Giles v Rhind & Anor

This is an application for permission to amend the particulars of claim in proceedings brought to set aside a transaction under section 423 of the Insolvency Act 1986 or to declare it a sham.

The present proceedings arise out of long-standing litigation between the claimant Edward Giles and the first defendant Roderick Michael Rhind.

They were formerly directors and the major shareholders in Surrey Hill Foods Limited (SHF). Its principal business was the manufacture of cooked meats. They were also parties to a shareholders agreement dated 11 June 1990 which included an express duty of confidence in relation to the affairs of SHF. Their relationship deteriorated, and in March 1993 Mr Rhind was asked to leave SHF. Mr Rhind resigned as a director and sold his shares. As part of the termination agreement, Mr Rhind agreed with Mr Giles personally not to breach his obligations of confidence as set out in the shareholders agreement.

In a judgment dated 9 February 2000, Mr M. Kallipetis QC (sitting as a deputy High Court Judge) found that from November 1993 Mr Rhind breached the shareholders agreement by taking steps to procure the termination of a supply contract between SHF and a major customer and the award of a new contract by the customer to M W Foods Limited (MWF). He was an active participant in MWF and effectively its backer. The result of the loss of this contract for SHF was that it went into insolvent liquidation. The deputy judge ordered damages to be assessed. On appeal from preliminary rulings in the assessment of damages, the Court of Appeal held that Mr Giles was entitled to recover damages for the loss of his investment in SHF, his loans to it and his remuneration from it: see [2003] Ch 618. By an order dated 24 October 2003, Judge Rich QC (sitting as a deputy High Court Judge) assessed the damages at £1,554,538 with interest. By January 2006, the debt with interest since judgment had risen to £3,415,202. Mr Rhind has himself paid nothing towards this judgment debt. In 2004 Mr Giles obtained a charging order over Mr Rhind’s interest in his matrimonial home, Manor Farm House, Maidwell, Northamptonshire (the property). In November 2006 the property was sold at a gross price of £912,000. After discharging a mortgage and costs, the net proceeds were £628,437, of which approximately £127,000 was paid to Mr Giles in reduction of the judgment debt.

The present proceedings relate to a deed dated 2 April 1992 (the deed). The parties named in the deed are Mr Rhind and his wife, the second defendant, and it relates to the beneficial ownership of the property. The property was purchased by Mr and Mrs Rhind in early 1992 and on 6 April 1992 was registered in their joint names, subject to a mortgage dated 21 February 1992 in favour of Nationwide Building Society. By the deed Mr and Mrs Rhind agreed to hold the property in the proportions of 20 per cent for Mr Rhind and 80 per cent for Mrs Rhind. They agreed as between themselves, but without prejudice to the building society’s rights, to pay the principal sum and interest under the mortgage in those proportions.

Mr Giles’ claim in these proceedings, as set out in his particulars of claim, is twofold. First, the deed was a sham. It was not made on 2 April 1992 but at a later date. A number of facts are pleaded in support of this allegation, including in particular that “on or about 21 October 2003 the First Defendant informed the Claimant during a conversation on a tube train that the deed was created in 1998 at the office of MW Foods for the purposes of the Legal Aid Board.” Secondly, and alternatively, the effect of the deed was to transfer 30 per cent of Mr Rhind’s interest in the property to Mr Rhind for no consideration or at an undervalue and for the purpose of putting assets beyond the reach of his creditors. It was accordingly liable to be set aside under section 423 of the Insolvency Act 1986. This allegation pre-supposes that the deed was not a sham. The allegation is equally made on the basis that the deed was not made in 1992 but was created in 1998, by which time Mr Giles and Mr Rhind were in dispute.

In his witness statement dated 24 January 2006 in support of his claim, which was issued under CPR Part 8, Mr Giles described his conversation with Mr Rhind on the tube train on 21 October 2003 and stated that Mr Rhind had told him that:

“…the Deed had been put together in a hurry in the Northampton office of MW Foods sometime in 1998. The Defendant further said that the document had been put together for the purposes of the Legal Aid Board. I assumed this to mean that the Deed had been created to ensure that the Legal Aid Board (now the Legal Services Committee) would provide cover to Mr Rhind on the basis that he owned only a meagre interest in the Property and presumably no other assets. Of course the effect of the deed is to dissipate and reduce the first Defendant’s assets making it more difficult for me to enforce my judgment against him.”

