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Cite as: [2012] 3 All ER 579, [2012] WLR(D) 108, [2012] 3 WLR 1501, [2013] QB 499, [2012] WTLR 745, [2012] EWCA Civ 415, [2012] 2 P&CR DG6, [2012] CP Rep 28

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		Neutral Citation Number: [2012] EWCA Civ 415
		Case No: A2/2011/1229/QBENF

IN THE COURT OF APPEAL (CIVIL DIVISION)
ON APPEAL FROM High Court of Justice, Queen's Bench Division
Mr Justice Supperstone
[2011] EWHC 876 (QB)

Royal Courts of Justice
Strand, London, WC2A 2LL

03/04/2012

B e f o r e :

THE CHANCELLOR OF THE HIGH COURT
LADY JUSTICE BLACK
and
LORD JUSTICE TOMLINSON
____________________

Between:

	CENTRAL BANK OF NIGERIA	Defendant / Appellant
	- and -
	LOUIS EMOVBIRA WILLIAMS	Claimant / Respondent

____________________

Guy Philipps QC and Edward Levey (instructed by Berwin Leighton Paisner LLP) for the Appellant
Jonathan Adkin (instructed by Alfred James & Co Solicitors LLP) for the Respondent
Hearing date : 7 February 2012
____________________

HTML VERSION OF JUDGMENT
____________________

The Chancellor :

Introduction

In 1986 the claimant Dr Louis Elmovbira Williams, a national of Nigeria who had been resident in England since 1979, participated in a transaction whereunder, he alleges, he was defrauded of $6,520,190. He asserts, in proceedings commenced by him on 10th March 2010 against Central Bank of Nigeria ("CBN") alone, that an English solicitor, Reuben Gale, held that sum of money in his client account in trust for Dr Williams on terms that he would only release it if and when certain funds had been paid in Nigeria. Dr Williams asserts that in May 1986 Mr Gale fraudulently paid away $6,020,190 of the sum held by him for Dr Williams to the account of CBN with Midland Bank in England, that CBN was party to the fraud and that Mr Gale retained the balance of $500,000 for himself. In his amended particulars of claim Dr Williams asserts that:

(1) CBN was an active participant in the fraudulent scheme of Mr Gale and dishonestly assisted him in the fraudulent breaches of trust (para 29);

(2) CBN received and/or retained $6,020,190 paid by Mr Gale into its account knowing that they were paid in breach of trust and/or in circumstances where it would be unconscionable to retain them (para 30);

(3) By reason of its dishonest assistance in the breach of trust CBN is liable to account to him as a constructive trustee of $6,520,190 paid away by Mr Gale in fraudulent breach of trust (para 37(1));

(4) CBN received and/or retained $6,020,190 paid into its account at Midland Bank in England knowing such money to have been paid in breach of trust and/or in circumstances where retention of that money by CBN would be unconscionable (para 37(2));

(5) Dr Williams is entitled and claims to follow the $6,020,190 paid into CBN's account at Midland Bank in England, trace into the proceeds of such money and to be repaid such money or proceeds (para 37(3)).

The claim form and particulars of claim having been duly served on CBN in Nigeria pursuant to permission granted by Master Yoxall, on 8th April 2010 CBN applied for a declaration that the court had no jurisdiction and/or would not exercise any jurisdiction it might have in respect of this claim of Dr Williams. It sought an order that service of the claim form and amended particulars of claim be set aside. For the reasons given in his written judgment handed down on 8th April 2011 Supperstone J dismissed the application. This appeal of CBN from the order of Supperstone J is brought with the leave of the judge in respect of only one of the many points with which the judge had had to deal. That point is whether the claims of Dr Williams, summarised in paragraph 1, are barred by s.21(3) Limitation Act 1980, as CBN contends, or preserved by s.21(1)(a) thereof, as Dr Williams submits. That is a pure point of law which both sides invite us to decide now.

So far as relevant s.21 Limitation Act 1980 provides:

"(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.

[(2)…]

(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.

…

[(4)…]"

It is not in issue that the claim brought by Dr Williams is (1) an action by a beneficiary under a trust, (2) in respect of any fraud or fraudulent breach of trust, (3) to which the trustee, Mr Gale, was a party or privy. The issue is whether in addition to satisfaction of those three conditions the terms of s.21(1)(a) only permit such an action to be brought outside the limitation period against the trustee, Mr Gale. Counsel for CBN contends that the words in s.21(1)(a) "to which the trustee was a party or privy" not only prescribe a constituent of the cause of action but also restrict the exception to the time bar prescribed by s.21(3) to actions brought against that trustee. This is disputed by counsel for Dr Williams.

In view of the submissions made to us it is convenient at the outset to describe in some detail the antecedents of s.21 Limitation Act 1980 and a number of relevant authorities before seeking either to summarise the submissions of counsel for the parties or to explain my conclusion. In doing so I do not overlook the argument of counsel for Dr Williams that as the Limitation Act 1980 was a consolidating measure its antecedents are irrelevant unless it is ambiguous and, in particular, such antecedents should not be allowed to create an ambiguity where none exists, Farrell v Alexander [1977] AC 59.

Antecedents of s.21 Limitation Act 1980

The first statute to provide for a period of limitation in respect of actions for a breach of trust was Trustee Act 1888. S.8(1) thereof, so far as material, provided:

"In any action or other proceeding against a trustee or any person claiming through him except where the claim is founded upon any fraud or fraudulent breach of trust to which the trustee was party or privy, or is to recover trust property, or the proceeds thereof still retained by the trustee, or previously received by the trustee and converted to his use, the following provisions shall apply:-

(a) All rights and privileges conferred by any statute of limitations shall be enjoyed in the like manner and to the like extent as they would have been enjoyed in such action or other proceeding if the trustee or person claiming through him had not been a trustee or person claiming through him;

(b) If the action or other proceeding is brought to recover money or other property, and is one to which no existing statute of limitations applies, the trustee or person claiming through him shall be entitled to the benefit of and be at liberty to plead the lapse of time as a bar to such action or other proceeding in the like manner and to the like extent as if the claim had been against him in an action of debt for money had and received…"

There are a number of points to be noted. First, the section applies to actions or proceedings against, not only "a trustee", but also "any person claiming through him". Second, the expression 'trustee' was defined by s.1(3) as including "a trustee whose trust arises by construction or implication of law as well as an express trustee." S.1(4) provided that the provisions of the Act relating to a trustee should apply as well to several joint trustees as to a sole trustee. Third, each of those persons is entitled to rely on the time bar for which sub-section (1)(b) provides but subject to the exceptions comparable to those for which s.21(1) now provides. Ss. 1 and 8 Trustee Act 1888 remained unaltered until 1939.

