Introduction

The United Kingdom’s Supreme Court has handed down an important judgment on the limitation period for two types of claim that can be deployed in civil proceedings against third parties that have wrongfully assisted with the transfer or concealment of corrupt assets. The case is Williams v Central Bank of Nigeria [2014] UKSC 10.

The claim are described as “knowing receipt” and “dishonest assistance” (the latter claim which has sometimes been described historically as “knowing assistance”, although that description has been criticised and has fallen out of use in England).

Knowing receipt

Knowing receipt is one way to frame claims by a state to recover public assets which have been transferred in breach of the duties owed by a Government official. For example:

  • Government Ministers owe various duties to the state.
  • In common law countries, these are known fiduciary duties. They will include duties, amongst others, of loyalty and fidelity; to act in good faith and in the best interests of the state; to avoid conflicts of interest; not to prefer personal interests or the interests of others to the interests of the state; and to take reasonable care in the exercise of official powers and in the performance of official functions.
  • A Government Minister will breach those fiduciary duties if, for example, he or she corruptly transfers the state’s assets to a third party. That might arise because of a payment of a bribe, or because the Minister wants to favour a political ally or supporter, or for other illegitimate reasons[1].
  • In these circumstances, a claim for knowing receipt will lie against the recipient of the assets, whether an individual or corporate entity, where the recipient knows that the assets have been transferred at an undervalue or where it is otherwise unconscionable for the recipient to retain them.
  • Claims will also be available against the Government Minister. But a claim against the recipient may be preferable, for example where the recipient still retains the assets, or its proceeds, and they are available to be recovered. That may particularly be so where the asset has increased in value and the state is able to recover that increase.

The requirements for a claim in knowing receipt were summarised by Lord Justice Hoffmann in more formal terms in the case of El Ajou v Dollar Land Holdings plc [1994] 2 All ER 685 at paragraph 700: “… the plaintiff must show, first, a disposal of his assets in breach of fiduciary duty; secondly, the beneficial receipt by the defendant of the assets which are traceable as representing the assets of the plaintiff; and thirdly knowledge on the part of the defendant that the assets he received are traceable to a breach of duty.” The nature of the defendant’s knowledge was further clarified by Lord Justice Nourse in BCCI (Overseas Ltd) v Akindele [2001] Ch 437 at paragraph 455, who decided that the “defendant’s state of knowledge should be such as to make it unconscionable for him to retain the benefit of the receipt.

Dishonest assistance

A claim for dishonest assistance lies against someone who dishonestly assists with a breach of trust or fiduciary duty by another. For example, take a public official that steals public money. Claims for dishonest assistance could extend to anyone who consciously assists in the continuing wrongful diversion of the money, regardless of whether or not they received the funds or retain them.

Williams v Central Bank of Nigeria

The facts of Williams were described by Lord Sumption as “exotic”, although not relevant to the legal issues that had to be decided. In summary:

  • Dr Williams, the Claimant, alleges that in 1986 he was the victim of a fraud instigated by the Nigerian State Security Services. He says that he was induced to guarantee a bogus transaction for the importation of foodstuffs into Nigeria.
  • In connection with that transaction, he paid US$6,520,190 to an English solicitor, which was to be held on trust by the solicitor for Dr Williams on terms that it should not be released until certain funds had been made available to him in Nigeria.
  • Dr Williams says that in fraudulent breach of that trust, the solicitor instead stole US$500,000 and paid out the remainder to the Central Bank of Nigeria.
  • The Central Bank, it is claimed, had knowledge of the fraud. Dr. Williams has made claims against the bank for both knowing receipt, for the sums received by the bank, and dishonest assistance, for the total sum paid to the solicitor.

Dr. Williams commenced proceedings in England against the Central Bank in 2010. The question for the Supreme Court was whether his claim was barred by the English Limitation Act 1980. The issue arose on the question of whether permission should have been given to Dr. Williams to serve the proceedings on the Central Bank out of the jurisdiction. Permission had been granted by the Judge hearing the application, and this had been upheld by the Court of Appeal.

