When is it too late for a claimant to bring a claim in equity? This is a question which many practitioners understandably find difficult to answer. The question may depend on whether a statutory limitation period applies (directly or by analogy), or on the equitable principle of laches, which prevents a claim from being brought after a prejudicial or unconscionable delay. Unfortunately, suggestions for reform of this area of law have not yet been acted upon.
The general position is, limitation periods being a creature of statute (most recently the Limitation Act 1980 (the 1980 Act)), that unless a time limit is prescribed by the 1980 Act, a claim in equity can be brought at any time, subject to laches.
The 1980 Act makes limited provision for trust claims or claims otherwise in connection with a trust under section 21, which expressly provides for a six year limitation period. Whereas one might have hoped for certainty when a claim falls within section 21, a problem has arisen in a recent case which is rooted in the difficulty of how to classify a claim for equitable compensation.
The issue is whether a claim for equitable compensation is a “liquidated pecuniary claim” when considering the extension of a limitation period by a defendant who acknowledges a claim under section 29 of the 1980 Act. Section 29(5) provides that, where a right of action has accrued to recover “a debt or other liquidated pecuniary claim”, time starts running for limitation purposes from the date on which the debtor acknowledges the claim or makes any payment in respect of it. Time can be extended repeatedly by successive acknowledgments or payments.
In Creggy v Barnett, the Court of Appeal held (Patten LJ dissenting on the principle, though not the result) that the phrase “a debt or other liquidated pecuniary claim” in section 29(5) could include a claim for equitable compensation. However, the court held that the facts of the case, which involved a claim for equitable compensation for breach of trust and breach of fiduciary duty, were more akin to a claim in contract for breach of a duty of skill and care, and could not be classified as a right of action to recover a liquidated pecuniary claim because it was not for a liquidated sum.
The effect of this decision is that a claimant who brings a claim for breach of trust, which falls within the six year time limit under section 21, can potentially extend that time limit in circumstances where the defendant has acknowledged the claim, but only if the claim is liquidated. That is likely to cover claims for recovery of trust money wrongly paid away, but not cases where the breach of trust is analogous to a breach of contract for failure to exercise due skill and care where compensation is subject to assessment of loss. However, this is not a distinction which is necessarily easy to apply. Claimants who are aware they may need to rely on section 29(5) should seek to put their claim in a way which presents it as a “liquidated claim”, if at all possible.
Another useful reminder for claimants faced with this issue is to consider carefully whether they need to rely on an extension under section 29. Not all breach of trust claims are subject to the six year time limit in section 21; two exceptions are:
- A fraudulent breach of trust.
- Where the claim is for the return of trust property.
In addition, the term “trustee” in section 21(1) of the 1980 Act does not include a stranger to a trust who is liable to account on the grounds of either knowing receipt of trust assets, or dishonest assistance in a breach of trust (Williams v Central Bank of Nigeria). If a claimant can argue that section 21 does not apply, then the defendant must seek to apply a limitation period by analogy, or fall back on the doctrine of laches, no doubt a more difficult argument.