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	England and Wales High Court (Chancery Division) Decisions
You are here: BAILII >> Databases >> England and Wales High Court (Chancery Division) Decisions >> The Khan Partnership LLP v Infinity Distribution Ltd [2016] EWHC 1390 (Ch) (14 June 2016) URL: http://www.bailii.org/ew/cases/EWHC/Ch/2016/1390.html Cite as: [2016] EWHC 1390 (Ch)

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IN THE HIGH COURT OF JUSTICE
CHANCERY DIVISION

		Royal Courts of Justice, Rolls Building Fetter Lane, London, EC4A 1NL
		14/06/2016

The Hon Mr Justice Roth:

1. This is an appeal against the order of Chief Master Marsh, made on 23 February 2015, refusing to set aside an extension of time for service of the claim form in this action, which he had previously granted on 7 November 2014 (save that he varied his previous order as I shall explain below). The Chief Master delivered a reserved judgment and refused permission to appeal. On 8 February 2016, after oral argument, permission was granted by HH Judge Walden-Smith, sitting as a Deputy High Court Judge, who delivered a full judgment giving the reasons for her decision. It is obviously unfortunate that the appeal process has taken so long.
2. Neither side deserves much credit for the conduct of the proceedings to date, which have been characterised by serious allegations directed by each against the other. However, I should make clear that I have no criticism of Counsel appearing on this appeal, which was ably argued by Ms Mulcahy QC for the Appellant and Mr Cook for the Respondent.

Background

3. The Claimant ("Infinity") was engaged in the wholesale supply of mobile telephones at a time when so-called "MTIC" fraud (a VAT related fraud) was rife in that industry. Along with many other traders in mobile phones at the time, Infinity had significant sums of VAT repayment claims withheld by Her Majesty's Revenue & Customs ("HMRC") while they carried out an investigation into its business.
4. The Defendant ("TKP") is a firm of solicitors and was retained by Infinity to represent it in its dealings with HMRC and its appeal against HMRC's decision to refuse repayment of input VAT ("the VAT Appeal"). TKP was apparently the successor to the sole practice of Mr Rao Hassan Kahn (trading as Hassan Khan & Co), whom Infinity first instructed in early 2006. TKP acted for Infinity in this respect from the start of its practice in November 2007, effectively continuing the work commenced by Hassan Khan & Co, until about May 2010.
5. On 16 July 2008, the VAT Appeal was allowed by the VAT and Duties Tribunal. HMRC was ordered to repay around £12.95 million of withheld refunds to Infinity, plus interest. After various amounts were set off by HMRC, a total of £2,401,304.96 was paid by HMRC in about November 2008, and a further payment of £839,880.63 on account of interest was made in about January 2009. Those monies were paid to TKP as Infinity's solicitors.
6. In October 2010, Infinity went into administration. It is said that this was, at least in part, as a result of the sums withheld by HMRC and TKP, but that is not relevant for present purposes. The present action is accordingly brought by the administrators.

The proceedings

7. The present claim by Infinity against its former solicitors alleges breach of contract and/or fiduciary duty, misrepresentation and/or negligence. The Particulars of Claim essentially advance three heads of claim:

i) Shortly after the decision on the VAT Appeal, Infinity agreed with TKP to increase its agreed success fee from 4% to 6% of the principal sum recovered on the basis of advice from TKP that, in effect, Infinity would be no worse off as it would fully recover its costs from HMRC. This advice is alleged to have been negligent and accordingly also in breach of contract, and to constitute a negligent misrepresentation. It is also alleged that in seeking Infinity's agreement to this increase in the success fee, TKP was acting in breach of fiduciary duty to its client. Payment in respect of the success fee is alleged to have been taken by TKP on 21 November 2008.

ii) It is alleged that since the increase in the success fee was agreed to after the decision on the VAT Appeal, there was no consideration for that agreement so that it is not binding.

iii) On 24 December 2008, TKP took payment of a further sum on the basis of an alleged agreement that it would receive 35% of the second payment received from HMRC on account of interest. Infinity contends that there was no such agreement and accordingly the money was taken without authority and/or in breach of contract and/or fiduciary duty.

8. The amount claimed under heads (i) and (ii) is £43,223.49 plus interest since 21 November 2008 ("the success fee claims"). The amount claimed under head (iii) is £337,525 plus interest since 24 December 2008 ("the interest fee claim"). Infinity states that it was not aware that TKP had taken the sum of £337,525 until March 2009.
9. The claim form was not issued until 14 July 2014, apparently prompted by concern about the limitation period regarding the success fee claims since the advice in question had been given shortly after 16 July 2008.
10. The firm of solicitors currently acting for Infinity were instructed on 1 July 2014 and, as stated above, the claim form was issued two weeks later. On 28 August 2014, Infinity's solicitors wrote to TKP informing it that they had issued a claim form "in light of limitation issues" and noting that the deadline for service was accordingly 14 November 2014. The letter continued:

"….. [Infinity] is aware of the duties of the parties to fully investigate matters and exchange information at an early stage pursuant to the Professional Negligence Pre-Action Protocol ("the Protocol"). Therefore this letter should be treated as a letter of claim pursuant to the Protocol."

