British
and Irish Legal Information Institute
Freely Available British and Irish Public Legal Information
[Home] [Databases] [World Law] [Multidatabase Search] [Help] [Feedback]
England and Wales Court of Appeal (Civil Division) Decisions
You are here: BAILII >> Databases >> England and Wales Court of Appeal (Civil Division) Decisions >> Giles v Rhind [2008] EWCA Civ 118 (28 February 2008)
URL: http://www.bailii.org/ew/cases/EWCA/Civ/2008/118.html
Cite as: [2008] BPIR 342, [2008] 3 WLR 1233, [2008] 3 All ER 697, [2008] EWCA Civ 118, [2008] 2 BCLC 1, [2009] Ch 191, [2008] Bus LR 1103
[New search] [Printable RTF version] [Buy ICLR report: [2008] 3 WLR 1233] [Buy ICLR report: [2009] Ch 191] [Buy ICLR report: [2008] Bus LR 1103] [Help]
COURT OF APPEAL (CIVIL DIVISION)
ON APPEAL FROM THE HIGH COURT OF JUSTICE
(CHANCERY DIVISION)
DAVID RICHARDS J
Strand, London, WC2A 2LL |
||
B e f o r e :
LORD JUSTICE SEDLEY
and
LADY JUSTICE ARDEN
____________________
| EDWARD JOHN GILES |
Respondent |
|
| - and - |
||
| CAROLINE BRIDGET TOWERS RHIND |
Appellant |
____________________
WordWave International Limited
A Merrill Communications Company
190 Fleet Street, London EC4A 2AG
Tel No: 020 7404 1400, Fax No: 020 7831 8838
Official Shorthand Writers to the Court)
Mr Richard O'Dair (instructed by Direct Access Scheme) for the Respondent
Mr Rhind was not a party to this appeal.
Hearing date : 18 December 2007
____________________
Crown Copyright ©
- This appeal is brought by Mrs Caroline Rhind from the order of David Richards J ([2007] 2 BCLC 531) giving permission to Mr Edward John Giles, the claimant in these proceedings, to amend his particulars of claim in this action, which concerns a transaction alleged to fall within s 423 of the Insolvency Act 1986 (Transactions defrauding creditors). (I refer to the Insolvency Act 1986 below as "the 1986 Act"). It raises a point of general importance about the postponement under s 32 of the Limitation Act 1980 ("the 1980 Act") of the limitation period where the defendant has deliberately concealed relevant facts.
- The application before the judge was an application for permission to amend. The relevant principles about the amendment of pleadings are not in doubt. A party should have permission to amend his pleadings so that all the issues between the parties can be effectively adjudicated upon, provided that any prejudice to any other party caused by the amendment can be compensated in costs and provided that the public interest in the efficient administration of justice is not significantly harmed: see per Peter Gibson LJ in Cobbold v Greenwich LBC [1999] EWCA Civ 2074 at [10]. Permission to amend should be refused if the claim, as amended, would fail to disclose a viable cause of action either because it is statute-barred or because the ingredients required for the relevant cause of action are not made out. On this appeal, Mrs Rhind contends that the amendments should have been refused on the ground that they were statute-barred. She also contends that the amendments would be unfairly prejudicial to her.
- The respondent, Mr Giles, commenced these proceedings on 27 January 2006. The application to amend was made on 24 January 2007. The applicable limitation period for the claim in the original proceedings and that sought to be raised by amendment is twelve years. Unless some exception applies, that twelve year period must be calculated from the date on which the transaction sought to be impugned ("the new claim") was entered into and in addition Mr Giles became a person who could bring a claim under s 423 of the 1986 Act in relation to it. Thus the new claim is statute-barred and leave to amend should not have been given unless (a) the cause of action arose on or after 24 January 1995, or (b) the start of the limitation period arose at some earlier date but was postponed until on or after that date by virtue of s 32 of the 1980 Act, or (c) s 35 of that Act applies. Ss 32 and 35 of the 1980 Act are set out below. The effect of the judge's order is that by virtue of s 32 of the 1980 Act the new claim can be added to the claims in the existing proceedings even though it arose before 24 January 1995.
- Mr Giles is a judgment creditor of Mr Rhind, having obtained judgment for damages to be assessed in 2000. The circumstances leading to the claim which culminated in this judgment are described in the judgment of this court on a preliminary issue: see Giles v Rhind [2003] Ch 618. No purpose would be served by my setting out those circumstances in any detail. It is sufficient to say that Mr Giles and Mr Rhind were the principal shareholders and directors of a company called Surrey Hills Foods Ltd ("SHF"). By a shareholders' agreement dated 11 June 1990, Mr Rhind owed Mr Giles an express duty of confidence in relation to the affairs of SHF. In March 1993 Mr Rhind resigned as a director and sold his shares but as part of the termination agreement he agreed with Mr Giles personally not to breach his obligation of confidence set out in the shareholders' agreement. In breach of that obligation of confidence, Mr Rhind diverted business from SHF to a company which he owned between about 1993 and 1994.
- By order dated 24 October 2003, damages were assessed at approximately £1.5 million. In 2004 Mr Giles obtained a charging order over Mr Rhind's home ("the Property"). The Property was subsequently sold and the proceeds of sale after the payment of a secured debt amounted to £628,437 of which £127,000 was paid to Mr Giles in reduction of his judgment debt.
