Mary Shovlin v Site Civils and Surfacing Ltd & Anor

Permission to amend a claim introducing a new cause of action should be granted where the proposed case discloses reasonable grounds and has a real prospect of success. A company’s directing mind may satisfy the receipt requirement for knowing receipt where trust property is received by the company and subsequently received by the director or controller, together with the company’s knowledge. Tracing may extend into land purchased with trust money and, in an appropriate case, into assets acquired through bridging finance. Although payment of trust money in discharge of a debt ordinarily ends tracing, backward tracing may remain available where there is a close causal and transactional link between the debt incurred to acquire an asset, the intended repayment of that debt, and the later use of trust money or its traceable proceeds.

The claimant, as sole surviving trustee of the SPH Trust, alleged that trust money had been misapplied and paid to the first defendant. The first defendant used the money in acquiring land, later sold at a profit. The second defendant was its director, shareholder and effective directing mind.

The claimant sought permission under CPR 17.3 to amend the Particulars of Claim after an earlier order struck out the pleaded conspiracy case against the second defendant and gave an opportunity to apply to amend. The proposed amendments advanced claims based on knowing receipt, tracing, personal liability to account for profits and conspiracy. The central questions were whether the new claims disclosed reasonable grounds and had a real prospect of success.

1. Applicable test. Because the proposed amendments introduced a new case, the court applied the test identified in Phones 4U Ltd (In Administration) v EE Ltd: whether the amendments disclosed reasonable grounds for bringing a claim and had a real prospect of success.
2. Knowing receipt. There was no real scope for a claim based merely on the second defendant sharing or receiving the ultimate benefit of profits made by the first defendant as a second-class constructive trustee. However, where trust property is knowingly received by a company and subsequently received by its directing mind, the requirement of receipt by the director may be satisfied. The director may also be fixed with the company’s knowledge.
3. Tracing into land. The claimant had a real prospect of showing that the trust money funded the purchase of the Mercury Way Land and that the Trust could trace into the land and the balance of its sale proceeds, subject to credit for the money repaid and any properly recoverable improvement expenses. The tracing remedy was treated as distinct from the personal remedy for profits.
4. Backward tracing. Payment of trust money in discharge of a debt ordinarily ends tracing. The court nevertheless considered there to be a real prospect of establishing backward tracing where bridging finance was incurred to acquire Vinesgrove, was intended to be repaid when the Mercury Way Land was sold, and was repaid from traceable proceeds. The required close causal and transactional link was materially different from the causation issue considered in Novoship.
5. Disposition. The maintainable proposed claims were a tracing claim into Vinesgrove or an asset representing it, such as Greenacres, and a personal knowing-receipt claim against the second defendant. Profit-focused amendments were not presently allowed. The proposed conspiracy amendment required further submissions because it might seek to resurrect the case previously struck out. Consequential matters, including costs and any application for permission to appeal, were adjourned.

1. High Court (Business List): On 29 July 2022, HHJ Davies struck out the pleaded conspiracy case against the second defendant but permitted an application to amend. On 15 December 2022, HHJ Cawson KC held that parts of the proposed amended case had a real prospect of success and dealt with the amendment application accordingly.