Supreme Court Rules On The Limitation Period In Constructive Trustee Cases

The Supreme Court1 has recently provided clarity on two questions where there have been inconsistent authorities for much of the 20th century. The first question was whether a third party who dishonestly assists or knowingly receives trust property in breach of trust is a trustee for the purposes of section 21 of the Limitation Act 1980 (the Act). Section 21 provides a six-year limitation period to an action to recover trust property, unless the action is one:

in respect of any fraud or fraudulent breach of trust to which the trustee was a party or privy; or 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. The second was whether a third-party stranger to a trust can be sued in respect of an action for "fraudulent breach of trust to which the trustee was a party or privy". The Court by a majority of three to two answered both questions in the negative.

Background

The respondent, Dr Williams, brought proceedings against the applicant, the Central Bank of Nigeria (the Central Bank), claiming that the Central Bank had been part of a wider conspiracy to defraud him by the Nigerian Security Services. Dr Williams alleged that, in 1986, he was induced to pay $6,520,190 to a solicitor in England, to be held on trust for him. In breach of trust the solicitor paid out $6,020,190 of the money, keeping the rest for himself. The money paid out was paid into an account held by the Central Bank with Midland Bank in London.

A claim was brought in England against the Central Bank as a constructive trustee. The allegation was that:

the Central Bank knew that the money was trust money and it had dishonestly assisted the trustee solicitor in misapplying the money; and the Central Bank had knowingly received the portion of the trust money paid into its London bank account. The Central Bank applied for a declaration that the claim be set aside on the basis that the English courts had no jurisdiction. The Central Bank's application was refused at first instance and by the Court of Appeal. In determining whether English courts had jurisdiction, it had to be established whether there was a real issue to be tried2, and this in turn meant establishing whether Dr Williams' claim was time barred.

On appeal by the Central Bank, the question before the Supreme Court therefore was whether Dr Williams' claim was time barred by virtue of section 21 of...