Limitation Act 1939 was both an amending and consolidating measure. Its enactment was preceded by the Law Revision Committee's Fifth Interim Report. The chairman was Lord Wright MR and its members included Romer LJ. In paragraph 11 it considered "Limitations of Actions against Trustees". Having referred to the terms of s.8 Trustee Act 1888 it noted that those provisions were considered to be satisfactory when Trustee Act 1925 was enacted. The committee considered the possibly anomalous position of personal representatives as indicated in the cases to which the Committee referred. The paragraph then continues:

"It is difficult to find any real justification for the rule that an executor or other person holding property as a trustee, but not on an "express" trust, can plead the statute, though he still retains the trust property or has converted it to his own use. The rule has been extensively modified by decisions giving such a wide meaning to "express trust" as to bring most cases of fiduciary relationship within the exception to the Trustee Act, and to raise serious doubt as to where the line is to be drawn for this purpose between express and constructive trusts. See the judgment of Bowen L.J. in Soar –v- Ashwell [1893], 2 Q.B. at p. 395) and the authorities there cited, and the cases referred to by Romer J. in re: Eyre Williams ([1923], 2 Ch. 533). It is perhaps too late now to suggest that the Trustee Act, 1888, was intended to do away with the distinction between express and constructive trusts for the purpose of the limitation of actions, though the definition of "trustee" in Sec 1(3) seems to point to that conclusion. At any rate we consider that the distinction should now be abolished, and we recommend that the exception in Sec. 8 of the Trustee Act, 1888, should be expressly made to extend to trustees whether holding on express or constructive trusts, including the personal representatives."

The exception there referred to is the part of s.8(1) which excepts:

"where the claim is founded upon any fraud or fraudulent breach of trust to which the trustee was party or privy, or is to recover trust property, or the proceeds thereof still retained by the trustee, or previously received by the trustee and converted to his use".

The actual recommendation (7) was that:

"the Statutes of Limitation should only apply to constructive trustees to the extent to which they do to express trustees (para 11);"

Limitation Act 1939 incorporated the definition of trustee contained in s.68(17) Trustee Act 1925. That subsection provides that subject to an immaterial exception "the expressions "trust" and "trustee" extend to implied and constructive trusts". So far as relevant s.19 provided:

"(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 thereof in the possession of the trustee, or previously received by the trustee and converted to his use.

(2) Subject as aforesaid, 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;

…

[(3)…]"

This section differed from its predecessor in two ways. First, it inverted its effect by placing the exceptions first and imposing the time bar on all other claims by a beneficiary to recover trust property or in respect of any breach of trust. Second, it made no reference to "any person claiming through" the trustee. J. Unger writing in the Modern Law Review in July 1940 expressed the view that:

"Section 19 simplifies the law of limitation of actions in respect of trust property. All constructive trustees are now subject to the same restrictions when claiming the protection of the statute as express trustees. Thus the obstacle presented by Soar v Ashwell to a proper classification of trusts has been removed."

S.21 Limitation Act 1980, quoted in paragraph 3, reproduces without any relevant change the provisions of s.19 of the Limitation Act 1939.

It is also convenient at this stage, in order to explain some of the submissions made to us, to refer to two categories of constructive trust recognised in the decided cases. The starting point is the well known judgment of Lord Selborne in Barnes v Addy (1874) 9 Chancery Appeals 244. At p.351 he said:

"Now in this case we have to deal with certain persons who are trustees, and with certain other persons who are not trustees. That is a distinction to be borne in mind throughout the case. Those who create a trust clothe the trustee with a legal power and control over the trust property, imposing on him a corresponding responsibility. That responsibility may no doubt be extended in equity to others who are not properly trustees, if they are found either making themselves trustees de son tort, or actually participating in any fraudulent conduct of the trustee to the injury of the cestui que trust. But, on the other hand, strangers are not to be made constructive trustees merely because they act as the agents of trustees in transactions within their legal powers, transactions, perhaps of which a Court of Equity may disapprove, unless those agents receive and become chargeable with some part of the trust property, or unless they assist with knowledge in a dishonest and fraudulent design on the part of the trustees. Those are the principles, as it seems to me, which we must bear in mind in dealing with the facts of this case."

Some but not all those liable in accordance with that statement were entitled to rely on the statutes of limitation. Plainly express trustees could not. In Soar v Ashwell [1893] 2 QB 390 the Court of Appeal concluded that the solicitor employed by the express trustees to whom trust funds were entrusted could not either. The principle formulated by Lord Esher MR at p.394 was as follows:

"The cases seem to me to decide that, where a person has assumed, either with or without consent, to act as a trustee of money or other property, i.e., to act in a fiduciary relation with regard to it, and has in consequence been in possession of or has exercised command or control over such money or property, a Court of Equity will impose upon him all the liabilities of an express trustee, and will class him with and will call him an express trustee of an express trust. The principal liability of such a trustee is that he must discharge himself by accounting to his cestui que trusts for all such money or property without regard to lapse of time."

Bowen LJ was of the like opinion. At p.397 he said:

"It has been established beyond doubt by authority binding on this Court that a person occupying a fiduciary relation, who has property deposited with him on the strength of such relation, is to be dealt with as an express, and not merely a constructive, trustee of such property. His possession of such property is never in virtue of any right of his own, but is coloured from the first by the trust and confidence in virtue of which he received it."

Kay LJ agreed but on wider grounds. At p.405 he said:

"The result seems to be that there are certain cases of what are, strictly speaking, constructive trusts, in which the Statute of Limitations cannot be set up as a defence. Amongst these are the case where a stranger to the trust has assumed to act and has acted as a trustee, and the case where a stranger has concurred with the trustee in committing a breach of trust, and has taken possession of the trust property, knowing that it was trust property, and has not duly discharged himself of it by handing it over to the proper trustees or to the persons absolutely entitled to it.

I think that the present case comes within one or both those categories. I think that Ashwell did assume to act and acted as trustee of the funds which he received, and that he has not duly discharged himself from the plaintiff's share of those funds, and must therefore be treated as an express trustee."

