Analysis
In connection with a transaction dating back to 1986 the respondent paid $6,520,190 to a solicitor in England to be held in trust on terms that it should not be released until certain funds were made available to him in Nigeria. The solicitor pocketed $500,000 and, in fraudulent breach of trust, paid out the balance to the appellant’s account with Midland Bank in London. It was alleged that the appellant was a party to the fraud. The respondent obtained permission to serve a claim form out of the jurisdiction and an application was made to set aside that permission.
Supperstone J held that there was a serious issue to be tried, comprising the following trust claims: (i) a claim to require the appellant to account for the $6,520,190 on the footing that it dishonestly assisted the solicitor’s breach of trust; (ii) a claim to require the respondent to account for $6,020,190 on the footing that it had received that sum knowing it had been paid by the solicitor in breach of trust; and (iii) a claim to trace the $6,020,190 in the hands of the appellant. These claims turned wholly on the question of whether they were subject to the period of limitation prescribed by s21 of the Limitation Act 1980 (1980 Act) – if they were, the limitation period had expired and there was no serious issue to be tried. This question gave rise to two further questions; namely, whether a stranger to a trust who was liable to account on the footing of dishonest assistance in a breach of trust or knowing receipt of trust assets was a trustee for the purposes of s21(1)(a) and, if the answer to that question was no, whether an action ‘in respect of’ any fraud or fraudulent breach of trust to which the trustee was a party or privy included an action against an ancillary which was not itself a trustee.
Supperstone J had held that the appellant could not be described as a trustee but that it was at least arguable that s21(1)(a) was not confined to actions against a trustee and extended to an action against an ancillary arising out of its participation in the trustee’s fraud. On appeal the first question was conceded and, on the second question, the decision at first instance was affirmed by the Court of Appeal. The appellant appealed, during the course of which the concession on the first question was partially withdrawn – it was still accepted that a person liable to account on the footing of dishonest assistance was not a trustee but it was asserted that a person liable to account on the footing of knowing receipt was a trustee.
Held (allowing the appeal, Lord Mance dissenting and Lord Clarke dissenting in part):
Section 21(1) of the 1980 Act provided that no period of limitation should apply to an action by a beneficiary (a) in respect of any fraud or fraudulent breach of trust to which the trustee was a party or privy, or (b) to recover from the trustee trust property or the proceeds thereof in the possession of the trustee, or previously received by the trustee and converted to his use. The terms ‘trust’ and ‘trustee’ were defined by reference to s68(17) of the Trustee Act 1925, which provided that those expressions extended to implied and constructive trusts.
As to the first question, there was no doubt that the appellant was not an express trustee, but was it a constructive trustee? There were two types of constructive trusteeship, categorised by Millett LJ in Paragon Finance Plc v DB Thakerar & Co (a firm) [1998] EWCA Civ 1249 as either a constructive trustee of the institutional type or a constructive trustee of the remedial type. The first category comprised persons who have lawfully assumed fiduciary obligations in relation to trust property, though without formal appointment, such as trustees de son tort who assumed to act in the administration of trusts as if they had been formally appointed, or trustees under trusts implied from the common intention to be inferred from the conduct of the parties – cases of de facto trustees. The second category comprised persons who had never assumed or intended to assume the status of a trustee, whether formally or informally, but had exposed themselves to equitable remedies by virtue of their participation in the unlawful misapplication of trust assets, either by dishonestly assisting the misapplication of funds by the trustee or by receiving trust assets in the knowledge that the transfer to them was a breach of trust. In either case they would be required by equity to account as if they were trustees or fiduciaries – cases of ancillary liability.
