ON APPEAL FROM THE HIGH COURT OF JUSTICE
Strand, London, WC2A 2LL
B e f o r e :
LORD JUSTICE KITCHIN
LORD JUSTICE BRIGGS
| FIRST SUBSEA LIMITED
(FORMERLY BSW LIMITED)
|- and -
|(1) BALLTEC LIMITED
(2) ROBERT EMMETT
(4) RUSSELL BENSON
(5) ROGER BACON
Philip Marshall QC and Andrew Moran QC (instructed by Boodle Hatfield) for the Respondents
Hearing dates : 14 and 15 February 2017
Crown Copyright ©
Lord Justice Patten :
(1) whether the relevant claims against Mr Emmett were an action to recover trust property or in respect of any breach of trust under s.21(3);
(2) if so, whether the judge was entitled to find that the breaches of trust were fraudulent within the meaning of s.21(1)(a);
(3) alternatively, whether paragraph 2 of the order relates to claims to recover trust property in the possession of the trustee or converted to his use within the meaning of s.21(1)(b); and
(4) if not within s.21, whether any limitation period applies to the claims, or any of them, by analogy under the provisions of s.36 of the 1980 Act?
"158. My findings of fact on this part of the case (bearing in mind that I am at this stage assuming that the competitive means employed were unlawful) are:-
a) Mr Brown and Mr Emmett did not from the outset have a positive intention to harm BSW because they entertained the hope that they could buy Arnlea out and restore BSW to their ownership;
b) But in submitting the bids for the Dalia Project, the Kizomba oilfield and the Simian/Sapphire oilfield both Mr Emmett and Mr Brown knew and understood that by seeking to advance their own business in relation to those contracts they would by the very nature of things be "injuring" BSW (the loss to BSW being the obverse side of the coin from the gain to Balltec);
c) By July 2004 it was "a key plank" in Mr Emmett's and Mr Brown's strategy to "take out" BSW (as Mr Emmett acknowledged in the Manchester Proceedings and accepted in these), so that they knew and intended that their success should be at the direct cost of BSW. As Mr Emmett put it in an e-mail on 29 July 2004 to Technip in connection with the Dalia bid:-
"After 20 years of building BSW and earning an enviable reputation for delivering on promises I am greatly saddened to see the huge changes happening and to receive a rising tide of complaints from staff, suppliers and latterly customers … Experienced staff continue to depart BSW. They no longer have any design staff. A proud engineering company cannot exist without experienced and talented engineers."
d) Whilst they took extensive legal advice as to what it was lawful for them to do Mr Emmett and Mr Brown knew (i) from no later than 23 June 2004 that there was an issue about their obligations as shareholders and directors of BSW; (ii) from 1 July 2004 that they would be in breach of fiduciary duties as directors of BSW if they continued to hold a directorship whilst actually operating in competition with BSW; (iii) from 1 July 2004 that Mr Brown's then current activities in connection with seeking to secure business in competition with BSW were likely to amount to a breach of fiduciary duty as a director of BSW; (iv) from 5 July 2004 that being a director of BSW whilst competing in business presented potential problems; (v) from 8 July 2004 that entering into a competitive business whilst still a director of BSW would represent a clear breach of fiduciary duty; and having received that advice they did not inform their legal advisers of what in fact they had done or intended to do (submit bids to hold the position against the day when the new business actually started) so as to ensure that their conduct fell the right side of the line."
Breach of fiduciary duty
"1. A director, while acting as such, has a fiduciary relationship with his Company. That is he has an obligation to deal towards it with loyalty, good faith and avoidance of the conflict of duty and self-interest.
2. A requirement to avoid a conflict of duty and self-interest means that a director is precluded from obtaining for himself, either secretly or without the informed approval of the Company, any property or business advantage either belonging to the Company or for which it has been negotiating, especially where the director or officer is a participant in the negotiations.
3. A director's power to resign from office is not a fiduciary power. He is entitled to resign even if his resignation might have a disastrous effect on the business or reputation of the Company.
4. A fiduciary relationship does not continue after the determination of the relationship which gives rise to it. After the relationship is determined the director is in general not under the continuing obligations which are the feature of the fiduciary relationship.
5. Acts done by the directors while the contract of employment subsists but which are preparatory to competition after it terminates are not necessarily in themselves a breach of the implied term as to loyalty and fidelity.