In Taylor v Davies [1920] AC 636 the Privy Council considered the application of the Canadian Limitations Act. It was in the same form as ss.1 and 8 Trustee Act 1888. In that case an assignee for the benefit of creditors conveyed mortgaged property to the mortgagee in satisfaction of part of the debt due to him. The mortgagee was also one of the inspectors required by the Canadian legislation to supervise the conduct of assignments for the benefit of creditors. Twelve years after the conveyance creditors commenced proceedings to set it aside. The mortgagee relied on the statute of limitations. The Privy Council considered that he was entitled to do so. The Board rejected the argument that the mortgagee was an express trustee. It also rejected the argument that he was a constructive trustee of the type referred to in Soar v Ashwell. At p.652 Viscount Cave, giving the advice of the Privy Council, said:

"So in Soar v. Ashwell Lord Esher M.R. stated the rule as follows:- "If the breach of the legal relation relied on, whether such breach be by way of tort or contract, makes, in the view of the Court of equity, the defendant a trustee for the plaintiff, the Court of equity treats the defendant as a trustee become so by construction, and the trust is called a constructive trust; and against the breach which by construction creates the trust the Court of equity allows statutes of limitation to be vouched." And in the same case Bowen L.J., speaking of constructive trusts of this kind, said: "That time (by analogy to the statute) is no bar in the case of an express trust, but that it will be a bar in the case of a constructive trust, is a doctrine which has been clearly and long established."

As to the pre-existing law, then, there is no question; but it is contended for the appellant that the recent statute has altered the law in this respect. Sect. 47, sub-s. 1, it is said, defines a trustee as including "a trustee whose trust arises by construction or implication of law," and, accordingly, the exclusion from s. 47, sub-s. 2, of a claim to recover "trust property or the proceeds thereof still retained by the trustee" must apply to property in the hands of a constructive trustee or of any person claiming under him otherwise than by purchase for value without notice. If this contention be correct, then the section, which was presumably passed for the relief of trustees, has seriously altered for the worse the position of a constructive trustee, and (to use the words of Sir William Grant in the case above cited) a doctrine has been introduced which may be "fatal to the security of property." It does not appear to their Lordships that the section has this effect. 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 (1) 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."

The two categories of constructive trust are also recognised more generally as explained by Millett LJ in Paragon Finance plc v Thakerar [1999] 1 AER 400. At p.408 he said:

"Before 1890, when the Trustee Act 1888 ('the 1888 Act') came into operation, a claim against an express trustee was never barred by lapse of time. The Court of Chancery had developed the rule that, in the absence of laches or acquiescence, such a trustee was accountable without limit of time. The rule was confirmed by s.25(3) of the Judicature Act 1873, which provided that no claim by a cestui que trust against his trustee for any property held on an express trust, or in respect of any breach of such trust, should be held to be barred by any statute of limitation.

The explanation for the rule was that the possession of an express trustee is never in virtue of any right of his own but is taken from the first for and on behalf of the beneficiaries. His possession was consequently treated as the possession of the beneficiaries, with the result that time did not run in his favour against them: see the classic judgment of Lord Redesdale in Hovenden v Lord Annesley (1806) 2 Sch. & Lef. 607 at pp. 633-4.

The rule did not depend upon the nature of the trustee's appointment, and it was applied to trustees de son tort and to directors and other fiduciaries who, 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. Such persons are properly described as constructive trustees.

Regrettably, however, the expressions 'constructive trust' and 'constructive trustee' have been used by equity lawyers to describe two entirely different situations. The first covers those cases already mentioned, where the defendant, though not expressly appointed as trustee, has assumed the duties of a trustee by a lawful transaction which was independent of and preceded the breach of trust and is not impeached by the plaintiff. The second covers those cases where the trust obligation arises as a direct consequence of the unlawful transaction which is impeached by the plaintiff."

It is not suggested in this appeal that CBN is a constructive trustee in the first category so any continuing debate as to where the dividing line in any individual case falls is irrelevant. But, I should note that the liability of a constructive trustee in the second category described by Lord Selborne in Barnes v Addy as "participating in any fraudulent conduct of the trustee" is not restricted to cases in which the trustee was fraudulent but extends to cases in which the participant was fraudulent even if the trustee was not, see Royal Brunei Airlines v Tan [1995] 2 AC 378.

The arguments for CBN and Dr Williams

CBN accepts that the action Dr Williams seeks to bring is "an action by a beneficiary to recover trust property or in respect of any breach of trust" for which s.21(3) prescribes a six year limitation period. CBN also accepts that it is an action "in respect of" the fraud or fraudulent breach of trust committed by Mr Gale to which, therefore, Mr Gale was party or privy. But, CBN contends, s.21(1)(a) does not extend to actions brought against anyone other than the trustee who was party or privy to the relevant breach of trust. Counsel for CBN develops this contention by reference to the wording of s.21, its legislative history, consistency with the substantive law and certain alleged consequences if the argument for Dr Williams is correct.

In relation to the wording of s.21, counsel for CBN submits that it is plain that the word "trustee" as defined means a category 1 trustee as recognised in Soar v Ashwell, Taylor v Davies and Paragon Finance v Thakerar. He contends that Mr Gale was the category 1 trustee not CBN so that the word 'trustee' as used in both paragraphs of s.21(1) refers to Mr Gale and not to CBN. Counsel for Dr Williams does not dispute any of these propositions. But counsel for CBN then contends that just as s.21(1)(b) is limited to claims against the trustee s.21(1)(a) should be similarly regarded because, so he contends, there is no justification for treating that paragraph as including an action against anyone else. Counsel for Dr Williams disputes this construction of s.21(1)(a). If, as he submits, Parliament intended to restrict its ambit it would have made it as clear as it did in s.21(1)(b). He contends that the words used "to which the trustee was a party or privy" do not admit of the meaning counsel for CBN seeks to ascribe to them.

Counsel for CBN seeks to support his argument on the proper construction of s.21(1)(a) by reference to the legislative history which I have already traced. He suggests that s.8 Trustee Act 1888 applied only to a trustee, including in that expression a constructive trustee of the first category. He notes that whilst s.19 Limitation Act 1939 inverted the wording it did not alter the effect of s.8 Trustee Act 1888. Accordingly, he submits, s.19(1) must be restricted to actions against such trustees, otherwise the effect of the 1939 Act would be to extend the class of those entitled to avoid the time bar to constructive trustees in the second category, for example, dishonest assisters. It is clear from the express wording of s.19(1)(b) that there is no such extension in the case of claims within the description contained in that paragraph and a comparable restriction should be recognised as being implicit in paragraph (a) also.

Counsel for Dr Williams disputes a number of steps in this argument. First, he points out, the 1939 Act was not only a consolidating measure but also an amending act. Accordingly there can be no presumption that s.19 was intended merely to reproduce the effect of s.8 Trustee Act 1888, see Beaman v ARTS [1949] 1 KB 550, 556. Second, it is clear from its terms that s.19 Limitation Act 1939 was intended to have effect beyond the scope of s.8 Trustee Act 1888. Thus, subsection (2) imposes a time bar, subject to subsection (1), on all actions "by a beneficiary to recover trust property or in respect of any breach of trust". If the time bar extends to all such actions, not only those against the trustee and persons claiming through him, then there can be no presumption that either exception is more limited than its terms warrant. Third, Parliament did not merely reproduce the terms of ss.1 and 8 Trustee Act 1888 in s.19 Limitation Act 1939. The form of the section is different, the definition of trustee is different and there is no reference to 'a person claiming through' the trustee.

