Adding a new cause of action to an existing claim after expiry of limitation

In Ballinger and another v Mercer Ltd and another [2014] EWCA Civ 996 the Court of Appeal recently overturned a judge’s decision to allow amendments to particulars that introduced new causes of action after the expiry of the relevant limitation period. In an important decision, the court addressed what is the proper approach, on an interlocutory application to amend a statement of case, to the determination of whether a proposed new claim is time-barred and, crucially, who bears the burden of persuasion in that regard.

How to amend after limitation has expired

The procedure for making amendments to a statement of case is contained out in CPR Part 17 and CPR PD 17. CPR 17.4 permits, in certain cases, amendments to statements of case to introduce a new cause of action after the expiry of the applicable limitation period. The rule gives effect to section 35 of the Limitation Act 1980 (LA 1980). Such a claim may be introduced where it arises out of the same facts, or substantially the same facts, as those already in issue in the claims as currently pleaded in the proceedings (Goode v Martin [2002] 1 All ER 620).

As many of you will know, this procedure can be incredibly useful for claimants due to the operation of the 'doctrine of relation' in LA 1980, s 35(1), ie if a new claim is permitted by way of amendment it is treated as having been made by way of a separate action commenced on the same date as the original action. Accordingly, where an amendment is permitted to introduce a new claim that was in time at the date of commencement of the action but arguably out of time on the date on which permission to amend is granted, the defendant is thereafter precluded from reliance at trial on the arguable limitation defence.

What’s the test?

In this decision the Court of Appeal confirmed the three stage test to be satisfied by a claimant before permission to introduce a new claim by way of amendment is granted:

• is it 'reasonably arguable' that the opposed amendments are outside the applicable limitation period?
• if yes, do those amendments seek to add or substitute a new cause of action?
• if yes, does the new cause of action arise out of the same or substantially the same facts as are already in issue in the existing claim?

It is in relation to the first stage of this test that the court provided crucial guidance. The Court of Appeal stated that provided a defendant can show a 'prima facie' defence of limitation, the burden is on the claimant to show that the defence is not in fact reasonably arguable (Welsh Development Agency [1994] 4 All ER 10  and Paragon Finance [1999] 1 All ER 400). The burden is allocated in this way because the claimant is, in effect, inviting the court to make a summary determination that the defence of limitation is not available. If the availability of the defence of limitation depends on the resolution of factual issues that are seriously in dispute, the matter cannot be determined summarily, but must go to trial. Therefore, it can only be appropriate at the interlocutory stage to deprive a defendant of a prima facie defence of limitation if the claimant can show that the defence is not reasonably arguable. Of course, if the answer to the first question is 'no' and limitation is not an issue, then any proposed amendments should be made in accordance with CPR 17.1-3 and CPR PD 17.

Hedging my bets – shall I issue separate proceedings?

If a claimant is not able to show that the defendant's limitation defence is not reasonably arguable (and the court makes a finding to that effect), the claimant is not precluded from issuing separate proceedings in relation to the new cause of action in which it can seek to prove that its claims are not in fact time barred. On a practical note, practitioners should be aware of the potential expiry of any applicable limitation period during the interval in which it is seeking an amendment pursuant to CPR 17.4. Accordingly, if there is a risk that the amendment will not be granted (ie because all three limbs of the test above are not satisfied) and that limitation may expire, then it may be advisable to commence a new set of proceedings for that cause of action at the same time as seeking the amendment.

The 'same or substantially the same' facts-what does this mean?

Both CPR 17.4 and LA 1980, s 35 provide that the new claim may be added on condition that it arises out of the ‘the same or substantially the same facts’.

In this case, the Court of Appeal provided a helpful summary as to the relevant law regarding the meaning of the phrase 'same or substantially the same facts':

• CPR 17.4(2) should be interpreted as if it contained the additional words 'are already in issue on'. The rule, therefore, should be interpreted as providing: 'The court may allow an amendment whose effect will be to add... a new claim, but only if the new claim arises out of the same facts or substantially the same facts as are already in issue on a claim in respect of which the party applying for permission has already claimed a remedy in the proceedings. (Emphasis added.)' (Goode v Martin)
• 'Whether one factual basis is 'substantially the same' as another factual basis obviously involves a value judgment, but the relevant criteria must clearly have regard to the main purpose for which the qualification to the power to give permission to amend is introduced. That purpose is to avoid placing a defendant in the position where if the amendment is allowed he will be obliged after expiration of the limitation period to investigate facts and obtain evidence of matters which are completely outside the ambit of, and unrelated to those facts which he could reasonably be assumed to have investigated for the purpose of defending the unamended claim' (Goode v Martin, first instance [2001] 3 All ER 562)

• 'The policy of the section was that, if factual issues were in any event going to be litigated between the parties, the parties should be able to rely upon any cause of action which substantially arises from those facts' (Lloyd's Bank v Rogers [1997] TLR 154)

• 'The substance of the purpose of the exception in [LA 1980, s 35(5)] is thus based on the assumption that the party against whom the proposed amendment is directed will not be prejudiced because that party will, for the purposes of the pre-existing matters [in] issue, already have had to investigate the same or substantially the same facts' (BP v Aon [2006] 1 All ER (Comm) 789)

• whether or not a new cause of action arises out of substantially the same facts as those already pleaded is substantially a matter of impression (Welsh Development Agency). In Paragon Finance, Glidewell LJ stated that in borderline cases this may be so, but in others it must be a question of analysis

To which the Court of Appeal added that the phrase 'same or substantially the same' is not synonymous with 'similar' and although it has used as a convenient shorthand it should not divert attention from the appropriate enquiry.

So, how did the Court of Appeal decide the appeal?

The judge at first instance got the three stage test right and the judge correctly held that the claimant did not show that the defendant did not have a reasonably argument limitation defence. Accordingly, he went on to consider whether the proposed amendments arose out of the same or substantially the same facts. The Court of Appeal found that whilst the judge did not misdirect himself as to the relevant law as set out above, he did not carry out a sufficient analysis of the extent to which the defendant would be required by the new claims to embark on an investigation of facts which they would not previously have been concerned to investigate. The Court of Appeal decided that the amendments should not have been allowed. The appeal was allowed and the cross appeal was dismissed.

Judgment details

This was an appeal from a decision of His Honour Judge Pelling (sitting as a High Court Judge) in the Chancery Division, Manchester District Registry.

The appeal was heard by the Court of Appeal on 24 June 2014 and the judgment was handed down on 17 July 2014. Judgment was given by Lord Justice Tomlinson with the Master of the Rolls, Lord Dyson, and Lord Justice Briggs in agreement.

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