The High Court decision in Page v Hewetts(1) sends a clear message that parties which attempt to cast blame on the court in trying to overcome limitation issues will be greeted with little sympathy. The judge in this case made clear that the onus is on solicitors (or the claimant) to ensure that the court receives the claim form on time. The court also summarised when Section 21(1)(b) of the Limitation Act 1980 will apply in actions against fiduciaries, and the test for concealment under Section 32(1) of the act.
The claimants were brothers who had appointed the defendants to act in the administration of their parents' estate. The retainer included selling a property that formed part of the estate. A legal executive acted on the sale and recommended a third-party purchaser. Unbeknown to the claimants, the legal executive also carried on business as a property developer. He entered into an agreement with the purchaser on February 17 1999, pursuant to which a secret profit was made.
The property was sold for £190,000 in March 1999. Some time after the sale, the claimants discovered that the true value of the property was in the region of £350,000. On November 25 2000 they complained to the Office for Supervision of Solicitors (OSS), which wrote to the defendants raising the complaint almost two years later, on November 7 2002. On December 5 2002 the legal executive responded to the letter enclosing a cheque for £6,000 in respect of "overage" and provided some correspondence between him and the purchaser. He failed to disclose the agreement of February 17 1999 at that time. He eventually disclosed it on January 13 2003, and on January 30 2003 the OSS sent it to the claimants.
The claimants instructed solicitors to pursue a claim against the defendants, but for various reasons the claim did not progress. Eventually the solicitors issued a claim on behalf of the claimants against their former solicitors for an account of profits made as a result of their retainer and compensation for breach of retainer/negligence and breach of fiduciary duty.
The point at which the claimants had sufficient knowledge of facts to support a claim and the date on which the claim form was issued were important issues. The claimants' solicitor, who had conduct of the claim from February 2007, said that he had sent the claim form to the court for issue in early December 2008, and that it would have arrived at the court office by December 4 2008. The claim form was issued on February 17 2009. The claimants' solicitor asserted that this was because on his enquiry of the court in January 2009, he was told that there was no trace of the claim form or other documents sent. He therefore sent a photocopy of the claim form for issue and believed that previous documents had been mislaid or lost by the court office.
Master Bragge struck out the claim on the basis that the limitation period had expired before issue. The claimants appealed.
There were three issues on appeal:
- Was the money that was received by the defendants in 1999 trust property or the proceeds of trust property, so that no limitation period applied by virtue of Section 21(1)(b) of the act?
- If there was a deliberate concealment of material facts by the defendants, and in the event that there was a limitation period under the act, when did time start running against the claimants? The defendants' case, which was accepted by the master, was that the claimants had sufficient knowledge by no later than February 6 2003, or in any event by February 17 2003.
- When was the claim form issued or when could it be treated as having been issued - December 4 or 5 2008 or February 17 2009?
Susan Prevezer QC, sitting as a High Court judge, heard the appeal and found against the claimants.
Was the money that was received by the defendants trust property?
The judge rejected the argument that a secret profit was derived from the property and that it was therefore trust property by virtue of the fiduciary duties owed by the defendants. She followed the decision in Sinclair Investments (UK) Ltd v Versailles Trade Finance Ltd,(2) which had been handed down after the master's ruling. In that case the Court of Appeal held that money or an asset which a fiduciary has acquired in breach of duty to the beneficiary will not necessarily be held on trust for the beneficiary, and that a beneficiary cannot claim a proprietary interest:
"unless the asset or money is or has been beneficially the property of the beneficiary or the trustee acquired the asset or money by taking advantage of an opportunity or right which was properly that of the beneficiary."
In that case Lord Neuberger further stated that:
"In cases where a fiduciary takes for himself an asset which, if he chose to take, he was under a duty to take for the beneficiary, it is easy to see the asset should be treated as the property of the beneficiary. However, a bribe paid to a fiduciary could not possibly be said to be an asset which the fiduciary was under a duty to take for the beneficiary. There can thus be said to be a fundamental distinction between (i) a fiduciary enriching himself by depriving a Claimant of an asset and (ii) a fiduciary enriching himself by doing a wrong to the Claimant."