- In these proceedings, Mr Giles seeks to challenge the allocation of the proceeds of sale of the Property as between Mr Rhind and Mrs Rhind. This allocation is governed by a deed apparently dated 2 April 1992 (referred to below as "the deed"), which provided that Mr and Mrs Rhind owned the Property in the proportions of 20:80 respectively, rather than in equal shares. In his original claim Mr Giles alleges that the deed was executed in 1998. It is clear that, if the Property were owned in equal shares, Mr Giles would have received a large proportion of the proceeds of sale. Accordingly, in these proceedings Mr Giles contends that the deed is a sham, or alternatively it was a transaction in fraud of creditors to which s 423 of the Insolvency Act 1986 ("the 1986 Act") applies. We are only concerned with the cause of action that Mr Giles asserts under s 423 of the 1986 Act. I propose to disregard the claim based on the allegation that the deed is a sham.
- Mr Giles' original case was that the deed was in fact executed in 1998. By the amendment, he seeks to introduce a case that the deed was in fact executed in 1992 or 1994. As I have said, the date that it bears is 1992.
- S 32 of the 1980 Act as now in force provides:
- Section 32(1) deals with the postponement of the limitation in a number of situations, including where the defendant or his agent has concealed relevant facts. The effect of s 32(2) is to enable a person to be treated as having concealed information. These circumstances can occur when, and only when, he has deliberately committed a breach of duty in circumstances where it is likely to remain undiscovered some time. For there to be a deliberate breach of duty for the purpose of s 32, the defendant must have known of his wrongdoing (Cave v Robinson Jarvis & Rolf [2003] 1 AC 384).
- S 35 of the 1980 Act as now in force provides:
- The relevant provision of the CPR is CPR 17.4(2), which is set out below in my summary of the judge's judgment.
- Ss 423 and 424 of the 1986 Act (prior to the Enterprise Act 2002 and the Civil Partnerships Act 2004, which made amendments with which we are not concerned) provided in material part as follows:
- In this case, the relevant transaction is the allocation of beneficial interests in the Property by the deed. S 424(1)(a) and (b) do not apply, so the only person who can challenge the transaction is a "victim". No party suggests that there is any potential "victim" other than Mr Giles. Provided that a person is a victim at the time of his application, it is not essential that he should have been a person within the purpose of the person entering into the transaction required by s 423(3) of the 1986 Act: see Hill v Spread Trustee Co Ltd [2007] 1 BCLC 450.
- The principle that creditors should be protected from the consequences of transactions which are designed to prejudice their interests has long been embedded in English law. S 423 of the 1986 Act is derived from a Statute of Elizabeth ( 13 Eliz c 5) which provided that all dispositions of property made with the intention of delaying, hindering or defrauding creditors should be void against creditors. This did not extend to any estate or interest created bona fide and for good consideration in favour of any person not having at the time notice of such fraud. It has even been said that the Statute of Elizabeth was merely declaratory of the common law. It was replaced by s 172 of the Law of Property Act 1925, which in turn was replaced by s 423 and following.
- There is considerable case law on the predecessors of s 423. Lord Mansfield held that the Statute of Elizabeth (13 Eliz. c 5) should be liberally interpreted (Cadogan v Kennett (1776) 2 Cowp. 434). Intent to defraud could be inferred from the making of a conveyance that would leave creditors unpaid (Freeman v Pope (1870) LR 5 Ch App 538). As Lord Hatherley LC so pithily put it in that case (at 540), "persons must be just before they are generous".
- Much of the argument on this appeal revolved around the question whether a claim under s 423 of the 1986 Act was properly described as a claim for a "breach of duty". Outside of s 423, a person who incurs credit or liabilities undoubtedly owes responsibilities to his present and future creditors. A person should not incur a debt unless he has reasonable or probable grounds for expecting to be able to pay it when it is due. It therefore follows that the person should not make a gift at a time when he has no reasonable or probable grounds for believing that (without the asset which he is proposing to give away) he will be able to pay his debts, present or future, as and when they fall due. As Cave J said in Re Stainton (1887) 4 Mor 242 at 251:
- S 423 does not impose a sanction on a debtor whose actions prejudice his creditors unless the debtor's purpose satisfies s 423(3). Nonetheless, as I see it, s 423 has to be seen in the context of a debtor's responsibilities to his creditors generally. It actualises those responsibilities in particular circumstances. Any argument that s 423 does not involve a breach of duty has therefore a somewhat counter-intuitive ring to it. S 423 can be contrasted with for example s 238 of the 1986 Act which invalidates transactions at an undervalue within a given period of the insolvency. The object of this sanction is at least in part to enlarge the pool of assets available for creditors generally.
- It was only recently established by this court that the 1980 Act applied to s 423 of the 1986 Act: see Hill v Spread Trustee Co Ltd.
- I shall have to return below to the time when a person becomes a "victim" for the purpose of s 423 (5).
