KHAN PARTNERSHIP LLP v INFINITY DISTRIBUTION LTD (IN ADMINISTRATION) (2016)

The defendant solicitors firm appealed against a master’s refusal to set aside the claimant company’s extension of time for service of a claim form.

 

The claimant had been investigated for VAT fraud. The defendant had been acting for the claimant. In July 2008, the claimant was successful in its VAT appeal, but subsequently went into administration. It claimed that it had been advised negligently and in breach of contract to increase its success fee to the defendant, and that the defendant had taken a further payment on account of interest without authority. It issued a claim form on 14 July 2014, served in draft on the defendant in August. The deadline for service was 14 November. The defendant’s reply in October did not engage with the substantive claims. The claimant applied for an extension of time to serve the claim form so that it could engage in pre-action correspondence with the defendant. The defendant argued that that would deprive it of a limitation defence, but on November 7 the claimant was granted an extension to 30 January 2015. The defendant applied to set aside the order on 28 November 2014, but did not serve that on the claimant until 23 December. The master held that the limitation defence of which the defendant might have been deprived related only to the success fee claims, and that those claims were severable. He varied the order so as to extend time for service of the claim form excluding the success fee claims, but otherwise dismissed the application to set aside.

 

The issue was whether the master had been right to dismiss the application to set aside the extension of time.

 

HELD: (1) The appeal was against an exercise of discretion and accordingly the court would not interfere unless it was erroneous as a matter of law or principle, or fell outside the generous breadth of discretion given to the master. However, the master had been mistaken in coming to the view that limitation affected only the success fee claims. The act on which the interest free claim was based took place December 2008. Accordingly, primary limitation for that claim expired December 2014. The extension potentially prejudiced the defendant’s position as regards limitation of the rest of the claim. Since that was a material factor, the instant court should exercise the discretion afresh (see paras 29-33 of judgment).

 

(2) The claimant’s application had been made, as required under CPR r.7.6, before the expiry of the four months’ period for service. The CPR did not specify particular conditions which had to be satisfied. Even where there was no good reason for failing to serve in time, the court would exceptionally exercise its discretion to grant an extension, Hoddinott v Persimmon Homes (Wessex) Ltd [2007] EWCA Civ 1203, [2008] 1 W.L.R. 806 followed. In the instant case, the reason why the claimant had not served the claim form in time was that it wished to resolve matters in correspondence without the necessity to commence proceedings. While laudable in one sense, once it became clear that the defendant would not provide a response within that period, it did not constitute a good reason. The claimant had served full draft particulars of claim on the defendant; thus it was fully informed of the case against it and of the claimant’s intention to pursue the claim. The most important objective of the rule on service had therefore been fulfilled, Abela v Baadarani [2013] UKSC 44, [2013] 1 W.L.R. 2043 followed. However, given that a limitation defence might be prejudiced, it was doubtful that that alone would be sufficient to justify an extension for service. Nevertheless, the instant appeal was brought not against the order extending time for service, but the order dismissing the application to set it aside. The fact that the original extension of time should not have been granted did not necessarily mean that a subsequent application to set aside had to succeed, Hoddinott followed. The November 7 order provided that an application to set aside should be made within seven days of service of the order, but the defendant did not serve it on the claimant until December 23, the day before the limitation period for the interest fee claim expired. Accordingly, the claimant had effectively been deprived of the opportunity to protect its position by issuing a second claim form before the limitation period expired. Coupled with the fact that draft particulars of claim had been served on the defendant, that failure, in flagrant breach of the rules, to serve its set aside application until 23 December just as the limitation period for the claim was about to expire, constituted very exceptional circumstances which meant that extension of time for service as regards the interest fee claim could not be set aside, Cecil v Bayat [2011] EWCA Civ 135, [2011] 1 W.L.R. 3086 considered (paras 51, 53-54, 56, 61-62).

 

Appeal dismissed

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