JJ Harrison (Properties) Ltd v Harrison

A director who procures a transfer of company property to himself through breach of pre-existing fiduciary duties holds that property as a constructive trustee in the first sense identified in Paragon Finance plc v D B Thakerar & Co. The director’s obligations arise from the office held before the impugned transfer.

A claim by the company to recover property, or sale proceeds previously received and converted by that director, falls within section 21(1)(b) of the Limitation Act 1980. The six-year period in section 21(3) therefore provides no defence. Laches will not ordinarily arise merely because the company could have found the material earlier, where those responsible did not appreciate the significant non-disclosure and assertion of the claim is not unconscionable.

J J Harrison (Properties) Ltd sued its former director, Peter Harrison, after he bought company development land in 1986 for £8,400 and later sold it in two parts for substantially higher sums. The deputy judge found that he had not disclosed material information about the land’s planning potential and ordered an account of profits.

The director appealed, relying on limitation and laches. The company cross-appealed against the finding that, despite his breaches of duty, he had not held the land on constructive trust. It sought an account based on the proceeds of the later sales.

1. Appeal dismissed and cross-appeal allowed. Chadwick LJ, with whom Laws LJ and Sir Anthony Evans agreed, held that the deputy judge had been wrong to deny that the director held the land as a constructive trustee for the company.
2. A company owns its own property beneficially, but directors exercise disposal powers for the company’s purposes and interests. A director who obtains company property for himself by abusing those powers does not acquire it free of the fiduciary obligations already attached to his office. Applying Belmont Finance Corporation v Williams Furniture Ltd and others (No 2) [1980] 1 All ER 393 and Paragon Finance plc v D B Thakerar & Co [1999] 1 All ER 400, he was a constructive trustee in the first category described by Millett LJ.
3. The company was the beneficiary, the director the trustee, and the transferred land the trust property for section 21(1)(b) of the Limitation Act 1980. Although section 21(3) can apply to an innocent breach by an actual or first-category constructive trustee, section 21(1)(b) excludes a claim to recover trust property or proceeds previously received and converted to the trustee’s use. The director could not retain the profits of his breach by relying on limitation. Section 23 required no separate analysis.
4. The trial judge had been entitled to find that the company did not appreciate the relevant non-disclosure until 1997. The new letter did not justify a retrial, and laches afforded no defence.
5. The director had to account for the actual proceeds of the 1988 and 1992 sales, with appropriate credit for the purchase price and expenditure that preserved or enhanced value. He could not claim credit for other expenditure. The court rejected an account based on a notional 1988 value for the remaining site.

• Court of Appeal (Civil Division): The appeal was dismissed and the company’s cross-appeal was allowed. The order was varied to require an account of the proceeds of the 1988 and 1992 sales, and other profits.
• High Court, Chancery Division: On 7 December 2000, a deputy judge found material non-disclosure by the director, rejected limitation and laches, and ordered an account of profits. No citation for that decision is stated in the judgment.