The letter referred briefly to the nature of the claims and attached a full draft Particulars of Claim, which had been settled by Counsel and ran to 50 paragraphs.

11. The letter sought an acknowledgment within 21 days, i.e. by 18 September 2014, and then stated as follows:

"Please provide us with a full response to the claims as set out in the draft Particulars of Claim by 31 October 2014. Although this is shorter than the time set out in the Protocol a response is necessary by this date in light of the deadline for service of proceedings. However if it appears that matters may be able to be resolved through correspondence or without prejudice negotiations then [Infinity] will consider applying to Court for an extension or [sic] time for service or, alternatively, a stay of proceedings.

If you do not respond within the time period set out above then [Infinity] reserves its right to serve the proceedings without further notice to you….."

12. On 18 September 2014, a solicitor from TKP made a brief response by email acknowledging receipt of Infinity's solicitors' letter. He stated that Mr Khan was currently abroad on business and that the deadline of 31 October 2014 by which to make a response to the contents of the correspondence was noted.
13. On 24 October 2014, TKP sent a three page letter setting out what purported to be their response to the letter of 28 August 2014. However, that letter did not engage with the substantive claims made by Infinity at all, other than to state that they were wholly disputed and to say that TKP was "seriously concerned by your client's improper Particulars of Claim." The letter complained that the 28 August 2014 letter did not meet the form and content of the Protocol. This, as the Chief Master observed, was a surprising assertion since that letter had enclosed full Particulars of Claim. TKP complained that the letter did not enclose key documents as required by what was then para B2.2(b) of the Protocol and protested at the delay by Infinity's solicitors in sending the letter six weeks after the claim form had been issued, as follows:

"Such delay, in the absence of a proper explanation on your part, is neither acceptable nor reasonable conduct."

14. TKP said that it had three months under the terms of paragraph B4.1 of the Protocol to investigate the matter and stated that it needed the time because of the volume of its files held in storage covering the various matters on which it had acted for Infinity. TKP also sought clarification as to who was instructing the solicitors, how they were being funded, sought proposals for security for costs and requested a series of documents concerning Infinity's VAT returns and input tax claims, and the exchanges with HMRC regarding the claim for the costs of the VAT Appeal. I have to say that the relevance of those documents to the claim as set out in the Particulars of Claim is not obviously apparent, a point that was made by Infinity's solicitors in their reply of 27 October 2014 when they stated that they were instructed by the administrators.
15. Two days before TKP sent the letter to which I have just referred, on 22 October 2014, TKP had written directly to the administrators seeking their consent for TKP to commence proceedings against Infinity for alleged outstanding legal fees in an amount just over £670,000. That letter enclosed an invoice, also dated 22 October 2014, setting out the alleged amount due as the balance of the original success fee of 4% of the judgment of £12,950,000 on the VAT Appeal less the amount already paid, plus interest since 2008. TKP there stated:

"We intend to issue proceedings against the Company in order to protect our position from the expiration of the relevant limitation period for the commencement of claims involving breach of contract. However, we do not intend to serve our claim upon the Company until we have completed our ongoing review of the matters."

TKP sought the administrator' consent for the commencement of proceedings by the end of 24 October (i.e. within 2 days) and said that if such consent was not forthcoming, it would make an application to the Court for permission to issue proceedings.

16. The response to that letter of 22 October 2014 to the administrators came in the letter from Infinity's solicitors of 27 October 2014 to which I referred above. The solicitors, apart from complaining that TKP had written directly to the administrators and not to them, said that the alleged counterclaim was wholly unfounded and un-particularised and their client was therefore not in a position to give consent. Infinity's solicitors stated that in light of TKP's letter of 24 October 2014, Infinity would apply to the Court for an extension of time for service of the claim form.
17. Very shortly thereafter, on 30 October 2014, Infinity issued an application for an extension pursuant to CPR7.6 seeking an extension of 6 months to 13 May 2015 "because we are engaged in pre-action correspondence with the Defendant and wish to seek to resolve matters as far as possible before serving the proceedings in accordance with the overriding objective."
18. TKP wrote to ask Infinity's solicitors if they had indeed issued an application, and as a result the solicitors served their application and evidence on TKP on 5 November 2014. TKP responded by letter dated 7 November 2014 making clear that it opposed the application on various grounds, including that the grant of an extension would deprive TKP of a limitation defence. The letter stressed that because it had received only informal short notice before the hearing there was insufficient time for TKP to serve responsive evidence and submissions. Its letter stated:

"…in the event that the Application is granted, we may apply to set it aside in the time limits anticipated by your draft Order."

