Giles v Rhind and another (No 2)
| Jurisdiction | England & Wales |
| Judge | MR JUSTICE DAVID RICHARDS,Mr Justice David Richards |
| Judgment Date | 28 March 2007 |
| Neutral Citation | [2007] EWHC 687 (Ch) |
| Court | Chancery Division |
| Date | 28 March 2007 |
| Docket Number | Case No: HC06C00308 |
[2007] EWHC 687 (Ch)
IN THE HIGH COURT OF JUSTICE
CHANCERY DIVISION
Royal Courts of Justice
Strand, London, WC2A 2LL
Mr Justice David Richards
Case No: HC06C00308
Richard O'Dair (instructed by Public Direct Access) for the Claimant
Georgia Bedworth (instructed by Hawkins Solicitors) for the Second Defendant
The First Defendant, Mr Rhind, appeared in person
Hearing dates: 22, 24 and 25 January 2007
Approved Judgment
I direct that pursuant to CPR PD 39A para 6.1 no official shorthand note shall be taken of this Judgment and that copies of this version as handed down may be treated as authentic.
The Honourable
This is an application for permission to amend the particulars of claim in proceedings brought to set aside a transaction under section 423 of the Insolvency Act 1986 or to declare it a sham.
The present proceedings arise out of long-standing litigation between the claimant Edward Giles and the first defendant Roderick Michael Rhind.
They were formerly directors and the major shareholders in Surrey Hill Foods Limited (SHF). Its principal business was the manufacture of cooked meats. They were also parties to a shareholders agreement dated 11 June 1990 which included an express duty of confidence in relation to the affairs of SHF. Their relationship deteriorated, and in March 1993 Mr Rhind was asked to leave SHF. Mr Rhind resigned as a director and sold his shares. As part of the termination agreement, Mr Rhind agreed with Mr Giles personally not to breach his obligations of confidence as set out in the shareholders agreement.
In a judgment dated 9 February 2000, Mr M. Kallipetis QC (sitting as a deputy High Court Judge) found that from November 1993 Mr Rhind breached the shareholders agreement by taking steps to procure the termination of a supply contract between SHF and a major customer and the award of a new contract by the customer to M W Foods Limited (MWF). He was an active participant in MWF and effectively its backer. The result of the loss of this contract for SHF was that it went into insolvent liquidation. The deputy judge ordered damages to be assessed. On appeal from preliminary rulings in the assessment of damages, the Court of Appeal held that Mr Giles was entitled to recover damages for the loss of his investment in SHF, his loans to it and his remuneration from it: see [2003] Ch 618. By an order dated 24 October 2003, Judge Rich QC (sitting as a deputy High Court Judge) assessed the damages at £1,554,538 with interest. By January 2006, the debt with interest since judgment had risen to £3,415,202. Mr Rhind has himself paid nothing towards this judgment debt. In 2004 Mr Giles obtained a charging order over Mr Rhind's interest in his matrimonial home, Manor Farm House, Maidwell, Northamptonshire (the property). In November 2006 the property was sold at a gross price of £912,000. After discharging a mortgage and costs, the net proceeds were £628,437, of which approximately £127,000 was paid to Mr Giles in reduction of the judgment debt.
The present proceedings relate to a deed dated 2 April 1992 (the deed). The parties named in the deed are Mr Rhind and his wife, the second defendant, and it relates to the beneficial ownership of the property. The property was purchased by Mr and Mrs Rhind in early 1992 and on 6 April 1992 was registered in their joint names, subject to a mortgage dated 21 February 1992 in favour of Nationwide Building Society. By the deed Mr and Mrs Rhind agreed to hold the property in the proportions of 20 per cent for Mr Rhind and 80 per cent for Mrs Rhind. They agreed as between themselves, but without prejudice to the building society's rights, to pay the principal sum and interest under the mortgage in those proportions.
Mr Giles' claim in these proceedings, as set out in his particulars of claim, is twofold. First, the deed was a sham. It was not made on 2 April 1992 but at a later date. A number of facts are pleaded in support of this allegation, including in particular that “on or about 21 October 2003 the First Defendant informed the Claimant during a conversation on a tube train that the deed was created in 1998 at the office of MW Foods for the purposes of the Legal Aid Board.” Secondly, and alternatively, the effect of the deed was to transfer 30 per cent of Mr Rhind's interest in the property to Mr Rhind for no consideration or at an undervalue and for the purpose of putting assets beyond the reach of his creditors. It was accordingly liable to be set aside under section 423 of the Insolvency Act 1986. This allegation pre-supposes that the deed was not a sham. The allegation is equally made on the basis that the deed was not made in 1992 but was created in 1998, by which time Mr Giles and Mr Rhind were in dispute.