Mr and Mrs Rhind are in the course of divorce proceedings. Both filed witness statements in response to Mr Giles’ claim. Directions were later given for statements of case and Mrs Rhind, but not Mr Rhind, filed a defence. Mr Rhind acts in person in these proceedings.

In her defence, Mrs Rhind asserts that the deed was made on 2 April 1992 in the presence of the named witness, Mr JW Mason, and that it was not a sham but was intended to record accurately and truthfully how the beneficial interest in the property was to be held. She denies any intention to put assets beyond the reach of creditors. As to the allegation that the deed was executed at the offices of MWF in 1998, she pleads that MWF went into liquidation in 1995 or 1996 and had no offices in 1998. As to the claim under section 423, she pleads that Mrs Rhind provided valuable consideration in the form of an undertaking to pay 80 per cent of the mortgage instalments and that in 1992 the property was heavily mortgaged with little equity value. Accordingly, it was not a transaction at an undervalue. As to the allegation that the purpose of the deed was to put assets beyond the reach of actual or potential creditors, she pleads that in 1992 Mr Rhind was a successful businessman with no creditors or pressing claims against him and with no claims in contemplation. She pleads that she and her husband were newly married and that Mr Rhind “took advice from a solicitor friend who suggested that they enter into the Trust Deed as a sensible way to order their affairs.” Limitation is also pleaded as a defence. It is averred that Mr Giles’ cause of action, if any, under section 423 accrued when he became capable of being prejudiced by the transaction, viz on execution of the deed, and that the limitation period of 12 years expired before issue of the proceedings on 27 January 2006.

In his witness statement dated 25 February 2006, Mr Rhind asserts that the deed was made on 2 April 1992 and deals with Mr Giles’ case that the deed was executed in 1998. As to the circumstances of its execution, he states at paragraph 33:

“As stated above in 1992 there were no creditors, we were very well off and my business was doing well. Although one can never be certain what might lie ahead, there was no indication of financial difficulties. The trust Deed was not signed with a view to dissipating my assets or protecting them against creditors or with a view to prejudicing any third party, but I had been advised to make the deed by a solicitor friend as a precaution to protect my new wife.”

There is also in evidence a statement made by Mr Mason on 28 April 2003. Mr Mason has since died. In the statement he confirms his signature as the witness to the deed and states that, although he cannot recall the precise date of its execution, he is reasonably confident that it was executed in around April 1992.

In his skeleton argument, counsel for Mr Giles stated that his case was that the deed was made in 1998 as part of a scheme to secure legal aid funding. If that were established, there would, it was submitted, be a strong case under section 423. He continued that the rest of the skeleton argument proceeded on the basis that the deed was made in 1992. There then followed brief submissions on the issues arising under section 423 if the deed was executed, as stated, in April 1992, including limitation issues.

Just before the start of the trial, additional documents were disclosed by Mr Giles, including accounts for SHF for 1992. It was said on his behalf that these showed the true financial position of SHF at that time, demonstrating that Mr Rhind and Mr Giles were engaged in what was then a risky business venture. If, contrary to Mr Giles’ primary case, the deed was executed in 1992, this was said to support an alternative case under section 423.

Counsel for Mr Giles accepted that this was not the pleaded case for relief under section 423. The pleaded case assumed that the deed was executed in 1998 by which time Mr Rhind was the defendant in the action for damages brought by Mr Giles. Counsel applied for permission to amend the particulars of claim, which was opposed by Mr and Mrs Rhind. Following submissions, I held that Mr Giles should have an opportunity to prepare amendments to the claim, but without prejudice to the defendants’ right to object to the proposed amendments, particularly on limitation grounds. Counsel for Mr Giles also indicated that he wished to consider a separate possible claim in relation to the acquisition by Mrs Rhind of a piece of land adjoining the property and known as the Paddock.