That was a reference to the period of 7 days for permission to apply to set aside set out in the draft which accompanied the application.

19. Infinity's application duly came before Chief Master Marsh on 7 November 2014. A copy of TKP's letter of that date was handed up to him at the start of the hearing, and from the solicitors' note of the hearing it is clear that he considered the various points which it raised. At the hearing, Infinity's advocate said that if the extension was not granted, the claim form would be served the following week before the deadline for service expired, but the extension was sought with a view to saving costs. The Chief Master granted an extension but only up to 30 January 2015 and not the six months requested. The Order provided that:

"The Defendant shall have permission to apply to vary or set aside this order within 7 days of service of the order on the Defendant."

20. Infinity's solicitors duly sent an unsealed copy of the order accompanied by a note of the hearing to TKP that day, and posted a sealed copy of the order by way of formal service on 19 November 2014. The deemed date of service was accordingly 21 November 2014.
21. On 28 November 2014, TKP issued an application to set aside the order. The application expressly relied on the fact that the extension would deprive TKP of limitation defences. The application was accompanied by a lengthy witness statement made on 27 November 2014 from a Mr Amish Patel, a solicitor at TKP. That also referred to being deprived of limitation defences in general terms, but without giving any details. A good part of the witness statement was concerned with allegations about the settlement by Infinity of its costs claim with HMRC, and complaint about the conduct of an individual (Mr Mahoney) who had previously been a consultant to TKP and subsequently worked for Infinity's previous solicitors. It is difficult to see what relevance any of that had to the question of an extension of time.
22. Pursuant to CPR r 23.7(1), the application should have been served "as soon as practicable after it has been filed." In breach of that rule, it was not served until four weeks later, on 23 December 2014, when it was sent by email around midday. I shall return to consider the implications of that below. In the meantime, on 18 December 2014, TKP sent a 14-page letter to Infinity's solicitors which went into considerable detail in responding to the allegations in the draft Particulars of Claim, as well as making serious allegations that Infinity had been engaged in money laundering and misleading HMRC and the Court regarding its VAT affairs and complaining about the conduct of Mr Mahoney. The letter made express reference to Infinity's issue of proceedings and the application before and order of Chief Master Marsh of 7 November. The penultimate paragraph of the letter stated:

"In the circumstances, we consider the claims advanced by you and your client to be highly opportunistic and if continued, will incur a waste of the Court's time and unnecessarily increase legal costs between the parties. Should these proceedings be served upon us, we reserve the right to seek an Order for wasted Costs against your firm."

23. Remarkably, nowhere in this lengthy letter is there any reference to the fact that TKP had just a few weeks earlier issued an application to set aside the Chief Master's order allowing an extension of time for service, which application was awaiting a hearing. Since that application had not yet been served, Infinity's solicitors would obviously not have been aware of it. The letter also does not refer to the possibility of a claim by TKP for fees of over £600,000 which had been raised in its letter to the administrators of 22 October.
24. In early January 2015, there was further solicitors' correspondence in which Infinity's solicitors complained about the late service and reserved their client's rights. On 23 January, TKP's application to set aside was heard by the Chief Master.

The decision of the Chief Master

25. There was extensive citation of authorities in the argument before the Chief Master, and in his judgment he refers to a number of the cases. He set out the procedural history of the case, and found that the approach of Infinity's solicitors following issue of the claim form was, at first, "sensible and measured" in sending a letter of claim with draft Particulars of Claim. He continued:

"However, the claimant and [its solicitors] then made a decision which, with hindsight, can be seen to be flawed. It would not be right to characterise it as being incompetent but, on any view, an error of judgment was made. Upon receipt of the letter dated 24th October 2014 the Claim Form could have been and should have been served, a step which would have been straightforward. It could have then been followed by an application to stay the claim if the defendant declined to agree this."

26. The Chief Master then distinguished the position in Cecil v Bayat, to which I shall return, on the basis that:

i) TKP had been made aware "in the clearest possible terms" of the claims by being sent the draft Particulars of Claim, and so had no reason to believe that the claims would not be pursued; and

ii) the limitation defence of which TKP may have been deprived related only to the success fee claims, which amounted to only some 11% by value of the total claimed, and those claims were easily severable.

