Is there a statutory limitation period for knowing assistance and knowing receipt claims?
The UK Supreme Court has held that a 6-year limitation period applies to knowing receipt and knowing assistance claims. Will Australian courts apply the equivalent limitation provisions in the same way?
In Victoria, Queensland and Tasmania, an action by a beneficiary to recover trust property or for breach of trust is subject to a 6-year statutory limitation period; except for an action:
- in respect of a fraudulent breach of trust to which the trustee was party (the fraudulent breach exception); or
- to recover trust property from the trustee (the trust property exception).
An identical provision applies in the United Kingdom.
In Williams, the claimant was defrauded in 1986 by an English solicitor on behalf of the Nigerian State Security Service. Proceeds of the fraud were received by the Central Bank of Nigeria. In 2010, Williams issued a proceeding in England against the Central Bank, alleging knowing assistance and knowing receipt, and seeking to trace the funds into the Central Bank’s hands.
Did the 6-year statutory limitation period apply to those claims? A basic question, but one which revealed stark differences of opinion in the UK Supreme Court.
The trust property exception
By 4-1 majority, the Supreme Court held that the trust property exception did not apply, as the Central Bank was not a “trustee” within the meaning of the section. A clear distinction was drawn between formally-appointed and de facto trustees, to whom the trust property exception applies; and knowing assistants and knowing recipients liable as Barnes v Addy “constructive trustees”, to whom the exception does not apply.
In this respect the decision in Williams was consistent with recent English authority, which also represents the orthodox position in Australia: see, eg, Nolan v Nolan  VSCA 109 at -; Barker v Duke Group (2005) 91 SASR 167. However, that orthodoxy was departed from in the Bell Group proceeding (under the previous WA Limitation Act), where it was held that the 6-year statutory limitation period did not apply: (2012) 270 FLR 1 at .
The fraudulent breach exception
By 3-2 majority, the Supreme Court held that the fraudulent breach exception did not apply, as the claim against the Nigerian Central Bank was not a claim “in respect of” a fraudulent breach of trust to which the trustee was party.
Here, the trustee was the English solicitor, who had unquestionably committed a fraudulent breach of trust. But the majority held that Williams’ claim against the Central Bank was not a claim “in respect of” the solicitor’s fraudulent breach of trust. That conclusion involved construing the nexus expression “in respect of” narrowly: the majority held that an action would only be “in respect of” the trustee’s fraudulent breach if it was brought against the trustee itself.
There has been little previous authority on the fraudulent breach exception, both in England and Australia.
On this point, the UK Supreme Court’s reasoning in Williams is less than compelling. There is at least a tenable argument that Australian courts should construe the words “in respect of” as broadly as their ordinary meaning allows, in order to give effect to equity’s rationale for imposing liability on knowing recipients and knowing assistants: namely, to deter and remedy unconscionable conduct.
The operation of the limitation provisions relating to trust and related claims is far from self-explanatory, and the authorities on point are beset with inconsistencies. Part of this difficulty lies in the slipperiness of (and diverging English and Australian approaches to) the conceptual basis, and remedial consequences of, accessorial liability for breach of trust.
Williams is an important judgment for any practitioner needing to find their bearings in this area. But, as I have noted above, one should not assume that it will be followed unquestioningly by Australian courts.
Tom Clarke – CommBar profile