Above is the way that I believe the diode was meant to be installed. This way the diode acts as a "flyback catcher" diode to prevent large negative voltage swings of the inductive solenoid load. It prevents arcing at the ignition switch contacts when the contacts open and thus prolongs the life of the switch contacts.
Above is still another Perkins 404 manual drawing that shows not one but TWO diodes. I agree with the need for D2, but I think that D1 is not needed and beyond that causes the applied voltage to the solenoid to be about 0.7 volts below what it would be without the diode. This voltage drop may not be too significant but it will cause the solenoid to drop out 0.7 volts earler than it would if the D1 diode was not present. As far as I can see it, D1 serves no useful purpose. It actually appears that D1 was originally drawn in the wrong place and when this error was discovered, D2 was edited in but then D1 was never removed.