Viscount St Davids v Lewis (Trustee in Bankruptcy)

The issue on this appeal is whether a notice claiming after-acquired property was served within the statutory time limits by the trustee in bankruptcy of the appellant, Viscount St Davids (“Lord St Davids”). The notice in question (“the Notice”) was served on Lord St Davids by the respondent trustee (“Mr Lewis” or “the Trustee”) on 19 May 2009. By the Notice, Mr Lewis claimed for the bankrupt’s estate the beneficial interest of Lord St Davids in the sole issued share (“the Optional Share”) of a company incorporated in the Republic of Seychelles called (at the material time) Optional Systems Ltd (“Optional”).

Section 307(1) of the Insolvency Act 1986 provides that, subject to that section and to section 309:

“the trustee may by notice in writing claim for the bankrupt’s estate any property which has been acquired by, or has devolved upon, the bankrupt since the commencement of the bankruptcy.”

Subsection (2) excludes from the scope of the section certain categories of property (such as necessary business equipment and basic domestic furniture), none of which is relevant in the present case. By virtue of subsection (3), upon the service of such a notice on the bankrupt:

“the property to which the notice relates shall vest in the trustee as part of the bankrupt’s estate; and the trustee’s title to that property has relation back to the time at which the property was acquired by, or devolved upon, the bankrupt.”

This automatic vesting of the after-acquired property in the trustee is, however, subject to subsection (4), which provides protection to bona fide purchasers for value of the property without notice of the bankruptcy, whether before or after service of a notice under section 307(1).

Section 309(1) then states that:

“Except with the leave of the court, a notice shall not be served –

(a)

under section 307, after the end of the period of 42 days beginning with the day on which it first came to the knowledge of the trustee that the property in question had been acquired by, or had devolved upon, the bankrupt; …”

Since the Notice was served on 19 May 2009, it follows that the Notice would have been out of time (subject to the power of the court to extend time, which has never been sought) if it first came to the knowledge of Mr Lewis more than 42 days before that date, i.e. before 8 April 2009, that beneficial title to the Optional Share had been acquired by Lord St Davids after the commencement of his bankruptcy on 17 June 2002.

No immediate objection to the Notice was made by Lord St Davids, and the Optional Share was duly transferred to the Trustee by its legal owner, Corporate & Chancery Nominees Ltd (“CCN”). Some five and a half years later, however, Lord St Davids issued an application dated 14 November 2013 seeking a declaration that the Notice had been served on him out of time and was accordingly of no effect. This application came on for trial before Registrar Barber on 27 and 28 January 2015. In a reserved judgment handed down on 25 March 2015, she dismissed the application, and by her order of the same date ordered Lord St Davids to pay the Trustee’s costs, with an interim payment on account of £30,000 to be made by 8 April 2015. She refused him permission to appeal, but permission was subsequently granted on paper by Asplin J on 18 May 2015.

On the appeal, the parties were represented by the same counsel as before the Registrar, with Mr Peter Irvin appearing for Lord St Davids and Ms Tina Kyriakides for the Trustee.

Shortly before the hearing of the appeal, Lord St Davids made an application by notice dated 29 June 2015 for permission to adduce fresh evidence consisting of a handwritten attendance note of a telephone conversation between Ms Michaela Hall (a licensed insolvency practitioner who was at the material time a member of Mr Lewis’ firm, Harris Lipman LLP) and a Mr Peter Hagerty. The note in question was undated, but appeared to relate to a conversation which must have taken place before August 2006, and therefore before a meeting at the offices of CameronMcKenna which, according to Lord St Davids, constituted the first occasion by when it must have come to the Trustee’s knowledge that the Optional Share was his after-acquired property. The note had been disclosed by the Trustee in proceedings brought by him in 2010 against Lord St Davids’ wife, which were subsequently settled. According to Lord St Davids, the note formed part of a large volume of documents disclosed by the Trustee in the context of the 2010 proceedings, and it was then lost from sight until his wife discovered it on the evening of 22 June 2015. I will deal with this application in due course, when I come on to consider the significance of the meeting at CameronMcKenna on 22 November 2006 and the findings of fact which the Registrar made about it.

The written evidence before the Registrar consisted of an agreed bundle of documents and a number of witness statements. Three statements (his second, third and fourth) were relied upon by Lord St Davids. No other witness gave evidence on his behalf. The written evidence for the Trustee consisted of his first and second statements, a statement of Ms Hall, a statement of Mr William Bufton (a senior administrator at Harris Lipman who joined the firm in September 2004 and left in December 2008) and a statement of the Trustee’s solicitor, Mr Daniel Schaffer of Isadore Goldman. All of the witnesses were cross-examined, but I was not provided with a transcript of any part of the oral evidence. As will become apparent, the Registrar made a number of important findings of fact based on the totality of the evidence before her.

It is convenient to begin by setting out the background facts, as found by the Registrar, down to Lord St Davids’ discharge from his first bankruptcy on 28 July 2006:

“13.

Lord St Davids was made bankrupt on 17 June 2002 on a petition presented by Coutts Bank on 12 July 2001 at Oxford County Court under case number 100 of 2001.

14.

Lord St Davids did not cooperate with the Official Receiver (“OR”) and, on the OR’s application, his discharge was suspended by order dated 6 January 2003.

15.

In the same year, that is to say, 2003, Lord St Davids set up what has become known as the Aubach group of companies, with the assistance of (inter alios) a Mr Jonathan Shaw, an individual who held himself out as a specialist offshore tax adviser. The Aubach group is an elaborate corporate and trust structure involving an extensive array of companies spanning a number of different jurisdictions. Lord St Davids confirmed in cross-examination that the group was “specifically designed so that I wouldn’t be the beneficiary”, describing it as a “private structure”.

16.

The turnover for the Aubach group for the year ending 2005 was said to be in excess of 250 million euros. The holding company was a company incorporated in Mauritius, known as Aubach Holdings Ltd (“AHL”). This in turn owned, inter alia, two companies known as (a) Hans Brochier KG & Co GmbH (“Hans Brochier”), an engineering company incorporated in Germany which subsequently went into administration in August 2006 and (b) LII Europe GmbH, a chlorine manufacturer, also incorporated in Germany.

17.

