Serving claim form: extension of time
The Khan Partnership LLP v Infinity Distribution Ltd [14.06.16]
High Court allows extension of time for serving a claim form in exceptional circumstances, depriving the defendant of a partial limitation defence.
This decision does not change the general position, which is that limitation is a very material factor when deciding whether to extend time to serve a claim form.
In this case, the defendant’s actions amounted to exceptional circumstances. The defendant failed to notify the claimant of an application to set aside an extension of time to serve the claim form right up until the penultimate day of the limitation period – which also happened to be just before Christmas.
Instead of seeking an extension of time to serve a claim form where limitation is an issue, the more sensible action for a claimant is to serve the claim form and then seek to stay the proceedings, by agreement or by an application to the court.
The claimant was a wholesale supplier of mobile telephones. Like its competitors, it had significant sums of VAT repayment claims withheld by Her Majesty’s Revenue & Customs (HMRC). In 2006, the claimant instructed the defendant solicitors to appeal against HMRC’s withholding of VAT repayments. In July 2008, the appeal was successful and HMRC made two payments to the defendant of £2,401,304.96 in November 2008 and £839,880.63 in January 2009.
In October 2010, the claimant went into administration, allegedly in part due to a delay in receiving the VAT payments from the defendant.
The claimant’s administrators instructed solicitors, who issued a claim form on 14 July 2014 to avoid limitation issues arising in relation to an element of the claim. The claimant’s solicitors wrote to the defendant on 28 August 2014 attaching draft particulars of claim. On 24 October 2014, the defendant provided a three-page response, which failed to substantively engage with the substance of the claim. The claimant then issued an application on 30 October 2014, requesting a six-month extension of time to serve the claim form so that the parties could comply with the overriding objective and resolve matters without serving proceedings.
On 7 November 2014, Chief Master Marsh granted an extension of only three months. The defendant applied to set aside the order on the basis that it was deprived of a limitation defence to part of the claim. However, it did not serve the application until 23 December 2014, one day before the limitation period for another part of the claim. In an order dated 23 February 2015, Chief Master Marsh upheld his earlier decision.
Mr Justice Roth upheld the second order of Chief Master Marsh and dismissed the defendant’s appeal, holding as follows:
- He rejected Chief Master Marsh’s findings that limitation went only to a small part of the total claim and instead considered that the extension of time did potentially prejudice the defendant’s position as regards limitation. This accords with the decision of the Court of Appeal in Cecil and others v Bayat and others , which provides that limitation “should not be circumvented by an extension of time for serving a claim form save in exceptional circumstances.”
- he usual position is that the court will not interfere with the exercise of discretion by a judge or master. However, discretion must be exercised in accordance with established principles. Since limitation was a very material factor in determining whether to extend time, it followed that Chief Master Marsh’s reasoning could not stand and discretion would need to be exercised afresh.
- The defendant’s actions of failing to serve the application until 23 December 2014 constituted very exceptional circumstances which meant that the extension of time order should not be set aside. Roth J considered that this was fully in accordance with Cecil v Bayat. There was no principle against allowing what would in effect be a partial extension of time in circumstances where limitation affected only a discrete part of the claim.