Counsel for CBN also submits that if s.21(1)(a) is not restricted in its application to claims against the trustee then the time bar for which the section provides is inconsistent with the substantive law and will give rise to undesirable consequences. This submission is based on the decision of the Privy Council in Royal Brunei Airlines v Tan [1995] 2 AC 378 and of the Court of Appeal in Bank of Credit and Commerce International (Overseas) Ltd v Akindele [2001] Ch 437, 450. It is suggested that it would be anomalous if dishonesty on the part of the trustee is not a necessary ingredient of the cause of action against the dishonest assistant but is required if the dishonest assister is to remain liable after the expiration of the limitation period. It is submitted that the extension of the application of s.21(1)(a) for which Counsel for Dr Williams contends would lead to an increase in the number of stale claims requiring determination and the complexity of the defences of laches and acquiescence compared to the relative simplicity of a time bar. Further, it is submitted the existence or otherwise of a time bar would depend on the description of the cause of action.

Counsel for Dr Williams disputes both these propositions. First, he submits, there is nothing anomalous in allowing the beneficiary to sue outside the limitation period only if the trustee was dishonest. Second, the relative merits of a time bar and the defences of laches and acquiescence are either irrelevant or a matter for Parliament, not a court of construction.

Counsel for each party relied on a number of decided cases to which I should refer. Counsel for CBN referred us to Cattley v Pollard [2007] Ch 353, a decision of Mr Richard Sheldon QC sitting as a deputy judge of the Chancery Division, and paragraphs 24 and 25 of the judgment of Lord Hoffmann sitting in the Hong Kong Final Court of Appeal in Peconic Industrial Development Ltd v Lau Kwok Fai [2009] 5 HKC 135. Counsel for Dr Williams referred us to the decision of Danckwerts J in G.L.Baker Ltd v Medway Building and Supplies Ltd [1958] 1 WLR 1216 and the decision of Evans-Lombe J in Statek Corporation v Alford [2008] EWHC 32 (Ch). It is convenient to refer to them in chronological order.

In G.L.Baker Ltd v Medway Building and Supplies Ltd [1958] 1 WLR 1216 the plaintiff sought to recover from the defendant money of the plaintiff the defendant had received from the auditor of the plaintiff who had dishonestly misappropriated it more than six years previously. The question arose whether the defendant was entitled to rely on the time bar. Danckwerts J concluded that the claim was not time barred, in part because of the terms of s.19(1)(a). At p.1221 the judge observed:

"It seems to me, therefore, that the Act of 1888 was certainly designed to deal with both those cases (i.e. proceedings against both the trustee and against those claiming through him). It is not at all clear whether the Act of 1939 has the same purpose, but it may be so. The point is taken by counsel on behalf of the defendant that the defendant does not claim through the fraudulent trustee. He also said with regard to s 19(1) that the action was not in respect of any fraud or fraudulent breach of trust, because the action against the defendant in the present case is based on the receipt by it without any fraud of moneys which were part of the trust fund belonging to the plaintiff. I think that the words "in respect of any fraud or fraudulent breach of trust" are wide enough to cover the present case, because it is the fraudulent payment by Titley to the defendant which is the origin of the proceedings against the defendant. It is because the defendant received that payment by virtue of Titley's fraudulent breach of trust that the plaintiff is able to bring this action against it. Consequently, so far as those words are concerned the provision seems to me wide enough."

In Cattley v Pollard [2007] Ch 353 trustees sought to recover from the widow of a former trustee property in her possession representing property of the trust which her husband had misappropriated some ten years before. The master ordered the trial of a preliminary issue whether s.21(1)(a) Limitation Act 1980 applied to dishonest assistance claims brought against one who was not a trustee. The deputy judge concluded that the widow was not a category 1 constructive trustee, as described by Millett LJ in Paragon Finance v Thakerar. He considered the judgments in that case and in G.L.Baker Ltd v Medway Building and Supplies Ltd and continued:

"86. It seems to me to be clear to follow from the judgments in the above cases that the references in s. 21(1)(a) to a "breach of trust" and "trustee" cannot apply to Category 2 cases. These must be a reference to express trustees and those who are treated as express trustees i.e. those in Category 1 and to breaches of trust by such persons.

87. However, even if one adopts this limited meaning, Mr Godsmark makes the point that s. 21(1)(a) is not on its face limited to claims against such trustees, unlike s 21(1)(b) which is so limited. As a matter of statutory interpretation he says that the Dishonest Assistance Claims are claims "in respect of any fraud or fraudulent breach of trust [i.e. the trusts constituted by the Will] to which the trustee [Mr Pollard] was a party or privy." There is considerable force in this submission which gives full meaning to the words "in respect of' and it is supported by what Dankwerts J said in G.L. Baker v Medway Building and Supplies Ltd.

88. I consider that the answer to this submission is supplied by what Millett LJ said in Paragon. In considering whether the former distinction between the two categories of constructive trust had been abrogated by the Limitation Act 1939, among the "formidable arguments" in favour of the negative answer Millett LJ considered the question of whether Parliament in enacting the 1939 Act had intended to adopt the wider recommendation of the Law Reform Committee or merely put an end to the mischief to which it had drawn attention. At p 412 j - 413b, he said:

"As a matter of statutory construction the question turns on the meaning of the opening words of s 21(1) of the 1980 Act (re-enacting in similar terms the opening words of s 19(3) of the 1939 Act. As Harpum noted in his influential article "The stranger as constructive trustee" (1986) 102 LQR 267 at 288, these are not apt to cover constructive trusts of the second kind. This is because they refer to ".. an action by a beneficiary under a trust... to which the trustee...". As Harpum observed, these words would appear to be prima facie applicable only to those whose trusteeship precedes the occurrence which is the subject of the claim against them and not those whose trusteeship arises only by reason of that occurrence."

In that article, Mr Harpum, to support the observation referred to, points out that s. 21(1)(a) speaks of an action "by a beneficiary under a trust", the substance of which is some claim against "the" (not "any") trustee.

89. Accordingly, I find that s. 21(1)(a) only applies to claims against express trustees and Category 1 trustees. It also follows that I consider that the views tentatively expressed in Lewin, and by Mr Mitchell, to which I have earlier referred are wrong.

90. In reaching this conclusion, I bear in mind that the provisions of s. 21(1)(a) are an exception to the normal applicable periods of limitation. Category 2 encompasses persons who dishonestly participate in a fraud. In general, fraud claims are subject to a primary limitation period of six years (see s. 2 of the 1980 Act). It is not illogical that this period should also apply to Category 2 claims. The exception in s. 21(1)(a) only applies to express trustees or Category 1 trustees who are treated in the same way for limitation purposes.

