Trustees can be sued for fraud at any time – there is no statutory time limit within which such claims must be brought. However, this exemption has been held not to apply to claims against non-trustees who dishonestly assist in a breach of trust or knowingly receive trust proceeds, although the issue has been much debated. The Supreme Court recently confirmed this position in the case ofWilliams v Central Bank of Nigeria concluding that the exemption only applies to lawfully appointed or de factotrustees, rather than non-trustees whose possession of the trust assets is at all times unlawful. Therefore, the Central Bank of Nigeria ("Central Bank"), who was not a trustee but who it was alleged had dishonestly assisted with the fraudulent breach of trust and knowingly received trust property in breach of the trust, could not be pursued as the six year limitation period had expired.
In 1986 Williams paid over US$6,000,000 to an English solicitor to be held on trust for him on certain terms. The solicitor paid the majority of the money into a UK bank account held by Central Bank retaining US$500,000 himself. Williams alleged that these transactions were fraudulent breaches of trust by the solicitor and that Central Bank had dishonestly assisted in the fraud and knowingly received trust funds paid in breach of the trust. Williams initiated an action to recover these funds and permission to serve out of the jurisdiction was granted. The claim was served on Central Bank in Nigeria in April 2010. In response, Central Bank applied for a declaration that the English court did not have jurisdiction as Williams’ claims were time-barred.
The Limitation Act 1980 (the “Act”) provides that no period of limitation applies 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” (the “Exemption”). Any actions by beneficiaries in respect of breaches of trust or recovery of trust property which do not fall within the exemptions in the Act (including the Exemption) must be brought within six years of the breach.
At first instance Central Bank’s application was dismissed and it appealed solely on the issue of whether Williams’ claims were time-barred under the Act, with the key question being whether the Act permitted only actions brought outside the limitation period against a trustee and not against a third party who assisted in the breach of trust.
The Court of Appeal considered whether the wording of the Exemption implied that a claim could only be made against a trustee outside the limitation period. It concluded that an action by a beneficiary for a fraudulent breach of trust to which the trustee was party, could be brought against any person who dishonestly assisted the trustee with the fraud after the limitation period had expired.
Supreme Court decision
The Supreme Court addressed two questions:
- whether a “trustee” as envisaged by the Act includes third parties who are not expressly appointed as trustees but who dishonestly assist in a breach of trust or knowingly receive trust property in breach of a trust; and
- if the answer to (i) is no, whether an action in respect of any fraudulent breach of trust as provided for in the Exemption includes an action against a third party as well as the trustees.
Regarding the first question, the Supreme Court considered the distinction that traditionally has been drawn between two types of constructive trust, the first being where the trust pre-exists the allegedly unlawful transaction and the non-trustee assumes the role of a trustee, and secondly, where a “so-called” trust arises solely due to the allegedly unlawful transaction.
The Supreme Court highlighted that in the former, there is nothing to start time running against the beneficiary as the trust assets are, at commencement of the trust, lawfully vested in the trustee. However, in the latter, the non-trustees’ acts and/or receipt of trust property, is at all times unlawful, and as such these parties are “wrongdoers…not as true trustees.” The Supreme Court reasoned therefore that the definition of “trustee” in the Act cannot include dishonest assisters of a breach of trust or knowing recipients of trust property as no trust was ever reposed on these parties.
Further, considering the drafting of the Act generally, the Supreme Court concluded that the drafting was specifically providing for actions against trustees “on account of their own fraud or fraudulent breach of trust” only. Therefore an action against a non-trustee in respect of a fraudulent breach of trust would not fall within the Exemption and must be brought within the limitation period.
As the majority view agreed that the answer to both questions above was in the negative, the appeal was allowed and the Supreme Court held that the English court had no jurisdiction. However, two dissenting judgments maintained that the appeal should be dismissed as dishonest assisters and knowing recipients should be in the same position with regards to limitation as the dishonest trustees they are assisting/receiving proceeds from.
This decision clarifies the widely-debated issue of the application of statutory limitation to constructive trusts; it restricts beneficiaries’ power to bring claims for breach of trust outside the limitation period to actions against trustees only – claims against non-trustees for dishonest assistance in a breach of trust or who have knowingly received trust proceeds in breach of a trust must be commenced within the usual six year limitation period.
For a full copy of the judgment click here.