At the adjourned hearing, counsel for Mr Giles returned with proposed amended particulars of claim and with a proposed statement of case in relation to the Paddock which, if I permitted it, he wished to include in the particulars of claim in the present proceedings. In addition to pleading a case under section 423 on the alternative basis that the deed was executed in 1992, there was a further major and surprising change to the case. It was now alleged that the deed was in fact executed not in 1998, but in 1994. Among the late disclosure of documents was one stated to be an email dated 23 October 2003 from Mr Giles to Mr Rhind to which Mr Giles had attached a memorandum. In the document said to be the attachment, he stated:

“On the tube yesterday, after the judgment, you told me that in fact the 80:20 document had been signed in an office in a hurry two years later than it was dated.”

This would of course date the deed to 1994. As Mr Giles stated that this document represented his contemporaneous note of the conversation, his counsel stated that the pleaded case of execution in 1998 was unsustainable. He submitted that he should be allowed to amend to plead the alternative date of 1994.

I required Mr Giles to make a witness statement to explain this proposed change in his case. I have already quoted from his first witness statement, that Mr Rhind mentioned 1998 as the year of execution and that he stated that the purpose related to Legal Aid Board. In his second witness statement, he states that in the week before the trial he questioned how he could have been so sure that the conversation had occurred on 21 October 2003. He gives evidence of the steps he took to search his computer records, finally locating the e-mail and attachment. He also found a document stated to be an e-mail in reply from Mr Rhind dated 23 October 2003 in which Mr Rhind stated that he could not open the attachment and asked for it to be re-sent as a word attachment. There is a document stated to be a further e-mail from Mr Giles timed 14 minutes later. He continues in his witness statement:

“16.

My recollection of the conversation in the tube train on 21^st October 2003 is now very limited. I can remember the position Mr Rhind and I were standing on the tube train after the judgment of Justice Rich but I cannot say that [I] now remember anything else other than the general recollection that the Mr Rhind admitted that the deed was in fact created later than its stated date. I am sure that I would have had a good recollection of the conversation when I wrote the note in October 2003.”

Mr Giles had the memorandum in January 2006 when his witness statement was being finalised. Despite that, his first witness statement and the later particulars of claim contained the accounts of the tube conversation which I have quoted. Mr Giles states in his second witness statement:

“18.

When I handed in my witness statement on January 26^th 2006, I genuinely believed paragraph 19 to be true otherwise I would not have signed the Statement of Truth, but in retrospect it was clearly a huge blunder to [have] drafted that statement ignoring the contents of the document at 8/217. I think it happened in part because I believed at this time that the crucial question was whether the deed had been back dated (making it a sham) rather than when.

19.

After I submitted my witness statement on 24^th January 2006, I received the witnesses statements from the 2^nd Defendant (on 24^th February 2006) and also from the 1^st Defendant. It is clear that they allege facts which show that my recollection of what Mr Rhind said on 23^rd October about the year when the he backdated the Deed must be wrong.

20.

I did appreciate this but thought that the crucial point was that the deed had been backdated not that the precise date of the backdating. For the same reason, I had by then put out my mind the document at 8/217.

21.

On 4^th August 2006, I signed a disclosure statement which is found in the bundle at Tab 5 p. 4 and in doing so I believed that I had complied with my disclosure obligations.

22.

What I had done was to identify from the vast quantity of documentation relating to my dealings with [Mr] Rhind all those which I thought we might want to rely upon or which were at all relevant or referred to or undermined our case and gave them to my then solicitors to advise me upon which to disclose. I signed the disclosure statement in reliance upon their advice.”

Mr and Mrs Rhind strongly resisted the application to amend the claim as it relates to the date of execution of the deed. Miss Bedworth, for Mrs Rhind, submitted that the change in evidence conveniently overcomes a number of problems with Mr Giles’ original case, such as that MWF had been in liquidation for two years by 1998 and Mrs Rhind’s evidence that she recalls that the deed was executed when she and Mr Rhind had no children (their first child was born in March 1995). Mr Giles could not now be regarded as a credible witness. When added to the further costs, delay and anxiety for Mrs Rhind, Miss Bedworth submitted that this amendment should not be allowed. Miss Bedworth also submitted that the new claim under section 423 based on execution in 1994 was outside the limitation period and should not be allowed on that ground also.