Constructive trusts

To understand the decision of the Supreme Court in Williams, it is necessary to understand the ways in which the terms “constructive trust” and “constructive trustee” have been used by English Judges. Both terms have been applied to circumstances in which a defendant has not been appointed as an express trustee but might be made liable to account for the trust assets as if he was. However, this can arise in two very distinct ways:

  • The first is where the “constructive trustee” was always intended to act as a trustee, and intended therefore to administer the trust funds for the benefit of the trust’s beneficiaries, but was never formally or properly appointed. Despite the failure of form, the law treats such an individual as a true trustee, and will enforce the obligations they have assumed exactly as if they had been “properly” appointed.
  • The second is where a person never intended to assume the status of a trustee, and never intended to protect the interests of the beneficiaries, but has instead participated in the unlawful misapplication of trust assets. This may have arisen because they received trust assets knowing that the transfer to them was in breach of trust, and are therefore liable for “knowing receipt”. Or they have dishonestly assisted in a misapplication of the funds by the trustee, and are therefore liable for “dishonest assistance”. In either case, the Court may be required to account to the Claimant as if they were trustees, although they are not. Here, the intervention of the Court “does not reflect any pre-existing obligation but comes about solely because of the misapplication of the assets. It is purely remedial”, to quote Lord Sumption in Williams.

The Limitation Act 1980

English law contains various limitation periods, the bulk of which are contained in the Limitation Act 1980. Relevant sections include

  • The normal time limit for claims based on tort, which would include claims for knowing receipt or dishonest assistance, is six years from the date on which the claim arose[2].
  • Section 21 of the Limitation Act 1980 prevents fraudulent trustees from relying on any limitation period when claims are made against them. It provides (so far as relevant) as follows:

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.”

  • In the Limitation Act, the expressions ‘trust’ and ‘trustee’ are specifically extended[3] to constructive trusts.
  • The limitation period is also extended where a claim is based on the fraud of the defendant, or any relevant facts have been deliberately concealed by the defendant[4]. In these circumstances the period of limitation does not run until the claimant has either discovered the fraud or concealment, or could with “reasonable diligence” have discovered it.
  • Deliberate commission of a breach of duty in circumstances in which it is unlikely to be discovered for some time amounts to deliberate concealment of relevant facts.
  • There is also no limitation period to recover a stolen chattel from a thief, which may be relevant in some corruption cases.

The limitation issues in Williams

Two questions arise for the Supreme Court in Williams:

  • The first is whether the Central Bank, assuming it was liable for either dishonest assistance with a breach of trust or for knowing receipt of trust assets, was a “trustee” for the purposes of section 21(1)(a) of the Limitation Act. If it was, there was no limitation period.
  • The second question was whether an action “in respect of” any fraud or fraudulent breach of trust to which the trustee was a party or privy includes an action against a party such as the Central Bank which is not itself a trustee. If it did, there would be no limitation period.

As noted above, a defendant guilty of knowing receipt or dishonest assistance will be treated by the Court as a “constructive trustee”. Dr. Williams asserted that his claim was not time-barred because there was no limitation period for claims against fraudulent trustees, and the act specifically extended this to constructive trustees.

That argument was rejected by a majority of the Supreme Court. Four of the five Supreme Court judges agreed that section 21 of the Limitation Act is concerned only with actions against true trustees, not actions against defendants that have participated in the misapplication of trust assets and are described as constructive trustees for the purpose of granting relief in response to a claim.

The decision was reached after a review of the relevant English laws and cases stretching back over two centuries. The Supreme Court press release summarises the position as follows: “… the rationale behind the original rule that trustees are accountable to their beneficiaries without limitation of time will not necessarily apply to every kind of constructive trust. Trust assets are assets lawfully vested in a trustee. If the trustee misapplies the assets, equity ignores the misapplication and simply holds him to account for the assets as if he had acted in accordance with his trust. There is nothing to make time start running against the beneficiary. Persons who are under a purely ancillary liability [i.e. persons liable for knowing receipt and dishonest assistance] are in a different position to this. Their acts and their receipt of the assets are at all times adverse to both the true trustees and the beneficiaries. They are liable to account in equity, but as wrongdoers, and not as true trustees”.

