Trustees under a will had entrusted the trust fund to a solicitor for investment. The solicitor exercised all of their administrative and investment powers for them and distributed part of the fund invested to the beneficiaries under the will but retained part in his own hands. Some 12 years later, the surviving trustee brought an action claiming an account of the money retained by the solicitor.
Held: The solicitor must be considered as having been in the position of an express trustee of such money with the consequence that lapse of time did not bar the action.
A de facto trustee is subject to the same duties as an actual trustee.
Lord Esher MR said: ‘If there is created in expressed terms, whether written or verbal, a trust, and a person is in terms nominated to be the trustee of that trust, a Court of Equity, upon proof of such facts, will not allow him to vouch a Statute of Limitations against a breach of that trust. Such a trust is in equity called an express trust. If the only relation which it is proved the defendant or person charged bears to the matter is a contractual relation, he is not in the view of equity a trustee at all, but only a contractor; and equity leaves the contractual relation to be determined by the common or statute law. If the breach of the legal relation relied on, whether such breach be by way of tort or contract, makes, in the view of a Court of Equity, the defendant a trustee for the plaintiff, the Court of Equity treats the defendant as a trustee become so by construction, and the trust is called a constructive trust; and against the breach which by construction creates the trust the Court of Equity allows Statutes of Limitation to be vouched.’
Lord Esher continued: ‘There was an express trust created, but Ashwell was not at any time nominated as a trustee of that trust. He was the solicitor of the nominated trustees. As such solicitor he was entrusted by the nominated trustees to take and have in his hands the trust money, with a direction on their behalf to deal with it according to the terms of the trust. Assume that he misappropriated that money to his own use, and that that was all; the misappropriation would at once of itself make him the holder of the money in trust for the rightful owner, but, if that were all, only a trustee by construction of a constructive trust. But the questions in this case are whether Ashwell was not, in view of a Court of Equity, a trustee of the money before the alleged breach by misappropriation, and, if he was, under which class of trust he was with regard to limitations. The moment the money was in his hands, he was in a fiduciary relation to the nominated trustees; he was a fiduciary agent of theirs; he held the money in trust to deal with it for them as directed by them; he was a trustee for them. He was therefore a trustee of the money before he committed, if he did commit, the alleged breach of trust, and was in possession of and had control over the money before he committed, if at all, the alleged breach of trust.
The cases seem to me to decide that, where a person has assumed, either with or without consent, to act as a trustee of money or other property, ie, to act in a fiduciary relation with regard to it, and has in consequence been in possession of or has exercised command or control over such money or property, a Court of Equity will impose upon him all the liabilities of an express trustee, and will class him with and will call him an express trustee of an express trust. The principal liability of such a trustee is that he must discharge himself by accounting to his cestui que trusts for all such money or property without regard to lapse of time.
There is another recognised state of circumstances in which a person not nominated a trustee may be bound to liability as if he were a nominated trustee, namely, where he has knowingly assisted a nominated trustee in a fraudulent and dishonest disposition of the trust property. Such a person will be treated by a Court of Equity as if he were an express trustee of an express trust. I am of opinion that the present case is within the description of that which is treated as and is called in equity an express trust, and that the inquiry as to the alleged breach cannot be stopped by the Statute of Limitations.
I am clearly convinced by the evidence that Ashwell became on receipt of the money a trustee of it, and that, as he has not been shewn to have accounted for it, the defendant, his executrix, is liable as such for a breach of trust by him. ‘
Bowen LJ said: ‘It has been established beyond doubt by authority binding on this Court that a person occupying a fiduciary relation, who has property deposited with him on the strength of such relation, is to be dealt with as an express, and not merely a constructive, trustee of such property. His possession of such property is never in virtue of any right of his own, but is coloured from the first by the trust and confidence in virtue of which he received it.’
Recognising that the authorities were irreconcilable, he identified three cases where a constructive trustee would be treated for limitation purposes like an express trustee, namely the case of de facto trustees, which was the case before the court; the case of a stranger to the trust knowingly assisting the fraud of a trustee; and the case of a stranger knowingly receiving trust property in breach of trust.
Kay LJ said: ‘The result seems to be that there are certain cases of what are, strictly speaking, constructive trusts, in which the Statute of Limitations cannot be set up as a defence. Amongst these are the case where a stranger to the trust has assumed to act and has acted as a trustee, and the case where a stranger has concurred with the trustee in committing a breach of trust, and has taken possession of the trust property, knowing that it was trust property, and has not duly discharged himself of it by handing it over to the proper trustees or to the persons absolutely entitled to it.
I think that the present case comes within one or both those categories. I think that Ashwell did assume to act and acted as trustee of the funds which he received, and that he has not duly discharged himself from the plaintiff’s share of those funds, and must therefore be treated as an express trustee.’
Lord Esher MR, Bowen LJ, Kay LJ
[1893] 2 QB 390
England and Wales
Cited by:
Cited – Ultraframe (UK) Ltd v Fielding and others ChD 27-Jul-2005
The parties had engaged in a bitter 95 day trial in which allegations of forgery, theft, false accounting, blackmail and arson. A company owning patents and other rights had become insolvent, and the real concern was the destination and ownership of . .
Cited – Peconic Industrial Development Ltd v Lau Kwok FAI 27-Feb-2009
Hong Kong Court of Final Appeal. The limitation period for a claim in dishonest assistance is 6 years. For limitation purposes a distinction is to be made between two kinds of constructive trustees: those who are fiduciaries and those who are . .
Cited – Williams v Central Bank of Nigeria QBD 8-Apr-2011
The claimant had been defrauded by a customer of the defendant bank. He brought a claim against the bank, saying that they knew or ought to have known of the fraudster’s activities, and were liable. The Bank denied that the UK courts had . .
Cited – Williams v Central Bank of Nigeria SC 19-Feb-2014
Bank not liable for fraud of customer
The appellant sought to make the bank liable for a fraud committed by the Bank’s customer, the appellant saying that the Bank knew or ought to have known of the fraud. The court was asked whether a party liable only as a dishonest assistant was a . .
Dicta applied – In re Gallard 1897
. .
Dicta applied – Heynes v Dixon 1900
. .
Dicta applied – In re Eyre-Williams 1923
. .
Cited – Henchley and Others v Thompson ChD 16-Feb-2017
The Claimants sought an order directing the Defendant to provide a full account of his dealings with the assets of the two trusts as a trustee or as a de facto trustee.
Held: The court has a discretion whether or not to make an order for an . .
Lists of cited by and citing cases may be incomplete.
Limitation, Trusts, Legal Professions
Leading Case
Updated: 10 November 2021; Ref: scu.230273