6. Directors, no less than employees, acquire a general fund of skill, knowledge and expertise in the course of their work, which is plainly in the public interest that they should be free to exploit it in a new position. After ceasing the relationship by resignation or otherwise a director is in general (and subject of course to any terms of the contract of employment) not prohibited from using his general fund of skill and knowledge, the 'stock in trade' of the knowledge he has acquired while a director, even including such things as business contacts and personal connections made as a result of his directorship.
7. A director is however precluded from acting in breach of the requirement at 2 above, even after his resignation where the resignation may fairly be said to have been prompted or influenced by a wish to acquire for himself any maturing business opportunities sought by the Company and where it was his position with the Company rather than a fresh initiative that led him to the opportunity which he later acquired.
8. In considering whether an act of a director breaches the preceding principle the factors to take into account will include the factor of position or office held, the nature of the corporate opportunity, its ripeness, its specificness and the director's relation to it, the amount of knowledge possessed, the circumstances in which it was obtained and whether it was special or indeed even private, the factor of time in the continuation of the fiduciary duty where the alleged breach occurs after termination of the relationship with the Company and the circumstances under which the breach was terminated, that is whether by retirement or resignation or discharge.
9. The underlying basis of the liability of a director who exploits after his resignation a maturing business opportunity 'of the Company is that the opportunity is to be treated as if it were the property of the Company in relation to which the director had fiduciary duties. By seeking the exploit the opportunity after resignation he is appropriating to himself that property. He is just as accountable as a trustee who retires without properly accounting for trust property.
10. It follows that a director will not be in breach of the principle set out as point 7 above where either the Company's hope of obtaining the contract was not a 'maturing business opportunity' and it was not pursuing further business orders nor where the director's resignation was not itself prompted or influenced by a wish to acquire the business for himself.
11. As regards breach of confidence, although while the contract of employment subsists a director or other employee may not use confidential information to the detriment of his employer, after it ceases the director/employee may compete and may use know-how acquired in the course of his employment (as distinct from trade secrets – although the distinction is sometimes difficult to apply in practice)."
"201. Mr Emmett chose to remain a director for as long as it suited his purpose to retain a shareholding as a lever to assist a buyout and to avoid a compulsory transfer. A consequence of that choice was that in my judgment Mr Emmett's fiduciary duties had not been reduced to vanishing point. But they fell to be discharged (a) so far as positive (i.e. requiring action) only in relation to what BSW was, to Mr Emmett's knowledge, actually requiring or expecting him to do; and (b) so far as negative (i.e. requiring Mr Emmett not to act in a particular way) only in relation to what BSW was, according to what Mr Emmett knew or must be taken to have known, doing or intending to do. If Mr Emmett was to do something for BSW then he had to do it in a loyal and faithful way: if BSW was doing something, then Mr Emmett had to conduct himself in a loyal and faithful way as regards his own actions in the light of what BSW was doing."
"209. Again, at the very end (by which I mean the beginning of July) Mr Emmett was forced to make a choice. He chose to promote his personal interests over loyalty to BSW. He chose to put in a competing bid for the Dalia Project even though he knew or must be taken to have known that BSW would be bidding for it. In the same circumstances he chose to prepare and submit bids for the Kizomba oilfield (of which there is in fact no specific complaint in the pleadings) and for the Simian/Sapphire project. In each case he knew or must be taken to have known of BSW's intended actions and his duty of loyalty to BSW required him to refrain from interfering. Those were in this case breaches of fiduciary duty.
212. As to the allegation that Mr Emmett was in breach of fiduciary duty in contacting Mr Fulton of Technip, if this is a reference to contact made on 19 July 2004 in relation to receptacles for the Kizomba oilfield then I find and hold that this was a breach of fiduciary duty. Mr Emmett knew that BSW was supplying Technip in relation to the Kizomba oilfield because that had been discussed at the November 2003 board meeting and had arisen more recently in connection with Mr Brown's queries on the 2003 financial statements. It is true that the precise work then discussed was not identical to the receptacles that Balltec was offering to supply in July 2004: but in my judgment that is immaterial. What is important is that BSW was supplying subsea equipment to Technip for the Kizomba oilfield, was the existing supplier and (as Mr Emmett must have known) was almost certain to bid for further supply. His obligation of loyalty required him not to advance Balltec's interest whilst still a director of BSW. He was a day early."