27. The Chief Master then set out two further factors, as follows:

"The defendant's abusive behaviour weighs heavily in the balance when put alongside the claimant's well-intentioned but misguided approach. As I have already remarked, the conduct of the claimant's solicitors cannot be characterised as being incompetent, and they may have been lulled into a false sense of well-being by the common practice of granting extensions of time for service where both parties request it. Even if, which I doubt, the defendant's behaviour may not have had any relevant causative effect in relation to the claimant's application, it is not right just to ignore it. The defendant's letter, dated 22nd October 2014, was a blatant attempt to frighten off the administrator. Had there been any merit in the claim for fees, it would have been pursued or at least some explanation for not doing so provided to me. The letter was sent during the period in which the claim was live and immediately preceded the defendant's belated notification that it would not comply with the shortened protocol deadline. The timing of the two events is not a coincidence. The letter is compounded by the defendant's subsequent decision to breach CPR 23.7(1), a breach which was deliberate and designed to gain tactical advantage for the defendant by serving the application to set aside the order at the most inconvenient possible time.

The delay in serving the application is an important consideration where the court is bound to take account of the claimant's failure to comply with CPR 7.5, which requires that the claim form should be served within a four-month period, and the reasons for it. Compliance with the CPR is now an important part of the overriding objective, However, where the defendant has blatantly ignored a different provision of the CPR in bringing an application to set aside an order which is intended to cure the claimant's non-compliance, it is to be expected that the court's sympathy for the defendant will be much reduced. Indeed, in some cases it may be sufficient to permit dismissal of the application out of hand."

28. For those reasons, the Chief Master varied his order of 7 November 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 appeal

29. As Ms Mulcahy recognised, this appeal is against an exercise of discretion and accordingly this court will not interfere with the decision unless it was erroneous as a matter of law or principle or fell outside the generous breadth of discretion given to the judge below.
30. However, at the forefront of her submissions was the contention that the Chief Master was mistaken in coming to the view that limitation affected only the success fee claims. The interest fee claim was indeed distinct, but the act on which it is based took place on 24 December 2008. Accordingly, the primary limitation period for that claim for breach of contract or breach of authority is six years and expired on 24 December 2014.
31. It is well established that for the purpose of considering an extension of time, the court does not have to determine definitively when limitation expires. Such a question might be complex and require substantial argument and investigation of the facts. As the Court of Appeal stated in Hoddinott v Persimmon Homes (Wessex) Ltd [2007] EWCA Civ 1203, [2008] 1 WLR 806, at [52]:

"Where there is doubt as to whether a claim has become time-barred since the date on which the claim form was issued, it is not appropriate to seek to resolve the issue on an application to extend the time for service or an application to set aside an extension of time for service. In such a case, the approach of the court should be to regard the fact that an extension of time might "disturb a defendant who is by now entitled to assume that his rights can no longer be disputed" as a matter of "considerable importance" when deciding whether or not to grant an extension of time for service."

32. In the present case, the possibility that there could be arguments about a different limitation period for a breach of fiduciary duty claim or on the basis that Infinity did not discover the removal of funds until March 2009, is therefore beside the point. I consider that Ms Mulcahy is clearly correct in submitting that the extension here potentially prejudiced TKP's position as regards limitation of the interest fee claim. The Chief Master was accordingly mistaken in his view that the effect on limitation went only to a small part of the total claim (and it seems that in considering that this was common ground, he was under a misapprehension). Since limitation is a very material factor in the determination of whether to extend time, it follows that his reasoning cannot stand and it falls to this court to exercise the discretion afresh.
33. In those circumstances, I shall consider the challenges to the other grounds of the Chief Master's decision in the course of my discussion of whether the extension of time should be set aside.

The law

34. CPR r 7.5 sets out the requirement to serve a claim form within four months of issue, and CPR r 7.6 provides as follows:

"Extension of time for serving a claim form

7.6 (1) The claimant may apply for an order extending the period for compliance with rule 7.5.

(2) The general rule is that an application to extend the time for compliance with rule 7.5 must be made –

(a) within the period specified by rule 7.5; or

(b) where an order has been made under this rule, within the period for service specified by that order.

(3) If the claimant applies for an order to extend the time for compliance after the end of the period specified by rule 7.5 or by an order made under this rule, the court may make such an order only if –

(a) the court has failed to serve the claim form; or

(b) the claimant has taken all reasonable steps to comply with rule 7.5 but has been unable to do so; and

(c) in either case, the claimant has acted promptly in making the application."

35. In the present case, the application was made before the expiry of the four months' period for service, and is therefore governed by r 7.6(2). Unlike r 7.6(3), this does not specify particular conditions which must be satisfied. Although the discretion under the general rule is expressed in unrestricted terms, it must of course be exercised to give effect to the overriding objective in CPR r 1.1: see r 1.2. Furthermore, the discretion must be exercised in accordance with established principles, not least to ensure that there is consistency in the courts' approach to such applications.
36. In Imperial Cancer Research Fund and Cancer Research UK v Ove Arup & Partners Ltd [2009] EWHC 1453 (TCC), [2009] BLR 458, Ramsey J helpfully summarised the guidance to be derived from various Court of Appeal decisions, at [9]:

"1) The general rule is that a Claim Form must be served within 4 months after date of issue: CPR 7.5(1);

(2) In relation to an application under CPR 7.6.(2), that rule does not impose any threshold condition on the right to apply for an extension of time. The discretion to extend time should be exercised in accordance with the overriding objective identified in CPR 1.1: Hashtroodi v Hancock [2004] EWCA Civ 652, [2004] 1 WLR 3206 at [17], [18] and [19].