On 28 February 2003, the company forming the focus of this application, Optional, was incorporated in the Republic of Seychelles under the name of Cresta Commercial Services (PTY) Ltd. It changed its name to Optional Systems Limited on 2 December 2003. Its sole shareholder was CCN, a Mauritius company, which held the one share issued in the company.

…

21.

The Respondent was appointed by the Secretary of State as Trustee in Bankruptcy of the estate of Lord St Davids … with effect from 9 April 2003. Lord St Davids appears to have had very little time for Mr Lewis and failed to engage with the bankruptcy. In giving oral evidence he accepted this, announcing at one point “I ignore Mr Lewis” and stating that he “didn’t take anything that Mr Lewis said seriously”. When questioned about his failure to respond to correspondence from Mr Lewis, he answered “if a lunatic writes to me, I ignore it”.

22.

By December 2004 Lord St Davids had still not completed a bankruptcy questionnaire, notwithstanding numerous requests that he do so. By letter dated 17 January 2005, Mr Lewis wrote to Lord St Davids confirming that due to his lack of cooperation, an application for an order that he attend court for private examination was to be pursued. The letter further confirmed that such applications would also be pursued in respect of Lord St Davids’ mother, father and wife.

23.

Mr Lewis contends that shortly after the letter of 17 January 2005, on or about 24 January 2005, Lord St Davids became entitled to a commission payment of approximately 3 million euros, earned by him in connection with a sale of shares in a company known as Red Mountain SRL. Mr Lewis believes that the sum was channelled through Optional and thereafter paid out to or applied for the benefit of Lord St Davids, his family and others. Lord St Davids disputes this. Whether or not Lord St Davids did become entitled to such a commission payment at this time is not a matter before me.

24.

In February 2005, no doubt encouraged, at least in part, by the contents of Mr Lewis’ letter of 17 January 2005, Lord St Davids finally completed a bankruptcy questionnaire. The questionnaire was dated 22 February 2005 and was considered at a meeting held at the Respondent’s offices the following day, attended by Lord St Davids, Lord St Davids’ solicitors, William Sturges, and by Mr William Bufton, on behalf of the Respondent.

25.

By his questionnaire dated 22 February 2005, Lord St Davids indicated that he was not employed, was not in receipt of any income, and that he had not acquired any assets since being made bankrupt. When Mr Bufton queried these responses at the meeting of 23 February 2005, he was told that Lord St Davids was “kept by his wealthy wife and lived in her house, which she owned prior to his becoming a bankrupt”.

26.

By a written declaration dated 1 March 2005, CCN expressly declared that it held the Optional Share on trust for Lord St Davids. Lord St Davids claims that he did not know of this at the time.

27.

On 27 January 2006, Lord St Davids completed a further bankruptcy questionnaire. This again indicated that he was not employed, that he was not in receipt of any income and that he had not acquired any assets since being made bankrupt.

28.

By May 2006, the Respondent’s office had been contacted by a former employee of the Aubach group known as Mr Peter Hagerty, who had some information he wished to give to the Respondent about Lord St Davids’ affairs. As a result of such contact, the Respondent applied for, and on 18 May 2006 obtained, an order against Mr Hagerty requiring him to deliver up all documentation in his custody or power relating to Lord St Davids and his affairs. The production order was served but not complied with.

29.

Lord St Davids was discharged from his bankruptcy on 28 July 2006.”

It will be noted from these findings of fact, none of which is challenged, that:

The two bankruptcy questionnaires, although scrappily completed in manuscript by Lord St Davids, were formal documents, and were provided to the Trustee through Lord St Davids’ solicitors, William Sturges. The notes at the end of each questionnaire reminded Lord St Davids of his statutory duties under section 333 of the Insolvency Act 1986 to cooperate with the Trustee, and to notify him of any after-acquired property. The notes also reminded him of various offences under the 1986 Act, including non-disclosure of property or any disposal thereof, and concealment of property, in respect of which a person found guilty might be liable to imprisonment or a fine, or both. The declaration signed by Lord St Davids at the end of each questionnaire confirmed that he had read the notes, that he understood his duty to assist the Trustee in carrying out his duties and to make full disclosure to him of all his affairs, and that to the best of his knowledge and belief the information given was correct.

To avoid confusion, I should also record that these events took place during his father’s lifetime and before Lord St Davids had succeeded to his present title. He was then known as the Honourable Rhodri Colwyn Philipps.

As the Registrar noted in paragraph [18] of her judgment, there was an apparent conflict between Lord St Davids’ disclaimer of contemporary knowledge of the declaration of trust of the Optional Share, and paragraph 8 of his second witness statement where he said that it was “from the outset” held by CCN as trustee on his behalf. The Registrar returned to this point in [93], where she recorded that:

“Indeed, in oral evidence before me, Lord St Davids confirmed, several times, that he himself did not know that he was the beneficial owner of the Optional Share until 2010 …” (her emphasis).

Lord St Davids’ evidence about the role of Optional (see paragraph [19] of the judgment) is that it was:

“a management company responsible for paying all expenses and providing finance for the trading subsidiaries within the Aubach group until about June 2006, when Aubach Management Limited was incorporated and took over Optional’s role.”

I can now return to the judgment, picking up the history of events after Lord St Davids’ discharge from bankruptcy in July 2006. The Registrar dealt with it in paragraphs [30] to [47], upon which the following summary is based.

In August 2006, Hans Brochier went into administration. On 22 November 2006, at the request of the administrators of Hans Brochier, a meeting was held at the offices of their solicitors, CameronMcKenna LLP, attended by Ms Hall and Mr Bufton on behalf of the Trustee and Ms Laura Farley and Mr Hickmott of CameronMcKenna. Lord St Davids relies on a note of this meeting, apparently prepared by CameronMcKenna for the administrators, as evidence that Mr Lewis already knew of Lord St Davids’ beneficial interest in Optional.

Little progress was made in Lord St Davids’ bankruptcy between 2006 and 2008. After being briefed by Ms Hall on the matters discussed at the meeting on 22 November 2006, the Trustee decided to take no further action for the time being, on the basis that there was no clear evidence about what assets belonged to Lord St Davids, and those assets which had been discussed at the meeting were being claimed by the administrators of Hans Brochier, who were not prepared to assist the Trustee while they were still pursuing their own investigations.