Injury and remedies
"(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 the trustee 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 trust property until the interest fell into possession."
"the expressions 'trust' and 'trustee' extend to implied and constructive trusts … and to the duties incident to the office of a personal representative, and 'trustee' where the context admits, includes a personal representative …"
"(1) The following time limits under this Act, that is to say—
(a) the time limit under section 2 for actions founded on tort;
(aa) the time limit under section 4A for actions for libel or slander, or for slander of title, slander of goods or other malicious falsehood;
(b) the time limit under section 5 for actions founded on simple contract;
(c) the time limit under section 7 for actions to enforce awards where the submission is not by an instrument under seal;
(d) the time limit under section 8 for actions on a specialty;
(e) the time limit under section 9 for actions to recover a sum recoverable by virtue of any enactment; and
(f) the time limit under section 24 for actions to enforce a judgment;
shall not apply to any claim for specific performance of a contract or for an injunction or for other equitable relief, except in so far as any such time limit may be applied by the court by analogy in like manner as the corresponding time limit under any enactment repealed by the Limitation Act 1939 was applied before 1st July 1940."
"472. So far as s.21(1)(b) is relied upon, that provision is concerned with wrongful dealing with pre-existing assets that had been entrusted to the fiduciary, as where a director abuses the power of disposition which he has over company property. This, however, (in one alternative) is a claim to an account of profits which came into existence by reason of the breach of fiduciary duty itself and in respective of which Mr Emmett is to be treated as if he were a trustee."
"473. So far as s.21 (1)(a) is concerned although judges at first instance have (in the light of comments made by Carnwarth LJ in Halton International  EWCA Civ 801) expressed the view that this provision too should be confined to cases arising from real trusts, they have also held that as a matter of precedent they are bound by the actual decision in Gwembe Valley (supra) which assumes that s.21(1)(a) applies also to cases where the fiduciary is liable to account as if he was a trustee because of the presence of fraud (see J D Wetherspoon v Van den Berg  EWHC 1077 (Ch) and Kleanthous v Paphitis  EWHC 2287). I shall not depart from that view (although I doubt that this aspect of the decision in Gwembe Valley can survive the majority reasoning in Williams v Central Bank of Nigeria  UKSC 10, published when this judgment was in draft and not the subject of submissions).
474. On that footing the question is whether Mr Emmett's breach of fiduciary duty was fraudulent i.e. dishonest. That his breaches of fiduciary duty were "dishonest" was not put in terms to Mr Emmett: nor was it the subject of argument in closing. But if in this context "dishonesty" connotes at the minimum an intention on the part of the fiduciary to pursue a particular course of action knowing or being recklessly indifferent to whether that action will injure the interests of those to whom the fiduciary duties are owed (see McGee "Limitation Periods" 6th ed para 14.004) then the logical outcome of my earlier findings and holdings is that Mr Emmett was dishonest. He committed his breaches of duty knowing that they would injure BSW and intending that they should. BSW may therefore rely on s.21(1)(a) as extending the limitation period in relation to its claims against Mr Emmett for breach of fiduciary duty."
"A constructive trust arises by operation of law whenever the circumstances are such that it would be unconscionable for the owner of property (usually but not necessarily the legal estate) to assert his own beneficial interest in the property and deny the beneficial interest of another. In the first class of case, however, the constructive trustee really is a trustee. He does not receive the trust property in his own right but by a transaction by which both parties intend to create a trust from the outset and which is not impugned by the plaintiff. His possession of the property is coloured from the first by the trust and confidence by means of which he obtained it, and his subsequent appropriation of the property to his own use is a breach of that trust. Well known examples of such a constructive trust are McCormick v Grogan (1869) 4 App.Cas. 82 (a case of a secret trust) and Rochefoucald v Boustead  1 Ch. 196 (where the defendant agreed to buy property for the plaintiff but the trust was imperfectly recorded). Pallant v Morgan  Ch. 43 (where the defendant sought to keep for himself property which the plaintiff trusted him to buy for both parties) is another. In these cases the plaintiff does not impugn the transaction by which the defendant obtained control of the property. He alleges that the circumstances in which the defendant obtained control make it unconscionable for him thereafter to assert a beneficial interest in the property.
