Breach of trust: Know your limits
In Court of Appeal in CREGGY v (1) JEFFREY BARNETT (2) PETER BARNETT [2016] EWCA Civ 1004 exams issues around the operation of the Limitation Act 1980 in breach of trust claims.
The case reminds us that not all breach of trust claims avoid the 6 year limitation period and that the nature of the loss sought could be determinative.
In 2012 two brothers called Barnett started proceedings against a solicitor called Mr Creggy for breach of trust in relation to the sum of 1.2million US dollars which Mr Creggy had paid out to a third party in 1998 from a Swiss bank account. The bank account was in the name of two off-shore companies owned by the brothers. Mr Creggy was a signatory on the account and had the power to control the disbursements.
The brothers alleged that Mr Creggy was a trustee of the funds in the bank and sought an account of his use of the money. Their argument was rejected by the first instance Court, and not challenged. The Court held that Mr Creggy was not a trustee and therefore was not liable to give an account. However, it was held that Mr Craggy did owe fiduciary duties in relation to the exercise of his powers as an account signatory. Accordingly, the definition in section 68(17) of the Trustee Act 1925 applied to him as an implied or constructive trustee. In turn, Mr Creggy could look to section 21 of the Limitation Act 1980 to offer him a defence against the finding that he had misapplied 1.2 million dollars in 1998.
Exceptions to the 6 year limitation period for breach of trust claims by beneficiaries under section 21(1) apply if the trustee has:-
(a) Committed fraud in relation to the trust property, or
(b) Retained trust property or applied it for his own use or benefit.
If the trustee has simply paid out money to the wrong person, the 6-year limitation bites. Mr Creggy argued that the brothers’ claims were statute barred as they could not rely on the exceptions. However, the brothers relied on a provision in section 29(5) of the Limitation Act which states that, in relation to a debt or liquidated claim, where the liability for the claim is acknowledged by the defendant, time to bring the claim starts to run from the date of the acknowledgment.
In this case, Mr Creggy had written to one of the brothers in 2012 acknowledging the liability to pay a “debt”, which was said to start time running in respect of that brother’s claim, thereby extending the limitation period. The brother’s argument succeeded at first instance but was overturned by the Court of Appeal who found that his claim was statute barred.
The Court of Appeal (Patten LJ dissenting) found that where trust monies had been improperly paid away by a trustee, the situation was similar to a claim at common law for a fixed sum of money, even though it may not be possible to precisely quantify the loss to the beneficiary. This means that the expression “liquidated pecuniary claim” within s.29(5)(a) of the 1980 Act covers a claim for recovery of trust money wrongly paid away by a trustee.
Accordingly, trustees who have wrongly misapplied trust money can remain liable outside the 6 year limitation period in section 20 of the Act if they acknowledge the debt in accordance with section 9(5) of the Limitation Act.
In this case, Mr Craggy’s appeal was allowed, despite the Court finding that the 6-year limitation period could be extended. The problem for the brothers was that they could not rely on section 29(5) as they were not the beneficiaries of the money misapplied by Mr Craggy. The money belonged to their companies, not them as individuals. The Court at first instance found that, despite the brothers being the beneficial owners of the companies which had no debt, the argument that the companies were pure nominees for the brothers achieves nothing beyond the “simple cloak of deception”.