- The particulars of claim, as served on issue of the proceedings, assert that the deed was executed in 1998. Until the start of trial, this was Mr Giles' case as to the date on which the deed was executed. However, at the start of the trial, Mr Giles applied to amend his particulars of claim so as to allege that the deed was in fact executed in either April 1992 or alternatively April 1994. In his draft amendment, Mr Giles alleged with respect to the latter claim (1) that by 1994 Mr Rhind had substantial liabilities arising out of commitments undertaken in relation to SHF's business; (2) that the equity in the Property was then valuable and Mr Rhind was (and indeed remained) responsible in fact for all of the payments that had to be made to discharge the mortgage which had been taken out on the Property on its acquisition; (3) that from mid-1993, Mr Rhind was diverting to his own company business of SHF in breach of his contractual duty of confidence. He alleged that the diversion of SHF's business led to SHF losing a major customer, Netto Foods Ltd ("Netto"), in March 1994. This resulted in the claim that was tried before Mr Michel Kallipetis QC sitting as a deputy judge of the Chancery Division. In the premises, when Mr Rhind executed the deed in April 1994 he did so with a view to putting 30% of the equity of the Property beyond the reach of his creditors, particularly Mr Giles. Mr Giles' case is that he became a "victim" of the transaction constituted by the deed in April 1994, or alternatively at some other date which enabled him to issue proceedings within the twelve year limitation period.
- Mr Giles alleges that the disproportionately favourable allocation of the beneficial interest in the Property to Mrs Rhind was a deliberate breach by Mr Rhind of his duty to Mr Giles, that Mr Rhind failed to disclose these matters to him and that these matters were not reasonably discoverable by him until October 2003. He further alleges that the breach of duty was unlikely to be discovered for some time because there was no indication on the Land Registry file that Mrs Rhind had a beneficial interest in the Property and because Mr and Mrs Rhind were both in possession.
- Mr Giles further alleges that Mrs Rhind knew, or ought to have known, the circumstances that rendered the deed a transaction to which s 423 applied.
- There are serious issues as the credibility of Mr Giles arising from his account of how in the course of preparation for trial he came to be aware that the deed was executed in 1994, as opposed to 1998. What Mr Giles said in summary was that the date was revealed by an e-mail dated 23 October 2003. This was the subject of late disclosure. In a witness statement filed at the direction of the judge as described at [22] and [23] of his judgment, Mr Giles explained how he had found the e-mail and what steps he had taken to locate it. The judge felt that the fairest thing to do was to give permission to amend so that the matter could be explored in cross-examination.
- The judge held that the amendment should be allowed. I will summarise only those points in his judgment that are relevant to this appeal. With respect to that element of the new claim which was based on an allegation that the deed was executed in 1994, Mr Giles contended that the start of the limitation period was postponed under s 32(2) of the 1980 Act because his claim under s 423 involved a "breach of duty" by Mr Rhind and the deed had been executed in circumstances where it was unlikely to be discovered by him. The judge accepted the argument that there was a breach of duty for the purpose of s 32(2) of the 1980 Act:
- The judge further held, in relation to the claims that the deed was executed in 1992 or 1994 that Mr Giles could not have had knowledge of the relevant facts until 2003 ([43]). There is no appeal against that finding.
- With respect to that element of the new claim that was based upon an allegation that the deed was executed in 1992, the cause of action could not accrue until Mr Giles became a "victim", as only a "victim" can bring s 423 proceedings. If the deed was executed in 1992, Mr Giles could only have acquired that status in 1993 or later when Mr Rhind began to act in breach of his duty of confidence. The Rhinds contended before the judge that Mr Giles became a victim by 30 November 1993, when Mr Rhind first entered into negotiations with third parties in breach of his duty of confidence. Mr Giles wanted a later date and contended that he did not become a victim until February or March 1994, when Netto terminated its contract with SHF and awarded it to Mr Rhind's new company. It was only at that date that he suffered damage. The judge rejected Mr Giles' argument, and held that Mr Giles became a victim by the end of November 1993 ([31]).
- The judge held that Mr Giles could not rely on s 35 of the 1980 Act. He noted that, by virtue of s 35 and CPR 17.4(2), an amendment to add a new claim may be made:
- The purpose of the transaction completed in 1994 could not be the same as that of the transaction which was completed in 1998 as the pleadings in relation to the latter claim depended on a dispute that had not arisen by 1994. The judge distinguished the decision of this court in Goode v Martin [2002] 1 All ER 620 on the grounds that the claimant's case in negligence in that case was based exclusively on facts pleaded by the defendant.
- The judge decided to exercise his discretion in favour of allowing the amendment, despite the costs, delay and anxiety that this would cause to Mrs Rhind:
- The issues on this appeal and the respondent's notice may be summarised as follows:
- I can deal briefly with the issues (iii) and (iv). First, as to issue (iii)), there is no doubt that the judge took account of all the points referred to in my formulation of this question. The judge made his decision in the exercise of his discretion and it has to be shown that his decision is perverse. The lateness of the disclosure of the e-mail reflected on Mr Giles' credibility, which was the point to which the judge referred in [19] of his judgment (set out above). Accordingly, there is in my judgment no basis on which the judge's exercise of discretion can be set aside.
- As to issue (iv) (s 35), I agree with the conclusion of the judge. Mr Giles' claim is that Mr Rhind disposed of his assets to defeat his creditors. He is now seeking to add two new (alternative) cases as to the time when the deed was executed. Mr Richard O'Dair, who appears for Mr Giles, relies upon Goode v Martin [2002] 1 All ER 620, especially [31] and [32]. The amended claim ought in his submission to be regarded as based on substantially the same facts and interconnected dealings. But, as the judge points out, Goode was a case where the claimant merely wanted to rely on facts already pleaded by the defendant. The terms of s 35 have been interpreted restrictively: see per Buxton LJ, with whom Smith and Moore-Bick LJJ agreed, in Society of Lloyd's v Henderson [2007] EWCA Civ 930:
- In this case, material new facts would have to be introduced to support the claim that the deed was in fact executed in 1994, alternatively 1992. The nature of the transaction changes according to when the deed was executed. The 1994 date involves a wholly new claim because by that date Mr Rhind was already diverting business from SHF. That was not the case in 1992. By 1998, things were different again as by then there was litigation between Mr Giles and Mr Rhind. I would therefore reject Mr Giles' argument on this point.
