Category Archives: Chancery & Commerical

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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Pro Bono scheme established by Oliver Hyams

Pro Bono Community, a scheme that accredits law students and trainees to give advice at Law Centres and other advice agencies, has been launched by Oliver Hyams, a pupil barrister at 1 Essex Court, and David Dowling, a trainee solicitor at Baker & McKenzie.

Students who complete the first phase of training will be able to take a more detailed module in which they can specialise in a specific area of law such as welfare benefits.

The scheme has the support major law schools and firms including Ashurst, Baker & McKenzie, Bates Wells Braithwaite, CMS, Slaughter and May, Clifford Chance, Freshfields and Hogan Lovells. The Legal Education Foundation is also helping to fund the scheme.

Click here for more information.

or go to www.probonocommunity.org.uk

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Relief from sanctions in the post-Jackson CPR – a note by Andrew Wilson

In its recent decision in  Andrew Mitchell MP v News Group Newspapers Limited  [2013] EWCA Civ 1537 (27.11.13) (transcript at http://www.judiciary.gov.uk/Resources/JCO/Documents/Judgments/andrew-mitchell-mp-news-group-newspapers-ltd-27112013.pdf) the Court of Appeal delivered its much anticipated guidance on how the Courts should and will interpret the amended versions of CPRs 1.1 (2) (f) & 3.9 in the ‘post Jackson’ era. When it did, the message that it delivered was crystal clear; from now on, breaches of rules, practice directions and orders are unlikely to attract relief save in cases of trivial breaches when applications for relief are made promptly (para 40 of the judgment). Trivial can mean different things to different people but in this context it is likely to be interpreted as:

  • A failure of form rather than substance.
  • Where a party has narrowly missed a deadline but otherwise fully complied with its terms.

The Court anticipated that the question of whether a default is “insignificant” or “trivial” is likely to be a fertile battle ground for applications. However that is inevitable.

Other cases, presumably of what will become to be known as “significant’ breaches, will henceforth present applicants with a daunting test:

 

1.         The burden is on the defaulting party to persuade the court to grant relief.

2.         The court will want to consider why the default occurred.

3.         If there is a “good reason” then the court will be likely to decide that relief should be granted.

Again, the meaning of “good reason” is likely to entertain Masters and District Judges for years to come, but the Court of Appeal did offer some further guidance; If a document is not filed at court because the party or their solicitor suffered from a debilitating illness or was involved in an accident. Depending on the circumstances this may constitute a good reason. Also, later developments in the course of the litigation process are likely to be a good reason if they show that the period for compliance originally imposed was unreasonable, although the period appeared reasonable at the time and could not realistically have been the subject of an appeal.

The Court was keen to point out that a solicitor’s debilitating work load will not be a good reason and stressed that applications for an extension of time to meet a deadline will be viewed far more favourably than applications for relief post breach. It went on to say that “good reasons” are likely to be those which are outside the control of the defaulting party and that well intentioned incompetence on the part of the solicitor will not attract sympathy. An inadvertent mistake did attract relief in the pre Mitchell case of Wyche c Careforce, but it is unclear as to whether or not that excuse will survive Mitchell. Don’t count on it!

The Court encouraged the adoption of the same approach that the Courts take in assessing applications for extensions of time to serve claim forms. Hashtroodi v Hancock [2004] EWCA Civ 652 at para 19 offers perhaps the neatest expression of this test.

The decided cases on the new CPR 3.9 prior to the Mitchell decision (including Biffa Waste v Ali Dinler & Ors (2013) LTL 10/10/2013, Fred Perry (Holdings) Limited v Brands Plaza Trading Ltd (t/a Brands Plaza) [2012] EWCA Civ 224, Rayyan Al Iraq Co Ltd v Trans Victory Marine Inc QBD 23/08/13 and Wyche v Careforce Group Plc (2013)QBD (Comm) 25/07/2013) had nearly all contained discussion on the relevance of the old 3.9 criteria to applications. The Court of Appeal cleared all this up once and for all; the old criteria can be considered, but they are incidental to the new 3.9 criteria which are, of course, far simpler and intended to produce an far more robust test than was the case previously.