91. For these reasons, I find that the exception in s. 21(1)(a) of the 1980 Act has no application to the Dishonest Assistance Claims against Mrs Pollard."

In Statek Corporation v Alford [2008] EWHC 32 (Ch) the claimant sought to recover from Alford money of the claimant misapplied by him and others more than six years previously. Evans-Lombe J concluded that Alford was a de facto director of the claimant and, as such, liable as a trustee for the money misapplied. In case a higher court took a different view he went on to consider Alford's limitation defence on the basis that he was only a dishonest assister. In that context he considered the judgments of Danckwerts J in G.L.Baker Ltd v Medway Building and Supplies Ltd, of Millett LJ in Paragon Finance v Thakerar, and of Mr Sheldon in Cattley v Pollard. Evans-Lombe J continued in [123]:

"123. Later in his judgment at paragraph 84 Mr Sheldon describes Lord Millett in this passage as "dealing with a claim for dishonest assistance in a fraudulent breach of trust", as in the case with which he was dealing, and found that the Limitation Act could be pleaded as a defence to the claim.

124. With respect to Mr Sheldon, nowhere in his judgment does Lord Millett describe the assistance given by Mr Amhurst to the fraud as being assistance to a fraudulent breach of trust. He does not do so in the passage cited. All the defendants to the claim save Mr Livingstone were strangers to the claimant. Mr Livingstone was its chief executive. It is not clear if he was also a director. In any event the case does not seem to proceed on the basis that he or any of the other defendants were trustees or fiduciaries of the assets of the claimant whose fraud, in dealing with those assets, had been assisted by the actions of Mr Amhurst.

125. In my judgment, Section 21(1) of the Limitation Act 1980, following the decision of Mr Justice Dankwerts in the G.L. Baker Ltd case and the obiter dicta of Lord Esher and Bowen LJ in Soar v Ashwell, is to be construed as applying to accessories to the fraudulent breaches of trust of others with the result that no period of limitation is applicable to claims against them. I do not read the decision of the House of Lords in the Dubai Aluminium case as authority to the contrary.

126. For these reasons, if I had not already concluded that a defence of limitation was not available to Mr Alford because he was a category 1 fiduciary but was to be treated as an accessory to the fraudulent breaches of trust of Johnston and Spillane, with respect to him, I would not have followed Mr Sheldon's decision in the Cattley case and would have concluded that no limitation period applied to Statek's claim against him as an accessory to that fraudulent breach of trust."

Peconic Industrial Development Ltd v Lau Kwok Fai concerned a claim against a solicitor alleged to have dishonestly assisted a director of the claimant to defraud the claimant some 8 or more years before. The solicitor relied on s.20 Limitation Ordinance of Hong Kong which was in the same terms as s.21 Limitation Act 1980. At first instance the judge concluded that one who dishonestly assisted in a breach of trust was not entitled to rely on the Limitation Ordinance. The Court of Appeal disagreed and the solicitor's appeal to the Court of Final Appeal failed. In paragraphs 23 to 25 Lord Hoffmann said:

"23. In my opinion, therefore, non-fiduciaries do not come within the definition of trustees in s.19 of the 1939 Act or s.20 of the Ordinance. It is necessary however to deal with a different submission, which is that by some process of attraction, one category of non-fiduciaries, namely, persons who dishonestly assist a trustee in a fraudulent breach of trust, should be treated in the same way as the trustee and not allowed a limitation defence.

24. This argument has the high authority of some dicta of Lord Esher MR and Bowen and Kay LJJ in Soar v. Ashwell [1893] 2 QB 390. These remarks have been subjected to minute analysis in the cases and academic writings but I am willing to accept that they support the proposition that dishonest assisters cannot rely on a limitation defence. Nevertheless, I think that they are wrong in principle and unsupported by authority. 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. It might be surprising, as Millett LJ said in the Paragon Finance case (at p.414), if a person primarily liable was entitled to plead the Limitation Act when someone who assisted him could not. But there seems no reason in fairness or logic why the reverse should not be true. And in any case, Royal Brunei Airlines Sdn Bhd v. Tan [1995] 2 AC 378 shows that the liability of a dishonest assister is independent of the dishonesty of the trustee or other fiduciary. Mr Scott placed some reliance upon Millett LJ's observation that "a principled system of limitation would also treat a claim against an accessory as barred when the claim against the principal was barred and not before": see Paragon Finance, ibid. That showed, he said, that if the fraudulent trustee is never entitled to plead limitation, the dishonest assister should not be entitled to do so. But I do not think Millett LJ could have meant this, which would be contrary to most of his reasoning and to his subsequent clear statement in Dubai Aluminium Co Ltd v. Salaam [2003] 2 AC 366, 404 that a dishonest assister is not a fiduciary and can plead the Limitation Act.

25. It remains to consider the alternative argument that, as a matter of construction, a claim against a dishonest assister may be within s.20 because it is "in respect of", in the sense of being accessory to, the actual trustee's fraudulent breach of trust. It is true that in certain contexts the words "in respect of" may have a very wide meaning and the possibility of such a meaning being given to the words in s.20 was tentatively considered by Danckwerts J in G L Baker Ltd v. Medway Building and Supplies Ltd [1958] 1 WLR 1216, 1222. But I think that in the context of s.20 of the Ordinance it simply means that the beneficiary must be claiming against the trustee on the ground that he has committed a fraudulent breach of trust. If it had been intended to include claims against dishonest assisters or other non-fiduciaries on the ground that they were accessories to the breach of trust, the language would have been a good deal clearer."

At the conclusion of the hearing counsel for Dr Williams indicated that he wished to rely on certain decided cases demonstrating that the application of s.8 Trustee Act 1888 had not been as limited as Mr Sheldon QC and Lord Hoffmann had supposed. They are Re Gallard [1897] 2 QB 8; Re: Dixon [1900] 2 Ch 561 and Re Eyre-Williams [1923] 2 Ch 333. The last mentioned case was one of those referred to in paragraph 11 of the Law Revision Committee's Fifth Interim Report quoted in paragraph 8 above. The penultimate case was referred to in that case. It is not necessary to refer to them in any detail. Each demonstrates that a person in possession of trust property knowing that it has been misapplied was not able to rely on s.8 Trustee Act 1888 because they came within the principles enunciated by the Court of Appeal in Soar v Ashwell.

