In Williams v Central Bank of Nigeria [2014] UKSC 10, a divided Supreme Court has overruled the Court of Appeal in holding that claims for knowing receipt and dishonest assistance are subject to a 6-year limitation period.

Section 21(1)(a) of the Limitation Act 1980 provides that:

“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.”

In Williams, the Supreme Court was required to answer two questions arising from this section:

  1. is a stranger to a trust who is liable to account for dishonest assistance in a breach of trust or knowing receipt of trust assets a “trustee” within the meaning of section 21(1)(a)?

  2. If not, then does an action “in respect of any fraud or fraudulent breach of trust to which the trustee was a party or privy” include an action against someone who is not a trustee?

By a majority, the Supreme Court has answered both of these questions in the negative.

On the first question, the starting point is that the Limitation Act adopts the definitions in section 68(17) of the Trustee Act 1925 namely that

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

and, as Lord Sumption put it

“there are few areas in which the law has been so completely obscured by confused categorisation and terminology as the law relating to constructive trustees.”

In Paragon Finance plc v DB Thakerar & Co [1999] 1 All ER 400, Millett LJ identified two types of “constructive” trustee. “Class 1” (“institutional”) encompasses those who have assumed the duties of a trustee as a consequence of a lawful transaction which is independent of and took place prior to the breach of trust and which is not itself impugned by the claimant. On the other hand, in the case of “Class 2” (“remedial”) constructive trusts the trust obligation arises directly from the unlawful transaction which is impugned by the claimant. A Class 1 trustee is a true trustee whereas a Class 2 trustee is not. Ultimately, this distinction provided the answer to the first question: a knowing recipient or dishonest assister is a class 2 trustee and therefore not a trustee within the meaning of s 21(1)(a).

On the second question, the Court of Appeal had held that even though/if a defendant to a claim for knowing receipt or dishonest assistance was not a trustee within section 21(1)(a) it might still be deprived of a limitation defence because the claim could be an

“action ...  in respect of any fraud or fraudulent breach of trust to which the trustee was a party or privy”

even though it is not made against the trustee. Here, the Supreme Court was in agreement that the language of the subsection was capable of interpretation for or against this interpretation and in a sense the decision came down to the width of the words “in respect of”. The majority preferred the narrower meaning. Accordingly, section 21(1)(a) did not apply to the dishonest assistance claim and it was therefore stature barred.

By way of footnote, one of the cases which the majority treated as supporting its reasoning on the meaning of “trustee” question was the director’s breach of duty case Gwembe Valley Development Company Ltd v Koshy (No. 3) [2004] 1 BCLC 131. It was not necessary for the Supreme Court to consider the doubtful reasoning (if not result) in Gwembe.