Sinclair Investments was not a case about a bribe or secret commission. However, it was applied in Cadogan Petroleum plc v Tolley,(3) where Justice Newey considered the Neuberger judgment in relation to a bribe or secret commission and concluded that a beneficiary has no proprietary interest unless it can be said that the bribe or secret commission "is or had been beneficially the property of the beneficiary, or the fiduciary acquired the asset or money by taking advantage of an opportunity or right which was properly that of the beneficiary".
The judge in Page v Hewetts therefore held that the secret profit obtained by the legal executive was not and could not be beneficially the property of the claimants. It was not acquired by taking advantage of an opportunity or right of the claimants; nor was it money that was part of the property and subject to the legal executive's fiduciary duties. Rather, it was obtained by doing a wrong to the claimants.
On the first issue, the judge therefore held that the claim was not for recovery of trust property or the proceeds of trust property within Section 21(1)(b) of the act. The provisions of the act therefore applied to the claims.
When did time start running?
It was important to consider when the time for limitation started running. Under Section 32 of the act, where any fact that is relevant to a claim has been deliberately concealed by a defendant, the period of limitation does not begin to run until the claimant has discovered the concealment or could have discovered it with reasonable diligence. What the claimants had to discover was "the gist of the cause of action" - that is, the facts that are essential to the cause of action - not simply the general "drift of the claim".(4)
The judge considered that the master had been correct in holding that the claimants had known sufficient facts to start time running for a claim for breach of the retainer or for negligence by or after November 25 2000 and they were statute-barred. She held that the claimants had the facts to justify bringing a claim for an account when they received the agreement of February 17 1999 with the letter from the OSS on January 30 2003, which would have been read by the claimants no later than February 6 2003.
When was the claim form issued?
The question of when the claim form had been issued was critical in this case. Civil Procedure Rule 7.2(1) provides that proceedings are started "when the court issues a claim form at the request of the claimant". Practice Direction 7A.5.1 provides that:
"where the claim form as issued was received in the court office on a date earlier than the date on which it was issued by the court, the claim is 'brought' for the purposes of the Limitation Act 1980 and any other relevant statute on that earlier date."
The judge agreed with the master's conclusion that, on its proper construction, this provision of the practice direction did not apply to the facts alleged by the claimants. The practice direction did not apply where documentation had been sent to the court and was either not received or possibly mislaid, requiring a fresh claim to be issued (or a photocopy of the original claim form, as in this case). The rule was intended to deal with situations where the claim form was definitely received by the court, but there had been some problem with the mechanics of issue. In other words, the mischief that the practice direction aims to rectify is late issue through no fault of the claimant. On the third issue, therefore, the relevant date for the claim form was February 17 2009 which meant that the claim for an account was also statute-barred.
The judge was particularly critical of the "real gap in the evidence" with regard to the filing of the claim form, and of the absence of a good explanation for the failure to enquire whether the claim form had been received by the court when the claimants were perilously close to the limitation deadline.
The decision makes clear that the onus is on a claimant or its solicitors to ensure that the claim form is received by the court. Where limitation is an issue, particular care should be taken. This is made clear in Practice Direction 7A5.4, which states:
"Parties proposing to start a claim which is approaching the expiry of the limitation period should recognise the potential importance of establishing the date the claim form is received by the court and should therefore make arrangements to record that date."
The court will have little sympathy with parties that try to blame the court in order to avoid tripping over limitation issues.
The case is also useful for summarising the recent case law on when money received by a fiduciary is trust property and consequently outside the act.
For further information on this topic please contact Rebecca Stewart at RPC by telephone (+44 20 3060 6000), fax (+44 20 3060 7000) or email ([email protected]).
(4) AIC Ltd v ITS Testing Services (UK) Ltd (The Kriti Palm)  EWCA Civ 1601.