Limitation of Actions Consultation - Law Commission

Property Act 1925 where land is owned by co-owners, 10
and the statutory trusts
arising on an intestacy. 11
(b) “Breach of trust”
4.6 The expression “breach of trust” has not been authoritatively defined. A
controversial analysis was adopted by Sir Robert Megarry V-C in Tito v Waddell
(No 2). 12
One of the questions being considered was whether breaches of the rules
that a trustee must not sell trust property to himself (“the self-dealing rule”), and
that he must deal with trust property fairly, taking no advantage of his position as
trustee (“the fair dealing rule”) are “breaches of trust” for the purposes of the
Limitation Act 1939. Sir Robert Megarry V-C held that they were not. Instead
both the self-dealing rule and the fair-dealing rule should be considered to be
disabilities imposed on trustees under the general law of equity rather than as a
specific part of the law of trusts which lays down the duties of trustees. In
consequence, it was held that none of the limitation provisions applying to breach
of trust (nor indeed any other limitation period) laid down in the Limitation Act
1939 applied.
4.7 An act or omission which constitutes a breach of fiduciary duty will often also
constitute a breach of trust, but this is not necessarily the case. 13
Where there is no
breach of trust, an action for breach of fiduciary duty will not be covered by
section 21 (or, apparently, any limitation period in the 1980 Act, although the
doctrine of laches will apply). 14
Nelson v Rye 15
examined the circumstances in
which a fiduciary also becomes a trustee. The defendant was the plaintiff’s
business manager and in that capacity received the income earned by the plaintiff.
Laddie J held that, in consequence, he became a constructive trustee of that
money, so that an action against him for breach of fiduciary duty for failing to
render proper accounts was also an action for breach of trust. Since section
10 Law of Property Act 1925, ss 34 and 36, as amended by Trusts of Land and Appointment
of Trustees Act 1996, Schedule 2, paras 3 and 4.
11 Administration of Estates Act 1925, s 33, as amended by Trusts of Land and Appointment
12
of Trustees Act 1996, Schedule 2, para 5.
[1977] Ch 106, 246 - 249. See C Harpum, “Stranger as constructive trustee” (1986) 102
LQR 267, 289.
13 It is always the case, however, that a breach of trust will constitute a breach of fiduciary
duty.
14 See Tito v Waddell (No 2) [1977] Ch 106, 246 - 249, per Sir Robert Megarry V-C; Attorney-
General v Cocke [1988] Ch 414, 420 - 421, per Harman J; Nelson v Rye [1996] 1 WLR
1378, 1390 - 1396, per Laddie J. See also the passage in the article by Sir Peter Millett,
“Bribes and Secret Commissions” [1993] RLR 7, 23:
15
Every agent is a fiduciary; he may or may not be a trustee. Often, he holds no
money or property for his principal. If he receives goods from his principal he
may be a bailee only. Where, however, he receives property from a third party
intended for his principal, his obligation will almost invariably be to transfer it in
specie to his principal, and, if so, he will be treated as holding it as trustee for his
principal.
See also Attorney-General of Hong Kong v Reid [1994] 1 AC 324.
[1996] 1 WLR 1378.
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