Limitation of Actions Consultation - Law Commission

4.13 A controversial question is whether section 21 can be said to apply to all actions
which seek to impose a constructive trust on a stranger to the trust. It has been
suggested that the language of section 21 is not wholly appropriate in the case of
an action for what has historically been labelled “knowing assistance” 27
(that is,
where a third party who dishonestly assists a trustee in a breach of trust is held
liable to make good loss to the trust, even if none of the trust property comes into
the third party’s possession) because the same action cannot render the defendant
both “trustee” and responsible for a “breach of trust”. 28
More fundamentally, one
can dispute whether the defendant who dishonestly assists a breach of trust, while
not necessarily receiving any property, can sensibly be classified as a constructive
trustee at all. 29
It has been argued that the provisions in section 21 on actions to
recover trust property may not apply to actions for “knowing receipt” because the
action is a personal one and it may therefore be misleading to say that the recipient
is a constructive trustee. 30
It nevertheless appears likely that, notwithstanding the
conceptual difficulties involved in applying section 21 to actions of this sort, claims
for a remedy for “knowing receipt” or “knowing assistance” will be treated by the
courts as falling within the provisions of section 21 as being “in respect of a breach
of trust”. 31
(2) No Limitation Period to Apply: Section 21(1)
(a) Section 21(1)(a): Fraud or fraudulent breach of trust
4.14 Section 21(1)(a) provides that no period of limitation shall apply to an action in
respect of any fraud, or fraudulent breach of trust, to which the trustee was party
or privy. 32
The expressions “fraud” or “fraudulent” are not defined in the Act in
respect of either section 21(1)(a), or section 32(1) which postpones the limitation
period in cases of fraud. 33
Beaman v ARTS Ltd 34
examined the meaning of the
expression “is based on the fraud of the defendant” in section 26(a) of the
Limitation Act 1939 (the predecessor of section 32 of the 1980 Act). It was held
that fraud must be a “necessary allegation to constitute the cause of action” for the
action to come within section 26(a). The case of Armitage v Nurse 35
dealt directly
27 Barnes v Addy (1874) LR 9 Ch App 244, 251 - 252, per Lord Selborne. In Royal Brunei
Airlines Sdn Bhd v Tan [1995] 2 AC 378, in which the Privy Council held that there is no
need for the breach of trust assisted to be a dishonest and fraudulent one but that the
liability rests on the assistor being dishonest, the preferred terminology was ‘dishonestly
procuring or assisting a breach of trust or fiduciary obligation’. See generally Hanbury &
Martin, Modern Equity (15th ed 1997), pp 294 - 297.
28 See the discussion in Charles Harpum, “The stranger as constructive trustee” (1986) 102
LQR 114, 267, 287ff, and H M McLean, “Limitation of Actions in Restitution” (1989)
CLJ 472, 501ff.
29 See Hanbury & Martin, Modern Equity (15th ed 1997), p 294.
30 See P Birks, in Commercial Aspects of Trusts and Fiduciary Obligations (ed McKendrick), pp
153 - 156; A Burrows, The Law of Restitution (1993), pp 151, 441.
31 See on “knowing receipt” G L Baker Ltd v Medway Building and Supplies Ltd [1958] 1 WLR
1216, 1221 - 1222, per Danckwerts J, discussed at para 4.16 below.
32 But laches will apply: see para 4.7 above and para 9.14 - 9.17 below.
33 See paras 8.11, 8.12 below.
34 [1949] 1 KB 550. See para 8.12 below.
35 [1997] 2 All ER 705.
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