Your Breach Of Trust Is My Breach Of Trust: Limitation And Liability Of Innocent Partners For Wrongs Committed By A Co-Partner

• Published date: 01 September 2021
• Subject Matter: Litigation, Mediation & Arbitration, Criminal Law, Arbitration & Dispute Resolution, Professional Negligence, White Collar Crime, Anti-Corruption & Fraud
• Law Firm: Gatehouse Chambers
• Author: Joshua Griffin

Dixon Coles & Gill (A Former Firm) v Baines, Bishop of Leeds & Anor [2021] EWCA Civ 1097

05 July 2021

Background

The Appellant was a long-established and well-respected firm of solicitors in Wakefield ('the Firm'). The Respondents were former clients of the Firm.

In December 2015, it transpired that one of the three then-partners of the Firm, one Mrs Box, had fraudulently made unauthorised payments from the Firm's client account and had been doing so for years. Millions of pounds held on trust for the Respondents, among others, had been misappropriated. Mrs Box was expelled from the Firm in January 2016 and was subsequently, having pleaded guilty to offences of dishonesty, sentenced to a term of imprisonment and struck off as a solicitor.

The Firm was obliged to close in January 2016, and the surviving two partners ('the Surviving Partners'), faced claims by former clients seeking compensation for the loss of the misapplied funds.

The Claim Form was issued on 25 September 2018 and the Respondents claimed against the Firm as trustees of the client account. Mrs Box was plainly guilty of fraudulent breaches of trust in taking the money for her own benefit. As for the Surviving Partners, it was a matter of common ground that they were prima facie liable to account as trustees even though they themselves were innocent, not having any knowledge of or involvement in the fraud.

In their Defence, the Surviving Partners pleaded that the Respondents' claims against them were statute-barred insofar as they arose more than six years before the issue of the Claim Form by virtue of section 21(3) of the Limitation Act 1980.

At first instance, HHJ Saffman rejected that argument on the grounds that the Surviving Partners were deemed as being party or privy to the fraud by virtue of the Partnership Act 1890, and accordingly that section 21(1) of the Limitation Act 1980 precluded them from relying on a limitation defence.

The Law

Section 21 of the Limitation Act 1980, which corresponds to section 8(1) of the Trustee Act 1888, provides as follows:

(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...