference to a party who “was named” in the Claim Form, could not override the specific provisions in Part 38 which set out the effect of discontinuance.

She also submits that he was wrong to refer to “the happen-chance of whether a notice of discontinuance was served one day before or one day after an application”, because the important date is the date when the Court considers whether to permit a substitution, not the date when the substitution application is issued.

Ms Veerabathran also submits that the Recorder wrongly had regard to the existence of an unserved, expired Claim Form as against Brookson, when this was irrelevant to the issue before him.

With reference to ground 2, Ms Veerabathran relies on two cases. The first is Armes v Godfrey Morgan Solicitors Ltd [2018] 1 WLR 936 where the Court of Appeal emphasized that the then CPR 19.5 (now 19.6) permits the substitution of one party for another outside the limitation period but not the addition of a new party and, therefore, the difference between those two concepts. The second is Viegas v Cutrale [2024] EWCA Civ 11222 at [66] – [70] where Newey LJ accepted without demur the first instance judge’s ruling that one “cannot substitute a nullity; there is nothing to be substituted” (see [66]).

That being so, she submits, the Recorder erred by allowing the appellant to be “substituted” for a non-party.

As to ground 3, Ms Veerabathran submits that the Recorder erred by finding significance in the word “was” in rule 19.6.3(a), and that the point of the rule is to permit substitution where a party was named by mistake. Such a mistake will always have occurred in the past, which is why that tense is used to describe it. Therefore the Recorder was wrong to say that the appellant’s case meant that the words “who was named in the claim form” were redundant.

As to ground 4, Ms Veerabathran submits that the Recorder applied rule 19.6.3(a) in a manner contrary to the meaning of section 35. That section is headed “new claims in pending actions” and, at the date of the Recorder’s decision, no part of the claim was in any real sense “pending”. Nor, she submits, could the appellant satisfy the requirement of section 35(5)(b) that the substitution “is necessary for the determination of the existing action”, because here the existing action had effectively come to an end.

Ms Veerabathran also relies by analogy on Sayers v Smithkline Beecham Plc and Ors [2004] EWHC 1899 (QB) at [5] where Keith J noted, in the context of a group action that, even if claimants who had discontinued their claims were subsequently permitted by the court to rejoin the proceedings, “they will be treated as bringing a new claim” and would lose the benefit of the original date of issue of their claim for the purposes of limitation. In the present case, she submits, the benefit of the original date of issue must have been lost when discontinuance occurred, such that it cannot be revived for a claim against a substituted new party.

As to the fifth ground (ground 7 in the Notice of Appeal), Ms Veerabathran submits first that the claimant did not rely on CPR 19.6.3(b) at the hearing and therefore it was not fair to base any order on it, and second that it is not satisfied in any event: it could not be said that the claim “cannot properly be carried on by or against the original party unless the new party is added or substituted” where the claim could not be carried on at all, that party having dropped out of the claim.

For the claimant, Ms Tew of counsel relies on the Recorder’s findings, from the evidence before him, about the circumstances in which the Notice of Discontinuance was served. The claimant and his solicitor had mistakenly believed that accounting services had been provided by 1st Option Accounting Services Ltd. After Clyde & Co had corrected that belief on 5 October 2022 there was a delay of 5 months before the substitution application was made, but that, the Recorder found, did not cause more than minimal prejudice to the appellant because, in order for the letter of 5 October 2022 to be sent, Clyde & Co must have thoroughly investigated the circumstances of the claim and the identity of the appropriate defendant.

Ms Tew submits that the Recorder’s order was rightly made where there was a live claim against Lizst Price at the time when the substitution application was made and the Notice of Discontinuance, though served in error, could be read as subject to that application, and also the unserved and expired claim form at the time of the Recorder’s decision remained “in limbo” as against Brookson (as it was put by Sir David Eady in Jerrard v Blyth [2014] EWHC 647).

Ms Tew also points out that, subject to the effect of the Notice of Discontinuance, there has been no challenge to the Recorder’s finding that the test under CPR 19.6(3)(a) was satisfied or his exercise of his discretion.