The second class of case is different. It arises when the defendant is implicated in a fraud. Equity has always given relief against fraud by making any person sufficiently implicated in the fraud accountable in equity. In such a case he is traditionally though I think unfortunately described as a constructive trustee and said to be "liable to account as constructive trustee." Such a person is not in fact a trustee at all, even though he may be liable to account as if he were. He never assumes the position of a trustee, and if he receives the trust property at all it is adversely to the plaintiff by an unlawful transaction which is impugned by the plaintiff. In such a case the expressions "constructive trust" and "constructive trustee" are misleading, for there is no trust and usually no possibility of a proprietary remedy; they are "nothing more than a formula for equitable relief": Selangor United Rubber Estates Ltd. v Cradock  1 WLR 1555 at p. 1582 per Ungoed-Thomas J."
"35. The respondents' formulation of the Rule has the merit of simplicity: any benefit acquired by an agent as a result of his agency and in breach of his fiduciary duty is held on trust for the principal. On the other hand, the appellant's position is more likely to result in uncertainty. Thus, there is more than one way in which one can identify the possible exceptions to the normal rule, which results in a bribe or commission being excluded from the Rule – see the differences between Professor Goode and Professor Worthington described in paras 10 and 32 above, and the other variations there described. Clarity and simplicity are highly desirable qualities in the law. Subtle distinctions are sometimes inevitable, but in the present case, as mentioned above, there is no plainly right answer, and, accordingly, in the absence of any other good reason, it would seem right to opt for the simple answer.
A further advantage of the respondents' position is that it aligns the circumstances in which an agent is obliged to account for any benefit received in breach of his fiduciary duty and those in which his principal can claim the beneficial ownership of the benefit. Sir George Jessel MR in Pearson's Case at p 341 referred in a passage cited above to the agent in such a case having "to account either for the value … or … for the thing itself …". The expression equitable accounting can encompass both proprietary and non-proprietary claims. However, if equity considers that in all cases where an agent acquires a benefit in breach of his fiduciary duty to his principal, he must account for that benefit to his principal, it could be said to be somewhat inconsistent for equity also to hold that only in some such cases could the principal claim the benefit as his own property. The observation of Lord Russell in Regal (Hastings) quoted in para 6 above, and those of Jonathan Parker LJ in Bhullar quoted in para 14 above would seem to apply equally to the question of whether a principal should have a proprietary interest in a bribe or secret commission as to the question of whether he should be entitled to an account in respect thereof."
"[W]here a fiduciary has exploited a commercial opportunity for his own benefit, the relevant question, in my judgment, is not whether the party to whom the duty is owed (the company, in the instant case) had some kind of beneficial interest in the opportunity: in my judgment that would be too formalistic and restrictive an approach. Rather, the question is simply whether the fiduciary's exploitation of the opportunity is such as to attract the application of the rule."
"The expressions 'trust property' and 'retained by the trustee' properly apply, not to a case where a person having taken possession of property on his own behalf, is liable to be declared a trustee by the Court; but rather to a case where he originally took possession upon trust for or on behalf of others. In other words, they refer to cases where a trust arose before the occurrence of the transaction impeached and not to cases where it arises only by reason of that transaction. The exception no doubt applies, not only to an express trustee named in the instrument of trust, but also to those persons who under the rules explained in Soar v Ashwell and other cases are to be treated as being in a like position; but in their Lordships' opinion it does not apply to a mere constructive trustee of the character described in the judgment of Sir William Grant."
"(1) If the 1939 Act was intended to abrogate the former distinction between the two kinds of constructive trust, it is difficult to see how it achieved its object. It can hardly have done so by merely by adopting the definitions of 'trust' and 'trustee' in the Trustee Act 1925, since these are not materially different from those in the 1888 Act. If anything the use of the definitions in the 1925 Act points in the opposite direction, for that Act is concerned exclusively with the powers and duties of trustees properly so called. It is not concerned with persons whose trusteeship is merely a formula for giving restitutionary relief. Such persons have no trust powers or duties; they cannot invest, sell or deal with the trust property; they cannot retire or appoint new trustees; they have no trust property in their possession or under their control, since they became accountable as constructive trustees only by parting with the trust property. They are in reality neither trustees nor fiduciaries, but merely wrongdoers.