In March 2007, following news that Lord St Davids had been arrested in Germany, the Trustee again made contact with the administrators, asking whether they had any documents which could assist him. The administrators’ response was “largely unhelpful”.

By January 2008, the Trustee was considering closing Lord St Davids’ bankruptcy. In March 2008, Lord St Davids was found guilty in Germany on 24 counts, and was given a suspended sentence of 2 years’ imprisonment. He had been held in custody since March 2007, but was then released. The Trustee remained of the view that there was little prospect of recovering anything in the bankruptcy, and that to put further resources into recovery work would not be cost effective.

In June 2008, however, matters changed. The Trustee received information concerning the Red Mountain SRL commission payment referred to above, and on 20 June 2008 he served a section 307 notice upon Lord St Davids in respect of the payment. No response to the notice was received.

A few months later, in November 2008, the Trustee discovered that Lord St Davids had issued proceedings in Mauritius against CCN claiming beneficial ownership of the Aubach group, and had sworn an affidavit in those proceedings in which he claimed that Optional was part of the Aubach structure. According to Lord St Davids, this was the second point of time at which the Trustee must have acquired knowledge that he was the beneficial owner of the Optional Share.

The Trustee’s case is that at this stage he took further advice and concluded that CCN might have documents which would assist him, either to show that the Aubach companies were owned by Lord St Davids or that they held assets on trust for him. Accordingly, on 28 November 2008 Isadore Goldman wrote to CCN seeking a meeting and certain documentation. No reply was received, and a reminder letter was sent on 12 December 2008. On 15 December 2008 the Trustee applied for extensions of time in which to serve section 307 Notices in respect of the Aubach companies listed in paragraph 4 of Mr Schaffer’s witness statement of the same date. Optional was not mentioned, because (according to Mr Schaffer’s evidence) it did not appear in the structure diagram at paragraph 26.4 of the affidavit sworn by Lord St Davids in the Mauritius proceedings. On 22 December 2008, the Trustee’s application was granted.

Meanwhile, on 18 December 2008 a without prejudice meeting was held between Jonathan Shaw on behalf of CCN, his colleague Gordon Fisher, CCN’s solicitor (Mr Andrew Visintin of Squire, Sanders & Dempsey), Ms Hall and Mr Schaffer. During cross-examination, Mr Schaffer said he was informed at this meeting that Lord St Davids was the beneficial owner of the Optional Share, but Mr Shaw made it clear that the Trustee would have to apply for an order before any documents would be produced.

According to Lord St Davids, this was the final stage at which the Trustee can be said to have known that Lord St Davids was the beneficial owner of the Optional Share.

On 2 February 2009, an application for production of documents was made by the Trustee against CCN. On 11 March 2009, an order for production was made. The order was complied with on 9 April 2009, when a number of boxes were received by Isadore Goldman. Having considered the documents produced, the Trustee served two further section 307 notices on 19 May 2009. The first claimed the Optional Share for the bankrupt’s estate. The second claimed certain payments which had been discharged by Optional and had been debited to Lord St Davids’ account with Optional. The first of these notices is, of course, the subject of the present proceedings. There is no dispute that it was served in time if, on a correct appraisal of the facts and the relevant law, the Trustee first acquired knowledge of Lord St Davids’ beneficial interest in the Optional Share when the documents produced by CCN, which included the declaration of trust of the Optional Share dated 1 March 2005 and documents relating to the incorporation of Optional in February 2003, were examined.

For completeness, I should also mention that on 4 March 2011 Lord St Davids was made bankrupt for a second time, on a petition presented against him in October 2010, and on 31 March 2011 Jeremy Charles Frost and Stephen Patrick Wadsted were appointed as trustees of his second bankruptcy. The only relevance of this to the present proceedings is that after Lord St Davids had issued the current application a point was taken as to his standing, and by order of 23 January 2014 Mr Frost and Mr Wadsted were joined as the second and third applicants. Since then, by a deed of assignment dated 6 February 2014, they have assigned to Lord St Davids any interest they may be entitled to claim in the Optional Share. They have therefore played no active part in the proceedings, although Mr Lewis reserved his position against them on the issue of costs.

I have already referred to the relevant provisions contained in sections 307 and 309 of the Insolvency Act 1986. These provisions were new, and reversed the previous law under which after-acquired property vested automatically in the trustee, subject to limited protection for third parties: see sections 38(a) and 47 of the Bankruptcy Act 1914, and In re Pascoe [1944] Ch 209 (CA) at 225 to 228 per Lord Greene MR. The particular advantage of requiring the trustee to take the initiative, by service of a notice claiming after-acquired property for the estate, is that it allows him to choose whether it would be advantageous to the estate to claim the property, and avoids the waste of time and money previously involved in having to disclaim onerous after-acquired property: see the notes to section 307(1) in Sealy & Milman, Annotated Guide to the Insolvency Legislation 2015, vol 1, pp 384-385, referring to paragraph 1152 of the Report of the Cork Committee and paragraph 112 of the White Paper which preceded the enactment of the 1986 insolvency legislation.

As Sealy & Milman point out, the operation of section 307(1) depends on the bankrupt being honest with his trustee, as he is required to be by section 333(2) and 353(1). In particular, section 333(2) provides as follows:

“Where at any time after the commencement of the bankruptcy any property is acquired by, or devolves upon, the bankrupt … the bankrupt shall, within the prescribed period, give the trustee notice of the property …”

The prescribed period, by virtue of rule 6.200(1) of the Insolvency Rules 1986, is 21 days after the bankrupt becomes aware of the relevant facts. In the normal way, therefore, a trustee will acquire his knowledge of the existence of after-acquired property from the bankrupt himself, in discharge of the bankrupt’s statutory duty to inform him of it within the 21 day period stipulated by rule 6.200(1). The acquisition of property by the bankrupt is, for obvious reasons, something which should normally be within his personal knowledge, and it is not something which the trustee ought to have to investigate for himself. Equally, where the bankrupt complies with his statutory duty, there should be no room for doubt about when the trustee first acquires his knowledge that the property in question had been acquired by the bankrupt, and when the 42 day period for service of a notice under section 307 begins to run.