(3) In order to deal with an application under CPR 7.6(2) justly it will always be relevant for the court to determine and evaluate the reason why the claimant did not serve the claim form within the specified period: Hashtroodi at [22]

(4) The preconditions in CPR 7.6(3) do not apply to 7.6(2) but those requirements will always be relevant to the exercise of discretion on an application under CPR 7.6(2) but the fact that the conditions are not satisfied is not necessarily determinative of the outcome of a CPR 7.6(2) application: Collier v Williams (Leeson v Marsden, Glass v Surrendran) [2006] EWCA Civ 20, [2006] 1 WLR 1945, at [87];

(5) The matters which the Court may take into account include the following in relation to the reason why the Claimant has not served the claim form within the specified period:

(a) Whether the claim has become statute barred since the date on which the claim form was issued is a matter of considerable importance.

Where there is doubt as to whether a claim has become time-barred since the date on which the claim form was issued, it is not appropriate to seek to resolve the issue on an application to extend the time for service or an application to set aside an extension of time for service. In such a case, the approach of the court should be to regard the fact that an extension of time might "disturb a defendant who is by now entitled to assume that his rights can no longer be disputed" as a matter of "considerable importance" when deciding whether or not to grant an extension of time for service: Hashtroodi at [18] citing Zuckerman on Civil Procedure (2003) at paragraph 4.121; Hoddinott at [52].

Where the application is made before the end of the four month period the fact that the claim is clearly not yet statute barred is a relevant consideration: Hoddinott at [52], [53].

(b) Whether before the expiry of the four month period the nature of the claim was brought to the attention of the defendant: Hoddinott at [57].

(c) Whether a party was in a position where it could not determine whether the claim had real prospects of success and could not responsibly proceed against the defendant without an expert report which was delayed awaiting a response to proper requests for information from the defendant's solicitors: Steele v Mooney [2005] EWCA Civ 96, [2005] 2 All ER 256, at [33].

(6) In considering whether to set aside an order granting an extension of time it is not a relevant consideration that the claimant has proceeded in reliance of the extension of time granted on the ex parte application: Hoddinott at [48] to [50].

(7) In relation to the reason why the claim form has not been served, then:

(a) Where the Claimant has taken all reasonable steps to serve the claim form, but has been unable to do so, the Court will have no difficulty in deciding that there is a very good reason for the failure to serve: Hashtroodi at [19].

(b) If the reason why the Claimant has not served the claim form within the specified period is that he (or his legal representative) simply overlooked the matter, that will be a strong reason for the Court refusing to grant an extension of time for service: Hashtroodi at [20].

(c) Whilst the view could be taken that justice requires a short extension of time to be granted even when the reason for the failure to serve is the incompetence of the claimant's solicitor, especially if the claim is substantial, there are limitation periods and a claimant has four months in which to serve the claim form, which does not have to contain full details but only a concise statement of the nature of the claim: Hashtroodi at [21]."

37. As Ramsey J observed, the previous decisions depend on their particular facts. In the present context, I think the Hoddinott case is instructive. The claim was for, inter alia, breach of the terms of a deed of transfer, and the four month time limit for service of the claim form expired on 22 September 2006. On 13 September, the claimants applied without notice to extend the time for service on the ground that they were unable to serve the particulars of claim in time and they wished to serve the claim form with full particulars of claim in order to promote the chances of a settlement. The District Judge granted an extension to 22 November 2006, and on 14 September the claimant's solicitors wrote to the defendant's solicitors informing them of the order and enclosing a copy of the claim form, stated to be for information purposes only. On 2 October 2006, the defendant applied for the extension of time to be set aside. The defendant's application was successful, and the order of 13 September was set aside on the ground that there had been no sufficient reason for not serving the claim form in time.
38. The Court of Appeal allowed the claimants' appeal. Giving the judgment of the court, Dyson LJ discussed the various previous decisions of the Court of Appeal. He said, at [40]:

"We have referred to these decisions because they illustrate the general principle that, where there is no good reason for the failure to serve the claim form within the four months' period, the court still retains a discretion to grant an extension of time, but it is unlikely to do so."

