Burnden Holdings (UK) Limited v Fielding and another

For limitation purposes, company directors are treated as trustees and as having received company property through their fiduciary stewardship. A director who procures an unlawful distribution of that property to a company in which the director has a substantial economic interest may thereby convert it to the director’s own use. Section 21(1)(b) of the Limitation Act 1980 then disapplies the ordinary limitation period, even though legal and beneficial ownership remained vested in corporate entities.

Control of a company does not itself confer possession of its assets. The decisive considerations are the directors’ prior receipt of the property through their office and its conversion for their economic benefit. Fact-intensive questions concerning deliberate concealment under section 32 should not be resolved summarily.

The claimant holding company alleged that its directors had breached their fiduciary duties by procuring an unlawful distribution in specie of its shareholding in a trading subsidiary. The distribution occurred six years and three days before proceedings began. For the limitation issues, it was assumed to be unlawful and to confer a substantial benefit on the defendant directors through their majority interest in the recipient company.

A High Court judge granted the directors summary judgment on limitation grounds. The Court of Appeal, in [2016] EWCA Civ 557, reported at [2017] 1 WLR 39, reversed that decision. It held that section 21(1)(b) of the Limitation Act 1980 prevented time from running and that deliberate concealment under section 32 raised a triable issue.

After the company amended its claim to allege a fraudulent breach of trust within section 21(1)(a), summary judgment was no longer available irrespective of the appeal. The principal issue nevertheless determined was whether section 21(1)(b) applied where the misappropriated property remained legally and beneficially owned by corporate entities.

Held, unanimously, dismissing the appeal: Lord Briggs delivered the judgment, with which Lord Kerr, Lord Sumption, Lord Carnwath and Lord Lloyd-Jones agreed.

1. Section 21 of the Limitation Act 1980 applies to company directors by analogy with express trustees. Directors are fiduciary stewards of company property and are therefore treated as trustees, while the company is treated as the beneficiary. In the company context, directors are regarded as possessing or receiving the property from the outset through their office.

2. Section 21(1)(b) applied on the assumed facts. The directors converted the company’s shareholding by procuring or participating in its unlawful distribution. The distribution defied the company’s ownership rights and was a conversion to the directors’ own use because they stood to obtain substantial economic benefit as majority shareholders in the recipient company. Before that conversion, they had already received the property through their fiduciary stewardship. It was immaterial that legal and beneficial ownership of the shareholding remained throughout in successive corporate entities.

3. The statutory purpose, as stated in In re Timmis, Nixon v Smith [1902] 1 Ch 176, was to protect trustees whose conduct was legally or technically wrong but not morally wrong or dishonest. It was not intended to permit a trustee to retain trust property or its benefit by pleading limitation. The requirement of prior receipt remains meaningful for trustees generally, because an express trustee might never possess or receive the trust property. For directors, however, prior receipt ordinarily follows from their stewardship of company property.

4. Control of a company by a majority shareholder and director does not itself confer de facto possession of the company’s assets. Consequently, the decision did not depend on treating control as possession or on disregarding corporate personality. Although deliberate interposition of a corporate vehicle might justify lifting the corporate veil or support a finding of fraud under section 21(1)(a), anti-avoidance reasoning was unnecessary.

5. No final view was expressed on the meaning of section 32(2), including the phrase “some time”. Its application raised fact-intensive issues and possible questions of attribution. Those matters were unsuitable for summary judgment. The section 32 aspect of the appeal was therefore also dismissed.

1. United Kingdom Supreme Court: The directors’ appeal was dismissed unanimously. The result reached by the Court of Appeal under section 21(1)(b) of the Limitation Act 1980 was upheld, although the Supreme Court’s reasoning differed in part. The section 32 issue was held unsuitable for summary judgment.
2. Court of Appeal: In [2016] EWCA Civ 557, reported at [2017] 1 WLR 39, the court reversed the summary judgment. It held that section 21(1)(b) prevented time from running and that section 32 raised a triable issue concerning deliberate concealment.
3. High Court: HHJ Hodge QC granted summary judgment for the defendant directors and dismissed the claim as statute-barred.