Leaving aside the limitation issue, to which I will return, I have concluded that it would be right to allow this amendment. Clearly serious questions arise as regards the reliability and credibility of Mr Giles’ evidence. These can, and I have no doubt will be, fully explored in cross-examination. But I do not consider that it would be right, without hearing Mr Giles’ evidence, to say that his account is so incredible as to make his case unsustainable. It is also true that, as Mr Giles had the memorandum before him in January 2006, it would appear that the new case, even if true, was not pleaded as a result of a culpable level of carelessness on the part of Mr Giles. I have taken that into account. I have, however, concluded that if in fact the deed was created in 1994 and back-dated to 1992 the greater injustice would be to deny Mr Giles the opportunity of establishing that case.

As regards the proposed new case under section 423 on the basis that the deed was in fact executed in 1992, it is alleged that the transfer of a 30 per cent interest to Mr Rhind was either gratuitous or at an undervalue. It is alleged to be gratuitous because it was never intended that Mrs Rhind would pay the relevant or any part of the liability under the mortgage: she did not in fact do so and she was not in 1992 able to do so or ever likely to be able to do so. Alternatively, it was a transfer at an undervalue because the value of the equity in the property was at least £33,000 and perhaps more.

Further, and as a necessary part of the claim, it is alleged that the deed was executed for the purpose of putting assets beyond the reach of a person who was making or might at some time make a claim against Mr Rhind or for the purpose of otherwise prejudicing the interests of such actual or potential claimant. It is accepted that in 1992 Mr Rhind did not intend to put the 30 per cent interest in the property beyond the reach of Mr Giles, but it is alleged, first, that he had substantial liabilities at that time and, secondly, that the business of SHF was to his knowledge precarious. His alleged liabilities were (i) a loan of £50,000 from National Westminster Bank to assist in funding a loan by him of £72,670 to SHF, (ii) potential liabilities, with Mr Giles and others, under a deed of indemnity dated 28 January 1987 in respect of repairs and rent under a lease of a property in Wimbledon which had since been assigned “but the lease remained a substantial risk to the financial position” of Mr Rhind, and (iii) his monthly mortgage payments of over £1,000 and monthly endowment policy premiums of £238. As to the precarious position of SHF, it is alleged that (i) it was suffering serious cash flow problems in late 1991 and early 1992, (ii) it was forced to double its overdraft facility to £100,000 in September 1991, (iii) its annual accounts showed a loss for each year until 1993, (iv) in 1991/92 it lost approximately £500,000, and (v) in 1991/92 it converted £200,000 convertible unsecured loan stock into shares. Accordingly, Mr Rhind was “subject to a risk that SHF might fail” leaving him without a job, unable to repay the bank loan of £50,000 and at an increased risk of liability under the lease indemnity. Mr Giles’ case is that Mr Rhind’s purpose was to put his assets beyond the reach of his creditors in 1992, particularly National Westminster Bank.

Counsel for Mrs Rhind objected on a number of grounds to the amendments to plead a case based on execution of the deed in 1992. First, she submitted that it was statute-barred under the Limitation Act 1980. I will return to this issue. Secondly, she submitted that to be a “victim” capable of bringing a claim under section 423, a person had to be an actual or potential claimant within the contemplation of the defendant when he entered into the transaction. This argument was considered and rejected by Arden LJ in Hill v Spread Trustee Co Ltd [2007] 1 All ER 1106 at para 101. On the limitation issue in that case, Arden LJ was in the minority but the majority did not disagree with this part of her judgment. For present purposes, it is enough to say that on this issue Mr Giles has at least a seriously arguable case. Detailed consideration of the applicability of Arden LJ’s reasoning to this case is not appropriate at this stage.