I emphasise these points, because in the present case Lord St Davids conspicuously failed to comply with his statutory duty under section 333(2). He never informed the Trustee of his beneficial interest in the Optional Share, even accepting at face value his oral evidence that it was only in 2010 that he became aware of his beneficial entitlement to it. Instead, he advances the unattractive case that the Trustee first acquired knowledge of his beneficial entitlement to the Optional Share on dates ranging from before 22 November 2006 to 18 December 2008, even though Lord St Davids (on his own evidence) had no such knowledge at any of those times, and even though he had submitted two bankruptcy questionnaires expressly denying the existence of any after-acquired property.

In a case of that nature, where the bankrupt has failed to co-operate with his trustee and has failed to disclose the existence of relevant after-acquired property to his trustee, I consider that the court should be slow to accede to a self-serving claim by the bankrupt that his trustee first obtained knowledge at a significantly earlier date of the acquisition by the bankrupt of the property, with the convenient result (if the claim is upheld) that the section 307 notice served by the trustee would be out of time. In practical terms, it seems to me that in such cases a trustee should normally be held to have first obtained the relevant knowledge for the purposes of section 309(1) only when it has become clear to him, on cogent evidence verified to his reasonable satisfaction, that the property in question (a) was acquired by the bankrupt, and (b) was acquired by him after the commencement of the bankruptcy. If it is objected that this test may set the bar too high, the answer is in my judgment obvious. In a situation where the bankrupt has failed to comply with his statutory duty, in relation to a matter within his personal knowledge, it is entirely reasonable that the standard of knowledge required from his trustee for the purposes of section 309(1) should be set at a fairly high level of certainty.

A further factor which appears to me to strengthen this conclusion is the effect of service of a notice under section 307(1). By virtue of section 307(3), the property in question vests automatically in the trustee as part of the bankrupt’s estate, subject only to the limited protection for third parties conferred by section 307(4). Proprietary consequences of this significance should not be triggered, in my judgment, in a case where the bankrupt himself has not informed his trustee of his acquisition of the property, unless the trustee’s knowledge that the property is indeed after-acquired property is firmly based.

The Registrar dealt with the meaning of knowledge in section 309 in paragraph [9] of her judgment. She said this:

“9.

So far as Counsel are aware, there is no authority on the meaning of knowledge in Section 309. Having had the benefit of Counsel’s submissions, however, I am satisfied that the following principles apply:

(1)

For the purposes of Sections 307 and 309, subject to Section 309(2)(a) [which imputes the knowledge of a trustee to his successors in that office], the term “knowledge” denotes actual knowledge.

(2)

In this context, the knowledge of the office holder will include actual knowledge of others which may be imputed to the office holder upon conventional agency lines …

(3)

The relevant knowledge must be knowledge of facts and not of mere claims or allegations. Whilst I was not taken to such authorities during the course of submissions, I note that a similar distinction was recognised by the Court of Appeal in the case of Carl Zeiss Stiftung v Herbert Smith & Co (No. 2) [1969] 2 Ch 276 and later applied by Peter Gibson J in Baden v Société Generale SA [1993] 1 WLR 509 at 575. Whilst the distinction arose in a very different context in those cases, in my judgment it is equally applicable to challenges arising under Section 309 of the Insolvency Act 1986. To the extent that my approach is inconsistent with the Official Receiver guidelines relied upon by Mr Irvin I would add that such guidelines are not binding upon this court.

(4)

In the context of the application before me, the onus is upon Lord St Davids, as the party challenging the validity [of] the Section 307 notice served, to prove, on a balance of probabilities, that the Respondent knew at least 42 days prior to 19 May 2009 (a) that the Optional Share was (in equity at least) property belonging to Lord St Davids and (b) that the Optional Share (or at least beneficial ownership thereof) had been acquired by, or had devolved upon, Lord St Davids since the commencement of his bankruptcy. In my judgment actual knowledge of both limbs is essential.”

Both counsel were content to adopt these principles for the purposes of the appeal, and so am I, subject to what I have already said about the quality of evidence needed to establish actual knowledge in cases of the present type. I should also mention that I was referred by Mr Irvin to the Official Receiver’s published guidelines on after-acquired property dated June 2009. The guidance is of a general nature, and although valuable as a distillation of much practical experience, it does not purport to define the quality of knowledge required by section 309(1). I therefore found it of little assistance.

Lord St Davids’ grounds of appeal contain a number of specific criticisms of the way in which the Registrar dealt with the three occasions on which the Trustee is alleged to have acquired actual knowledge of his beneficial ownership of the Optional Share. I will deal with those criticisms when I consider the evidence and findings made by the Registrar in relation to those occasions. The initial grounds of appeal, however, are of a more general nature. It is said that the appeal raises “very important questions” about how a court should approach the test of knowledge under sections 307 and 309. It is alleged that, while the Registrar correctly proceeded on the basis that actual knowledge was required, she “misdirected herself in holding that such knowledge has to be knowledge of facts which have been conclusively proved”. It is said that she failed to appreciate that “otherwise the provision for an extension of time for serving a notice would be redundant and/or meaningless”, and ignored the fourteen day extension of time granted to the Trustee by the order of Deputy Registrar Marks dated 14 September 2009.

I have no hesitation in rejecting these general grounds of appeal. In the first place, the Registrar never explicitly held that knowledge for the purposes of section 309(1) has to be knowledge of facts which have been conclusively proved. I have already set out the passage in her judgment in which she dealt with the meaning of knowledge in section 309, and recorded that no criticism is made of that passage by Mr Irvin. The misdirection of which he complains is a matter of inference, derived by him from the way in which the Registrar dealt with the evidence relating to the three occasions when the Trustee is said to have acquired actual knowledge. In his oral submissions, Mr Irvin submitted that it is apparent from these passages in her judgment that the Registrar was setting the bar of actual knowledge too high. I respectfully disagree, and consider that (as I shall explain) her approach was amply justified by the facts she found, and was in accordance with the principles of law which I have reviewed above. In my judgment the quality and cogency of the evidence needed to establish actual knowledge for the purposes of section 309(1) will vary according to the circumstances of the particular case, and the Registrar cannot be criticised for the approach which she adopted to the unattractive and contradictory case being advanced by Lord St Davids.

