Will a limitation defence for fraudulent breach of trust aid an innocent trustee?

The recent High Court judgment in Lord Bishop of Leeds v Dixon Coles & Gill [2020] EWHC 2809 (Ch) deals with several issues that will be of interest to solicitors and insurers faced with liability to account for fraudulent acts of a solicitor in partnership.

But for the purpose of this article, I am looking at the way the judge approached the application of the Limitation Act 1980 to breaches of trust by the fraudulent solicitor over a period of several years.

The solicitor in question was a Mrs Box who was a partner in the (now closed) firm of Dixon Coles & Gill (DCG). Over a period of several years Mrs Box had stolen money from various clients. She successfully covered her tracks so that her partners, Mr Gill and Mrs Wilding, had no knowledge of the fraud on their clients’ money until a shock discovery was made on Christmas Eve in 2015 that client money had been misappropriated by Mrs Box.

The claimants, who were clients of DCG and victims of theft by Mrs Box, applied to the Court for damages from the other partners for breach of trust. On an application for summary judgment for an account for the missing funds and interim payment, the court heard that 4 conveyancing transactions, where funds were misappropriated, took place more than 6 years before the claim was issued. Accordingly, Mr Gill and Mrs Wilding contended that the summary judgment should not be entered as there was a prospect of a limitation defence argument.

The Court considered the provision in section 21 of the Limitation Act 1980 (the Act) which provides that:

“(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 him and converted to his use. …

(3) Subject to the preceding provisions of this section, an action by a beneficiary to recover trust property or in respect of any breach of trust, not being an action for which a period of limitation is prescribed by any other provision of this Act, shall not be brought after the expiration of six years from the date on which the right of action accrued. For the purposes of this subsection, the right of action shall not be treated as having accrued to any beneficiary entitled to a future interest in the property until the interest fell into possession.”

Section 23 Limitation Act 1980 provides that: “An action for an account shall not be brought after the expiration of any time limit under this Act which is applicable to the claim which is the basis of the duty to account”.

The Court found that it was clear that there is no separate limitation period in respect of the remedy of an account; it found that the limitation period is determined by the underlying cause of action.

As to that, the Court considered the position in Lewin on Trusts 20^th edition paragraphs 50-009 to the effect that:

“An action against an innocent trustee liable for the fraud of his co-trustee, though not a party or privy to it is not within section 21(1)(a) and accordingly can be barred by lapse of time. The same applies where the fraud is that of the trustee’s solicitor or other agent. But an action against a trustee based on the fraud of the trustee’s employee or partner (Judge’s emphasis) seems to be within the section.”

The Judge found that although the authors of Lewin had probably come to the right decision by the wrong route (in relying on Moore v Knight [1891] 1 Ch 547 which was not actually authority for breach of trust) it was good authority in support of the contention that co-partners fall within the ambit of s21(1)(a) as being “party or privy” to the acts of the fraudulent partner so that no limitation to the claim applies.

The Judge found that Mr Gill and Mrs Wilding were not able to claim the protection of the Act because they are deemed to be “party or privy” to the fraudulent acts of Mrs Box by reason of their partnership status. The Judge had already established earlier in the judgment in connection with the conveyancing transactions in question, that the co-partners were fixed with a direct liability in respect of Mrs Box’s fraud by virtue of the Partnership Act. This deemed them to be “party or privy” to her acts in the context of section 21 and thereby deprived them of the limitation defence within the Act.

It must be remembered that the application before the Court was for summary judgment pursuant to CPR 24 and therefore the question for the Judge was not whether there was in fact a limitation defence, but whether it was sufficiently arguable that there was one. The Judge found that there was no realistic prospect of the co-partners arguing that the limitation defence applied, given the effect of the Partnership Act in fixing them with liability for Mrs Box’s errant acts.

The Judge went on to observe that even if he was wrong about that the provisions of section 32(1)(a) or (b) of the Act allow for an extension of the usual 6 year limitation where the limitation period begins to run from the date on which the claimant discovers the fraud, concealment or mistake could, with reasonable diligence, have discovered it. The Judge found that had he concluded that the claims were statute barred, he would have concluded that it was arguable that the claimants could with reasonable diligence have discovered the fraud; counsel for Mr Gill and Mrs Wilding had argued that if one of the claimants had properly analysed the completion statements provided to them, it would have led to a train of enquiry that would have revealed that Mrs Box was up to no good. The Judge commented that this would have given rise to an arguable case in favour of the limitation defence, but as it was the matter was academic because there was no real prospect of establishing a limitation period in any event.

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