- The skeleton arguments filed on behalf of Mr Giles asserted a violation of art 6 of the European Convention on Human Rights in relation to s 35 of the 1980 Act, but that point was neither pursued in this court nor (as I understand it) was it argued before the judge.
- I now turn to issues (i) and (ii).
- The doubt as to whether s 32(2) applies arises because (a) s 423 of the 1986 Act is not expressed in terms of the imposition of a duty and (b) there was no active concealment of any relevant fact in this case. As to (a), the right to relief under s 423 does not depend on showing that the victim was a person to whom some duty in contract or tort or some fiduciary duty was owed. As the judge said: "if a person enters into the transaction to which [s 423] 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." ([41]). As to (b), s 32(1)(b) requires the facts relevant to the cause of action to be "deliberately concealed". The expression "concealed", must bear its normal meaning, which is that something was actually hidden from view. Mr Rhind is not alleged to have taken a step to conceal the deed in this sense.
- If Mr Giles can rely on s 32(2), he does not have to show concealment in this sense. This is because under that provision, if applicable, the deliberate commission of the breach of duty is enough. There is no dispute about whether the deed could have been discovered before the Rhinds told Mr Giles about it. It had not been registered at the Land Registry. So the judge asked himself whether the transaction in this case involved the deliberate commission of a breach of duty. He answered that question affirmatively. The essence of the judge's approach was to hold that the expression "breach of duty" in s 32(2) was merely the "obverse" of the expression "right of action" in s 32(1)(b), by which he meant legal wrongdoing of any kind, giving rise to a right of action ([42] set out above). He reasoned that this was the position under s 26 of the Limitation Act 1939, and it was not the intention of the 1980 Act to limit the scope of the pre-existing law. The judge thus held that the expression "breach of duty" applied to any legal wrongdoing in contradistinction to a breach of duty in a tortious or contractual sense or in the sense of a breach of an equitable or fiduciary duty (which I will call "the narrower meaning").
- With one qualification, I agree with the judge's conclusion. The qualification I would make is this. I do not consider that the expression "breach of duty" includes any legal wrongdoing whatsoever. In my judgment there must be a legal wrongdoing of a kind that can properly be raised in action to which s 32 applies. I will call this the "wider meaning" of "breach of duty". Thus, the expression "breach of duty" would not cover legal wrongs which are not justiciable, for example target duties. It may also not cover a breach of duty owed by a public authority which can be the subject of judicial review proceedings at the instance of a person who is not directly affected thereby but who has a sufficient interest for the purposes of standing in public law. I would not wish to be taken as approving the view that any such actions fall within s 32, at least without further argument.
- My reasons, which I amplify below, for holding that the expression "breach of duty" in s 32 (2) includes a claim under s 423 of the 1986 Act may be summarised as follows,:
- Ms Bedworth submits that the expression "breach of duty" involves a situation where there is proximity between the parties. As the judge said, the expression "breach of duty" most obviously connotes a breach of duty owed by the defendant to the claimant in the sense of a contractual, fiduciary or tortious duty. Ms Bedworth points out that s 423 is not cast in terms of a duty. She submits that it cannot be said that there is a duty on a person entering into a transaction which might be vulnerable to attack under section 423 to disclose it to persons who are or become his creditors. So too, she submits, there cannot be said to be any general duty not to alienate assets or to pay one's debts. Instead, the unpaid creditors have to rely on the specific provisions of bankruptcy law or s 423.
- Ms Bedworth's submissions invite the court to take a relatively formalistic approach to the expression "breach of duty" in s 423. The only point that I make at this stage is that the expression "breach of duty" is capable of bearing the wider meaning. The word "duty" is an ordinary English word, meaning obligation or constraint. Accordingly, it is possible for the expression "breach of duty" in an appropriate context to mean simply a breach of a legal obligation or constraint.
- There is a further point about s 32(2), which may be noted here, though it has not been argued and so I express only a provisional view here. For s 32(2) to apply, (1) there must be the deliberate commission of an act; (2) that act must amount to a "breach of duty"; and (3) that breach of duty must occur in circumstances in which it is unlikely to be discovered for some time. If those ingredients are satisfied, then the next step (where the claimant relies on s 32(1)(b)) is to go back to s 32(1)(b) and to identify the facts that are involved in the relevant breach of duty. After that, those facts can be tested against the right of action relied on in the proceedings. There is no need, as I see it, on an ordinary reading of s 32(1) (b) to show that the right of action was for a breach of duty. All that it is necessary to show is that the relevant facts involved a breach of duty. Accordingly, in this case, all that matters is whether the execution of the deed involved the deliberate commission of a breach of duty of some kind.