Thirdly, counsel for Mrs Rhind submitted that on the facts a case based on execution of the deed in 1992 had no reasonable prospect of success. First, there was no reasonable prospect of establishing that there was no genuine intention that Mrs Rhind should pay 80 per cent of the mortgage liabilities. Leaving aside any issue of Mrs Rhind’s financial ability to meet those liabilities, it is in my view impossible to sustain this submission in the light of Mr Rhind’s letter dated 26 June 2006 to Mrs Rhind’s solicitors. Of course, Mrs Rhind’s position is that the contents of the letter are untrue, but that cannot be determined at this stage. Secondly, she submitted that there was no reasonable prospect of establishing the requisite purpose under section 423(3). In view of the large loss sustained by SHF as shown by its accounts for the year ended 31 March 1992, this cannot in my judgment be said. Moreover, the explanation given by Mr and Mrs Rhind for the deed has been somewhat reticent. Mr Rhind says only that it was the result of advice from a solicitor friend “as a precaution to protect” Mrs Rhind. Neither of them indicates why this protection might be needed.

Fourthly, counsel submitted that the balance of relevant considerations came down against giving permission to amend. There are a number of factors which point strongly against giving permission at this stage. First, the events in question occurred 15 years ago and, while no specific issues on this were raised, there may be evidence which is no longer available. Secondly, Mr Giles has known of the deed since May 2003 at the latest and then knew all the facts as regards the position in 1992 on which he now relies. There has therefore been a significant delay in raising this old claim. Thirdly, the parties were ready for trial on the pleaded case and Mr and Mrs Rhind are subjected to further delay in this case and in resolution of their ancillary relief proceedings. Fourthly, this is not a case in which the amended claim is manifestly strong or clear-cut.

Notwithstanding these powerful considerations, I consider that the balance favours the grant of permission to amend to raise this issue. If the case is well-founded, particularly if it was not intended that Mrs Rhind should in truth give any value for the transfer, there is a real interest in Mr Giles being able to pursue a case based on an alleged intention by Mr Rhind to prejudice actual or potential creditors. Further, and very significantly, these issues are in any case likely to arise. In defending the claim that the deed was executed later and back-dated to 1992, Mr and Mrs Rhind rely on the absence of financial concerns in 1992 and the absence of any intention to prejudice actual or potential claimants. They make a positive case to this effect. Mr Giles will be entitled to test this line of defence by reference to the matters which he seeks to introduce by way of amendment. The court will therefore have to consider and make findings on these issues.

I turn therefore to consider the limitation issues. It is established by the decision of the Court of Appeal in Hill v Spread Trustee Co Ltd that claims under section 423 are subject to a limitation period under the Limitation Act 1980. It is either 12 years under section 8(1) or 6 years under section 9(1) depending on the nature of the remedy sought. Mr and Mrs Rhind submit that the proposed new claims are now statute-barred and that permission to amend should therefore be refused. This requires consideration of a number of issues under the Limitation Act.

The first is the date of accrual of Mr Giles’ cause of action. On the basis that the deed was executed in 1992, the parties are agreed that it accrued when Mr Giles became a “victim” of the transaction within the meaning of section 423(5) and that the primary limitation period commenced at that time. They differ as to when that was. Counsel for Mrs Rhind submits that it was November 1993. Mr Rhind was found by Mr M. Kallipetis QC to have acted in breach of his contract with Mr Giles in November 1993 by disclosing and using confidential information concerning SHF. His purpose was to divert SHF’s business with its principal customer Netto Foodstores to MWF. On 30 November 1993 Netto sent a letter of intent, stating that it was willing to transfer its business if certain terms were met. Counsel for Mr Giles submits that he became a victim in February or March 1994 when Netto terminated its contract with SHF and awarded it to MWF.

Section 423(5) defines a victim of a transaction as “a person who is, or is capable of being, prejudiced by it.” Arden LJ observed in Hill v Spread Trustee Co Ltd [2007] 1 All ER 1106 at para 101 that:

“the definition is not restricted to creditors with present or actual debts: whether a person is a victim turns on actual or potential prejudice suffered.”

