Parties' limitation arguments
Limitation is a perennial concern for plaintiffs, and knowing when time started to run is particularly troublesome where plaintiffs were unaware of their potential claim due to either a lack of information or, worse, dishonesty. In CMC Holdings Limited v Martin Henry Forster(1) the Royal Court indicated, albeit at a preliminary stage of the proceedings, that neither a trustee of an express trust nor a fiduciary who has acted dishonestly in breach of his or her trust or fiduciary duties can successfully plead a limitation defence.
The plaintiffs were Kenyan companies that imported motor vehicles into East Africa. They alleged that at some point between 1977 and 2011 certain former company directors had participated in unlawful arrangements to receive secret commissions in respect of these imports.
The first defendant was one of the former directors. It was alleged that he had acted dishonestly in breach of his fiduciary duties and should thus be considered a constructive trustee in respect of the commissions. The second and third defendants were fiduciary and corporate service providers, who were alleged to have dishonestly assisted the former directors. The plaintiffs sought an account of the commissions received.
The plaintiffs contended that they first became aware of the commissions through a conversation in May 2011 between the first defendant and Mr Lay, the then managing director of the companies' group. The plaintiffs sought the disclosure of documents and these were provided voluntarily in July 2013. Proceedings were served in June 2016.
The defendants contended that the claim was time barred, as the plaintiffs had sufficient knowledge to plead their claim more than three years before 2016. The defendants applied for an order to determine the issue of limitation as a preliminary issue.
The principal application was submitted by the second and third defendants in relation to the dishonest assistance allegations against them. It was agreed that the limitation period in Jersey for dishonest assistance claims is three years, beginning on the date on which the act of dishonest assistance occurred.(2) However, if a plaintiff is prevented from bringing its claim due to an impediment, this timeline will be suspended.
The first defendant argued that the claims against him were time barred as they occurred more than 21 years before the proceedings were commenced, based on the longstop provisions of Article 57(3C) of the Trusts (Jersey) Law 1984, as amended. The second and third defendants argued that the plaintiffs were not impeded, as the claims were first discussed on May 2011 and, accordingly, the three-year limitation period began from that point. Alternatively, they argued that the claims were partly prescribed, as the doctrine of impediment did not apply to claims for an account. As such, the plaintiffs could make a claim for an account only for the three-year period before the date of the last payment made by the second and third defendants.
The plaintiffs resisted the application on the following grounds:
- They had sufficient material to plead dishonest assistance only following receipt of the disclosure in July 2013.
- The claims against the first defendant were not subject to any limitation period, as he was liable as a constructive trustee on the basis that he had been a dishonest fiduciary.
- The question of whether the plaintiffs had sufficient information to plead their case more than three years before the proceedings began should be determined at trial.
As regards the first defendant, the court considered whether a dishonest trustee (as distinct from a fraudulent trustee) could invoke the 21-year longstop limitation period found in Article 57(3C) of the Trusts Law. The court held that it was "highly likely" that claims for dishonest breach of trust against an express trustee or for dishonest breach of fiduciary duty fell within Article 57(1) of the Trusts Law (which provides that there is no limitation period for claims in fraud or to recover trust property) with the effect that the longstop limitation period in Article 57(3C) would not apply. This is consistent with the English Supreme Court's decision in Williams v Central Bank of Nigeria,(3) where a distinction was drawn between a fraudulent or dishonest trustee and a trustee guilty of some lesser failing. In the latter case, the longstop limitation period could apply. In the former, it could not. As a result, the court held that neither a trustee of an express trust nor a fiduciary who acted dishonestly in breach of his or her trust or fiduciary duties can successfully plead limitation. In its finding, the court noted that while it had no jurisdiction to determine the issue itself, it was entitled to take into account the strength of the issue and allow it to inform its discretion regarding whether to order that the issue be determined in advance of any main trial.
The arguments that the doctrine of impediment did not apply to claims for an account were rejected on the basis that the cited authorities(4) did not support the view that a limitation period for such claims could not be suspended. Further, suspending a limitation period against a plaintiff by reason of lack of knowledge is well established.(5) The court considered it illogical to suggest that time could be suspended for a breach of duty claim but not for the remedy of an account should the breach be established. In the case at hand, this presumption would lead to an unjust outcome – namely, that claims could be brought for the entire period from 1977 to 2011 but the recoverable sum would be limited to payments made for the breaches of fiduciary duty from 2008 onwards, even though the plaintiffs had no knowledge of them until 2013.
As this was an application to hear a preliminary issue, the substantive effect of this judgment as a statement of Jersey law in respect of limitation is itself limited. Nevertheless, it indicates that no limitation period applies to claims for dishonest or fraudulent breaches of trust and duty. It is also a useful reminder of the court's approach to questions of suspending a limitation period. Whether these points will be determined following a full trial (the application for the preliminary issue having failed) remains to be seen.
For further information on this topic please contact Nigel Sanders at Ogier by telephone (+44 1534 514 000) or email ([email protected]). The Ogier website can be accessed at www.ogier.com.