Slack and Partners Limited v Slack

The liquidator of Cedric Slack and Partners Limited sought repayment of £10,499 alleged to be an unlawful distribution in breach of section 263 of the Companies Act 1985, together with interest under section 277. The District Judge dismissed the claim on limitation grounds after counsel for the liquidator conceded at trial that, in the light of Paragon Finance Plc v Thackerar & Co, the claim was a "type 2" constructive trust subject to the six year limitation period in the Limitation Act 1980. On appeal the Court of Appeal held that the concession could properly be withdrawn: the trust arose from the director's prior fiduciary relationship and therefore fell within Paragon type 1, so section 21(1)(b) of the Limitation Act 1980 (disapplying the ordinary limitation period for a beneficiary's claim to recover trust property from a trustee) applied. The Court also held that a defence of laches would not have succeeded on the facts. The appeal was allowed and the liquidator was entitled to judgment for the sum with interest.

Background and parties: The respondent, Mr Cedric Slack, was sole director and effective sole shareholder of Cedric Slack and Partners Limited. The company ceased trading in 1999 and informal distributions were made in early 2000 including approximately £10,499 referable to the respondent's shares. A later repayment by the respondent's son to the company was attacked as a preference by the son's trustee in bankruptcy; that was compromised by a consent order requiring payment of £10,000 by the company, but the company was subsequently struck off in August 2002 leaving that debt unpaid. The company was restored to the register in 2006 and wound up; the liquidator brought the present claim by originating application on 31 July 2008.

Nature of the application and relief sought: The liquidator claimed repayment of £10,499 together with interest on the basis that the sums paid to Mr Slack were unlawful distributions contrary to section 263 of the Companies Act 1985 and therefore that Mr Slack held the value of his shareholding on trust for the company.

Procedural history: At first instance District Judge Davies dismissed the claim as time-barred. At trial the liquidator's counsel conceded, in the light of Paragon Finance Plc v Thackerar & Co, that the case was a "type 2" constructive trust and therefore subject to the six year limitation period. The liquidator later obtained permission from Arden LJ to appeal against the consequence of that concession.

Issues before the Court of Appeal: (i) whether the concession made at trial could properly be withdrawn on appeal; (ii) whether the constructive trust asserted by the liquidator was a Paragon type 1 trust (arising from a prior fiduciary relationship) or a type 2 trust (arising directly from the impugned transaction), with the related question whether the Limitation Act 1980 defence was available; and (iii) whether the defence of laches would have defeated the claim even if limitation did not.

Reasoning and disposition: The Court of Appeal examined the pleading and the evidence and concluded the essential facts supporting a type 1 constructive trust (in particular the respondent's directorship and fiduciary relationship) were already in the Particulars of Claim and known to the respondent. The court applied the approach in Re Southill Finance concerning withdrawal of concessions and concluded the liquidator bore the heavy burden of showing that the case could not have been conducted differently; he discharged that burden. The court held that the constructive trust arose from the respondent's prior fiduciary duties to the company and therefore fell within Paragon type 1 so that section 21(1)(b) of the Limitation Act 1980 applied and the ordinary six year limitation period did not bar the claim. The Court further found that laches would not have succeeded on the evidence: the respondent's witness statement did not show prejudice of the kind to found laches, and the respondent had not shown he had been lulled into inaction or had disposed of assets or evidence to his detriment. Accordingly the appeal was allowed and the liquidator was entitled to recover £10,499 with interest; the court invited submissions as to the precise terms of the consequential order.

Appeal allowed. The Court of Appeal held that the concession made at trial that the claim was time-barred could be withdrawn. On the pleaded facts the constructive trust arose from the respondent's prior fiduciary relationship as director and therefore fell within Paragon type 1; section 21(1)(b) of the Limitation Act 1980 disapplied the ordinary six-year limitation period. The Court also held that a defence of laches would not have succeeded on the evidence. The District Judge's dismissal of the claim was therefore overturned and the liquidator was entitled to judgment for £10,499 with interest.

Appeal from an order of District Judge Davies (Chancery Division, Birmingham District Registry) dated 19 March 2009 dismissing the liquidator's claim. Permission to appeal was granted by Arden LJ. This Court of Appeal judgment: Slack and Partners Limited v Slack [2010] EWCA Civ 204.