39. Dyson LJ proceeded to hold that the reason given by the solicitors for deciding not to serve the claim form was not a good reason, and amounted to a serious error of judgment. In terms that were echoed by the Chief Master in his judgment in the present case, he stated that the claim form should have been served and then agreement sought from the defendant that no further steps be taken in the litigation until the claimants could produce particulars of claim, or in the absence of such agreement the claimants could have sought an extension of time for service of the particulars of claim. He concluded that the District Judge should not have granted an extension of time.
40. Turning to limitation, after addressing in terms I have quoted above the issue of how far questions of limitation should be decided when dealing with an extension of time, Dyson LJ stated that the fact that the claim is clearly not time-barred is a relevant consideration in favour of a claimant, but it is not determinative. He then made the following important observations:

"54 …. service of the claim form serves three purposes. The first is to notify the defendant that the claimant has embarked on the formal process of litigation and to inform him of the nature of the claim. The second is to enable the defendant to participate in the process and have some say in the way in which the claim is prosecuted: until he has been served, the defendant may know that proceedings are likely to be issued, but he does not know for certain and he can do nothing to move things along. The third is to enable the court to control the litigation process. If extensions of time for serving pleadings or taking other steps are justified, they will be granted by the court. But until the claim form is served, the court has no part to play in the proceedings. A key element of the Woolf reforms was to entrust the court with far more control over proceedings than it had exercised under the previous regime. The rules must be applied so as to give effect to the overriding objective: this includes dealing with a case so as to ensure so far as is practicable that cases are dealt with expeditiously and fairly: CPR r 1.1(2)(d). That is why the court is unlikely to grant an extension of time for service of the claim form under CPR r 7.6(2) if no good reason has been shown for the failure to serve within the four months' period."

41. Dyson LJ concluded by stating that "even where there was no good reason for failing to serve within the four months' period, the court will exceptionally exercise its discretion to grant an extension where CPR r 7.6(2) applies." The Court of Appeal held that this was the situation in that case. It was the "unusual combination" of the facts that (i) the claim had clearly not become time-barred and (ii) a copy of the claim form had been sent to the defendant within the four month period, that led to the conclusion that the District Judge should not have set aside the order.
42. The case of Cecil v Bayat [2011] EWCA Civ 135, [2011] 1 WLR 3086, on which Ms Mulcahy strongly relied, was decided after Ramsey J's formulation of the relevant guidance and addresses specifically the significance of limitation. There, the claim form raising a multi-million dollar commercial claim was issued on 19 May 2008 and then the claimants obtained two successive extensions of time for service on defendants abroad. The first extension, granted just before the expiry of the four months' period on 19 September 2008, was for six months; the second, in March 2009, was for a further six weeks. The claimants' reason for seeking the extensions was that they needed the time to arrange full funding of the litigation, including after-the-event insurance and conditional fee agreements with their legal representatives. The limitation period expired, at the latest, in November 2008. The Court of Appeal allowed the defendants' appeal, holding that the extensions should be set aside.
43. In his judgment, Stanley Burnton LJ stated:

"54 …. the primary question in a case where limitation is engaged is not whether the defendants could or could not assume that the claim was no longer being pursued (to which the judge did refer). The primary question is whether, if an extension of time is granted, the defendant will or may be deprived of a limitation defence.

55 It is of course relevant that the effect of a refusal to extend time for service of the claim form will deprive the claimant of what may be a good claim. But the stronger the claim, the more important is the defendant's limitation defence, which should not be circumvented by an extension of time for serving a claim form save in exceptional circumstances."

44. He distinguished Hoddinott on the basis that in that case there was no question of a limitation defence being prejudiced, since the claimant could have issued a new claim form; and the defendant had been made aware of the proceedings since it was sent a copy of the claim form. The claimants' difficulties in securing funding in Cecil v Bayat might have prevented them taking the case to trial but could not justify their failure to serve the proceedings.
45. Rix LJ gave a separate, full judgment. He emphasised the point of principle regarding the approach to such an extension, stating (at [78]):

"...whatever the expectations of a defendant who bears any relevant limitation period in mind, the fact is that an extension of time for service does effectively extend the period (primarily a matter of limitation) during which a claimant is entitled to do nothing to bring his litigation formally to the notice of his defendant."

46. Rix LJ referred (at [86]) to the consequences of the successive grants of extension of time in the particular case:

"… albeit by means of ex parte applications at which the defendants were not represented, service was effected about 11 months after issue of the claim form, and nearly five months after the expiry of the limitation period. The two extensions of time for service, those in September 2008 and March 2009, extended time for service even though in the first case the time so extended went beyond the expiry of that limitation period, and in the second case the extension had been made at a time when limitation had already expired. However, service was effected within six months of the expiry of limitation, at which time a foreign defendant may feel more or less safe from suit (subject to extension of time for service)."