In his witness statement dated 24 January 2006 in support of his claim, which was issued under CPR Part 8, Mr Giles described his conversation with Mr Rhind on the tube train on 21 October 2003 and stated that Mr Rhind had told him that:
“…the Deed had been put together in a hurry in the Northampton office of MW Foods sometime in 1998. The Defendant further said that the document had been put together for the purposes of the Legal Aid Board. I assumed this to mean that the Deed had been created to ensure that the Legal Aid Board (now the Legal Services Committee) would provide cover to Mr Rhind on the basis that he owned only a meagre interest in the Property and presumably no other assets. Of course the effect of the deed is to dissipate and reduce the first Defendant's assets making it more difficult for me to enforce my judgment against him.”
Mr and Mrs Rhind are in the course of divorce proceedings. Both filed witness statements in response to Mr Giles' claim. Directions were later given for statements of case and Mrs Rhind, but not Mr Rhind, filed a defence. Mr Rhind acts in person in these proceedings.
In her defence, Mrs Rhind asserts that the deed was made on 2 April 1992 in the presence of the named witness, Mr JW Mason, and that it was not a sham but was intended to record accurately and truthfully how the beneficial interest in the property was to be held. She denies any intention to put assets beyond the reach of creditors. As to the allegation that the deed was executed at the offices of MWF in 1998, she pleads that MWF went into liquidation in 1995 or 1996 and had no offices in 1998. As to the claim under section 423, she pleads that Mrs Rhind provided valuable consideration in the form of an undertaking to pay 80 per cent of the mortgage instalments and that in 1992 the property was heavily mortgaged with little equity value. Accordingly, it was not a transaction at an undervalue. As to the allegation that the purpose of the deed was to put assets beyond the reach of actual or potential creditors, she pleads that in 1992 Mr Rhind was a successful businessman with no creditors or pressing claims against him and with no claims in contemplation. She pleads that she and her husband were newly married and that Mr Rhind “took advice from a solicitor friend who suggested that they enter into the Trust Deed as a sensible way to order their affairs.” Limitation is also pleaded as a defence. It is averred that Mr Giles' cause of action, if any, under section 423 accrued when he became capable of being prejudiced by the transaction, viz on execution of the deed, and that the limitation period of 12 years expired before issue of the proceedings on 27 January 2006.
In his witness statement dated 25 February 2006, Mr Rhind asserts that the deed was made on 2 April 1992 and deals with Mr Giles' case that the deed was executed in 1998. As to the circumstances of its execution, he states at paragraph 33:
“As stated above in 1992 there were no creditors, we were very well off and my business was doing well. Although one can never be certain what might lie ahead, there was no indication of financial difficulties. The trust Deed was not signed with a view to dissipating my assets or protecting them against creditors or with a view to prejudicing any third party, but I had been advised to make the deed by a solicitor friend as a precaution to protect my new wife.”
There is also in evidence a statement made by Mr Mason on 28 April 2003. Mr Mason has since died. In the statement he confirms his signature as the witness to the deed and states that, although he cannot recall the precise date of its execution, he is reasonably confident that it was executed in around April 1992.
In his skeleton argument, counsel for Mr Giles stated that his case was that the deed was made in 1998 as part of a scheme to secure legal aid funding. If that were established, there would, it was submitted, be a strong case under section 423. He continued that the rest of the skeleton argument proceeded on the basis that the deed was made in 1992. There then followed brief submissions on the issues arising under section 423 if the deed was executed, as stated, in April 1992, including limitation issues.
Just before the start of the trial, additional documents were disclosed by Mr Giles, including accounts for SHF for 1992. It was said on his behalf that these showed the true financial position of SHF at that time, demonstrating that Mr Rhind and Mr Giles were engaged in what was then a risky business venture. If, contrary to Mr Giles' primary case, the deed was executed in 1992, this was said to support an alternative case under section 423.
Counsel for Mr Giles accepted that this was not the pleaded case for relief under section 423. The pleaded case assumed that the deed was executed in 1998 by which time Mr Rhind was the defendant in the action for damages brought by Mr...
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