- S 32(2) did not appear in s 26 of the Limitation Act 1939 (as originally enacted), which was the statutory predecessor of s 32(1). For present purposes there was no material difference between s 26 and s 32(1). The Twenty-First Report of the Law Reform Committee (Final Report on Limitation of Actions) (1977) (Cmnd 6923) contained a particular recommendation on "concealed fraud". It is appropriate to refer to the report of the Law Reform Committee because it sets out the pre-existing law and the mischief to which the amendments to s 26 were directed. S 7 of the Limitation Amendment Act 1980 includes the provision that now constitutes s 32(2) of the 1980 Act.
- In the opinion of the Law Reform Committee, the courts had developed s 26 of the Limitation Act 1939 so that where a person knowingly committed a wrong it was unnecessary to show active steps to conceal his wrongdoing or breach of contract. The knowing commission of the act and the failure to tell the owner was sufficient to render his conduct unconscionable. In support of this, the committee set out the following passage from the judgment of Lord Denning MR in King v Victor Parsons [1973] 1 WLR 29 at 33 (emphasis added):
- Having noted that development in the law, the Law Reform Committee considered that, if this were thought to be the best approach, it would not be difficult to reformulate s 26 in a way that reproduced in a more readily intelligible form the construction placed on that section by the courts. The Law Reform Committee drew attention to the function of the concept of unconscionability in this context:
- The Law Reform Committee's own draft reformulation introduced the concept of dishonest conduct concealing the cause of action, but this reformulation was expressly subject to redrafting by Parliamentary counsel. In due course, a bill, which subsequently became the Limitation (Amendment) Act 1980, was introduced to amend the Limitation Act 1939. Parliament reflected that concept of unconscionability by making the further provision for the extension of time as a result of conduct arising from concealment of the relevant facts now to be found in s 32(2). In fact, this provision followed closely the approach to concealment in Beaman v ARTS Ltd, where the bailees had wrongfully disposed of the bailor's property without making any attempt to get the bailor's consent or inform her of what they proposed to do. The plaintiff was unable to bring an action for conversion within the limitation period of six years but the Court of Appeal held that relevant facts had been concealed for the purpose of s 26 of the Limitation Act 1939. Lord Greene MR held at 566:
- Significantly, there is nothing in the passages from the report of the Law Reform Committee to which we have been taken which suggests that it was their recommendation that the new provision now to be found in s 32(2) was to apply to some causes of action only. I would have expected that to be expressly stated if it was intended. The absence of any recommendation about this is an indication of some weight that there was no policy reason for restricting the application of what is now s 32(2) in this way.
- Mr O'Dair submits that this court should look at Hansard in accordance with the guidelines set out in Pepper v Hart [1993] AC 593 and he refers to the statement of the Lord Chancellor, Lord Hailsham, at the Committee stage in the House of Lords of the Bill which became the Limitation Amendment Act 1980, in response to a question raised by Lord Mischcon on behalf of the Law Society, that what is now s 32(2) was "required since it is not intended that the new section should be in any way more restrictive than the present law". (House of Lords Debates 16 July 1979, Col. 1173 to 1174). I am prepared to assume for present purposes that this statement is admissible in the interpretation of s 32(2). This statement does no more, however, than set the extent of what Parliament intended, namely that s 32(2) was to go at least as far as the common law then stood. That information does not take the matter any further than I have already taken it from the pre-existing law and the report of the Law Reform Committee.
- In my judgment, support for the wider meaning can be found by examining the general structure of the 1980 Act. Like s 1 of the Limitation Act 1939, s 1(1) provides that Part 1 of the 1980 Act sets out the ordinary time limits for bringing actions of the various classes mentioned in the following provisions of the Act. These time limits are no doubt described as "ordinary" because the time limits in Part 1 are those which generally apply, as opposed to those which apply when the time limit is capable of being extended. These classes include actions for tort (ss 3-4, 11-14B) and actions for breach of contract (ss 5-8). In addition they include actions for sums recoverable by statute (s 9), actions for possession (s 15), actions for redemption (s 16) and actions to enforce a judgment (s 24). S 1(2) provides that the time limits given in Part 1 are subject to extension or exclusion in accordance with Part 2 of the 1980 Act. Part II deals with the extension or exclusion of the time limits, for example where a person is under a disability, and s 32. Significantly, the provisions of Part II are generally not expressed to be limited in their application to (for example) sections which provide time limits for actions for breach of contract or tort. Thus, on the face of it and subject to any special provision, each of the provisions for extension or exclusion of time limits in Part II applies to any class of action within Part I, including for example actions to recover sums recoverable under a statute. This suggests that s 32(2) should not be limited to particular causes of action.
- In Stubbings v Webb [1993] AC 498, the House of Lords had to interpret the words "negligence, nuisance or breach of duty (whether the duty exists by virtue of a contract or a provision made by or under a statute or independently of any contract or any such provision)" in s 11 of the 1980 Act, which is part of a separate and more flexible statutory scheme for the limitation of actions for damages for personal injuries. The issue was whether those words were apt to include intentional trespass. The House of Lords held that this expression was intended by Parliament to be limited to actions for personal injury arising from accidents caused by negligence, nuisance or breach of a duty of care. However, in the recent case of A v Hoare [2008] UKHL 6, the House of Lords overruled this decision. The House in effect accepted the view of Diplock LJ in Letang v Cooper [1965] 1 QB 232 at 247 that s 11 applies to all claims for personal injuries. In those circumstances, it is clear that the expression "breach of duty" in s 32(2) need not be restricted (if it would otherwise be so restricted) to the meaning previously ascribed to those words in s 11 of the 1980 Act. The decision in Hoare is in addition an encouragement to adopt the wider meaning in s 32(2), but the decision has to be read in its particular context and the light of the history of s 11, and thus Hoare cannot of itself mandate that result.
