Court Of Appeal Judgment: First Subsea Ltd v Balltec Ltd And Others [2017] EWCA Civ 186

In First Subsea Ltd v Balltec Ltd and others [2017] EWCA Civ 186 the Court of Appeal had to make a judgment on whether a director found to be in breach of fiduciary duty could rely on a limitation defence under the Limitation Act 1980.

Background

E was the director and founder of First Subsea Ltd. Following the sale of a shareholding to another company for extra investment, E became dissatisfied with the new business arrangements when he started to be excluded from management decisions. As a result, E resigned as a director and set up a new company, Balltec Ltd, which made rival bids for contracts in competition with First Subsea Ltd. This resulted in First Subsea Ltd losing a contract to Balltec Ltd, and forcing it to lower its quoted price on another contract, therefore causing loss.

First Subsea Ltd subsequently brought claims against E for damages for conspiracy to injure by unlawful means, breach of fiduciary duty and fraud. It was held in the first instance that E had acted in breach of fiduciary duty in acting disloyally and using financial information to encourage a company which worked for First Subsea Ltd to work for Balltec Ltd instead in relation to various bids, and in the retention and misuse of confidential documents stored on E's computer.

However, one significant point that arose in the case involved the timescale of events. E's breach of fiduciary duty took place before December 2004, but the claim form was issued on 22 December 2010. As this was more than 6 years since the initial breach, this meant that the claims were statutorily time-barred under s.21(3) Limitation Act 1980, unless this was disapplied by s.21(1). This section provides that:

S.21(1) No period of limitation will 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 the trustee and converted to his use.

E tried to argue that s.21(1) did not apply because the section was limited to cases where the fiduciary has misappropriated property vested in him or under his control, that he had not misappropriated or disposed of First Subsea's property, and that no constructive trust had come into existence. However, the judge held that s.21(1)(a) did apply because E had acted knowing that his conduct would injure...