47. Referring to the accumulation of authority concerning CPR r 7.6, he emphasised the strictness of the approach to an extension of time (at [90]):

"…. It may be that the negligence of solicitors is described as a bad reason for extending time, but what is emphasised is that, save in exceptional cases such as Hoddinott's case, what is required is a good reason. If there is a very good reason, an extension will usually be granted; the weaker the reason, the more likely the court will be to refuse to grant the extension: see Hashtroodi v Hancock [2004] 1 WLR 3206, para 19, where Dyson LJ described this as a calibrated approach. However, the general regime is a strict one, and that will be particularly the case where limitation is involved."

48. After discussing the facts of the case and the approach of the judge below, Rix LJ expressed his agreement with Stanley Burnton LJ's expression of the primary question (see para 43 above) and he concluded, at [108]:

"It is therefore for the claimant to show that his "good reason" directly impacts on the limitation aspect of the problem, as for instance where he can show that he has been delayed in service for reasons for which he does not bear responsibility, or that he could not have known about the claim until close to the end of the limitation period. If he cannot do that, he is unlikely to show a good or sufficiently good reason in a limitation case."

49. Wilson LJ agreed with both judgments.
50. I should add that in the subsequent Supreme Court case of Abela v Baadarani [2013] UKSC 44, Lord Clarke SCJ, in a judgment with which the other members of the Court agreed, referred to the significance of service of proceedings as follows:

"37. Service has a number of purposes but the most important is to my mind to ensure that the contents of the document served, here the claim form, is communicated to the defendant. In Olafsson v Gissurarson (No 2) [2008] EWCA Civ 152, [2008] 1 WLR 2016, para 55, I said, in a not dissimilar context, that

"…the whole purpose of service is to inform the defendant of the contents of the claim form and the nature of the claimant's case: see eg Barclays Bank of Swaziland Ltd v Hahn [1989] 1 WLR 506, 509 per Lord Brightman, and the definition of 'service' in the glossary to the CPR, which describes it as 'steps required to bring documents used in court proceedings to a person's attention…'"

I adhere to that view."

The present case

51. The reason why Infinity's solicitors did not serve the claim form within the prescribed four months was that they wished to resolve matters so far as possible in correspondence without the necessity to commence proceedings. While laudable in one sense, once it became clear that TKP would not provide a substantive response within the four months period, this does not constitute a good reason in the light of the clear authorities on the strict approach to extension of time. As the Chief Master said, their decision to seek an extension was not incompetent but it was a serious error of judgment.
52. Reference was made in argument before me to the Pre-Action Protocol on Professional Negligence. While in general seeking to promote the resolution of claims through correspondence, para B8.1 of the Protocol as then in force stated clearly:

"B8.1 Unless it is necessary (for example, to obtain protection against the expiry of a relevant limitation period) the Claimant should not start Court proceedings until:

(a) the Letter of Response denies the claim in its entirety and there is no Letter of Settlement (see paragraph B5.5 above); or…."

