A company in liquidation appealed against a decision that its claim against the directors, for breach of fiduciary or statutory duty in relation to distribution in specie of the claimant company’s shareholding in another company, was time-barred.
The primary limitation period for a claim against the directors in respect of the distribution is six years pursuant to s.21(3) Limitation Act 1980. However, the claimant argued that no limitation period applied by virtue of s.21(1) (b) which states that “no period of limitation prescribed by this Act shall apply to an action by a beneficiary under a trust, being an action 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”. As the defendants held the shares in the companies that acquired the distribution in specie, they received trust property. Once it was transferred, this amounted to converting the trust property.
Whilst a literal reading of s.21(1)(b) would suggest that the section did not apply (as the defendants were never in possession of the shares), the court was concerned that “its effect can very easily be avoided by trustees who, whether knowingly or otherwise, transfer trust property in breach of trust for their own benefit”.
The court therefore turned to the case of Re Pantone 485 Ltd Miller v Bain , approving the following from the judgment: “where a fiduciary uses his beneficiary’s money to confer a benefit on a company he controls he is denying the beneficiary’s title to the money for his own purposes and this amounts to a conversion for his own use. The same is true where a fiduciary causes his beneficiary to incur a liability for the benefit of a company which the fiduciary controls.”
Therefore, the section must be interpreted and construed as including within its terms a transfer to a company directly or indirectly controlled by the trustee. The claim could proceed.