Burnden Holdings (UK) Ltd v Fielding & Anor

For Limitation Act 1980 section 21(1)(b), a trustee or fiduciary may be treated as having received and converted trust property where it is transferred to a company which that person directly or indirectly controls. Direct personal ownership of the asset is unnecessary. The provision therefore prevents limitation being avoided through the use of a controlled company.

Whether a deliberate breach was unlikely to be discovered for some time under section 32(2) may require investigation of the transaction and of the knowledge of non-wrongdoing directors. It should not be resolved summarily where those facts are disputed.

The claimant company, acting through its liquidator, alleged that its two controlling directors had breached fiduciary and statutory duties by causing an unlawful distribution in specie of its shareholding in a trading subsidiary. The share was transferred to a company controlled by the directors and subsequently reorganised into another controlled company. The directors denied that the distribution was unlawful.

Proceedings were issued more than six years after the distribution. His Honour Judge Hodge QC, sitting in the High Court, granted the directors summary judgment under Civil Procedure Rules 1998 Part 24 on the ground that the claim was time-barred. The appeal concerned the accrual date and the availability of sections 21(1) and 32 of the Limitation Act 1980.

1. Appeal allowed. David Richards LJ, with whom Tomlinson and Arden LJJ agreed, held that the company’s claim was not barred by limitation under section 21(1)(b) of the Limitation Act 1980. The ordinary cause of action for breach of duty in causing the distribution accrued when the distribution was made, on 12 October 2007. The later reconstruction merely rearranged the directors’ indirect ownership and did not create a later cause of action.

2. The Vital share was legally and beneficially owned by the recipient companies, not held on trust for their shareholders. A literal construction of section 21(1)(b) would therefore deny direct receipt by the directors. That construction would, however, permit trustees readily to avoid the section by transferring assets to controlled companies. Applying the reasoning in In re Pantone 485 Ltd, Miller v Bain [2002] 1 BCLC 266, a transfer of trust property to a company directly or indirectly controlled by the trustee falls within the provision. Control enables the trustee to obtain the economic benefit, assets, or proceeds of the company. Equitable compensation was an apt remedy within the section where the trustee’s indirect interest had been converted to that trustee’s use. The court was only inclined to the view that an account of profits itself was outside the provision.

3. Section 21(1)(a) did not assist the claimant. A fraudulent breach of duty must be clearly pleaded and properly particularised, and the particulars did neither.

4. Alternatively, the availability of postponed time under section 32 could not be determined on summary judgment. Knowledge of the alleged wrongdoers was not knowledge of the company. The evidence did not establish whether the other directors knew of the steps said to make the distribution lawful. The expression requiring that discovery be unlikely for some time can include a short period of days. The factual questions required trial.

5. The summary judgment was set aside. The parties were directed to obtain case-management directions, with the proceedings to focus on whether the distribution was lawful.

• Court of Appeal (Civil Division): Allowed the company’s appeal and set aside the summary judgment.
• High Court, Chancery Division, Liverpool District Registry: His Honour Judge Hodge QC granted the defendants summary judgment under Civil Procedure Rules 1998 Part 24, holding the claim time-barred.