Counsel for Mr Giles submitted that two considerations should be borne in mind when construing “victim”. First, it should not be construed so broadly as to allow people with no serious complaint to impugn a transaction and, secondly, limitation should run only at a time when it was sensible or reasonable to bring proceedings. These considerations would not be met if a victim was defined to include a person with a claim for breach of contract before any substantial damage had resulted from the breach. He relied on a passage in the judgment of Judge Moseley QC (sitting as a judge of the High Court) in Pinewood Joinery v Starelm Properties Ltd [1994] 2 BCLC 412 at pp 417-418:

“The first argument, which I reject, was to the effect that because the applicants have not yet succeeded in their action in the Official Referees Court they were not persons who are capable of being prejudiced by the transactions. That argument involved referring me to a passage in a text book going back to the law as it was under s 172 of the Law of Property Act 1925, and on putting into sub-s (5) the propositions that the applicant must be a creditor and that an applicant is not a creditor when all he can prove is the possibility that in the future he may be a judgment creditor. I do not accept that argument. In my view, sub-s (5) is widely enough drafted to enable a person who is a litigant in proceedings and who has a chance of success in those proceedings to qualify as a victim of a transaction as a person capable of being prejudiced by the transactions.”

In my judgment, the two considerations put forward by counsel do not assist in the construction of section 423(5). They would represent the imposition of non-statutory conditions and, in particular, they fail to give weight to the words “a person who …is capable of being, prejudiced” by a transaction. As it seems to me, a person whose contract has been broken and who therefore has an accrued cause of action is capable of being prejudiced by a transaction at an undervalue made by the party in breach. It might be otherwise where the breach was incapable of giving rise to more than nominal damage but here that was clearly not the case and indeed by the end of November 1993 there was a very real prospect of substantial damage. In the passage from the judgment in Pinewood Joinery v Starelm Properties Ltd, Judge Moseley QC was not restricting the ambit of section 423(5) in a general way, but was dealing only with the facts before him, as I am also doing.

In my judgment, by the end of November 1993 Mr Giles was a person who was capable of being prejudiced by the transfer under the deed. Accordingly, his cause of action under section 423 had accrued by 30 November 1993.

The second issue is the applicable limitation period. It is either 12 years or 6 years depending on whether the claim is an action upon a speciality under section 8(1) of the Limitation Act 1980 or an action to recover any sum recoverable by virtue of any enactment under section 9(1): Hill v Spread Trustee Co Ltd. Until the property was sold in November 2006, the claim under section 423 was for a declaration that the deed was voidable and a consequential order re-vesting 30 per cent of Mrs Rhind’s interest in Mr Rhind. There was no dispute that it was a claim to which section 8(1) applied, and this would be the case whether the deed was executed in 1992 or 1994.

Counsel for Mrs Rhind submitted that the position changed once the property was sold and the proceeds of sale were paid into court. At that point the claim became one for the payment of money to which section 9(1) applied. In my judgment, this is not correct. The claim was and remains a challenge to the transfer under the deed. Only if that is declared invalid by reason of section 423 could Mr Giles become entitled to an order that the proceeds of sale attributable to the 30 per cent interest be treated as Mr Rhind’s property and applied in satisfaction of Mr Giles’ judgment. It follows that, irrespective of the sale, the primary limitation period applicable to Mr Giles’ claim under section 423 as regards the deed was 12 years and expired no later than 30 November 2005 if the deed was executed in 1992 or April 2006 if it was executed in April 1994.

It follows that, subject only to section 32 of the Limitation Act, the claims under section 423 are now statute-barred, whether the deed was executed in 1992 or 1994.

However, counsel for Mr Giles submits that permission to amend to introduce the new claims should be granted under section 35 of the Limitation Act and CPR Part 17.4. On two grounds, Mr Giles is not, in my judgment, entitled to rely on section 35. First, under section 35(1)(b) the new claim would be deemed to be a separate action commenced on the same day as the existing proceedings. The existing proceedings were commenced on 27 January 2006, by which date the primary limitation period had already expired as regards any claim based on execution of the deed in 1992. Subject only to section 32, Mr and Mrs Rhind would therefore have a complete defence and no purpose would be served by permitting an amendment to introduce this claim.

Secondly, by the combined effect of section 35 and CPR Part 17.4(2) an amendment to add a new claim may be made:

“only if the new claim arises out of the same facts or substantially the same facts as a claim in respect of which the party applying for permission has already claimed a remedy in the proceedings.”