Re Gallard [1897] 2 QB 8 concerned a claim by a creditor to set aside a fraudulent sale at an undervalue made in 1889 by a trustee in bankruptcy to one Stretton. Both Stretton and the Trustee in Bankruptcy relied on s.8 Trustee Act 1888. Vaughan Williams J rejected both defences. In Re: Dixon [1900] 2 Ch 561 trustees of a marriage settlement in breach of trust lent trust funds to the husband. In an action to recover them some years later the husband relied on s.8 Trustee Act 1888. The defence failed. Re Eyre-Williams [1923] 2 Ch 333 concerned a claim by trustees of a settlement to recover trust money for many years in the hands of one who knew that it was trust money.

Discussion and Conclusion

There is no doubt that the Limitation Act 1939 was an amending act. In addition, given the statements made in paragraph 11 of the Law Revision Committee's Fifth Interim Report, it cannot be assumed that s.19 Limitation Act 1939 was intended exactly to reproduce the effect of s.8 Trustee Act 1888 whatever that may have been. What is clear is that:

(1) The time bar imposed by s.19(2) was intended to cover all claims by a beneficiary to recover trust property or in respect of any breach of trust, other than those excepted by s.19(1), against whomsoever the claim was made, not only the trustee and others claiming through him.

(2) The expressions 'trust' and 'trustee' used in s.19 extend to implied and constructive trusts generally without reference to any particular category of constructive trust.

(3) The exception for which s.19(1)(b) allows is expressly limited to claims against 'the trustee'.

Accordingly, it does not follow that the distinction between category 1 and category 2 constructive trusts to which the Privy Council referred in Taylor v Davies [1920] AC 636 when considering the Canadian equivalent to s.8 Trustee Act 1888 has been imported into the definition of trust and trustee contained in s.68(17) Trustee Act 1925 and applied to Limitation Act 1939 by s.50 thereof. Nor is there any reason to treat the references to "the trustee" in both paragraphs (a) and (b) of s.19(1) as limited to an express or de jure trustee. No doubt such a trustee is included but those references are wide enough to include a constructive trustee as well.

In those circumstances I do not accept the argument of counsel for CBN I have summarised in paragraph 17 above. That argument proceeded on the assumption expressed in paragraph 30 of the written argument of counsel for CBN that:

"s.19(1) of the Limitation Act 1939...inverted the wording of s.8(1) of the 1888 Act, but did not alter its effect."

That is not an assumption I am prepared to make. In addition I accept the submission of counsel for Dr Williams summarised in paragraph 18 above that it is clear from s.19(2) that the scope of s.19 was wider than that of s.8 Trustee Act 1888.

Nor do I accept the argument of counsel for CBN that acceptance of the construction advanced by Counsel for Dr Williams will produce an anomaly or inconsistency with the substantive law. The requirement in paragraph (a) of fraud or fraudulent breach of trust on the part or with the privity of the trustee is a restriction on the range of claims available against a dishonest assistant because the decision of the Privy Council in Royal Brunei Airlines v Tan [1995] 2 AC 378 only requires dishonesty on the part of the assistant. So the addition of this requirement does not involve any extension of the range of cases for which no limitation period is prescribed. In any event the need for some ingredient in addition to that which the bare cause of action itself requires in order to avoid a time bar is inherent in all cases where the running of time is postponed or interrupted, see Part II Limitation Act 1980. There is nothing anomalous in such a requirement in that context. I can see no reason why it should be regarded as anomalous in the context of s.19(1)(a).

It is clear that s.19 was re-enacted in s.21 Limitation Act 1980. It is in the latter context that the proper construction of the relevant provision must be ascertained. That context includes the decision of Danckwerts J in G.L.Baker Ltd v Medway Building and Supplies Ltd. Whilst there may be some argument as to whether his comments on the construction and application of s.19(1)(a) are part of the ratio decidendi or merely obiter dictum there is no doubt that his view was to the effect that s.19(1)(a) was not limited to actions against the trustee. Parliament must have legislated on that basis.

So I return to the principal argument summarised in paragraph 16 above. Is it implicit in s.21(1)(a) that the cause of action there described may only be pursued outside the primary limitation period against the trustee (the singular including the plural) who was party or privy to the fraud or fraudulent breach of trust? The only words which could import that requirement is the passage reading "being an action...in respect of any fraud or fraudulent breach of trust to which the trustee was a party or privy...". The definite article preceding the word "trustee" connotes the trustee of the relevant trust, but the phrase of which it forms a part is descriptive of and a limitation on the generality of the phrase "any fraud or fraudulent breach of trust". Of itself it cannot in my view justify any implication that "the action" may only be brought against that trustee.

Once attention is paid to the wider context in which the relevant words appear the terms of subsection (1)(b) are in stark contrast. In that paragraph the relevant limitation is clearly expressed. Given that neither the words used nor the context in which they are used justify any implication such as counsel for CBN advances and given my rejection of each of the supporting arguments on which he relies I am driven to conclude that this appeal should be dismissed.

I should refer again to the authorities on which CBN relies. The first is the decision of Mr Sheldon QC in Cattley v Pollard [2007] Ch 353. I have referred to this at some length in paragraph 23 above. This decision was criticised by Evans-Lombe J in Statek Corporation v Alford [2008] EWHC 32 (Ch) in the passages from his judgment I have quoted in paragraph 24 above. For my part I find that criticism persuasive. I agree with the conclusion of Evans-Lombe J in that case.

This leaves the passage from the judgment of Lord Hoffmann in Peconic Industrial Development Ltd v Lau Kwok Fai [2009] 5 HKC 135 which I have quoted in paragraph 25 above. The relevant paragraph in his judgment is paragraph 25. He makes the implication for which CBN contends from the words "in respect of" and the need for clearer language if it is intended to permit claims against dishonest assisters. Counsel for Dr Williams points out that that approach involves giving the words "in respect of" a different meaning from that which they have in s.21(3). In any event the argument for CBN does not focus on the words "in respect of". Counsel for CBN seeks to justify the implication from the later phrase "to which the trustee was a party or privy" which does not form any part of the reasoning of Lord Hoffmann in paragraph 25. Accordingly, it appears to me that the judgment of Lord Hoffmann does not support the argument for CBN; nor does it refer to the contrast with s.21(1)(b). That judgment is not binding on us. Every judgment of Lord Hoffmann is worthy of the greatest respect but on this occasion, for the reasons I have tried to explain, I do not agree with his analysis or conclusion.

I have considered the history of the relevant provisions and all the other considerations put to us as bearing on the point of construction. Having done so I conclude that the wording of s.21 Limitation Act 1980 does not justify the implication sought by counsel for CBN. Accordingly, the principle of Farrell v Alexander [1977] AC 59 applies, namely that the legislative history of an unambiguous provision in a consolidating act is irrelevant. The difficulty with that principle, as illustrated by this case, is that until the court has carried out the examination of the legislative history the actual lack of ambiguity may not be so obvious.

