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Singapore – Claims For Dishonest Assistance And Knowing Receipt Subject To Statutory Limitation Period.

20 May, 2014

 


Introduction

 
Potential claims cannot exist in perpetuity, and in order to enforce a measure of certainty, claims are often subject to a limitation period. In Singapore and the UK, limitation periods are governed by the jurisdictions’ respective Limitation Acts, which prescribe the periods within which certain actions must be brought.

 
In both jurisdictions, the limitation period for an action by a beneficiary against a trustee is six years. However, where the trustee has committed fraud or fraudulent breach of trust, the limitation period does not apply. The question then arises as to whether constructive trustees fall within this exception, and if so, which categories of constructive trustees.

 
In the recent case of Williams v Central Bank of Nigeria [2014] UKSC 10 (“Williams v CBN”), the UK Supreme Court clarified the English position, holding that the limitation period continues to apply to constructive trusteeships which arise from dishonest assistance or knowing receipt.

 
In this Update, we take a look at the judgment of the UK apex court in Williams v CBN, as well as examine the position in Singapore, and whether the approaches across both jurisdictions are complementary.

 
Williams v CBN

 
The Plaintiff (“Williams”) claimed to be the victim of a fraud perpetrated by the Nigerian State Security Services in 1986. Williams was the guarantor for a transaction, in which hepaid more than USD 6.4m to an English solicitor (“Gale”), to be held on trust for him on terms that it not be released until certain funds had been made available to him in Nigeria.

 
However, Williams claimed that Gale paid out more than USD 6m of the money to a London account of the Central Bank of Nigeria (“CBN”), despite knowing that the funds were not available to Williams in Nigeria. The CBN was said to have been a party to Gale’s fraud, and thus liable as constructive trustee on the basis of dishonest assistance or knowing receipt.

 
The main issue in Williams’ claim against CBN was that of limitation, as the events occurred in 1986. Under s21(3) of the UK Limitation Act, the normal limitation period for beneficiaries to recover trust property is six years from the date on which the right of action arose. Williams thus sought to avail himself of the exception in s21(1)(a) of the UK Limitation Act, which provides that no limitation period will apply in respect of “any fraud or fraudulent breach of trust to which the trustee was party or privy”.

 
The Supreme Court thus had to determine whether a stranger to the trust who dishonestly assists the trustee in, or knowingly receives trust assets from a fraudulent breach of trust, counts as a “trustee” for the purposes of the s21(1)(a) limitation exception.

 
Holding Of The Supreme Court

 
The Supreme Court, by majority, held in favour of CBN, finding that the six-year limitation period did in fact apply, and that Williams’ claim was thus time-barred.

 
The court looked into the history of the legislation, examining the intention behind its provisions. The majority held that the s21(1)(a) limitation exception would only apply to “true trustees”, and not all individuals upon whom equity imposed a liability to account as if they were trustees (a.k.a. constructive trustees). The question then arose as to which categories of constructive trustees could be considered “true trustees” for the purpose of s21(1)(a).

 
There are 2 categories of constructive trustees:

 
(i) The first category (“Category 1”) are de facto trustees, or those who have lawfully assumed fiduciary obligations in relation to trust property, but without a formal appointment.
(ii) The second category (“Category 2”) are those who have never assumed the status of trustee, but who have incurred ancillary liability for the misapplication of trust assets, either through dishonest assistance or knowing receipt.

 
Category 1 trustees may be considered “true trustees” under s21(1)(a) as they are subject to equivalent remedies from a beneficiary as under an express trust. However, Category 2 trustees are subject to an equitable liability to account on the basis of wrongdoing rather than on the basis of trusteeship. Therefore, Category 2 constructive trustees are not “true trustees”, and are thus not subject to the s21(1)(a) limitation exception.

 
In this case, CBN was found to be a constructive trustee under Category 2. Therefore, the six-year limitation period applied to bar Williams’ claim against CBN.

 
Singapore Position

 
The statutory limitation provisions for claims against trustees in Singapore are identical to the UK provisions. S22(2) of the Singapore Limitation Act imposes a similar six-year limitation period for an action by a beneficiary to recover trust property or in respect of any breach of trust, and s22(1) provides a limitation exception in respect of any fraud or fraudulent breach of trust to which the trustee was a party or privy.

 
Where then do the Singapore courts stand with respect to whether constructive trustees fall within the ambit of the limitation exception? From an examination of existing case law, it can be observed that the Singapore approach is largely in line with the approach in Williams v CBN.