An essential allegation of fact for a claim under section 423 is that the contested transaction was made for one or both of the purposes set out in section 423(3). The only pleading of such a purpose in the present particulars of claim relates to 1998 and relies principally on the dispute between Mr Giles and Mr Rhind: see paragraph 14. There is no pleading of any such purpose in 1992, at which time no dispute, of course, existed between them. It follows that the new claim would not arise out of the same facts or substantially the same facts as the existing claims. Counsel for Mr Giles placed some reliance on Mrs Rhind’s own defence in which she pleads that when the deed was executed in 1992 she and Mr Rhind had no intention of putting assets beyond the reach of any person and had no reason for doing so: see paragraph 17. It was unnecessary for Mrs Rhind to plead these facts but in any event they are not facts out of which any existing claim arises, nor are these the facts on which Mr Giles would now seek to rely as regards Mr Rhind’s purpose. The case is distinguishable from Goode v Martin [2002] 1 All ER 620 in which the claimant’s amended case of negligence was based exclusively on facts pleaded by the defendant.

This second ground applies equally to Mr Giles’ proposed new claim that the deed was executed in 1994 and in circumstances to which section 423 applies. The facts as to Mr Rhind’s alleged purpose in 1994 as pleaded in paragraph 32 of the proposed amended particulars of claim are not pleaded in the existing particulars of claim. The existence of such a purpose in 1994 is no part of the existing case.

Finally, Mr Giles relies on section 32 of the Limitation Act, which so far as relevant provides as follows:

“(1)

Subject to subsections (3) and (4A) below, where in the case of any action for which a period of limitation is prescribed by this Act, either—

(a)

the action is based upon the fraud of the defendant; or

(b)

any fact relevant to the plaintiff's right of action has been deliberately concealed from him by the defendant; or

(c)

the action is for relief from the consequences of a mistake;

the period of limitation shall not begin to run until the plaintiff has discovered the fraud, concealment or mistake (as the case may be) or could with reasonable diligence have discovered it.

References in this subsection to the defendant include references to the defendant's agent and to any person through whom the defendant claims and his agent.

(2)

For the purposes of subsection (1) above, deliberate commission of a breach of duty in circumstances in which it is unlikely to be discovered for some time amounts to deliberate concealment of the facts involved in that breach of duty.

(3)

Nothing in this section shall enable any action—

(a)

to recover, or recover the value of, any property; or

(b)

to enforce any charge against, or set aside any transaction affecting, any property;

to be brought against the purchaser of the property or any person claiming through him in any case where the property has been purchased for valuable consideration by an innocent third party since the fraud or concealment or (as the case may be) the transaction in which the mistake was made took place.”

Mr Giles submits that by a combination of subsections (1)(b) and (2) the period of limitation did not begin to run until he had discovered the deed. Reliance is not placed on sub-section (1)(a) nor is it said that there was deliberate concealment other than under sub-section (2).

Sub-section (2) applies where there has been a “deliberate commission of a breach of duty”. This requires a deliberate breach of duty: Cave v Robinson Jamis & Rolf [2003] 1 AC 384. A transaction to which section 423 applies clearly involves the deliberate commission of an actionable wrong but does it involve a “breach of duty” within the meaning of section 32(2)? In my judgment, it does. It is true that “breach of duty” most obviously connotes a breach of a duty owed by the defendant to the claimant, such as a contractual, fiduciary or tortious duty. Section 423 is in a sense more amorphous. If a person enters into a transaction to which it applies, a range of possible claimants, including many who may not exist as such at the date of the transaction, may subsequently apply to set it aside or for other relief. It would however be unjustifiably restrictive to construe breach of duty as confined in the way indicated above. In my view, it is no more than the obverse of “right of action” in sub-section (1)(b) and means simply legal wrongdoing, that is acts or omissions giving rise to a right of action. That was undoubtedly the position under section 26 of the Limitation Act 1939, which section 32 replaced: see, for example, King v Parsons & Co [1973] 1 WLR 29 at 33 per Lord Denning MR. There is nothing in the Report of the Law Reform Committee (Cmnd 6923), which led to the provisions now contained in section 32, or elsewhere to suggest that sub-section (2) was intended to limit the scope of the pre-existing law.

