The appellant Williams had commenced proceedings against the respondent bank alleging that the respondent was party to a fraud committed by the appellant’s solicitor in 1986 on the ground that (i) the respondent dishonestly assisted the solicitor in misappropriating in excess of $6 million, or (ii) the respondent was in knowing receipt of the said $6 million which was paid out in breach of trust.
The issue before the UK Supreme Court was whether the appellant’s claims were time barred under section 21(a) of the UK Limitation Act 1980, which dis-applied the usual 6-year limitation period for claims for breach of trust where the claim was “in respect of any fraud or fraudulent breach of trust to which the trustee was a party or privy“. This in turn required the UK Supreme Court to consider two separate questions, namely:
First, whether a stranger to a trust, who dishonestly assists in a breach of trust or knowingly receives trust property paid out in breach of trust, is a trustee for the purposes of the Act. If the answer to that question is No, then the second question is, whether an action “in respect of” any fraudulent breach of trust to which the trustee was a party is limited to an action against the trustee or includes an action against the stranger.
By a majority, the UK Supreme Court held the answer to both questions was in the negative, and the appellant’s claim was accordingly time-barred.
Lord Sumption, delivering the lead judgment of the majority, held that section 21(a) of the 1980 Act was concerned only with actions against true trustees, and not third parties who come under ancillary liability in equity on the ground of either dishonest assistance or knowing receipt. Persons who are under a purely ancillary liability are liable to account in equity, but as wrongdoers, and not as true trustees. Having regard to the legislative history of the 1980 Act, the majority held that claims “in respect of any fraud or fraudulent breach of trust to which the trustee was a party or privy” meant actions against trustees on account of their own fraud or fraudulent breach of trust, and not actions against third party wrongdoers.
The judgments delivered in Williams v Central Bank of Nigeria merit close study as they consider in detail the legislative history of the UK Limitation Act 1980, including the Trustee Act 1925, the Trustee Act 1888, the 1936 Report of the Law Revision Committee chaired by Lord Wright MR and the Limitation Act 1939. Also discussed in detail are numerous well-known cases on the interpretation of the limitation statutes such as Hovenden v Lord Annesley (1806) 2 Sch & Lef 607; Beckford v Wade (1805) 17 Ves Jun 87; Barnes v Addy (1874) LR 9 Ch App 244; Soar v Ashwell [1893] 2 QB 390; Taylor v Davies [1920] AC 636; Clarkson v Davies [1923] AC 100; Paragon Finance Plc v DB Thakerar & Co [1999] 1 All ER 400; Peconic Industrial Development Ltd v Lau Kwok Fai [2009] 5 HKC 135.
The decision of the UK Supreme Court in Williams v Central Bank of Nigeria is very important for the purposes of Malaysian law, as the Malaysian Limitation Act 1953 was modelled upon the UK Limitation Act 1939 (which was the statutory predecessor to the UK Limitation Act 1980). Similarly, the Malaysian Trustee Act 1949 is modelled upon the UK Trustee Act 1925. Section 22(1) of the Malaysian Limitation Act 1953 is identical to section 19(1) of the UK Limitation Act 1939, both of which are in substantially the same terms as section 21(a) of the UK Limitation Act 1980 which was considered by the UK Supreme Court. The language of Section 22(1) was, to borrow the words of Lord Hoffmann in Peconic Industrial Development Ltd v Lau Kwok Fai, “taken word for word from the UK Limitation Act 1939” and “was obviously intended to have the same meaning.”
The appellate courts in Malaysia have thus far only discussed the scope of section 22(1) of the Malaysian Limitation Act 1953 in two reported decisions, namely the Court of Appeal decisions in Dato Wira Nordin Mohd Amin & Ors v Rajoo Selvappan & Ors [2007] 4 CLJ 421 and Koh Siew Keng & Anor v Koh Heng Jin [2008] 3 CLJ 450. The issue of whether section 22(1) applied to third parties who come under ancillary liability in equity on the ground of either dishonest assistance or knowing receipt did not strictly arise on the facts in both cases. In Dato Wira Nordin no fraudulent breach of trust was alleged against the true trustee, and therefore the usual 6 year limitation period applied, whereas in Koh Siew Keng the respondent was an executor of the testator’s estate and came within the definition of a “trustee” for the purposes of section 3 of the Trustee Act 1949 and section 22(1) of the Limitation Act 1953.
It should be noted that in Koh Siew Keng, Gopal Sri Ram JCA, referring to the well-known dictum of Millett LJ in Paragon Finance Plc v DB Thakerar & Co, highlighted that a true constructive trustee “is to be distinguished from a person who is under a duty imposed by equity to account to the true owner of money or property that he has unlawfully acquired or has dishonestly assisted another to unlawfully acquire“, which is consistent with the decision of the UK Supreme Court in Williams v Central Bank of Nigeria. However, Gopal Sri Ram went on to observe of the respondent executor:
“… the respondent was not a constructive trustee … He was a person who is accountable to the appellant in equity. This is because he appropriated the testator’s 1/3 share of the monies in question knowing that they did not belong to him. As executor, he was a personal representative of his father’s estate. He therefore falls within the broader definition of “trustee” given by the Trustee Act 1949.”
With respect, Gopal Sri Ram JCA’s observation that the respondent executor was not a constructive trustee but a person accountable in equity may be liable to cause confusion, as it appears to suggest that (i) executors are not true trustees; (ii) executors are liable to account in equity on the ground that they are wrongdoers; and (iii) executors are nevertheless are regarded as a “trustee” merely because they fall within the definition of “trustee” under the Trustee Act 1949.
The true position is that executors are de facto trustees, trustees de son tort, and are accordingly true trustees for the purpose of section 22(1) of the Malaysian Limitation Act 1953. This is because, historically speaking, de facto trustees have been properly regarded as actual trustees, albeit referred to as constructive trustees. As Viscount Cave observed in Taylor v Davies, “these persons, though not originally trustees, had taken upon themselves the custody and administration of property on behalf of others; and though sometimes referred to as constructive trustees, they were, in fact, actual trustees, though not so named.”
Gopal Sri Ram JCA appears to have overlooked a significant part of the legislative history of the UK Trustee Act 1925, namely the UK Trustee Act 1888 which defined a “trustee” to include “an executor or administrator and a trustee whose trust arises by construction or implication of law as well as an express trustee”. Subsequently, the Wright Committee in its 1936 Report identified an anomaly in cases of actions against persons, in particular executors, who owed fiduciary obligations in relation to property but were not express trustees and therefore entitled to invoke a 6-year limitation period even though they had acted in fraudulent breach of trust. This in turn led to the new definition of “trustee” in the UK Trustee Act 1925 to include “personal representatives” such as an executor. However, there can be no doubt that, contrary to the view expressed by Gopal Sri Ram JCA, it is clear that both statute and case law had long recognised that an executor could properly be regarded as a true “constructive” trustee in the context of limitation periods against trustees.