(9) Although the 1939 and 1980 Acts are perhaps not wholly consistent in this respect, any principled system of limitation should be based on the cause of action and not the remedy. There is a case for treating fraudulent breach of trust differently from other frauds, but only if what is involved really is a breach of trust. There is no case for distinguishing between an action for damages for fraud at common law and its counterpart in equity based on the same facts merely because equity employs the formula of constructive trust to justify the exercise of the equitable jurisdiction."
These passages recognise that the gateway to s.21 is the definition of 'trust' and 'trustee' in s.38(1). The protection afforded to beneficiaries depends upon the status of the defendant at the time he commits the breach complained of. This is a question of statutory construction to which Taylor v Davies provided an answer which has now been adopted in relation to s.21 of the 1980 Act.
" The language of s 20, like most of the Ordinance, is taken word for word from the UK Limitation Act 1939. It was obviously intended to have the same meaning. One therefore has to ask whether Danny Lau would have been a constructive trustee within the meaning of the corresponding section of the 1939 Act (s 19). On a literal reading he would, because a stranger to a trust who dishonestly assists in its breach is traditionally described as a constructive trustee. For the purposes of limitation, however, there are two kinds of constructive trustees. The distinction between them has been explained by judges on numerous occasions, from Sir William Grant in Beckford v Wade (1805) 17 Ves Jun 87 at 95–96 to Mr Richard Sheldon QC (sitting as a deputy High Court judge) in Cattley v Pollard  EWHC 3130 (Ch) at –, (2006) 10 ITELR 1 at –,  Ch 353. First, there are persons who, without any express trust, have assumed fiduciary obligations in relation to the trust property; for example as purchaser on behalf of another, trustee de son tort, company director or agent holding the property for a trustee. I shall call them fiduciaries. They are treated in the same way as express trustees and no limitation period applies to their fraudulent breaches of trust. Then there are strangers to the trust who have not assumed any prior fiduciary liability but make themselves liable by dishonest acts of interference. I shall call them non-fiduciaries. They are also called constructive trustees but this, as Ungoed-Thomas J said in Selangor United Rubber Estates Ltd v Cradock (a bankrupt) (No 3)  2 All ER 1073 at 1097,  1 WLR 1555 at 1582 is a fiction: 'nothing more than a formula for equitable relief'. They are not constructive trustees within the meaning of the law of limitation."
"It is clear that Lord Selborne LC regarded as a constructive trustee any person who was not an express trustee but might be made liable in equity to account for the trust assets as if he was. The problem is that in this all-embracing sense the phrase "constructive trust" refers to two different things to which very different legal considerations apply. The first comprises persons who have lawfully assumed fiduciary obligations in relation to trust property, but without a formal appointment. They may be trustees de son tort, who without having been properly appointed, assume to act in the administration of the trusts as if they had been; or trustees under trusts implied from the common intention to be inferred from the conduct of the parties, but never formally created as such. These people can conveniently be called de facto trustees. They intended to act as trustees, if only as a matter of objective construction of their acts. They are true trustees, and if the assets are not applied in accordance with the trust, equity will enforce the obligations that they have assumed by virtue of their status exactly as if they had been appointed by deed. Others, such as company directors, are by virtue of their status fiduciaries with very similar obligations. In its second meaning, the phrase "constructive trustee" refers to something else. It comprises persons who never assumed and never intended to assume the status of a trustee, whether formally or informally, but have exposed themselves to equitable remedies by virtue of their participation in the unlawful misapplication of trust assets. Either they have dishonestly assisted in a misapplication of the funds by the trustee, or they have received trust assets knowing that the transfer to them was a breach of trust. In either case, they may be required by equity to account as if they were trustees or fiduciaries, although they are not. These can conveniently be called cases of ancillary liability. The intervention of equity in such cases does not reflect any pre-existing obligation but comes about solely because of the misapplication of the assets. It is purely remedial. The distinction between these two categories is not just a matter of the chronology of events leading to liability. It is fundamental. In the words of Millett LJ in Paragon Finance plc v DB Thakerar & Co  1 All ER 400, 413, it is "the distinction between an institutional trust and a remedial formula—between a trust and a catch-phrase"."