- In looking for clues as to the meaning of "breach of duty" in s 32(2), it is necessary to ask whether there is any expression in the remainder of s 32 which would restrict the meaning of "breach of duty" in s 32 (2). Counsel have not suggested that there is any such provision. In my judgment, they were right about this. Far from restricting the wider meaning, S 32 (1) contains indications to support. In particular, s 32 (1)(b) refers to any right of action. It is not limited to a right of action, for example, for breach of contract or tort.
- I should note one particular submission by Ms Bedworth based on AIC Ltd v ITS Testing Services (United Kingdom) Ltd ("The Krtiti Palm") [2007] 1 Lloyd's Rep 555. In that case, Rix LJ held that under s 32(1)(b):
- However, the majority, Buxton LJ and Sir Martin Nourse, did not find it necessary to deal with this point. Ms Bedworth submits that there could not be concealment for the purposes of s 32 (2) unless there was a duty to disclose. She submits that there is no authority to the effect that Mr Rhind would have been under a duty of disclosure in this case. However, in my judgment these submissions do not advance the case for Mrs Rhind because in the passage relied on Rix LJ was dealing with s 32(1) (b) and not s 32(2) of the 1980 Act, which specifically provides for a deemed concealment where the breach of duty is unlikely to be discovered for some time.
- I have already observed that the Law Reform Committee does not indicate that section 32(2) should be limited to some only of the causes of action within s 32(1). I have not been able to think of any reason why Parliament should wish to restrict s 32(2) to some only of the causes of action within s 32(1), namely to actions for breach of trust, breach of contract or tort. Counsel did not suggest any such reason. The limitation period applicable to actions for the recovery of land was capable of extension under the "concealed fraud" provision in the Real Property Limitation Act 1833, which postponed the limitation period until the claimant for rent or possession could reasonably have known that he had been deprived of possession by fraud (see for example Re McCallum [1901] 1 Ch 143, referred to in Beaman v ARTS). This provision was repealed by the Limitation Act 1939 (which introduced s 32(1) as originally enacted). There does not seem to be any reason to suppose that the case law, summarised by Lord Denning MR in King v Victor Parsons, could not apply to this sort of case. Furthermore, a transaction under s 423 is a type of transaction of which there is likely to be concealment and thus there would be a heightened policy reason for the application of s 32(2) to claims under that section.
- I reject the proposition advanced by Ms Bedworth that, because s 423 was so widely drafted and could have applied to events occurring over a considerable period of time, s 32(2) should not be interpreted to extend beyond breaches of duty in the narrow sense. If Parliament has created a cause of action which applies over a long period of time and to a large variety of transactions, it would be wrong for this court to impose an indirect restriction on s 423 by excluding it from s 32(2) if that provision would otherwise on its natural meaning apply to it.
- The judge dealt with this point in relation to the new allegation that the deed was executed in 1992. No cause of action under s 423 could accrue to Mr Giles until he became a "victim" for the purpose of that section and therefore are able to bring proceedings. Likewise, time could not start to run against him until he had become a victim. The judge held that by November 1993 when Mr Rhind breached his contractual duty of confidence, there was a very real prospect that Mr Giles had a claim for breach of contract against Mr Rhind for substantial damages and that he was by that date, a person "capable of being prejudiced" by the allocation of beneficial interests under the deed for the purpose of s 423 (5) of the 1986 Act (set out above). Mr O'Dair contends that Mr Giles did not become a victim until February or March 1994.
- In the light of my decision on s 32 of the 1980 Act, this question no longer arises. We have not been shown the findings of Michel Kallipetis QC and have very little information beyond that narrated in this judgment as to the events of November 1993 to March 1994. In those circumstances I do not propose to express a view on this point.
- For the reasons given above, I would dismiss this appeal and the respondent's notice.
- Like Arden LJ (§38 ante) I would reserve the question of how wide breach of duty is for the purposes of s.32(2). I respectfully agree with her that it is certainly wide enough to include the present case, and that for this and the other reasons so clearly spelt out in her judgment this appeal should be dismissed.
- I also agree with the judgment of Arden LJ.
Lady Justice Arden :
"32 Postponement of limitation period in case of fraud, concealment or mistake
(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.
(4) A purchaser is an innocent third party for the purposes of this section—
(a) in the case of fraud or concealment of any fact relevant to the plaintiff's right of action, if he was not a party to the fraud or (as the case may be) to the concealment of that fact and did not at the time of the purchase know or have reason to believe that the fraud or concealment had taken place; and
(b) in the case of mistake, if he did not at the time of the purchase know or have reason to believe that the mistake had been made.
(4A) Subsection (1) above shall not apply in relation to the time limit prescribed by section 11A(3) of this Act or in relation to that time limit as applied by virtue of section 12(1) of this Act.
(5) Sections 14A and 14B of this Act shall not apply to any action to which subsection (1)(b) above applies (and accordingly the period of limitation referred to in that subsection, in any case to which either of those sections would otherwise apply, is the period applicable under section 2 of this Act).
