Scope of section 21 Limitation Act 1980 in relation to non trustee parties (Court of Appeal)
In Central Bank of Nigeria v Williams  EWCA Civ 415 the Court of Appeal considered the scope of section 21 Limitation Act 1980 and whether a cause of action could be pursued, outside the limitation period, against someone other than a trustee who was party to the fraud.
Note: The Supreme Court granted permission to appeal on 26 July 2012.
The Court of Appeal has clarified the meaning of a much debated provision in the Limitation Act 1980.
The case concerned the interpretation of section 21(1)(a) of the Act which provides that the limitation period does not apply to an action by a beneficiary under a trust being an action "in respect of any fraud or fraudulent breach of trust to which the trustee was a party or privy".
The question for determination was whether the terms of the section permitted an action to be brought only against a trustee outside the limitation period or against someone else. Disagreeing with Lord Hoffman's conclusions in the Hong Kong case, Peconic Industrial Development Ltd v Lau Kwok Fai  5 HKC 135, the Court concluded that such an action may be brought in respect of a fraudulent breach of trust to which the trustee was a party, against not only the trustee, but any other person who dishonestly assisted him in the fraud, after the expiration of the limitation period. (Central Bank of Nigeria v Williams  EWCA Civ 415 (03 April 2012).)Close speedread
So far as relevant, section 21 Limitation Act 1980 provides:
"(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."
Categories of constructive trustee
The term "trust" in section 21 of the Limitation Act includes implied and constructive trusts (section 38(1), Limitation Act; this incorporates the definition of trusts in section 68(1)(17) of the Trustee Act 1925).
Precisely what the factual circumstances are in which claimants may be able to rely on the provisions of section 21(1) (outside the context of express trusts) is a question which has given rise to a great degree of difficulty.
A major control on the application of section 21(1) (outside the context of express trusts) exists because of the distinction drawn in this context by Millett LJ in Paragon Finance v Thakerar  1 All ER 400 between two classes of constructive trusts:
Class 1 constructive trusts, where the trust pre-exists the transaction under scrutiny in the proceedings and the defendant, although not expressly appointed as trustee has assumed that role;
Class 2 constructive trusts, where the so-called trust arises by reason of the impugned transaction.
It was held by Millet LJ that while the provisions of section 21(1) apply to class 1 constructive trusts, therefore, they do not apply to class 2 constructive trusts.
In Statek Corporation v Alford  EWHC 32 (Ch) the court concluded that section 21(1) of the Act applied to accessories to fraudulent breaches of trust of others, with the result that the limitation period did not apply to claims against those accessories..
However, in Peconic Industrial Development Ltd v Lau Kwok Fai  5HKC 135 (a case under the relevant Hong Kong limitation statute but which was in the same terms as the Limitation Act) Lord Hoffman, giving judgment in the Hong Kong Court of Final Appeal, concluded that a person who dishonestly assists a trustee in a fraudulent breach of trust, should not be treated in the same way as a trustee and therefore, the limitation defence should be available to them.
For further details regarding limitation and trustees generally, see Practice note, Limitation of actions against trustees (www.practicallaw.com/2-384-4237).
The respondent (W) brought a claim in 2010 against the appellant bank, based in Nigeria, (C) and a solicitor (G) on the basis that they had defrauded him of a sum in excess of $6 million. He claimed that the money had been held in trust for his benefit by G, but that in 1986, G had fraudulently paid most of it to C, retaining the balance for himself.
Permission to serve out was granted and the claim was served on C in Nigeria. In April 2010, C applied for a declaration that the English court had no jurisdiction and asked for the claim to be set aside. Supperstone J dismissed the application and C appealed. The appeal related to only one issue, namely whether W's claims were time-barred under section 21(3) of the Limitation Act 1980 or preserved by section 21(1)(a) of the Act.
It was accepted that the claim brought by W was an action:
By a beneficiary under a trust.
In respect of any fraud or fraudulent breach of trust.
To which the trustee, G, was a party.
However, the issue was whether, in addition to those three conditions, the terms of section 21(1)(a) only permit an action to be brought outside the limitation period against the trustee, G, and not against C. It was accepted that C was not a category 1 trustee.
Referring to the legislative history of section 21, C argued that just as section 21(1)(b) is limited to claims against the trustee (which in this case was G, not C), section 21(1)(a) should also be limited and that there was no justification for treating that paragraph as including an action against anyone else.
W submitted that had parliament intended to restrict the ambit of section 21(1)(a), it would have made it as clear as it did in section 21(1)(b).
The appeal was dismissed.
Referring to the legislative history of section 21, the Court considered whether it was implicit in section 21(1)(a) that the cause of action could only be pursued outside the limitation period against the trustee and no one else. Disagreeing with the conclusions reached by Lord Hoffman in the Peconic case, the Chancellor of the High Court concluded the wording of the section could not justify a conclusion that the action can only be brought against that trustee.
Supperstone J had concluded that there was serious issue to tried in relation to the word "in respect of" in section 21(1)(a). The Chancellor was prepared to go further than that. He concluded that an action by a beneficiary under a trust may be brought in respect of a fraudulent breach of trust to which the trustee was a party, against not only the trustee, but any other person who dishonestly assisted him in the fraud, after the expiration of the limitation period.
Black LJ concurred with the Chancellor's decision, although "not without much hesitation" given the difficulties in construing section 21 and Lord Hoffman's conclusion in the Peconic case. Comparing the wording of section 21(1)(a) with 21(1)(b), she noted that there was no explicit requirement under section 1(a) that the action must be against the trustee. Therefore, if section (1)(b) was confined to actions against a trustee it did not follow that section (1)(a) was subject to the same restriction.
This is a noteworthy decision, in that it has clarified (although with some hesitation) a difficult provision which has caused much confusion and conflicting opinions.
Lord Hoffman in the Peconic case had explained the principle as meaning that the limitation period was denied to fiduciaries and that dishonest assisters were not fiduciaries. However, the Court of Appeal disagreed with his analysis and conclusions.
The decision will open up the door to claimants who wish to claim, outside the relevant limitation period against parties who, whilst not trustees themselves, have dishonestly assisted in a fraud.