"28. The above analysis of section 21 of the Limitation Act 1980 has now been accepted by the English courts at every level below this court. The turning point was the decision of the Court of Appeal in Paragon Finance plc v DB Thakerar & Co  1 All ER 400, which is notable mainly for an extended obiter dictum of Millett LJ on the distinction, for limitation purposes, between a liability for breach of a true trust and an ancillary liability. I have already quoted freely from this valuable and characteristically trenchant judgment, which among other things draws attention to the importance of the decisions in Beckford v Wade 17 Ves 87 and Taylor v Davies. There is a briefer dictum to the same effect by Lord Millett, as he had by then become, in Dubai Aluminium Co Ltd v Salaam  2 AC 366, 404. In Cattley v Pollard  Ch 353, Richard Sheldon QC sitting as a deputy judge of the High Court, after an impressive review of a substantial body of case law and academic literature, held that section 21(1)(a) of the Limitation Act 1980 applied only to express and de facto trustees and not to persons liable only by virtue of their dishonest assistance in a breach of trust. In JJ Harrison (Properties) Ltd v Harrison  1 BCLC 162, and again in Gwembe Valley Development Co Ltd v Koshy (No 3)  1 BCLC 131, the Court of Appeal adopted the analysis of Millett LJ and applied it to a case of knowing receipt of the assets of a company. It was held in both cases that no period of limitation applied, but only because the defendant was a director and as such to be treated as a true trustee. It is clear from the court's reasoning that the limitation position would have been different if he had not been. In Halton International Inc v Guernroy Ltd  WTLR 1241, the Court of Appeal adopted the same reasoning and held that section 21(1) applied only to claims against express or de facto trustees, and not to claims against constructive trustees whose liability came into being as a result of the transaction impeached. In Peconic Industrial Development Ltd v Lau Kwok Fai  5 HKC 135, the Court of Final Appeal of Hong Kong held that the relevant provision of the Hong Kong Ordinance, which was in the same terms as section 19(1) of the English Limitation Act 1939, did not apply to a person liable to account as a constructive trustee on the footing of dishonest assistance. Lord Hoffmann NPJ, delivering the leading judgment, declined to follow the dicta of the Court of Appeal in Soar v Ashwell, which he regarded as wrong in principle and unsupported by authority. He was also unimpressed by the submission that this put a dishonest assister in a better position than an innocent or merely negligent trustee, at para 24:
"The principle is not that the limitation defence is denied to people who were dishonest. It plainly applies to claims based on ordinary common law fraud. The principle is that the limitation period is denied to fiduciaries. But dishonest assisters are not fiduciaries."
"25. I start with four propositions which may be regarded as beyond argument: (i) that a company incorporated under the Companies Acts is not trustee of its own property; it is both legal and beneficial owner of that property; (ii) that the property of a company so incorporated cannot lawfully be disposed of other than in accordance with the provisions of its memorandum and articles of association; (iii) that the powers to dispose of the company's property, conferred upon the directors by the articles of association, must be exercised by the directors for the purposes, and in the interests, of the company; and (iv) that, in that sense, the directors owe fiduciary duties to the company in relation to those powers and a breach of those duties is treated as a breach of trust. If authority for those propositions is required it can be found in Re Lands Allotment Co  1 Ch 616 – see the judgments of Lindley LJ, at p. 631, and Kay LJ, at p. 638 – Cook v Deeks  AC 555 – see the advice of the Privy Council delivered by Lord Buckmaster LC at p. 564 – and Belmont Finance Corp Ltd v Williams Furniture Ltd (No. 2)  1 All ER 393 – see the judgment of Buckley LJ (with whom the other members of the court agreed), at p. 405c–f.
27. It follows, also, from the principle that directors who dispose of the company's property in breach of their fiduciary duties are treated as having committed a breach of trust that, a director who is, himself, the recipient of the property holds it upon a trust for the company. He, also, is described as a constructive trustee. But, as Millett LJ explained in Paragon Finance plc v Thakerar & Co  1 All ER 400, at pp. 408g–409g, his trusteeship is different in character from that of the stranger. He falls into the category of persons who, in the words of Millett LJ (at  1 All ER 400, 408j) … 'though not strictly trustees, were in an analogous position and who abused the trust and confidence reposed in them to obtain their principal's property for themselves.'