I am also satisfied that there is nothing in the point about the power of the court to grant an extension of time for service of a section 309 notice. The power to extend time throws no light on the quality of knowledge which is necessary to start time running for the service of a notice. Even where a trustee is certain of the existence of after-acquired property, for example because the bankrupt has complied with his statutory duty to inform him of it, the trustee may still need an extension of time for service of a notice in order to decide whether the property is so onerous that it would not be cost-effective to claim it for the bankrupt’s estate. In cases where the bankrupt has not complied with his statutory duty of disclosure, and a trustee wishes for further time in which to complete his investigations, it may also be appropriate for the trustee to apply for an extension of time as a precautionary measure, so as to avoid any argument that he has already acquired sufficient knowledge to start time running. Again, however, this tells one nothing about the standard by reference to which actual knowledge is to be ascertained.

It is also convenient to deal at this stage with paragraph 3 of the grounds of appeal, which asserts that the Registrar failed to take account of the fact that the chronology put forward on behalf of the Trustee refers to the service by him of a section 307 notice on Lord St Davids on 20 June 2008 in respect of a £3 million commission. It is said that this commission was paid to Optional, so the Trustee was clearly treating it as a payment to Lord St Davids himself, which could only have been consistent with an appreciation that Lord St Davids was the sole beneficial owner of Optional. The commission in question is presumably the Red Mountain commission of some €3 million referred to by the Registrar in paragraphs [23] and [35] of her judgment. However, there was no evidence before the Registrar that the commission payment was made through Optional, and the Trustee’s evidence was that Lord St Davids had given instructions for the commission to be paid to Aubach Capital Partners Limited. The case advanced in paragraph 3 of the grounds of appeal is therefore an entirely new one, which was never put to the Trustee or his witnesses in cross-examination. I agree with counsel for the Trustee that it is not open to Lord St Davids to pursue this argument on appeal, and Mr Irvin wisely did not seek to develop the point in his oral submissions.

I now turn to the three occasions on which it is claimed that the Trustee had acquired actual knowledge of Lord St Davids’ beneficial ownership of the Optional Share.

The meeting at CameronMcKenna’s offices on 22 November 2006

Lord St Davids’ primary case before the Registrar was that the Trustee knew of his beneficial interest in Optional by the date of the meeting which took place at the offices of CameronMcKenna on 22 November 2006. CameronMcKenna were the English solicitors acting for the German administrators of Hans Brochier. According to the evidence of Ms Hall, the meeting was called by CameronMcKenna to discuss their ongoing investigations into the affairs of Hans Brochier in Germany, and to see whether there could be a useful exchange of information between Mr Lewis’ office and the German administrators. The meeting was “off the record”, and no note of it was taken by Ms Hall or Mr Bufton who attended it on behalf of the Trustee. A note of information obtained at the meeting was, however, prepared by CameronMcKenna, although it was never submitted to the Trustee or his office for comment or approval. There was no evidence before the Registrar concerning the authorship of this note, but she was willing to proceed on the basis that it had been prepared by Ms Farley, the trainee solicitor who attended together with a partner of CameronMcKenna, Mr Hickmott, on behalf of the administrators: see paragraph [64] of the judgment. The existence of the note only came to light when it was disclosed to Lord St Davids by the prosecution in the criminal proceedings brought against him in Germany.

The note was headed:

“Hans Brochier Holdings

Information obtained at a meeting with the Trustee in Bankruptcy (Michaela Hall of Harris Lipman) regarding Rhodri Philipps and Hans Brochier Holdings Limited

22 November 2006”

The Registrar pointed out that there were two minor errors in this heading: first, Ms Hall was not herself the trustee in bankruptcy of Lord St Davids; and, secondly, the company for which CameronMcKenna acted was the German Hans Brochier company, not its immediate UK parent, Hans Brochier Holdings Limited.

Under the heading “Rhodri Philipps”, the note then recorded certain details about Lord St Davids’ bankruptcy, including his discharge in September 2006, the fact that he had always been difficult to handle and had refused to co-operate with the Trustee, and a statement attributed to Mr Bufton that Lord St Davids “does not exist in the UK for tax purposes”. The note then said:

“Optional Systems Limited was described by MH [Michaela Hall] as being RP’s [Rhodri Philipps’] personal company that he used to fund his day-to-day living expenses.”

That is the only reference to Optional in the note, which went on to deal with potential assets acquired by Lord St Davids, the Aubach corporate and trust structure, the involvement of Jonathan Shaw in “the scheme”, and various other matters. Appended to the note was a list of assets that it was thought Lord St Davids might have obtained since the date of his bankruptcy using Hans Brochier Holdings’ funds. Again, there is no reference to Optional anywhere in this list.

The Registrar was invited to infer from this note that, by the time of the meeting, Ms Hall knew of Lord St Davids’ interest in Optional. The Registrar declined to draw any such inference. Ms Hall’s clear evidence was that she had said no such thing, and in paragraph 7.10 of her statement Ms Hall put the matter thus:

“I never said that Optional was the Debtor’s own company, I had absolutely no idea at the time as to who was behind Optional and it was never disclosed to Mr Lewis’ office by the Debtor that he was the beneficial owner … We had no documentation … The only knowledge I had about Optional at the time of the meeting was that it was apparently an off-shore company which had been used to discharge personal expenditure of the Debtor. I had little information and certainly insufficient to enable any view to be taken as to whether a Section 307 Notice should be prepared and served.”

The Registrar found Ms Hall to be a truthful witness, having had the benefit of hearing her oral evidence: see [71]. The Registrar expressly accepted (at [79]) the passage from Ms Hall’s witness statement, quoted above, beginning “The only knowledge I had about Optional …”. The Registrar was also satisfied that Ms Hall had no personal axe to grind, having left Harris Lipman in 2011.

Mr Bufton also had no recollection of Optional being discussed at the meeting, and like Ms Hall he had no personal axe to grind in the matter, having left Harris Lipman in 2008. The Registrar found him to be a truthful witness: see [73].

The Registrar stated her conclusions in relation to the note as follows:

“74.

