| LIMITATION OF ACTION — Breach of duty — Deliberate concealment of facts — Claim to set aside transaction undervalue — Defendants raising limitation defence — Whether transaction at undervalue involving deliberate commission of breach of duty — Whether facts deliberately concealed — Limitation Act 1980 ( c 58), s 32 (1) (b) (2) (as amended by Consumer Protection Act 1987, s 6(6), Sch 1, para 5(a) — Insolvency Act 1986, s 423.
Giles v Rhind (No 2) [2008] EWCA Civ 118; WLR (D) 66
CA: Buxton, Sedley and Arden LLJ: 28 February 2008
The court had jurisdiction to extend the limitation period under s 32(2) of the Limitation Act 1980 so as to enable a claimant to bring an action based on breach of duty in respect of a transaction allegedly made to defeat the creditors within the meaning of s 423 of the Insolvency Act 1986.
The Court of Appeal so held when dismissing an appeal by the second defendant, Caroline Rhind, from David Richards J [2007] Bus Law Report 1470 granting permission to the claimant, Edward John Giles, to amend his particulars of claim in an action concerning a transaction which allegedly fell within s 432 of the 1986 Act and where, for the purposes of the Limitation Act, there was alleged to have been a deliberate concealment of relevant facts. The second defendant asserted that the claim was statute- barred since the relevant transaction was entered into outside the relevant limitation period.
The claimant and the first defendant, Mr Rhine, had been the directors and principal shareholders of a company. By a shareholders’ agreement in 1980 the first defendant owed the claimant an express duty of confidence in relation to its affairs. Following the first defendant’s resignation as director and the sale of his shares he agreed with the claimant personally not to breach his obligation of confidence. In breach he diverted business to a company he owned between 1993 and 1994. The claimant obtained an order for damages and a charging order over the first defendant’s domestic property which was subsequently sold.
The claimant challenged the allocation of the proceeds of sale of the property, governed by a deed apparently dated 1992 as between the defendants. He contended, inter alia, that the deed was a transaction in fraud of creditors to which s 423 of the 1986 Act applied.
ARDEN LJ, dealing with the question whether a claim under s 423 amounted to an allegation of a “breach of duty”for the purposes of s 32(2) of the 1980 Act, said that the doubt arose because (a) s 423 was not expressed in terms of the imposition of a duty and (b) there was no active concealment of any relevant fact in the present case. As to (a) the right to relief under s 423 did not depend on showing that the victim was a person to whom some duty in contract or tort or a fiduciary duty was owed. As to (b) s 32(1)(b) required the facts relevant to the cause of action to be “deliberately concealed”: the latter word bore its normal meaning of something actually hidden from view: the second defendant was not alleged to have done that. If the claimant could rely on section 32(2) he did not have to show that, because the deliberate commission of the breach of duty was sufficient. The judge concluded that the transaction did involve the deliberate commission of a breach of duty. The essence of his approach, which, but for one qualification Her Ladyship accepted, was that the expression “breach of duty” in s 32(2) was the “obverse” of “right of action” in s 32(1)(b), by which he meant legal wrongdoing of any kind, giving rise to a right of action; that that was the position under the Limitation Act 1939, and it was not the intention of the 1980 Act to limit the scope of the pre-existing law (“the narrower meaning”). Her Ladyship’s qualification was that the expression “breach of duty” did not include any legal wrongdoing whatsoever: there had to be a legal wrongdoing of a kind that could properly be raised in an action to which s 32 applied (“the wider meaning”). Thus the expression would not cover wrongs which were not justiciable; nor might it cover a breach of duty owed by a public authority which could be the subject of judicial review at the instance of a person not directly affected thereby but with sufficient interest for the purposes of standing in public law. The expression “breach of duty” in s 32(2) included a claim under s 432 of the Insolvency Act 1986. S 32(2) was enacted pursuant to the recommendations of the Law Reform Committee's Final Report on Limitation of Actions (1977) (Cmnd 6923) and the court could look at that report to see the mischief to which s 32(2) was directed. That committee did not recommend that the new provision should be limited to some causes of action only. Her Ladyship could not 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. The limitation period applicable to actions for 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. Furthermore, a transaction under s 423 was a type of transaction of which there was likely to be concealment and thus there would be a heightened policy reason for application of s 32(2) to claims under that section. Her Ladyship would reject the proposition that because s 432 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 created a cause of action which applied over a long period of time and a large variety of transactions, it would be wrong for the 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.
SEDLEY LJ and TUCKEY LJ agreed.
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