LIMITATION PERIODS: KNOWING RECEIPT AND DISHONEST ASSISTANCE

WILLIAMS V CENTRAL BANK OF NIGERIA [2014] UKSC 10

INTRODUCTION

The UK Supreme Court very recently considered the limitation period for claims of dishonest assistance and knowing receipt in Williams v Central Bank of Nigeria [2014] UKSC 10.  The case involved an analysis of section 21 of the Limitation Act 1980 and a decision as to whether the limitation period for such claims is 6 years or whether there was no limitation period. The majority (3:2) held that the relevant period was ordinarily 6 years.

FACTS

R’s case was that in 1986 he had paid $6.5m to a solicitor in England. In fraudulent breach of trust the solicitor paid $6m into an account of A. R now sought to claim in England against A for, amongst other things, knowing receipt and/or dishonest assistance. Those claims were plainly time barred if a 6 year limitation period applied.

The relevant statutory provision is section 21 of the Limitation Act 1980 which reads:

“21. (1) No period of limitation prescribed by this Act shall apply to an action by a beneficiary under a trust, being an action

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 of trust property in the possession of the trustee, or previously received by the trustee and converted to his use…

(3) Subject to the preceding provisions of this section, an action by a beneficiary to recover trust property or in respect of any breach of trust, not being an action for which a period of limitation is prescribed by any other provision of this Act, shall not be brought after the expiration of six years from the date on which the right of action accrued.”

Section 38(1) of the Limitation Act 1980 defines the terms “trust” and “trustee” as having the same meanings as in the Trustee Act 1925. This provides:

“the expressions ‘trust’ and ‘trustee’ extend to implied and constructive trusts…”

As can be seen, subject to the exceptions in section 21(1)(a)-(b), the relevant limitation period is 6 years by virtue of section 21(3). The question was whether these claims fell within the exceptions such that there was no limitation period?

THE DECISION

Section 21(1)(b)

Third party accessories to breaches of trust (i.e. those who knowingly receive trust property and those who dishonestly assist in breaches of trust) are commonly called “constructive trustees”. Does this mean a claim against them was a “claim to recover from the trustee trust property” within section 21(1)(b)?

The majority of Lord Sumption, Lord Neuberger, Lord Hughes and Lord Clarke (who did not dissent on this point) said no. There was a fundamental difference between express trustees, trustees in common intention constructive trusts and trustees de son tort on one hand and constructive trustees in the sense of third party accessories on the other. In the former cases, the trustee had assumed responsibility for the management of the trust and the beneficiary had placed trust and confidence in him as a fiduciary. The latter cases were no more than a shorthand for a person against whom equity will grant relief. Third party accessories were not “trustees” within the meaning of the subsection which was only targeted at the first group.

Lord Mance (in dissent) held that there was nothing in the wording of section 21 which sought to exclude constructive trustees (in the sense of accessories) from it. In addition, he held there was no proper distinction between trustees de son tort who had possession of trust property and on whom liability was imposed for their wrongdoing and knowing recipients. For those reasons, knowing recipients ought to fall into section 21(1)(b).

Section 21(1)(a)

The question here was whether section 21(1)(a) only covers cases brought against the trustee or whether it extended to claims against third party accessories so long as there had been a fraudulent breach of trust by the trustee.

The majority of Lord Sumption, Lord Neuberger and Lord Hughes held the former was correct. Parliament’s aim had been to only exclude the limitation period in respect of certain claims against trustees because of their singular relationship with the beneficiary.

The minority of Lord Clarke and Lord Mance held that section 21(1)(a) applies to claims against the trustee or the accessory so long as there has been a fraudulent breach of trust. Consequently, in those cases, there would be no limitation period for claims against the accessory.

The Result

As a result, neither of the claims fell within exceptions. A’s appeal was allowed and the claims were out of time. Following this decision, where a claim is brought against the trustee and he has committed a fraudulent breach of trust (subsection 21(1)(a)) or still holds the trust property/its proceeds (subsection 21(1)(b)) there will be no limitation period for the claim. Where he has committed an innocent breach of trust the period will be 6 years under section 21(3).

As subsections 21(1)(a) and 21(1)(b) do not ever apply to claims against third party accessories, the ordinary limitation period for claims in dishonest assistance and knowing receipt will be 6 years.

DISCUSSION

Section 21(1)(b)

As to the first issue: whether constructive trustees fall within section 21(1)(b), the majority’s view is to be preferred. It ignores the often-confused terminology and brings greater clarity to this area.

The reasoning is most clearly set out at the start of Lord Sumption’s speech. Constructive trustees (i.e. third party accessories) have none of the hallmarks of the other categories of trustee. In particular they have not assumed a role of trust and responsibility towards the beneficiary. The whole of the Trustee Act 1925 is plainly only concerned with people in this position who are responsible for managing trust property.  For this reason, the Trustee Act’s definition (adopted by the Limitation Act 1980) of “trust” and “trustees” does not extend beyond this category to third party accessories. To hold it uses “constructive trust” in this sense would be to perpetuate the lack of clarity over the use of that term.

Section 21(1)(a)

As to the second issue: whether section 21(1)(a) only applies to claims brought against a trustee in the traditional sense, the minority view is the better one.

The main objection to the majority’s approach is that it fails to place sufficient emphasis on the degree of culpability of the accessory. Parliament has chosen to do this in relation to the trustee so that, if he has been fraudulent, there is no limitation period. In contrast if he has committed an honest breach (and does not hold the trust property) the period is 6 years. The majority approach dictates that Parliament adopted a different approach in relation to accessories because the limitation period will always be 6 years.

The majority rejected the proposition that the limitation period for the accessory should be determined by the fraud or otherwise of the trustee. The thinking seems to have been that the accessory is equally culpable in all cases of assistance so the same limitation period of 6 years should apply in all cases. In particular that the accessory’s culpability (and the relevant limitation period) is not to be determined by reference to the trustee’s conduct.

That ignores the nature of accessory liability. If the accessory knowingly receives the trust property, to be liable, he will know about the fraudulent nature of the breach of trust if it has occurred. Equally, while an accessory can be liable for dishonest assistance in respect of an innocent breach, if there has been a fraudulent breach, the dishonest assistor will be a party to this and know about it. He is more culpable in these cases. There is no reason to think Parliament would have adopted an inconsistent approach to its treatment of trustees and accessories in this regard. The limitation period ought to reflect this and be the same for claims against the trustee and the accessory.

In addition, on its ordinary reading, nothing in section 21(1)(a) limits it to claims brought against the trustee. This could have been done easily with clear wording had his been Parliament’s intention. Secondly, as Lord Clarke points out, to read section 21(1))(a) in the way proposed by the majority creates an internal inconsistency between subsection 21(1)(a) and s21(3) which cannot have been intended by the draftsman either. If subsection 21(3) is wide enough to catch claims for dishonest assistance then subsection 21(1) must be as well.

CONCLUSION

An interesting decision and a useful one for its analysis of what is meant by constructive trustee in this context. For practitioners, the key point to note is that the starting point in determining limitation period for claims in knowing receipt and dishonest assistance is 6 years.

Christopher Kelleher

Christopher Kelleher is a barrister at 1 Essex Court practising in the commercial Chancery fields. For more information visit www. 1ec.co.uk

No representation or warranty is given by the author or 1 Essex Court as to the accuracy of the information or opinions contained in this document and no liability is accepted for such information or opinions. This document does not and is not intended to amount to legal advice and is not intended to be relied upon.

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