In my judgment very little probative weight can be attached to the note of the meeting of 22 November 2006. There is no evidence as to when it was prepared, and its author has neither been called nor invited to submit a statement explaining how and for what purpose the note came to be written. From the evidence which I have heard and read, the note is clearly inaccurate and incomplete in numerous respects and cannot be treated as a true attendance note of the meeting.

75.

Moreover whilst its author is now said to be living in Australia, which may explain her absence, I note that Mr Hickmott was not called to give evidence about the meeting or the note, notwithstanding the fact that he attended the meeting and remains based in the UK.

76.

Overall, on the evidence before me, and having had the benefit of hearing both Ms Hall and Mr Bufton in cross-examination, I am satisfied that Ms Hall did not at the meeting of 22 November 2006 make reference to Optional as Lord St Davids’ “personal company” or otherwise suggest at that meeting that Lord St Davids was the ultimate beneficial owner of Optional. I so find.”

In my judgment these findings of fact, based as they are on the oral evidence of Ms Hall and Mr Bufton who were both present at the meeting, are unassailable. The grounds of appeal assert, and Mr Irvin submitted, that the Registrar’s rejection of the statement in the note that Optional was Lord St Davids’ “personal company” was so unreasonable as to be perverse. Mr Irvin contends that Ms Hall must have said what the note records her as having said, or at least something very like it, and in order to do so she must have had evidence to support what she was saying. I am unimpressed by this submission, which in effect invites me to take a different view of the evidence from that taken by the Registrar, even though she was the trial judge who heard the evidence, with all the usual advantages which that entails, and (unlike this court, which has not been provided with a transcript) she was able to consider the totality of the evidence before drawing her conclusions.

There is a further fundamental flaw in Lord St Davids’ case on this part of the appeal, to which counsel for the Trustee rightly drew attention. If the Trustee or his agents had acquired actual knowledge that Lord St Davids was the beneficial owner of the Optional Share, they must have done so before the meeting on 22 November 2006. But this possibility is negated by the findings of fact which the Registrar made in paragraphs [52] to [61] of her judgment, none of which is specifically challenged in the grounds of appeal. In particular, the Registrar expressly found that:

Finally, the Registrar correctly observed (at [78]) that:

“even if reference had been made at the meeting to Optional as Lord St Davids’ “personal company”, that of itself would not lead inexorably to the conclusion that Lord St Davids was the beneficial shareholder of the same. It could simply have meant that he controlled it, whether by way of a shadow directorship or otherwise.”

For all these reasons, I am satisfied that, on the material before her, the Registrar made no error of principle in her consideration of the question whether the Trustee had acquired the necessary knowledge by 22 November 2006, and her findings of fact cannot be faulted. I now need to consider whether this conclusion needs to be modified in the light of the application to adduce fresh evidence.

As I have explained (at [6] above), the application relates to a handwritten attendance note of a telephone conversation between Ms Hall and Mr Hagerty which was disclosed by the Trustee in proceedings which he brought against Lady St Davids (then known as Sarah Butcher) in 2010, but was not disclosed by the Trustee in the present proceedings, and was found by Lady St Davids on 22 June 2015.

Both parties agree that I should determine the application by reference to the well-known criteria laid down by the Court of Appeal in Ladd v Marshall [1954] 1 WLR 1489, which in effect still cover the relevant ground even though the question now arises under CPR 52.11(2)(b) which states that an appeal court will not receive evidence which was not before the lower court “unless it orders otherwise”. That power must, of course, be exercised with the aim of giving effect to the overriding objective, but for this purpose the Ladd v Marshall criteria remain both relevant and persuasive: see generally the notes in the White Book 2015, vol 1, at para 52.11.2.

It is not in dispute that the note is in Ms Hall’s handwriting, and that she made it during a 75 minute telephone conversation which she had with Mr Hagerty at some time before August 2006 when Hans Brochier went into administration. The note covers four pages, and consists of informal jottings which give an indication of the subjects discussed. It seems probable that it is in fact a note which Ms Hall made during the second “rambling” telephone call described in her oral evidence, which she suspected came from Mr Hagerty: see the judgment at [57]. The rather impressive doodles on the note certainly suggest that the call was of a discursive nature.

The next important point is that the note contains no reference to Optional. There is a reference on the final page to “OSS”, but it is clear from the context that this is a reference to the Office for the Supervision of Solicitors. Accordingly, it is far from obvious that the note would have assisted Lord St Davids’ case at the trial. It would doubtless have provided some material for cross-examination of Ms Hall, and it might have aided her recollection of events which took place more than eight years before she gave her oral evidence. But whether it would have yielded any material of real assistance to Lord St Davids is in my view entirely speculative, especially as the note on its face appears rather to confirm Ms Hall’s evidence that no reference was made to Optional in her conversations with Mr Hagerty.

This point also puts paid to any suggestion that the note might have been deliberately concealed by the Trustee, quite apart from the fact that it was anyway disclosed by him in the 2010 proceedings. It is clearly regrettable that it was not found and disclosed again in the present proceedings, particularly as Lord St Davids’ solicitors had by a letter dated 8 August 2014 asked the Trustee to disclose all notes of conversations and correspondence with Mr Hagerty regarding Lord St Davids’ assets. The Trustee responded to this request in his second statement dated 18 September 2014, saying that the order for production of documents against Mr Hagerty which he obtained in May 2006 had yielded nothing, and expressing the view that, while Mr Hagerty had some views as to what Lord St Davids might own, “he had no first-hand knowledge nor critically any documents which could be of assistance to me”. Mr Irvin complained, with some justice, that this evidence did not really address the request made by Lord St Davids’ solicitors, but Mr Schaffer has subsequently confirmed (in his second statement dated 1 July 2015) that a full search was undertaken by the Trustee and Isadore Goldman, and apart from one brief telephone note of a conversation between Mr Hagerty and Mr Bufton on 16 June 2006, which was duly produced, nothing was found. Mr Schaffer also said, in a letter of 29 June 2015 to Lord St Davids’ solicitors, that a thorough search had been undertaken of the Sarah Butcher litigation papers without revealing the telephone note, and the disclosure list in those proceedings did not identify it either. The precise circumstances in which the note was disclosed to Lady St Davids in 2010 therefore remain obscure, but I do not think there can be any reasonable doubt that it was disclosed by the Trustee, either from an office file or after making enquiry of Ms Hall. The likeliest explanation is that all concerned then forgot about it until it was rediscovered by Lady St Davids in June 2015.

Against this background, I now consider whether the Ladd v Marshall criteria are satisfied, the first of which is that the evidence could not have been obtained with reasonable diligence for use at the trial. Since the note was found by Lady St Davids, among papers which had been disclosed to her by the Trustee in earlier litigation, there are obvious difficulties for Lord St Davids in arguing that the note could not have been obtained with reasonable diligence. The note was already in his wife’s possession, and she had herself been the target of litigation brought by the Trustee (and later by Optional, after the Optional Share had been transferred to the Trustee). All that would have been needed, in order to uncover the note before the present trial, was a search of the documents which had been disclosed to Lady St Davids in litigation involving her husband’s bankruptcy. There is no evidence that the note was particularly difficult to find, once the decision to search the relevant material had belatedly been taken. Lord St Davids merely says that the documents were “not in any real order”, having been sent to his wife and himself “in a somewhat piecemeal fashion over the years”, which meant that they “lost track of the various documents and bundles” which they had. He further relies on the fact that the proceedings in question were compromised, and never proceeded to trial, with the result that no particular attention was paid to the documents. That, however, does not answer the point that, once Lord St Davids had decided in 2013 to make the present application, and to argue that the Trustee had acquired actual knowledge of his ownership of the Optional Share before 2009, it would have been a prudent precaution to search the documents which had already been disclosed by the Trustee and/or Optional in the previous litigation.

This point gains added force because one of the defences raised by Lady St Davids to the claim brought against her by Optional, which sought recovery of a loan of £250,000, was that the Trustee had no right to bring the claim on behalf of Optional because the section 307 notice which he had served in respect of the Optional Share was out of time. In other words, Lady St Davids’ defence, as I understand it, raised exactly the same issue as Lord St Davids later pursued in the present proceedings. Furthermore, the solicitors who acted for Lady St Davids in the Optional proceedings are the same firm which acts for Lord St Davids in the present case.

In all the circumstances, I am satisfied that with reasonable diligence the note could have been obtained for use at the trial. I now turn to the second test, which is that the evidence must be such that it would probably have an important influence on the result of the case, though it need not be decisive. As before, there is an obvious difficulty in arguing that this test is satisfied, because the note does not refer to Optional at all. If anything, the note provides support for Ms Hall’s evidence about the content of her telephone conversations with Mr Hagerty as found by the Registrar in paragraph [57]. It is possible, as I have said, that Ms Hall’s oral evidence might have been different if the note had been found and she had been questioned about it. But given the absence of any reference to Optional in the note, this possibility is at best a speculative one. I therefore do not consider that the note would probably have had an important influence on the result of the case. Nor would its admission be likely to have any significant influence on the outcome of the present appeal, because Mr Irvin made no application to cross-examine Ms Hall on the document, and its discovery would plainly not justify a remitter of the case to the Registrar.

The third Ladd v Marshall test is that the evidence must be such as is presumably to be believed. The Trustee does not dispute that the note is genuine, and is in Ms Hall’s handwriting. This condition is therefore satisfied; but since neither the first nor the second condition is satisfied, the application to adduce further evidence must be dismissed. For the avoidance of doubt, I should make it clear that I reach this conclusion both as a result of application of the Ladd v Marshall criteria, and by application of CPR Rule 52.11(2)(b) in accordance with the overriding objective to deal with the case justly and at proportionate cost.

November 2008

The Registrar dealt with this part of the case in paragraphs [82] to [97] of her judgment. She began her discussion as follows:

“82.

Mr Irvin next contended that the Respondent knew by November 2008 that the Optional Share was after-acquired property of Lord St Davids. He maintained that the Respondent acquired such knowledge on sight of (a) a letter dated 7 November 2008 from Squires Saunders to the Respondent and/or (b) evidence filed by Lord St Davids in proceedings which he had issued in Mauritius against CCN.”

The letter of 7 November 2008 enclosed certain statements “produced by Hans Brochier showing monies transferred to Optional Systems of which we believe Mr Phillips was a beneficiary”. The Registrar dealt with the letter shortly, as follows:

“85.

Mr Irvin submits that this was a statement confirming the author’s belief that Lord St Davids was a beneficiary of Optional. As a matter of construction, however, I disagree. In context, and having regard to the Annex to which it refers, it is clear that the passage in question simply confirms the author’s belief that Lord St Davids was a beneficiary of certain monies. The letter of itself therefore, takes matters no further.”

There is no appeal against the Registrar’s conclusion on this point, which seems to me clearly correct.

Annex 1 to the letter of 7 November 2008 contained papers filed in the Mauritian courts. It is worth noting the comment made by the writer of the letter, Mr Andrew Visintin:

“You will note that Mr Phillips is claiming to be the beneficial owner of the Aubach group of companies. Mr Phillips did not take this view when he was an undischarged bankrupt and was vociferous in his assertion that he was not a beneficial owner but merely acted as a representative for the ultimate beneficiaries who were the lineal descendants of his maternal grandmother.”

In relation to the evidence filed by Lord St Davids in the Mauritian proceedings, the Registrar said this:

“87.

The evidence in question comprised an affidavit sworn by Lord St Davids on 16 September 2008. This is an affidavit sworn by [him] in the context of a hostile claim brought by him against, inter alios, CCN and Mr Shaw as nominee shareholder and nominee directors of Aubach Holdings seeking, amongst other things, injunctive relief and their removal as directors. By the affidavit, Lord St Davids asserted that he had at all material times been the “sole beneficial and the owner of all shares in Aubach Holdings Limited” and the sole economic, beneficial and ultimate owner “of the Aubach structure generally”: see by way of example paragraphs 8 and 10.

88.

At paragraphs 25 and 26 of his affidavit, Lord St Davids went on to address the Aubach structure in more detail. At paragraph 26.3 of the affidavit, Lord St Davids stated that “the structure is also comprised of Optional Systems Ltd, based in Seychelles and, at a later stage, Aubach Management Limited, based in the UK (these two latter companies being management service providers for the structure)”.

89.

Lord St Davids maintains that on reading this affidavit, the Respondent would have known that he was the beneficial owner of Optional. I disagree. The structure chart immediately below paragraph 26 of the affidavit did not include Optional or Aubach Management Limited. It was therefore far from clear that Optional formed part of the Aubach structure, notwithstanding the broad assertion made at paragraph 26.3.

90.

Moreover the affidavit was filed in support of a hostile claim which had yet to be fully determined. It was also sworn by the same individual who had completed and signed Insolvency Questionnaires on 22 February 2005 and 27 January 2006, each of which carried a perjury warning in which he had stated that he had not acquired, by any means, any assets since the commencement of his bankruptcy.”

The Registrar went on to note that, in other evidence, Lord St Davids had claimed that he was merely a discretionary object of the Aubach trust and corporate structure. She recorded that the “overall thrust” of his oral evidence before her, although “a little confused at times”, “appeared to be that the trust structure was designed to ensure that he was not an absolute beneficiary but merely a discretionary object”. She also recorded, as I have already emphasised, that in his oral evidence Lord St Davids confirmed several times that he himself did not know that he was the beneficial owner of the Optional Share until 2010, some two years after swearing his affidavit in the Mauritian proceedings.

The Registrar concluded, unsurprisingly, that the position was “far from clear”. At best, the Trustee had knowledge at this stage of allegations or assertions raised by Lord St Davids, for a particular purpose, in hostile litigation in another jurisdiction. These allegations were in apparent conflict with the two bankruptcy questionnaires, and Lord St Davids’ own oral evidence was that when he swore the affidavit in 2008 he did not then know that he was the beneficial owner of the Optional Share. Against this tangled background, the argument that the Trustee by now had actual knowledge of Lord St Davids’ beneficial ownership of the Optional Share seems to me little short of absurd. Nor can I see any proper foundation for the assertion in paragraph 6 of the grounds of appeal that, in assessing the Trustee’s knowledge of such beneficial ownership as at November 2008, the Registrar misdirected herself “by unreasonably rejecting the evidence which showed that … [Lord St Davids] was the beneficial owner, and that the whole Aubach structure was after-acquired property”. I consider, on the contrary, that the Registrar gave the question full and careful consideration, made appropriate findings of fact, and reached a conclusion which is unassailable.

The meeting with CCN on 18 December 2008

This is the final occasion on which it is said that the Trustee acquired the relevant actual knowledge. The background to the meeting is set out by the Registrar at [97]:

“97.

The inconsistencies between Lord St Davids’ account of his affairs as set out in the two bankruptcy questionnaires and his affidavit as filed in the Mauritian proceedings clearly required fuller investigation. At this stage, the Respondent very properly took advice and thereafter instructed his solicitors, Isadore Goldman, to set up a meeting with CCN with a view to seeking relevant documentation from them. After some chasing, Mr Schaffer managed to set up a meeting with CCN in December 2008.”

The meeting took place on 18 December. It was a without prejudice meeting, attended by Jonathan Shaw on behalf of CCN, his colleague Gordon Fisher, Mr Visintin, Ms Hall and Mr Schaffer. Under cross-examination, Mr Schaffer confirmed that, at the meeting, he was told that Lord St Davids was the beneficial owner of the Optional Share. It was accordingly submitted for Lord St Davids that on this occasion, if not before, the Trustee through his solicitor obtained actual knowledge of Lord St Davids’ beneficial ownership.

This submission was rejected by the Registrar, for the following main reasons:

“100.

… Whilst Mr Shaw and CCN generally were better placed than most to know details of Lord St Davids’ affairs, they were also, together with Mr Visintin, alleged to have defrauded him (see for example Lord St Davids’ Affidavit sworn on 16 September 2008 in the Mauritian proceedings in paragraphs 10, 12.2, 12.4 and 41.3) … Moreover Mr Shaw had refused, at the December 2008 meeting, to show Mr Schaffer any of the documentation held by CCN, saying that he would need to get a court order first.

101.

At best, therefore, at this stage the Respondent (via his agent Mr Schaffer) had knowledge of allegations, made by individuals whose probity was in issue. The allegations did, in certain respects, accord with the assertions made in Lord St Davids’ affidavit filed in the Mauritian proceedings, but those assertions had not accorded with the structure chart at paragraph 26 of Lord St Davids’ affidavit and were at odds with the responses given in the two bankruptcy questionnaires … The subject matter of the assertions in question was a complex artificial construct, involving as it did a deliberately elaborate corporate group and trust structure spanning several different jurisdictions. Against that backdrop, I am satisfied that, even at this stage, the Respondent simply had knowledge of allegations. Given the complexity of the subject matter coupled with the other factors referred to above, without sight of the underlying documentation, he did not have knowledge of fact.”

It seems to me that the general approach followed by the Registrar in these paragraphs cannot be faulted, and that in the particular circumstances of the present case it would be wrong to fix the Trustee with actual knowledge of Lord St Davids’ beneficial ownership of the Optional Share before he had been provided with the underlying documentation which established both that CCN held the Optional Share as nominee for Lord St Davids, and (equally importantly) that the incorporation of Optional and the declaration of nomineeship executed by CCN (or, more accurately, by Glass Radcliffe Secretaries Ltd, which presumably itself held the Optional Share as nominee for CCN) post-dated the commencement of Lord St Davids’ bankruptcy. Given the history of non-cooperation and obfuscation by Lord St Davids which the Trustee unfortunately had to endure, it was in my judgment entirely reasonable for the Trustee to require documentary confirmation before the information provided to Mr Schaffer at the meeting on 18 December 2008 can be said to have constituted actual knowledge by the Trustee for the purposes of section 309. In reaching this conclusion, I do not consider that the Registrar was setting the bar of actual knowledge too high, or unreasonably doubting the information which was given to Mr Schaffer. Rather, she was in my view adopting a realistic approach to the question where the boundary should be drawn between knowledge of an allegation and actual knowledge of a fact for the purposes of section 309, in the particular circumstances of the present case.

In his oral submissions, Mr Irvin said that this occasion was the strongest of the three upon which his client relied. To that extent, I agree with him; but I remain wholly unpersuaded that the Registrar erred either in her approach to the question or in the findings of fact which she made.

For the reasons which I have given, despite Mr Irvin’s determined advocacy, this appeal will be dismissed.