The second question was whether the Central Bank was, in any event, a defendant sued “in respect of any fraud or fraudulent breach of trust to which the trustee was a party or privy” for the purposes of the Limitation Act. The wording was capable of two meanings. A narrow reading would mean that

section 21(1)(a) only applies to claims brought against the trustee who was “a party or privy” to the “fraud or fraudulent breach of trust”. A wider reading would mean that section 21(1)(a) applies to anyone, including but not limited to a trustee, who was involved in the “fraud or fraudulent breach of trust”.

However, placing weight on the principles underlying the section, a 3:2 majority of the Supreme Court preferred the narrower meaning, deciding that Section 21(3) was concerned only with actions against trustees on account of their own fraud or fraudulent breach of trust.

Conclusion

The majority of the Supreme Court Judges decided that there was no objection in principle to a limitation defence applying to claims for knowing receipt and dishonest assistance against those that have assisted in the wrongful misapplication of trust assets (for example, those that have assisted public officials to steal public assets). Lord Neuberger, for example, noted that “…this conclusion places dishonest assisters and knowing recipients (i) in the same position as those who are liable in common law for improper or dishonest conduct, and (ii) in a better position than defaulting trustees. The first result seems appropriate: as Millett LJ said in the Paragon case at p 414, “[t]here is no case for distinguishing between an action for fraud at common law and its counterpart in equity”. As for the second result, it is plainly justifiable, as defaulting trustees have pre-existing fiduciary duties to claimants which dishonest assisters and knowing recipients do not”. The position is in contrast to claims against trustees themselves for fraudulent breach of trust, or to recover trust property or the proceeds of trust property, for which there is no limitation period in English law[5].

Corruption claims are often brought many years after the corrupt events have occurred. That can arise, for example, where those benefitting from the corrupt acts have remained in power for many years or where civil claims have followed lengthy criminal investigations or proceedings. In these circumstances, limitation periods can sometimes be relevant.

Where corrupt schemes are international in scope, claims may be capable of being brought in two or more countries. One question may therefore be whether there is any difference in the limitation laws of the different states. Some countries, for example, do not have limitation periods or apply longer periods, particularly in cases of fraud. Here, for example, Dr. Williams has apparently amended his case to add claims based on Nigerian law that presumably escape the consequence of the English Limitation Act. Different limitation periods may also apply, even in the same country, in criminal, civil forfeiture and civil proceedings.

Finally, as stated by Lord Neuberger in conclusion, “it is right to mention that in some cases of dishonest assistance or knowing receipt, even though the normal six year period may have expired, a claimant may be able to invoke section 32 of the 1980 Act, which postpones the commencement of the six years, in cases “based upon the fraud of the defendant”, or where the defendant has “deliberately concealed” relevant facts from the claimant”. In most corruption cases, this section is likely to apply.

However, relying on this section are not always straight-forward as the circumstances in which an extension is permissible are constrained and may not take account of the difficulties and delays faced by Governments seeking to investigate corruption: see for example the following statement of Lord Justice Millet:

"The question is not whether the plaintiffs should have discovered the fraud sooner; but whether they could with reasonable diligence have done so. The burden of proof is upon them. They must establish that they could not have discovered the fraud without exceptional measures which they could not reasonably have been expected to take…the test was how a person carrying on a business of the relevant kind would act if he had adequate but not unlimited staff and resources and was motivated by reasonable but not excessive sense of urgency." (Paragon Finance v DB Thakerar & Co [1999] 1 All ER 400.)

Sources

The judgment is cited as Williams (Respondent) v Central Bank of Nigeria (Appellant) [2014] UKSC 10 and appears here.

A press summary released by the Supreme Court summarising the judgment appears here.