She further submits that there was no restriction on the Recorder’s powers under section 35 or rule 19.6 which prevented him from ordering substitution. Section 35 does not expressly require that the original action must be live as against the defendant for whom a new party will be substituted, at the time when the application to start the new claim is heard by the court. Unless Ms Veerabathran is right about the effect of the Notice of Discontinuance, the criteria were satisfied.

As to ground 3, Ms Tew invites me to uphold the Recorder’s reasoning about the tense used in rule 19.6(3)(a).

As to the respondent’s ground A, Ms Tew accepts that rule 19.6(3)(b) was not the focus of the hearing below. However, she relies on Office Properties PL Limited (in liquidation) and others v Adcamp LLP and Richard Chenery [2025] EWHC 170 (Ch), where David Halpern KC held that that paragraph does not mean that the claim, where the order is made, will be continued by or against the original party. Instead the test should be read as requiring that “the claim by or against the original party cannot properly be carried on unless the new party is added or substituted”. That slightly amended test, she submits, is satisfied on the facts of this case.

Ms Veerabathran also opposes the respondent’s ground A. She contends that the claimant should not be allowed to take a new point under paragraph (b) of rule 19.6(3) which would necessitate the complete recasting of the substitution application. And in any event, she submits that an alternative case under paragraph (b) has no merit. The reason why the claim against Lizst Price cannot be carried on is the discontinuance, rather than the issue of which company is the appropriate defendant. And, she submits, the Notice of Discontinuance provides an answer to any application under paragraph (b) just as it does under paragraph (a).

If I do allow the claimant to rely on paragraph (b), Ms Veerabathran submits that he nevertheless must fail on the facts. She points out that the Claim Form (as opposed to the Particulars of Claim directed against Lizst Price) referred without limitation to “the accounts of the Claimant’s former company showing the Claimant owed it money”. That could encompass the 2013 and 2014 accounts and therefore it is not clear that the original claim issued against Lizst Price, who (under their former name) produced at least the 2013 accounts, could not be carried on without substitution.

The Recorder’s order was based on rule 19.6(3)(a). He therefore ruled that the appellant could be substituted for Lizst Price because Lizst Price had been named in the Claim Form by mistake.

Although he expressed a view that the different test in rule 19.6(3)(b) was also satisfied, that was not the basis of the application before him and he had heard no argument on the point. As it was not made an alternative basis for his order, his view on that point is not directly relevant to this appeal.

I accept Ms Veerabathran’s submission that, at the time of the Recorder’s order, the appellant could not be substituted for Lizst Price because Lizst Price was no longer party to the claim. That was the effect of the Notice of Discontinuance, applying rule 38.5.

That clear effect, important enough to be stated in terms by rule 38.5(2), is not altered by the fact that an issue of costs could still have been raised under rule 38.5(3) or that Lizst Price could have made an application to set aside the Notice of Discontinuance under rule 38.4 or by any possibility of the claimant applying to set the Notice aside (as he now has).

Contrary to the Recorder’s conclusion, I do not consider that the use of the past tense in rule 19.6(3)(a) has any significance. It refers in that way to “a party who was named in the Claim Form by mistake” simply because, in any case where substitution is sought to correct the mistake, the mistake must have occurred in the past.

Instead, it seems to me that the important word in that sentence is “party”. Once a Notice of Discontinuance takes effect under rule 38.5, the party named in it ceases to be a party to the claim (save for the limited purposes referred to in rule 38.5(3) and 38.4). So, at the point when the Recorder made his order, the appellant was substituted for a non-party and not for a party.

The same analysis applies to the very similar wording contained in section 35(6) of the 1980 Act.

That conclusion is supported by the following propositions which Ms Veerabathran successfully established:

I was less persuaded of the relevance of North Thames RHA v Sheppard Robson and another (1995) 50 Con LR 79, a pre-CPR case in which the Court of Appeal held that in litigation between a building client and a contractor, it would be inappropriate to make a declaration as to the effect of a sub-contract where proceedings against the sub-contractors had been discontinued. It was suggested that they could be re-joined to the proceedings, but Simon Brown LJ described that suggestion as “cloud cuckoo land” and said that “the clock cannot be turned back”. Those comments were based on analysis of the rules of court as they then stood and obviously were not and could not be of assistance in interpreting the CPR. They do however emphasize that discontinuance has always been designed to have a fundamental and, with whatever limited exceptions, final effect.