Supperstone J concluded in paragraph 26 of his judgment that there is a serious issue to be tried in relation to the words "in respect of" in s.21(1)(a). Counsel for CBN suggests that the judge had not fully understood his argument. He relies on the words "to which the trustee was a party or privy". Either way, the judge was right. But I would go further. For all the reasons I have sought to explain I conclude that an action by a beneficiary under a trust may be brought in respect of any fraud or fraudulent breach of trust to which the trustee was party or privy against both that trustee and any other person who dishonestly assisted him in such fraud or fraudulent breach of trust, in either case, after the expiration of the period for which s.21(3) provides. I would dismiss this appeal.

Black LJ :

Section 21 of the Limitation Act 1980 ("the Act") and the statutory provisions which preceded it have been troubling equity lawyers for years. In G.L. Baker Ltd v Medway Building and Supplies Ltd [1958] 1 WLR 1216, Danckwerts J, considering section 19 of the Limitation 1939, said (@ 1221):

"This Act is one which I understand was drafted by a very eminent Chancery lawyer, but none the less it is one which gives to considerable difficulties of interpretation whenever the court is concerned with its application."

This case maintains that tradition, giving rise to an interpretation problem in relation to section 21 to which, in my view, there is no wholly satisfactory answer.

It is important to appreciate the confines of the debate between the parties and the constraints upon this appeal.

The starting point for both parties is that section 21(3) applies to this case.

Neither side invites us to go back to consider whether the Trustee Act 1888 was intended to abolish the distinction between express and constructive trustees, introducing a single regime of limitation that would apply to constructive trustees of both categories. We are not asked to attempt to unravel the approach that the Privy Council took to this in Taylor v Davies [1920] AC 636. Nor are we invited to find our way round later indications that the same approach applied under the 1939 Act and now applies under the 1980 Act. Before Supperstone J, Dr Williams argued that "trustee" in section 21(1)(a) was a term wide enough to include CBN. Citing from Paragon Finance, Dubai Aluminium Co. Ltd v Salaam [2003] AC 366 and Peconic Industrial Development Ltd v Lau Kwok Fai [2009] 5 HKC 135, Supperstone J despatched that argument. Dr Williams has not sought to challenge that determination before us, accepting that CBN is not a trustee within the meaning of the word as it is used in section 21 of the Act. His response to the appeal builds upon what was his second line of argument before Supperstone J. It concentrates upon the words of the subsection which he says are wide enough to include an action of the type he brings against CBN. He maintains that such a construction is not only the plain meaning of the subsection but also consistent with its history and purpose and supported by some authority.

As my Lord, the Chancellor, has said, CBN's argument is that to come within section 21(1)(a), the action has to be against the trustee. It too relies upon the wording of the section and its history, as well as arguing that Dr Williams' construction would give rise to undesirable consequences, including an unjustifiable anomaly because, in a case of dishonest assistance, the claimant's escape via section 21(1)(a) from the normal section 21(3) limitation period would be dependent on whether the trustee was fraudulent or not, whereas dishonesty of the trustee would not be required in order to establish the substantive cause of action against the dishonest assister.

Like the Chancellor, I am not prepared to assume that section 19 of the Limitation Act 1939 was merely section 8 of the Trustee Act 1888 dressed up in slightly different clothing. The purpose of the 1939 Act was said to be "to consolidate with amendments" and the Law Revision Committee certainly intended that changes should be made to the position as it had been under section 8 of the 1888 Act (see §11 of the Fifth Interim Report).

I am equally unprepared to assume that the 1939 Act was intended to jettison the entirety of the previous approach to limitation in relation to actions in respect of trust property. In some respects, the 1939 Act approached the issue from a different direction. So, for example, instead of defining its scope by reference to the defendant as the 1888 Act had ("any action or other proceeding against a trustee or any person claiming through him"), the scope of section 19 of the 1939 Act was defined by reference to the claimant ("an action by a beneficiary to recover trust property or in respect of any breach of trust"). In some respects, however, the approach was very similar, for example in the definition of a trustee, section 1(3) of the 1888 Act defining this as including "a trustee whose trust arises by construction or implication of law as well as an express trustee" and the definition for the 1939 Act (imported from section 68 of the Trustee Act 1925) providing that generally speaking "the expressions 'trust' and 'trustee' extend to implied and constructive trusts".

In these circumstances, and particularly given the uncertainty that appears to attend this sphere of the law, I am not sure that the history of section 21 provides me with much assistance although I do not ignore it. As I embark upon a consideration of the words of the section themselves, I cannot help but be deeply conscious of my disadvantage in comparison to those who have studied and pronounced upon them and their predecessors from a position of authority and expertise, not least recently Lord Hoffmann in the Peconic Industrial Development case. I have, however, had the great advantage of reading the Chancellor's judgment in draft.

Lord Hoffmann was not persuaded by any of the three arguments that were there advanced in favour of a construction in similar form to that for which Dr Williams contends. He found that the solicitor who was alleged to have dishonestly assisted in a fraudulent breach of fiduciary duties was not a constructive trustee within the meaning of the Hong Kong Limitation Ordinance, being a non-fiduciary. He rejected the argument that, "by some process of attraction", one particular category of non-fiduciary, the dishonest assister, was to be treated in the same way as a trustee and not allowed a limitation defence (§23 and §24). Finally, he rejected an argument that "as a matter of construction, a claim against a dishonest assister may be within s 20 because it is 'in respect of', in the sense of being accessory to, the actual trustee's fraudulent breach of trust" (§25). His conclusion on this third point was unhesitating if shortly expressed and it seems to me that behind it, there is the great weight of the practice of treating non-fiduciaries (or constructive trustees in the second category) as separate from fiduciaries. Though it seems he was prepared to contemplate the theory that 'in respect of' could have such a wide meaning, he said:

"I think that in the context of s 20 of the Ordinance it simply means that the beneficiary must be claiming against the trustee on the ground that he has committed a fraudulent breach of trust. If it had been intended to include claims against dishonest assisters or other non-fiduciaries on the ground that they were accessories to the breach of trust, the language would have been a good deal clearer."

In my own approach to section 21 of the 1980 Act, I have found it helpful to compare section 21(1) and section 21(3).

CBN observes that section 21(1) is directed at what it describes as "a subset" of the actions referred to in section 21(3).

Section 21(3) has three elements:

i) an action by a beneficiary

ii) to recover trust property or in respect of any breach of trust

iii) not being an action for which a period of limitation is prescribed by any other provision of the Act.