 
In Panweld Trading Pte Ltd v Yong Kheng Leong and others [2012] 2 SLR 672, the Singapore High Court was faced with a similar issue. The Plaintiff company brought a claim against one of its directors (the “1st Defendant”) for breach of fiduciary duty by placing his wife (the “2nd Defendant”) on the Plaintiff’s payroll despite her not being an employee. The Plaintiff’s claim against the 2nd Defendant was based on dishonest assistance and knowing receipt.

 
The parties agreed that the 1st Defendant could not rely on any limitation period due to s22(1) of the Singapore Limitation Act. However, the parties disagreed as to whether the claim against the 2nd Defendant could fall under the s22(1) limitation exception due to her position as constructive trustee.

 
The High Court examined the position of constructive trustees under the s22(1) limitation exception, and held that not all constructive trusts fell within the concept of “trustee”. The High Court divided constructive trusts into two categories, Category 1 being trusts which arose before the occurrence of the transaction impeached, and Category 2 being trusts which arose by reason of the transaction impeached. Only Category 1 trusts fell within the limitation exception of s22(1), while Category 2 trusts could still be time-barred. This is because Category 2 trusts are not “trusts” in the true sense of the word, but rather a formula for equitable relief.

 
As such, the 2nd Defendant – being a Category 2 trustee on account of the claim against her being based on dishonest assistance and knowing receipt – was entitled to rely on the sixyear limitation period.

 
The case later went before the Singapore Court of Appeal in Yong Kheng Leong and another v Panweld Trading Pte Ltd [2013] 1 SLR 173. The Court of Appeal did not have to decide on the s22(1) constructive trust point, although it did in fact uphold the High Court’s decision on the matter in obiter comments.

 
The Court of Appeal similarly divided constructive trustees into two categories, Category 1 being those who actually held property in the position of a trustee, and Category 2 being those who fraudulently acquired property over which they never had any trust obligations. Again, Category 2 trustees were found not to fall within the s22(1) limitation exception.

 
The Court of Appeal’s statements were later followed by the Singapore High Court in the case of Dynasty Line Ltd (in liquidation) v Sia Sukamto and another [2013] 4 SLR 253. In this case, the Plaintiff company brought a claim against two of its former directors for breach of fiduciary duty. The High Court adopted the same categorization of constructive trusts for the purposes of the applicability of limitation defences, holding that only Category 2 trustees could avail themselves of such defences. It was held that the Defendant directors, had they acted in breach of their fiduciary duties, would have been Category 1 trustees, and would thus have fallen within the s22(1) limitation exception.

 
The matter then went before the Court of Appeal in the recent decision of Dynasty Line Ltd (in liquidation) v Sia Sukamto and another and another appeal [2014] SGCA 21. The Court of Appeal held that the Defendant directors had in fact acted in fraudulent breach of their fiduciary duties, and thus agreed that they fell within the s22(1) limitation exception.

 
The approach of the Singapore courts has thus been consistent. Decisions by the High Court and Court of Appeal have supported the position that constructive trustees may avail themselves of limitation defences only in situations where their status as trustee is imposed by reason of ancillary liability rather than the actual holding of trust property as trustee.

 

Concluding Words

 
The decision of the apex English court in Williams v CBN provides much-needed clarity regarding the categories of constructive trustees that would be entitled to rely on any statutory limitation period in claims brought against them for breach of trust or recovery of trust property. Importantly, it confirms that constructive trusts imposed on the basis of ancillary liability are not exempt from limitation periods.

 
Therefore, parties seeking to claim for breach of trust or recovery of trust property against dishonest assistants or knowing recipients should be aware that their claims must be brought within six years of the right of action arising. Otherwise, they may find their claims time-barred. Conversely, claims against formal or de facto trustees are not subject to limitation periods due to the statutory limitation exception.

 
The position in Singapore appears similar to the UK position. Singapore courts have employed the same categorization of constructive trusts as the UK Supreme Court, and have also held that constructive trustees on the basis of ancillary liability may still rely on the statutory time-bar.

 

Rajah & Tann

 

For further information, please contact:

 

Mohammed Reza, Partner, Rajah  & Tann
mohammed.reza@rajahtann.com


Sim Wei Na, Partner, Rajah & Tann
wei.na.sim@rajahtann.com

 

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