Ms Tew was not able to gainsay the propositions listed above. She observed correctly that none of these cases is directly on point. However, their cumulative force lends considerable support to my conclusion above. The key feature of substitution under rule 19.6(3)(a) is that it enables a defendant to be brought into a claim even after expiry of the limitation period. It is possible only where the right party is substituted for the wrong party who has been sued within the limitation period. After service of the Notice of Discontinuance in this case, regardless of the claimant’s solicitors’ intentions, Lizst Price was a non-party against whom the limitation period was now running and indeed had run.

That reality is not changed by any theoretical or other possibility of Lizst Price being brought back into the case. In relation to the rule 3.10 application I heard argument about the case of Toplain Ltd v Orange Retail [2012] EWHC 4254 (Ch) where Roth J at [14] ruled that the rule 3.10 power could be used to set aside a Notice of Discontinuance served by mistake. Ms Veerabathran submitted that that case either could be distinguished or was wrongly decided but I do not need to decide those issues. That is because a mere theoretical possibility of an application, and an order, restoring a party to proceedings does not change the fact that the party in question has left the proceedings. The position is analogous to that of a claim after judgment at trial on all issues, and once time for any appeal has passed. At that time a claim must be treated as having come to an end. That is so despite the fact that, at any time in the future, an application could be made (e.g. on grounds such as fraud) to set the judgment aside or (if there is good reason) for an extension of time to apply for permission to appeal.

Similarly, my conclusion is unaffected by the fact that, in theory, an application could have been made, at any time before the Recorder’s order, for permission to extend the time for service of the Claim Form on Brookson. The fact is that the effect of the Recorder’s order was not to substitute the appellant for Brookson, whether or not that would have been a possibility.

In discussion it was canvassed that this effect of a Notice of Discontinuance was a trap for the unwary but as Ms Veerabathran pointed out, the lack of any case directly on point suggests that the problem has not arisen often, if at all. Whilst the Recorder may have viewed the appellant’s arguments as promoting form over substance, I do not, for the reasons set out above.

The appeal therefore succeeds on grounds 1-4.

I am also not persuaded that there is any merit in the Respondent’s ground A. And, if anything turned on the Recorder’s comment that rule 19.6(3)(b) was satisfied, I would also allow the appeal on ground 5.

The simplest reason is that, although paragraph (b) differs by allowing addition of a party, as well as substitution of a party, in this case substitution of a party under paragraph (b) was impossible for the same reasons as made it impossible under paragraph (a).

The claimant’s application which was before the Recorder and which is the subject of this appeal unambiguously sought “substitution”, and the Recorder’s order was for the appellant to be “substituted as a Defendant in place of” Lizst Price. Ms Tew conceded before me that she could not, instead, seek an order for the appellant to be added, rather than substituted, as a defendant.

Accordingly, reliance on paragraph (b) adds nothing to the claimant’s case.

I therefore do not need to resolve the question of whether paragraphs (a) and (b) of rule 19.6(3) are mutually exclusive. It has been said that they are, by Fraser J (as he then was) in TRW Pensions Trust Ltd and another v Indesit Company Polska Sp. Z.o.o. and another [2020] EWHC 1414 (TCC) at [49], echoing an observation by Lloyd LJ in Irwin v Lynch [2010] EWCA Civ 1153 at [20]. If they are, then this case could only fall within paragraph (a), not paragraph (b). That is because of the Recorder’s unappealed finding of fact that the wrong party was named in the claim by mistake.

Nor do I need to decide a question about whether, to trigger paragraph (b), the claim could not have been “carried on against [Lizst Price] unless the new party [was] added or substituted as … defendant”, notwithstanding Ms Veerabathran’s forceful submission that the claim, at least as originally framed in the Claim Form, could in fact have been continued against Lizst Price for losses arising from the 2013 and 2014 accounts.

For those reasons the appeal is allowed and the cross-appeal is dismissed.

I will invite submissions on any consequential matters and, absent agreement, the mechanism for resolving them.