It follows that section 32(1)(b) is capable of applying to Mr Giles’ claim against Mr Rhind, so that the period of limitation did not begin to run until Mr Giles discovered the facts relevant to his right of action under section 423 or could with reasonable diligence have discovered them. He says that he was provided with part of the deed by Mr Rhind on or about 19 May 2003. It is apparent from a letter dated 11 February 2003 from Mr Giles to Mr Rhind that Mr Rhind had by then told him of an agreement under which Mrs Rhind held an 80 per cent interest in the property. It is pleaded in the proposed amended particulars of claim that Mr Giles did not know other relevant facts until October 2003. However, it appears to me that he knew or could with reasonable diligence have discovered the essential facts, such as Mr Rhind’s financial position in 1992 and the absence of registration of the deed, once he had the deed in May 2003. This is not a significant difference on the facts of this case. As regards his claim that the deed was executed in 1994, he clearly did not and could not have knowledge of the relevant facts until his alleged conversation with Mr Rhind in the tube train in October 2003.

In his witness statement, Mr Rhind states that he is certain that Mr Giles was aware of the deed during the proceedings as early as 1998 but definitely in 2000. I have seen no evidence to support this assertion.

The position therefore is that the limitation period of 12 years began to run as regards any claim against Mr Rhind in 2003. Even if it began in 1998 or 2000 it is still within the limitation period. The further and critical question is whether the same is true of the claim against Mrs Rhind. The claim is of value to Mr Giles only if he can succeed in establishing against her that the transfer was subject to section 423 and thereby defeat her claim to the additional 30 per cent interest in the property now represented by the proceeds of sale. The meaning of “the defendant” in section 32(1)(b) is extended by the closing sentence of section 32(1):

“Reference in this subsection to the defendant include references…to any person through whom the defendant claims…”

Mrs Rhind claims her additional 30 per cent interest in the property through Mr Rhind. It follows that Mr Rhind’s “deliberate concealment” under sub-section (1)(b) and (2) postpones the start of the limitation period as against Mrs Rhind. Section 32(3) is not in my view applicable, even if Mrs Rhind was an innocent third party purchaser, because it covers only purchases “since the…concealment…took place”. Mrs Rhind’s acquisition was not after the alleged wrongdoing of Mr Rhind but was the contemporaneous and direct result of it. My conclusion is therefore that the start of the limitation period for claims under section 423 as regards the deed was postponed to the time when Mr Giles discovered or could with reasonable diligence have discovered the relevant facts. On the evidence before me that occurred in 2003.

In the result, therefore, I consider it right to give Mr Giles permission to amend the particulars of claim as proposed, to replace the existing claims which are based on execution of the deed in 1998 with claims based on execution in 1994, alternatively 1992.

This leaves for consideration, the entirely new claim which Mr Giles wishes to make as regards the Paddock. Until very recently, Mr Giles had no reason to believe that the acquisition of the Paddock was anything other than what it appears, that is an acquisition by her without any assistance from her husband. In fact, Mrs Rhind says that the purchase price was paid by her parents.

Mr Giles’ proposed case that the Paddock in truth belongs to Mr Rhind or that its acquisition in Mrs Rhind’s name was a transaction open to challenge under section 423 is prompted by the disclosure to Mr Giles of an e-mail dated 3 January 2007 from Mr Rhind to Mrs Rhind’s solicitors in which he states:

“The land held in your client’s sole name was put in it for tactical purposes but was paid for by me.”

Mrs Rhind denies the truth of this statement.

Given the very recent discovery of this alleged fact, it seems highly likely that the applicable limitation period of a claim against Mrs Rhind started in January 2007 by reason of section 32 of the Limitation Act 1980. If the facts alleged by Mr Rhind are true, Mrs Rhind was fully aware of the relevant circumstances. Moreover, the applicable limitation would in my view be 12 years because the relief under section 423 must involve a declaration of the beneficial interest in the Paddock following its acquisition as the basis for a claim to the proceeds of sale following its sale in November 2006.

However, rather than giving permission for the claim to be introduced into the present proceedings by way of amendment, this claim should proceed by way of a new claim for which counsel has already prepared particulars of claim. Mrs Rhind can raise such limitation defences as may be considered appropriate.

I will hear counsel on the question of costs and on the directions necessary for the future conduct of these proceedings.