“We recognise that CPR 3.9 requires the court to consider “all the circumstances of the case, so as to enable it to deal justly with the application”.  The reference to dealing with the application “justly” is a reference back to the definition of the “overriding objective”.  This definition includes ensuring that the parties are on an equal footing and that a case is dealt with expeditiously and fairly as well as enforcing compliance with rules, practice directions and orders.   The reference to “all the circumstances of the case” in CPR 3.9 might suggest that a broad approach should be adopted.  We accept that regard should be had to all the circumstances of the case.  That is what the rule says.  But (subject to the guidance that we give below) the other circumstances should be given less weight than the two considerations which are specifically mentioned.”

Comparing this to the new wording of CPR 1.1 (2) (f) and 3.9:

1.1

(1) These Rules are a new procedural code with the overriding objective of enabling the court to deal with cases justly and at proportionate cost.

(2) Dealing with a case justly and at proportionate cost includes, so far as is practicable –

(a) ensuring that the parties are on an equal footing;

(b) saving expense;

(c) dealing with the case in ways which are proportionate –

(i) to the amount of money involved;

(ii) to the importance of the case;

(iii) to the complexity of the issues; and

(iv) to the financial position of each party;

(d) ensuring that it is dealt with expeditiously and fairly;

(e) allotting to it an appropriate share of the court’s resources, while taking into account the need to allot resources to other cases; and

(f) enforcing compliance with rules, practice directions and orders.

And 3.9

“On an application for relief from any sanction imposed for a failure to comply with any rule, practice direction or court order, the court will consider all the circumstances of the case, so as to enable it to deal justly with the application, including the need—

(a) for litigation to be conducted efficiently and at proportionate cost; and

(b) to enforce compliance with rules, practice directions and orders.”

All this, together with the pre-reforms comments of Jackson LJ in Fred Perry and Lord Dyson MR in the 18th Implementation Lecture ‘The application of the amendments to The Civil Procedure Rules’ paras 25-27, suggest that the decision in Mitchell was inevitable and entirely consistent with the rationale behind the recent reforms.

In short, the message is clear; failure to comply with court rules is now likely to result in very serious consequences for solicitors and their clients.

This, and its wider implications are well illustrated by the outcome of an application to strike out a claimant’s claim that I appeared in early last week at Chichester County Court. My client applied to strike out the claimant’s claim as an abuse of process. In a previous action brought by my client against the claimant, the defence and counterclaim were struck out for failure to comply with an unless order. The defendant and his solicitors adopted a rather blasé attitude to this and simply issued a ‘fresh’ claim which they admitted was exactly the same claim as the struck out counterclaim. I advised that an application to strike out the ‘fresh’ claim as an abuse would be on even more fertile ground in the ‘post Jackson’ era as the ‘fresh’ claimant was using his ‘fresh’ claim in part to avoid the now much harder test to achieve relief from sanction, and that that could in itself amount to an abuse of process, in addition to the usual abuse criteria applied in these situations as set out in  Securum Finance v Ashton & Anor. [2001] Ch. 291. We made the application and the District Judge (who knew the Mitchell judgment almost off by heart) agreed, relying heavily on my arguments based on the  Mitchell decision in his judgment.

The message is simple; know your deadlines and meet them. If there is a chance that you will not, seek to obtain extra time. Otherwise, put your tin hat on because that ton of bricks will soon follow.

Andrew Wilson

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Caroline Waterworth Insolvency Article

Caroline’s article on the relevant law and considerations when one person is inadvertently made bankrupt twice by two separate orders has been published on Jordan’s Insolvency Law portal at the following address:

http://www.jordansinsolvencylaw.com/articles/guest-post-by-caroline-waterworth-two-bankruptcy-orders

Caroline Waterworth

cwaterworth@1ec.co.uk

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