29. There is no doubt that Millett LJ regarded it as beyond dispute that a director who obtained the company's property for himself by misuse of the powers with which he had been entrusted as a director was a constructive trustee within the first category. He referred to 'directors and other fiduciaries' in that context – at  1 All ER 400, 408h–j. There is also no doubt, if I may say so, that he was correct to do so – see Re Sharpe; Masonic and General Life Assurance Co v Sharpe  1 Ch 154, at p. 172, Soar v Ashwell  2 QB 390, at p. 398. The reason is that a director, on appointment to that office, assumes the duties of a trustee in relation to the company's property. If, thereafter, he takes possession of that property, his possession 'is coloured from the first by the trust and confidence by means of which he obtained it'. His obligations as a trustee in relation to that property do not arise out of the transaction by which he obtained it for himself. The true analysis is that his obligations as a trustee in relation to that property predate the transaction by which it was conveyed to him. The conveyance of the property to himself by the exercise of his powers in breach of trust does not release him from those obligations. He is trustee of the property because it has become vested in him; but his obligations to deal with the property as a trustee arise out of his pre-existing duties as a director; not out of the circumstances in which the property was conveyed."
"90. For limitation purposes the two classes of trust and/or fiduciary duty are treated differently. The first class of case arising from the breach of a pre-existing duty is, or is treated by analogy as, an action by a beneficiary for breach of trust failing within section 21(1) of the 1980 Act. This means that there is no limitation period for the cases failing within section 21(1)(a) or (b)); but that there is a six year limitation period for cases failing within s 21(3).
91. In the second class of case s 21 would not apply, but a limitation defence to a claim might be available by analogy with common law claims, such as tort (for example, deceit) or breach of contract, even though the liability is exclusively equitable, as may be the case with breaches of fiduciary duty in the absence of a contract."
" If that is the correct analysis, then it is clear in our view that any trust imposed on Mr Koshy is a class 2 trust, within Millett LJ's classification. We agree with the judge that liability to account for unauthorised profits may arise within a wide spectrum of factual situations. However, that does not alter the analysis under s 21(1)(a) and (b), each of which must be applied in accordance with its own terms. We disagree, respectfully, with the judge in treating dishonesty as a factor taking the case from class 2 to class 1, for the purposes of para (b). Nor do we think that is the effect of the passage from Chadwick LJ's judgment in Harrison's case quoted by the judge ( 1 BCLC 478 at ). As the judge recognised, in that case the director transferred to himself property which had previously belonged to the company, and in relation to which he had 'trustee-like responsibilities' before the transaction in question. By contrast, Mr Koshy's liability to account for undisclosed profits, and any constructive trust imposed on those profits, do not depend on any pre-existing responsibility for any property of the company. They arose directly out of the transaction which gave rise to those profits, and the circumstances in which it was made. The fact that Mr Koshy was in a pre-existing fiduciary relationship with the company was not enough, by itself, to bring the case within class 1, any more than it was in Taylor v Davies.
 Accordingly, in our view, GVDC's case cannot be bought within s 21(1)(b). It stands or falls on s 21(1)(a), and that depends on establishing fraud. In saying this we have not ignored s 32. That depends on a finding of fraud or deliberate concealment (see s 32(1), quoted at  above). In this case, the alleged fraud is the deliberate concealment of the secret profit. If that case is not established, it is difficult to see how the facts can be brought within either limb of s 32. If it is, no extension under s 32 is needed."
"I should note that, although the judgment in Gwembe (to which I was a party) proceeded on the premise that fraud was sufficient to bring the case within section 21(1)(a)) (para ), the ultimate decision may be better explained by reference to the alternative ground of fraudulent concealment: s 32."
Fraudulent breach of trust
"An allegation of dishonesty must be pleaded clearly and with particularity. That is laid down by the rules and it is a well-recognised rule of practice. This does not import that the word 'fraud' or the word 'dishonesty' must be necessarily used…The facts alleged may sufficiently demonstrate that dishonesty is allegedly involved, but where the facts are complicated this may not be so clear, and in such a case it is incumbent upon the pleader to make it clear when dishonesty is alleged. If he uses language which is equivocal, rendering it doubtful whether he is in fact relying on the alleged dishonesty of the transaction, this will be fatal; the allegation of its dishonest nature will not have been pleaded with sufficient clarity."
Lord Justice Kitchin :
Lord Justice Briggs :