Wilkinson v JS Property Holdings Inc (2016)
The claimants were entitled to maintain a tracing claim in relation to a property which had been purchased by a company using damages held on trust for the claimants. Their claim was not statute barred because a relevant fact which they alleged had been concealed could not with reasonable diligence have been discovered at any earlier date.
The claimants sought a declaration that a property was held on trust for them by the first defendant company.
The second and third defendants' father (F) had invented a device for use in the manufacture of vacuum cleaners and washing machines. He entered into a confidentiality agreement with a manufacturer, but the agreement was breached and F was awarded US $17 million in damages. The claimants, who had invested significant sums of money with F, trading as "Hydratherm", for the purposes of enabling him to develop and exploit his invention, claimed that they were entitled to a share of the damages. They brought a claim alleging that the damages were held on trust, but later discovered that £172,500 had been expended by F to discharge a loan secured by a mortgage over the property in question. The mortgage had been granted to the third defendant in order to allow him and his wife to acquire the property from the second defendant. When the third defendant was unable to keep up with the payments on the mortgage, the property was sold to the first defendant company for the sum needed to discharge the mortgage. The directors and shareholders of the company were F and the second defendant. It was the claimants' case that the property had been purchased by the company using part of the damages that F held on trust for them and thus the property was held by the company on trust for the claimants because to the knowledge of the company, discharge of the mortgage was obtained using trust monies.
The second and third defendants denied that the claimants had any interest in the property and maintained that the property was held on trust by the first defendant for the third defendant subject to an equitable unpaid vendor's lien in favour of the second defendant. They also maintained that any claim the claimants had was statute barred. In that regard, the claimants relied on the Limitation Act 1980 s.32(1)(b) and argued that F had deliberately concealed the fact that he had used the damages to redeem the mortgage on the property and that that fact could not with reasonable diligence have been discovered earlier.
(1) Each of the claimants, other than the second claimant, was beneficially interested in the assets of F trading as Hydratherm. Those assets included the damages. The property had been sold by the second defendant to the third defendant for £160,000. Any agreement for any payment above and beyond that sum was a collateral agreement between F and the second defendant and thus did not give rise to an equitable unpaid vendor's lien in his favour. The purchase was funded by F supplying funds to the company sufficient to enable it to pay the sum needed to redeem the mortgage and discharge the mortgagee's legal costs of enforcement. The funds supplied to the company came from the damages. Thus in principle, the claimants, other than the second claimant, were entitled to maintain a tracing claim. There was no evidence that the sum came from a part of the damages that belonged beneficially to F. It followed that in principle the claimants were entitled to maintain a tracing claim for the whole of the value of the property (see para.105 of judgment).
(2) The claim was not statute barred because the relevant fact which the claimants alleged was concealed could not with reasonable diligence have been discovered by them at any earlier date. In those circumstances, the claimants were entitled to succeed (para.105).
Judgment for claimants
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27 May 2016
Judge Pelling QC
LTL 2/6/2016 :  5 WLUK 642