53. In favour of Infinity, there is the fact that its solicitors had served full Particulars of Claim on TKP in draft. Thus they were fully informed of the case against them and of Infinity's intention to pursue its claim. What Lord Clarke described as the most important objective of the rule on service was therefore fulfilled. Nonetheless, in the light of the authorities concerning the approach where a limitation defence may be prejudiced, I doubt that, as at 7 November 2014 when the original order was made, this alone would be sufficient to justify an extension for service of even the interest fee claim beyond 23 December 2014. I note in that regard that TKP had said in its letter of 24 October that it would be providing its 'Letter of Response' under para B4.1 of the Protocol by 18 December.
54. However, the present appeal is brought not against the order made on 7 November 2014 extending time for service but the order of 23 February 2015 dismissing TKP's application to set aside. As Hoddinott's case shows, the fact that the original extension of time should not have been granted does not necessarily mean that a subsequent application to set aside must succeed: there may be other relevant circumstances which have arisen. To give a simple example, if the order granting an extension of time for service of the claim form requires an application to set aside to be made within 7 days but the defendant makes its application only after 21 days, the court may well dismiss that application (or refuse to extend time for it) although the original order extending time for service of the claim form was flawed.
55. The Chief Master's order of 7 November provided that an application to set aside should be made within 7 days of service of the order. In that regard, it followed the terms of CPR r. 23.10(2). The purpose of this short time period, coupled with r. 23.7(1) requiring an application to be served as soon as practicable is that the party which had obtained the order will know promptly whether it can proceed on the basis that the order made by the court will stand.
56. Here, TKP issued its application to set aside on 28 November 2014 (the last day permitted under the order) but in clear breach of the rules did not serve it on Infinity's solicitors until midday on 23 December. That was of course the day before Christmas Eve, when the limitation period for the interest fee claim expired.
57. Ms Mulcahy urged strongly that the Chief Master was wrong to find that this was a deliberate, tactical delay by TKP (a finding he made even without appreciating the effect on limitation). She submitted that such a serious finding was inappropriate without hearing evidence on this point from the solicitor who was involved. There is in fact no written evidence explaining the delay even now, despite the strictures of the Chief Master regarding this matter in his judgment. But he was told by counsel for TKP that the failure to serve the application was an oversight due to the fact that TKP's "focus" was on putting in a full response to the letter of claim, and that explanation was again relied on before me.
58. I have to say that I find that explanation surprising. Given that TKP's application and accompanying witness statement were filed with the court on 28 November, it was a simple and obvious step then to serve them by post on Infinity's solicitors. Moreover, as I have observed above, it is striking that the full letter of response which was sent on 18 December makes no mention of the fact that this application had been issued although the solicitor working on that letter could hardly have been unaware of that fact. Nonetheless, for the purpose of this appeal I am prepared to accept that this was no more than a glaring oversight.
59. Ms Mulcahy then submitted that this should not affect the resolution of TKP's application for two reasons. First, she said that since the application was served at midday on 23 December and the limitation period expired on 24 December, Infinity could still have issued a second claim form in time. However, I regard it as wholly unrealistic to have expected the solicitors in a case like this to give the necessary consideration to the matter (including taking instructions from the administrators) and then issue a claim form just before or on Christmas Eve. And in any event, I understand that the offices in both the Rolls Building and the Royal Courts of Justice were closed on 24 December so that it would have been difficult in practice for the solicitors to issue a second claim form even if they had acted with alacrity.
60. Secondly, it was submitted that as a matter of fact the delay had no causative effect. Ms Mulcahy pointed out that although advanced in argument from counsel, the witness statement from Mr Candey of Infinity's solicitors does not say that if the application had been served in accordance with CPR r 23.7, Infinity would then have issued a protective claim form. Indeed, it appears that Infinity did not even accept that limitation for the interest fee claim expired on 24 December.
61. However, the fact remains that by failing to serve its application until 23 December, TKP effectively deprived Infinity of the opportunity to protect its position as regards its major claim by issuing a second claim form before the limitation period expired. By mid-December, Infinity and its advisors could reasonably assume that no application to set aside the order extending time would be made, and all the more so once they received TKP's detailed letter of 18 December which made no reference to such an application. I do not think it is appropriate to speculate on what would have happened if TKP had served its application in accordance with the rules. For example, it may well be that Infinity's solicitors would then have instructed Counsel on the application who would have advised of the need to issue a second protective claim form, even if the solicitors themselves had not realised this. In my view, it would not be right to decide this appeal on the basis that Infinity's legal representatives would have failed to do what any competent solicitors would have done.
62. Coupled with the fact that full Particulars of Claim had been served in draft on TKP on 28 August 2014, the failure by TKP, in flagrant breach of the rules, to serve their application to set aside until 23 December 2014 just as the limitation period for the interest fee claim was on the point of expiry, constitute very exceptional circumstances which, in my judgment, mean that the extension of time for service as regards the interest fee claim should not be set aside. Far from being contrary to the approach prescribed by Cecil v Bayat, I consider that this is fully in accordance with it. Stanley Burnton LJ was careful to allow for the possibility of exceptional circumstances which could justify the prejudice to a limitation defence (see at para 43 above), and to adopt Rix LJ's formulation (see at para 48 above) the reason for refusing to set aside the extension here directly impacts on the limitation aspect of this case.
63. Ms Mulcahy also challenged the jurisdiction of the court or the propriety of allowing what was in effect a partial extension of time. It is not altogether clear from the judgment of Judge Walden-Smith giving permission to appeal whether she thought that this was an independent basis on which the Chief Master's decision could be impugned or whether she considered that it was erroneous because it was based on a mistaken view that the limitation period in respect of the interest fee claim had not expired. But in any event, I see no reason in principle why such an approach is impermissible where it is clear that the relevant limitation affected only a discrete part of the claim. The Chief Master had regard to what Longmore LJ said in City & General v Royal & Sun Alliance [2010] EWCA Civ 911, [2010] BLR 639, at [7], but those observations, which were obiter in that case, do not seek to preclude such an approach where the severed claims are distinct and do not relate to the question of when the remaining claim became time barred. Such an approach seems to me entirely sensible and in accordance with the overriding objective.
64. I should add that in the light of my conclusion it is unnecessary to address the further consideration relied on by the Chief Master concerning the conduct of TKP in writing to the administrators on 22 October 2014 raising a claim for over £600,000, which was thereafter not pursued. Although the circumstances of that letter are rather curious, I was told by Ms Mulcahy that the claim was not pursued because of subsequent advice from counsel, and I place no weight on this factor.

Conclusion

65. It follows that, albeit for reasons that somewhat differ from those relied on by the Chief Master, I would uphold his order. TKP's application is accordingly dismissed.