Plaintiff victim of mortgage fraud applying to amend negligence claim to include allegations of complicity on part of defendant solicitors – Claim made within but application made outside normal limitation period – Whether plaintiff making fresh claim – Whether new allegations properly described as action for fraudulent breach of trust
In 1990 the appellant mortgage provider (Paragon) suffered substantial losses through a series of frauds committed by ostensible buyers of flats whose mortgage applications referred to grossly inflated prices stated to have been agreed with a subvendor, who was party to the fraud. Acting for Paragon, as well as the borrowers, two firms of solicitors, Thakerar & Co and Thimbleby & Co, expressly agreed to advise Paragon of any matters likely to affect the value of the property, of any subsale of which they became aware, and of any information suggesting that the property was not being bought as a home for the borrower. In 1994 Paragon brought separate actions (the original actions) against the two firms, alleging breach of contract, breach of duty of care and breach of fiduciary duty. In early 1997 Paragon was advised that their pleaded case (if established) would not entitle them to so much of their losses as were attributable to the fall in the market since the transactions complained of. To deal with that difficulty, Paragon applied on March 25 1997 for leave to amend its pleadings in the Thimbleby action by adding various allegations of complicity with the fraudsters. That application succeeded and Thimbleby appealed. On March 25 1997 Paragon made a similar but unsuccessful application in the Thakerar action, and Paragon appealed. The appeals were heard together. It was common ground that the applications to amend had been made more than six years after the accrual of the original causes of action. Among the issues to be determined were: (i) to what extent each proposed amendment introduced a “new cause of action” and, as such, would be subject to the provisions of section 35 of the Limitation Act 1980; (ii) whether the new allegations of fraudulent breach of trust and intentional breach of statutory duty were, as Paragon contended, subject to no limitation period whatsoever and, accordingly, fell outside the special provisions of subsections (3) to (5) of that section, as implemented by RSC Ord 20 r 5; and (iii) whether, as Paragon contended, new claims falling within those provisions arose out of the same or substantially the same facts and, accordingly, should be allowed notwithstanding that they would be deemed to have been commenced at the date of the original action.
Held The amendments should not be allowed.
1. So far as the amendments alleged fraud, conspiracy to defraud, fraudulent breach of trust and intentional breach of fiduciary duty, each added a “new cause of action”, and consequently fell within section 35 of the 1980 Act. A new cause of action was undoubtedly introduced by an allegation of intentional wrongdoing, where previously no intentional wrongdoing had been alleged: see generally Letang v Cooper [1965] 1 QB 232.
2. To dispose of the second issue it was enough that the solicitors had a reasonably arguable case on limitation, which would be prejudiced by the new claim: see Welsh Development Agency v Redpath Dorman Long Ltd [1994] 1 WLR 1409. However, the court was of the strong opinion that cases like the present one fell outside section 21 of the 1980 Act, which declared that no period of limitation should apply to an action by a beneficiary under a trust, in respect of any fraudulent breach of trust to which the trustee was party or privy. The section would have applied if it had been alleged that the solicitors had fraudulently misapplied or conspired to misapply moneys, which they had lawfully received in a fiduciary capacity. However, no such allegation was made. Paragon’s case was that the solicitors had used fraudulent means to come into possession of the money in the first place, thus alleging the very same facts as would have to be established in a common law action for fraud. The unfortunate use of the expression “constructive trustee” in both situations should not obscure the fundamental difference between equity’s exclusive jurisdiction over lawfully appointed trustees (whether or not so described) and equity’s concurrent (remedial) jurisdiction to afford relief to victims of fraud: see Taylor v Davies [1920] AC 636 (PC); Clarkson v Davies [1923] AC 100 (PC); Shephard v Cartwright [1955] AC 431, at p450. Both the wording and the legislative history of section 21 supported the view that it was not intended to apply to cases falling within the remedial jurisdiction: see 102 LQR 266 (Harpum).
3. Given the findings on the first issue, it could not be maintained that the new claims arose out of the same or substantially same facts as those alleged in the original actions.
Christopher R Parker (instructed by Hamlin Slowe) appeared for the plaintiff; Edward Bannister QC and Thomas Dumont (instructed by Browne Jacobson, of Nottingham) appeared for the defendants.
Alan Cooklin, barrister
