We previously discussed the case involving the misappropriation of money by Linda Box from a number of charities that she acted for in her capacity as a solicitor.
Our previous blog mentions an application for summary judgment. That application was heard and was successful in full, the Judge ordering an account and enquiry of all monies not accounted to the Claimants for, including a number of transactions that were in excess of six years before the date of issue of proceedings.
The relevance of the six year rule stems from the Limitation Act 1980, which sets out timescales for pursuing different types of claim. The Defendants in this matter, being Linda Box and her two partners in the law firm, Dixon, Coles and Gill, were pursued by the various charities for a breach of trust in terms of misappropriation of monies that they received on behalf of the charities in various transactions.
The limitation period for breach of trust is set out in Section 21 of the Limitation Act 1980, which states:
“(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 him 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.”
The question before the Court both in the first instance decision in respect of the limitation defence and the appeal was whether Gill and Wilding were ‘party or privy’ to the fraud. The Judge, at first instance, found in respect of whether Gill and Wilding were ‘party or privy’ to the fraud as follows:
“I do not see a realistic basis for arguing that Mr Gill and Mrs Wilding are not party or privy to the fraud where the Partnership Act fixes them with a direct liability in respect of Mrs Box’s fraud. I accept that in one very obvious sense they are not party or privy because they knew nothing about the fraud but the fact is that the Partnership Act deems them to have been party or privy in the context of actions undertaken by the errant partner in the ordinary course of business or within the scope of apparent authority – as the conveyancing transactions quite obviously were.”
Appeal
Mr Gill and Mrs Wilding, being the two partners that were not in any way party to any of the fraudulent transactions perpetrated by Mrs Box, appealed against this decision in part, claiming that they should be entitled to avail themselves of the six year defence. Sir Timothy Lloyd giving the leading judgment in the appeal confirmed:
“Having had the benefit of fuller argument than was before the judge, it seems to me that the judge was wrong on this point. For the reasons which I set out below, I have come to the conclusion that the innocent partners in the present case are able to rely on a six-year limitation period, and I would therefore allow the appeal.”
He continued with a useful summary of the reason he reached this view at paragraphs 44 and 45 of his judgment as follows:
“44. Given that the purpose of section 8 of the 1888 Act was, for the first time, to allow a trustee who had committed an innocent breach of trust to rely on a limitation defence, it would seem surprising if such a defence was not to be available in the not uncommon situation where a fraud is committed in the ordinary course of a partnership business, by abstracting money held on behalf clients in respect of which all the partners are trustees, but only one partner is guilty of the fraud and the other or others are entirely innocent. It would be all the more surprising to find that this was the effect of the Partnership Act, passed only two years later, which says nothing at all on the point, or that the partnership relationship had that effect despite the silence of the 1890 Act on the point.
45. In my judgment, that is not the law. There is nothing in the 1890 Act on which Mr Halpern can rely to show that DCG are to be treated as party or privy to Mrs Box’s fraudulent breaches of trust, and there is nothing in the authorities which supports that proposition.”
Comment
This, therefore, resolves an issue that has remained unresolved for around 130 years, as to whether partners of a partnership that are pursued for breach of trust as a result of the fraudulent conduct of one of their partners is able to avail themselves of a limitation defence: the case of Dixon Coles and Gill (a firm) v Right Reverend, Nicholas Baines, Bishop of Leeds and another [2021] EWCA Civ 1097 is now definitive authority that a limitation defence is available to the Defendants in such a scenario.
How Nelsons can help
Kevin Modiri is a Partner in our expert Charity team.
Should you be affected by any breach of trust, whether in a charitable context or any other trust relationship, please do not hesitate to contact Kevin or another member of the team in Derby, Leicester or Nottingham on 0800 024 1976 or via our online form.