In Williams v Central Bank of Nigeria ([2014] UKSC 10, the Supreme Court has held that the statutory limitation period (under the Limitation Act 1980) which provides that claims in respect of any fraud or fraudulent breach of trust to which a trustee is a party are not time-limited, only applies to claims against express trustees or 'de facto' trustees. A bank which accepted money from a solicitor of an individual, Mr Williams, which Mr Williams had paid to the solicitor to hold on trust was not for these purposes an express or 'de facto trustee'. The applicable limitation period under the Act for a claim against the Bank which applies where a party that has provided “dishonest assistance in a breach of trust” and “for knowing receipt of trust property” was six years and the member was out of time in bringing such a claim against the Bank.

Background

Dr Williams claimed to be the victim of a fraud instigated by the Nigerian State Security Services in 1986. He acted as guarantor for the importation of foodstuffs into Nigeria. As part of the transaction, he paid around US$6.5 million to his English solicitor to hold on trust until funds were made available to him in Nigeria. He alleged that in fraudulent breach of trust his solicitor paid most of the money into an English account of the Central Bank of Nigeria and pocketed the remainder. Williams claimed the Bank was liable for knowing receipt of trust property and for dishonest assistance in a breach of trust and sought to trace the money in the Bank’s hands.

The Bank applied to set aside the permission granted to W to serve the claim form on the grounds that the six year statutory limitation period for W’s claims had expired and there was no serious issue to be tried.

The question which arose before the Supreme Court was how section 21 of the Limitation Act 1980 should be interpreted. Broadly Section 21 provides that no limitation period applies to an action by a beneficiary under a trust “in respect of any fraud or fraudulent breach of trust to which the trustee was a party or privy”; where this exception does not apply, the applicable time period for an action by a beneficiary to recover trust property or in respect of any breach of trust, is six years.

Issues before the Court

The Supreme Court considered two questions in relation to the scope of Section 21:

  • 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” for the purposes of Section 21?
  • If not, 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 a party which is not itself a trustee?

Decision

The Supreme Court distinguished between two groups of people who have been described as constructive trustees (as highlighted in the case of Paragon Finance Plc v DB Thakerar & Co (a firm) ([1999] 1 All ER 400):

  • Persons who have assumed fiduciary obligations in relation to trust property without being formally appointed trustees (“de facto trustees”).
  • Persons who have never assumed and never intended to assume the status of trustee, but “exposed themselves to equitable remedies by virtue of their participation in the unlawful misapplication of trust assets”. These were cases of “ancillary liability”.

The Bank’s case, the Supreme Court held was a case of “ancillary liability". Strangers to a trust who become subject to the exercise of equity’s remedial jurisdiction are not true trustees: they are “merely wrongdoers”. The principle that the dishonest assistant is not a trustee for the purposes of Section 21 was based on the difference between a true trustee and a wrongdoer on whom liability is imposed for participating in misapplying trust assets. The position is the same with respect to knowing receipt. The beneficiaries of a trust do not repose trust and confidence in a defendant who has knowingly received trust property. Although the claimant may have a proprietary claim against the defendant, that does not make him a trustee for the purposes of the Act. The court accordingly found that the Bank was not a “trustee” for the purposes of Section 21.

As regards the second question as to whether the action for dishonest assistance and knowing receipt was an action “in respect of” any fraud or fraudulent breach of trust to which the trustee was a party or privy, the Supreme Court concluded that this provision was concerned only with actions against trustees for their own fraud or fraudulent breach of trust.

Consequently, the relevant time period for a claim against the Bank was 6 years. As over 6 years had passed, the Supreme Court allowed the Bank’s application and struck out Mr William’s claim to the extent that it was based on the Bank's alleged liability for dishonest assistance in breach of trust and knowing receipt of trust property.

Comment

This case provides welcome clarification as to what is meant by a “trustee” for the purpose of claims by beneficiaries against trustees/third parties for “dishonest assistance” and “knowing receipt of trust property” under the Act.