"35 New claims in pending actions: rules of court
(1) For the purposes of this Act, any new claim made in the course of any action shall be deemed to be a separate action and to have been commenced—
(a) in the case of a new claim made in or by way of third party proceedings, on the date on which those proceedings were commenced; and
(b) in the case of any other new claim, on the same date as the original action.
(2) In this section a new claim means any claim by way of set-off or counterclaim, and any claim involving either—
(a) the addition or substitution of a new cause of action; or
(b) the addition or substitution of a new party;
and "third party proceedings" means any proceedings brought in the course of any action by any party to the action against a person not previously a party to the action, other than proceedings brought by joining any such person as defendant to any claim already made in the original action by the party bringing the proceedings.
(3) Except as provided by section 33 of this Act or by rules of court, neither the High Court nor any county court shall allow a new claim within subsection (1)(b) above, other than an original set-off or counterclaim, to be made in the course of any action after the expiry of any time limit under this Act which would affect a new action to enforce that claim.
For the purposes of this subsection, a claim is an original set-off or an original counterclaim if it is a claim made by way of set-off or (as the case may be) by way of counterclaim by a party who has not previously made any claim in the action.
(4) Rules of court may provide for allowing a new claim to which subsection (3) above applies to be made as there mentioned, but only if the conditions specified in subsection (5) below are satisfied, and subject to any further restrictions the rules may impose.
(5) The conditions referred to in subsection (4) above are the following—
(a) in the case of a claim involving a new cause of action, if the new cause of action arises out of the same facts or substantially the same facts as are already in issue on any claim previously made in the original action; and
(b) in the case of a claim involving a new party, if the addition or substitution of the new party is necessary for the determination of the original action.
(6) The addition or substitution of a new party shall not be regarded for the purposes of subsection (5)(b) above as necessary for the determination of the original action unless either -
(a) the new party is substituted for a party whose name was given in any claim made in the original action in mistake for the new party's name; or
(b) any claim already made in the original action cannot be maintained by or against an existing party unless the new party is joined or substituted as plaintiff or defendant in that action.
(7) Subject to subsection (4) above, rules of court may provide for allowing a party to any action to claim relief in a new capacity in respect of a new cause of action notwithstanding that he had no title to make that claim at the date of the commencement of the action.
This subsection shall not be taken as prejudicing the power of rules of court to provide for allowing a party to claim relief in a new capacity without adding or substituting a new cause of action.
(8) Subsections (3) to (7) above shall apply in relation to a new claim made in the course of third party proceedings as if those proceedings were the original action, and subject to such other modifications as may be prescribed by rules of court in any case or class of case."
"423. Transactions defrauding creditors
(1) This section relates to transactions entered into at an under- value; and a person enters such a transaction with another person if -
(a) he makes a gift to the other person or he otherwise enters into a transaction with the other on terms that provide for him to receive no consideration; …
(2) Where a person has entered into such a transaction, the court may, if satisfied under the next subsection, make such order as it thinks fit for -
(a) restoring the position to what it would have been if the transaction had not been entered into, and
(b) protecting the interests of persons who are victims of the transaction.
(3) In the case of a person entering into such a transaction, an order shall only be made if the court is satisfied that it was entered into by him for the purpose -
(a) of putting assets beyond the reach of a person who is making, or may at some time make, a claim against him, or
(b) of otherwise prejudicing the interest of such a person in relation to the claim which he is making or may make.
(4) In this section "the court" means the High Court or-
(a) if the person entering into the transaction is an individual, any other court which would have jurisdiction in relation to the bankruptcy petition relating to him;
(b) if that person is a body capable of being wound up on Part IV or V of this Act, any other court having jurisdiction to wind it up.
(5) In relation to a transaction at an under value, references here and below to a victim of the transaction to a person who is, or is capable of being, prejudiced by it; and in the following two sections the person entering into the transaction is referred to as the "debtor".
424. Those who may apply for an order under section 423
(1) An application for an order under section 423 shall not be made in relation to a transaction except -
(a) in a case where the debtor has been adjudged bankrupt or is a body corporate which is being wound up or in relation to which an administration order is in force, by the official receiver, by the trustee of the bankrupt's estate or the liquidator or administrator of the body corporate or (with the leave of the court) by a victim of the transaction;
(b) in a case where a victim of the transaction is bound by a voluntary arrangement approved under Part I or Part VIII of this Act, by the supervisor of the voluntary arrangement or by any person who (whether or not so bound) is such a victim; or
(c) in any other case, by a victim of the transaction.
(2) An application made under any of the paragraphs of subsection (1) is to be treated as made on behalf of every victim of the transaction."
"With regard to the unjustifiable extravagance in living, the learned County Court judge said that the debtor acted under the bonâ fide belief which was shared by others, that trade would soon revive. Now, a man, of course has a perfect right as long as he is solvent, to determine that he will go on with a business, although it may be a losing business. He may trust that before he becomes insolvent matters will change, and he will again be in a condition of prosperity. But the moment he becomes insolvent, then he is no longer going on at his own risk in case of failure; he is going on at the risk of his creditors, in case things do not mend as he hopes they will. In my judgment a man has no right to do that. The moment things have got to such a pitch that he cannot pay 20s. in the pound, but he nevertheless thinks that if he goes on he may be able to retrieve his position, in my opinion he ought to call his creditors together, and leave them who will have to bear the loss in case his calculations are wrong, to determine whether that course of going on shall be proceeded with or not. Now, the learned County Court judge says the extravagance in living was done with a view to maintain his position and keep up appearances, and further that it was necessary for the purpose of enabling him, should such an improvement not take place, to sell his iron foundry at a larger price. I confess I cannot understand at all that view. A man is bound not to keep up appearances, but to pay his debts, and if his profits will not allow of his living at the particular rate he has been accustomed to live at, then his plain duty is to reduce his scale of living, and not to go on living out of the money of his creditors. As to keeping up the reputation of the business, that again I fail to understand, because, it is meant by that that an intending purchaser seeing him living at a particular rate, will assume from that that the business is a profitable one, and give more than he otherwise would for the business. That cannot be commended, certainly, as being honest to the purchaser. It is an attempt to delude him by a fictitious appearance of prosperity. I cannot regard that as being a reasonable excuse for spending more money than the trader is aware he is able in justice to his creditors to expend."