Originally, there was no statutory time bar to a claim by a beneficiary against a trustee. If a trustee, whether express or de facto, misapplied trust assets, equity would ignore the misapplication and hold the trustee to account for the assets as if he had acted in accordance with the trust and, for this reason, there was nothing to make time start running against the beneficiary. Persons under an ancillary liability were in a different position; they were never trustees in the true sense and were liable only by virtue of their participation in the misapplication of trust assets – their dealings were at all times adverse to the beneficiaries and, indeed, to the true trustees. Statutory limitation periods by analogy to equitable claims could always be applied to claims against them. Section 25(2) of the Judicature Act 1873 gave statutory effect to the law which prevented trustees from raising limitation in a claim by a beneficiary for breach of trust. However, this rule – which held trustees accountable without limitation of time – was perceived to be harsh and s8(1) Trustee Act 1888 sought to relieve honest trustees who had parted with the assets and had not converted them to their own use by limiting actions against a trustee or any person claiming through him, subject to the two exceptions founded upon fraud or fraudulent breach of trust to which a trustee was party or privy, or to the recovery of trust property or the proceeds thereof retained by the trustee or previously received by the trustee and converted to his use. Subsequently, following the report of the Law Revision Committee in 1936 on statutes of limitation, the law was amended and consolidated, principally to address an issue about actions against persons, in particular executors, who owed fiduciary obligations in relation to property but were not express trustees. Section 19(1) and (2) of the Limitation Act 1939, which were in substantially the same terms as s21(1) and (3) of the 1980 Act, in effect reversed the order of s8(1) of the Trustee Act 1888 by providing that no limitation period should apply in the two cases of fraud by the trustee or actions to recover trust property in the possession of the trustee or previously converted to his use and, subject to those exceptions, the limitation period for an action by a beneficiary to recover trust property in respect of any breach of trust should be six years. The intention of Parliament, at least as expressed in the words used to enact s19 of the Limitation Act 1939, could not be taken to abolish, for limitation purposes, the distinction between true trustees and others upon whom equity imposed a liability to account as if they were trustees. For this purpose, there was no difference between a person who dishonestly assisted in a breach of trust and a person who received trust property with knowledge of the breach of trust. The principle did not depend on the difference between assistance and receipt, dishonesty or innocence. It depended on the difference between the liability of a true trustee and the liability which a stranger incurs by reason of his participation in the misapplication of trust property. In neither case could he be said to be a trustee within the meaning of s21(1)(a) of the 1980 Act.
As the answer to the first question was no, it was necessary to address the second question as to whether an action ‘in respect of’ any fraud or fraudulent breach of trust to which the trustee was a party or privy included an action against an ancillary which was not itself a trustee. Apart from an obiter dictum and an alternative ratio, there was no authority in support of the contention. While it was accepted that this was a linguistically possible construction, it was clear from the analysis of the legislative history that what was now s21(3) of the 1980 Act was intended to relieve trustees from the harsh consequences of the equitable rule which held them liable to account without limitation of time, save in the two cases of fraud or fraudulent breach of trust, or possession of trust property or the proceeds thereof retained by the trustee or previously received and converted to his use. If this was so, the exceptions must apply to the same persons as the rule itself. The rule had never applied to strangers who were subject only to an ancillary liability, and they had therefore never needed to be relieved. The words ‘in respect of’ were flexible, in that they could have a wider or narrower meaning. If the wider meaning was correct (ie if the provision applied to actions against strangers to the trust), it was difficult to see what effect could be given to the concluding words ‘to which the trustee was a party or privy’. The ancillary liability of a stranger to the trust arose independently of any fraud on the part of the trustee and there was no rational reason why the draftsman of s21(1)(a) should have intended that the availability of limitation to a non-trustee depended on a consideration that had no bearing on his liability; namely the honesty or dishonesty of the trustee. There was no doubt that s21(1)(b) only applied to actions against a trustee and, if this was so, it was difficult to discern why Parliament should have intended s21(1)(a) to be different. Moreover, even if the requirements for having recourse to extraneous material were satisfied, the Report of the Law Revision Committee in 1936 was of no assistance in resolving this question; if anything, the analysis tended to militate against giving a wider meaning to s21(1)(a) of the 1980 Act. The narrower meaning was therefore to be preferred.
Accordingly, the trust claims against the appellant were barred by limitation and, as the English court had no jurisdiction to exercise, those claims should be struck out.
JUDGMENT LORD SUMPTION (with whom LORD HUGHES agrees): Introduction [1] The facts of this case can fairly be described as exotic, but very few of them are relevant to the present appeal. Dr Williams claims to be the victim of a fraud instigated by the Nigerian State Security Services which occurred in 1986. His case …Continue reading "Williams v Central Bank of Nigeria [2014] UKSC 10"