Section 21(1) is still concerned with an action by a beneficiary for which no other limitation period is prescribed by the Act but the scope of the actions covered - the element set out in my subparagraph ii) above - is narrower. It is helpful to set out the subsection highlighting the narrowing words, as CBN do in their skeleton argument, and also other words of difference. As CBN's argument draws upon subsection (b) as well as subsection (a), I will set section 21(1) out in full:

"(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."

There is no explicit requirement that to be within subsection (1)(a) the action must be against the trustee. CBN argues that it is derived from the words used and the context.

I am not persuaded by CBN's argument that relies upon an analogy with subsection (1)(b). Even if subsection (1)(b) is confined to actions against the trustee, I do not see that it follows that subsection (1)(a) is necessarily subject to the same restriction. For some reason, whether accident or design, there is a difference in drafting between the two subsections. Uniformity of approach would have been quite possible. One might have chosen a completely different route from the outset had one been seeking to achieve that. It would have been possible, for example, to commence the subsection by providing that no period of limitation shall apply to "an action by a beneficiary under a trust against a trustee or trustees of the trust" (added words underlined), omitting "from the trustee" from subsection (1)(b) where those words would be superfluous. Alternatively, using the foundation already laid in the existing subsections, words could have been added to subsection (1)(a) so that it read (added words underlined): "an action…..against the trustee in respect of any fraud or fraudulent breach of trust to which the trustee was a party or privy" just as subsection (1)(b) reads "an action….to recover from the trustee ….". Or there could have been omitted from subsection (1)(b) the words "from the trustee" so that it read "an action….to recover 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" just as subsection (1)(a) reads "an action …in respect of any fraud or fraudulent breach of trust to which the trustee was a party or privy". I question whether, where the opportunity expressly to align the two subsections has not been taken, it can safely be assumed that alignment was intended. The bald fact is that subsection (1)(a) does not contain anything expressly indicating that the action in question is an action against a trustee when it could easily have done so had that been the intention.

I turn therefore to the precise wording of subsection (1)(a) itself.

Dr Williams focuses on the phrase "in respect of" in both subsection (1)(a) and subsection (3). He submits that it is difficult to understand how his claims arising from Mr Gale's fraudulent breach of trust can be actions "by a beneficiary ….in respect of breach of trust" under subsection (3) without also being actions "by a beneficiary …. in respect of any …fraudulent breach of trust to which the trustee was a party or privy" under subsection (1). He says that the words used in the subsections are strikingly similar and the phrase "in respect of" is used in both.

He argues that the word "trustee" in both subsections (1)(a) and (1)(b) derives from the opening reference in the subsection to "an action by a beneficiary under a trust". There is no argument but that the trustee in contemplation in both (1)(a) and (1)(b) is the trustee of the trust of which the claimant is beneficiary. But different things are required of the trustee in the different subsections, says Dr Williams. He has to be the defendant for subsection (1)(b) whereas for subsection (1)(a) he has to be a party or privy to the fraud but need not be the defendant.

CBN says that in concentrating on the words "in respect of", Dr Williams' argument ignores an important part of the phrase which follows, that is "to which the trustee was a party or privy". It points out that it is common ground that the present action is "in respect of a fraudulent breach of trust" but submits that by referring to the trustee being a party or privy to the fraud or fraudulent breach of trust, the subsection shows that the intention is that the action has to be against the trustee. It also points out that if Dr Williams' construction is correct, the subsection could have stopped after "in respect of any fraud or fraudulent breach of trust".

Although at present I am attempting to focus exclusively on the words of the section, it is impossible to consider the words "to which the trustee was a party or privy" without recalling a particular feature of the context in which certainly section 21 and possibly also its predecessor in the Limitation Act 1939 were drafted. Before the case of Royal Brunei Airlines Sdn. Bhd. v Tan [1995] AC 378, a strict interpretation of Lord Selborne LC's formulation of accessory liability in Barnes v Addy (1874) LR 9 Ch App 244 had led to the requirement that when bringing a claim based on the provision of dishonest assistance in a breach of trust, it was necessary to establish not only that the assister was dishonest but also that the trustee himself was (see, for example, Belmont Finance Corp Ltd v Williams Furniture Ltd. [1979] 1 All ER 118). In Tan, Lord Nicholls examined the older history of the accessory liability principle and the mischief to which it was directed and made clear that the dishonesty that mattered was that of the assister, the state of mind of the trustee being immaterial. But Tan was not decided until 1995. In contemplating a claim in respect of dishonest assistance, the draftsman of section 21 would therefore have had in mind a claim which could have been described as an action for "fraudulent breach of trust to which the trustee was a party or privy". Might it be possible therefore that the words "to which the trustee was a party or privy" were intended to do no more than to label the action to which the subsection referred in such a way as to reflect that necessary element of a claim?

The intervention of Tan in the jurisprudence gives rise to the anomaly identified by CBN which must, I think, be regarded as unforeseen. Before Tan, subsection (1)(a), if it applied at all, would have operated uniformly, denying the benefit of the limitation period to all dishonest assisters because liability required a dishonest trustee. After Tan, if an action against a dishonest assister is within subsection (1)(a) at all, it would only be caught if the trustee was dishonest. If the trustee was not dishonest, the assister (still no doubt just as dishonest himself) would have a limitation defence. As I have said, CBN argue that this points in favour of their construction of subsection (1)(a).

Whilst the anomaly cannot be ignored, one must, I think, remember that it is an accident of the developing law and would not have been in the contemplation of the pre-Tan draftsman. In those circumstances, I am not sure whether it tells us anything about the proper construction of the words of the subsection, although it is undoubtedly material to a consideration of how particular constructions might work in practice in the post-Tan era.

I return from Tan to the section itself to consider whether anything can be made of the fact that subsection (1)(a) refers to "the trustee" ("to which the trustee was a party or privy") rather than "a trustee". Does the definite article serve to introduce into the subsection the concept of "the trustee who is the defendant in the action brought by the beneficiary"? I cannot accept that it serves to do so or indeed even adds any weight to that side of the scales. Had the subsection referred to "a trustee", that would have been extremely wide and may potentially have given rise to different construction questions. The use of the definite article at least confines the trustee in contemplation to a trustee of a trust already referred to in the section, that is to say the trust referred to in the opening words "an action by a beneficiary under a trust".

Section 21(1) is not an easy section to construe. No construction works without hitches. I can well see how it was that Lord Hoffmann, giving full weight to the considerable history of the provision, concluded as he did. However, this appeal has forced us to look again closely at the words of the section and, not without much hesitation, I agree with the Chancellor that they do not justify the implication of a requirement that an action must be against the trustee to be within subsection 21(1)(a). I would therefore also dismiss the appeal.

Tomlinson LJ :

I agree that the appeal should be dismissed for the reasons given by the Chancellor.