"41. 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 James & 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."
"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."
"19. 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."
i) Does a claim under s 423 of the 1986 Act amount to an allegation of a "breach of duty" for the purposes of s 32(2) of the 1980 Act?ii) Did Mr Giles become a "victim" for the purposes of s 423 of the 1986 Act as soon as Mr Rhind acted in breach of his duty of confidence in November 1993?
iii) Did the judge err in the exercise of his discretion in giving permission to amend with respect to (a) proportionality or (b) the issues as to Mr Giles' disclosure and as to his credibility or (c) as to the weakness of the claim that the deed was executed in 1994?
iv) Did the amendments arise out of substantially the same facts so that s 35 of the 1980 Act was available?
"53. Before us, it was argued that a new claim sufficiently "arises out of" the same facts as an existing claim if there is a sufficient nexus between the old and the new claim, in the sense that some or a substantial part of the facts relied on to promote the new claim were relied on to promote the old claim. That takes far too broad an approach to the rule, which it effectively rewrites. The new claim does not arise out of the facts on which the old claim was based if, in order to prove it, new facts have to be added. That is why this court has said that the basic test is whether the plea introduces new facts: Goode v Martin [2002] 1 WLR 1828 at paragraph 42."
a. The wider meaning is a legitimate meaning of breach of duty.
b. S 32(2) was enacted pursuant to the recommendations of the Law Reform Committee's report on limitation in 1977 and the court can look at that report to see the mischief to which s 32(2) was directed. That Committee did not recommend that the new provision be limited to some causes of action only.
c. The general structure of the 1980 Act indicates that s 32(2) is consistent with the wider meaning.
d. The expression "breach of duty" is used in s 11 of the 1980 Act but in a different context and so does not necessarily restrict the meaning of "breach of duty" in s 32(2).
e. S 32 does not require the phrase to be given the narrower meaning.
f. The narrower meaning does not promote any part of the statutory purpose of s 32.
"The word "fraud" here is not used in the common law sense. It is used in the equitable sense to denote conduct by the defendant or his agent such that it would be 'against conscience' for him to avail himself of the lapse of time. The cases show that, if a man knowingly commits a wrong (such as digging underground another man's coal); or a breach of contract (such as putting in bad foundations to a house), in such circumstances that it is unlikely to be found out for many a long day, he cannot rely on the Statute of Limitations as a bar to the claim: see Bulli Coal Mining Co v Osborne [1899] AC 351 and Applegate v Moss [1971] 1 QB 406. In order to show that he 'concealed' the right of action 'by fraud', it is not necessary to show that he took active steps to conceal his wrongdoing or breach of contract. It is sufficient that he knowingly committed it and did not tell the owner anything about it. He did the wrong or committed the breach secretly. By saying nothing he keeps it secret. He conceals the right of action. He conceals it by 'fraud' as those words have been interpreted in the cases. To this word 'knowingly' there must be added 'recklessly': see Beaman v ARTS Ltd [1949] 1 KB 550, 565-566. Like the man who turns a blind eye, he is aware that what he is doing may well be a wrong, or a breach of contract, but he takes the risk of it being so. He refrains from further inquiry least it should prove to be correct: and says nothing about it. The court will not allow him to get away with conduct of that kind. It may be that he has no dishonest motive: but that does not matter. He has kept the plaintiff out of the knowledge of his right of action: and that is enough: see Kitchen v Royal Air Force Association [1958] 1 WLR 563. If the defendant was, however, quite unaware that he was committing a wrong or a breach of contract, it would be different. So if by an honest blunder he unwittingly commits a wrong (by digging another man's coal), or a breach of contract (by putting in an insufficient foundation) then he could avail himself of the Statute of Limitations." (emphasis added)
"2.22 The essential feature of the concealed fraud approach (as distinct from the date of knowledge approach) is that it operates on some degree of blameworthiness on the part of the defendant beyond his mere failure to comply with his legal obligations; the traditional expression is 'unconscionable conduct'."
"I am of opinion that the conduct of the defendants, by the very manner in which they converted the plaintiff's chattels in breach of the confidence reposed them, and in circumstances calculated to keep in ignorance of the wrong that they had committed amounted to a fraudulent concealment of the cause of action."
"…there must be either active concealment of a fact relevant to a cause of action, or at the least the intentional concealment by omission to speak of a fact relevant to a cause of action which the defendant knew himself to be under a duty to disclose. There is no decision that anything less than a duty to disclose will suffice in the absence of active concealment." ([321])
Lord Justice Sedley:
Lord Justice Buxton: