Slack and Partners Ltd v Slack

Where a constructive trust arises from a director’s pre-existing fiduciary relationship with a company, it is a type 1 constructive trust. The ordinary six-year limitation period therefore does not bar the beneficiary’s claim to recover trust property under section 21(1)(b) of the Limitation Act 1980. A legal concession made at trial may be withdrawn on appeal where the corrected issue is one of law on facts already pleaded and the respondent would not have conducted the case materially differently or suffered prejudice. The applicant bears a heavy burden, with doubt resolved in the respondent’s favour. Laches requires delay, inactivity and circumstances making it inequitable or unconscionable to proceed. Stress and repeated pursuit do not establish laches without relevant reliance or prejudice.

The liquidator of a restored company claimed £10,499 from its former sole director in respect of an unlawful distribution. District Judge Davies dismissed the claim on 19 March 2009 because the liquidator had conceded that the claim concerned a type 2 constructive trust and was therefore subject to the six-year limitation period.

On appeal, the liquidator sought permission to withdraw that concession. He argued that the constructive trusteeship arose from the director’s prior fiduciary relationship with the company and was therefore a type 1 constructive trust. The respondent accepted that the concession was wrong but argued that withdrawal should be refused because of pleading issues, prejudice and laches. The central question was whether the concession could properly be withdrawn so that the claim proceeded on its correct legal basis.

Disposition. Lord Justice Lloyd delivered the judgment, with which Lord Justices Leveson and Sullivan agreed. The appeal was allowed.

1. Withdrawal of the concession. The liquidator satisfied the heavy burden applicable where a party seeks to advance a different case on appeal. The corrected issue was a question of law on facts already pleaded. The respondent’s preparation and conduct of the trial would not have been materially different. The company’s claim already pleaded the director’s status, and any necessary clarification would not have introduced new facts or required an adjournment.
2. Correct characterisation. The distinction in Paragon Finance Plc v Thackerar & Co [1999] 1 All ER 400 was applicable. A type 1 constructive trust arises from a pre-existing fiduciary relationship, whereas a type 2 trust arises directly from the unlawful transaction. The present claim arose from the respondent’s prior fiduciary relationship as director. The six-year limitation defence under section 21(3) of the Limitation Act 1980 therefore did not apply, while section 21(1)(b) removed the ordinary limitation bar.
3. Laches. Laches requires delay, inactivity and circumstances making it inequitable or unconscionable to proceed. It is assessed on the evidence, including whether the respondent was lulled into false security and suffered relevant reliance or prejudice. The respondent’s evidence showed continuing pursuit and harassment, rather than acquiescence caused by inactivity. It did not show disposal of assets or papers, or other prejudice affecting his ability to defend the claim. His stress and ill health were insufficient to establish laches.
4. The concession was permitted to be withdrawn. The judgment below should have been in favour of the liquidator for £10,499 with interest. The formal order was: appeal allowed.

• Court of Appeal (Civil Division): [2010] EWCA Civ 204; appeal allowed.
• High Court of Justice, Chancery Division, Birmingham District Registry: District Judge Davies dismissed the claim on 19 March 2009 on the basis that the conceded type 2 constructive-trust claim was statute-barred.