Burnden Holdings (UK) Limited v Fielding and another

The Supreme Court considered the construction of section 21 and the application of section 32 of the Limitation Act 1980 in the context of an assumed unlawful distribution in specie of a company asset by its directors. The court held that, for the purposes of section 21(1)(b), company directors who misappropriate company assets act as trustees and will be treated as having previously received trust property by virtue of their fiduciary stewardship; an unlawful distribution to a company controlled by those directors can amount to a conversion and fall within section 21(1)(b). The court also held that questions raised under section 32 (postponement of limitation where fraud or deliberate concealment is alleged) are fact-sensitive and unsuitable for summary determination.

Background and parties: Burnden Holdings (the claimant company) alleged that its directors (the defendants, Mr and Mrs Fielding and others) caused an unlawful distribution in specie of the claimant's shareholding in a trading subsidiary (Vital) in October 2007. The defendants sought summary judgment on limitation grounds, asserting the six-year limitation period had expired. The claim later included an allegation of fraudulent breach of trust.

Procedural history: At first instance HHJ Hodge QC granted summary judgment for the defendants dismissing the claim as statute-barred. The Court of Appeal reversed in part, concluding section 21(1)(b) could apply where misappropriation was effected by transfer to a company controlled by the trustees and that there was a triable issue under section 32. The defendants unsuccessfully appealed to the Supreme Court.

Nature of the claim and relief sought: The claimant sought recovery of trust property and equitable remedies (including account of profits or equitable compensation) for breach of fiduciary duty in relation to the alleged unlawful distribution in specie.

Issues framed:

• How section 21(1)(b) of the Limitation Act 1980 should be construed in the corporate context: whether a distribution in specie to a company controlled by defaulting directors can amount to trust property "previously received" and converted by them;
• Whether section 32 applies by reason of deliberate concealment or fraud and whether such issues are suitable for summary disposal.

Court's reasoning: The court stressed the statutory purpose of section 21: to deny the benefit of limitation where trustees would retain trust property they ought not to have. Directors are treated as trustees and, under the typical company constitution, as fiduciary stewards in respect of company property; therefore they may be regarded as having previously received company property for the purposes of section 21(1)(b). Where an unlawful distribution to a company controlled by those directors confers an economic benefit on them, that can amount to a conversion to their use and fall within section 21(1)(b). On section 32 the court concluded that deliberate concealment and related attribution issues are fact‑sensitive; given the later amendment pleading fraud and the complexity of attribution questions, the matter could not be resolved on summary judgment.

Subsidiary points: The court observed that issues about lifting the corporate veil and the relation between control and possession were relevant but did not prevent the construction of section 21 adopted; it declined to express a final view on the detailed meaning of section 32(2).

The appeal is dismissed. The court held that, for the purposes of section 21(1)(b) Limitation Act 1980, directors are to be treated as trustees who may be regarded as having previously received company property by virtue of their fiduciary stewardship, so an unlawful distribution to a company they control can amount to a conversion within section 21(1)(b). On section 32 the court held that questions of deliberate concealment and attribution are fact-sensitive and unsuitable for summary judgment, so no final view on section 32(2) was expressed.

First instance: HHJ Hodge QC (High Court) granted summary judgment for the defendants, dismissing the claim as statute-barred. Court of Appeal: reversed in part ([2016] EWCA Civ 557; judgment of David Richards LJ reported at [2017] 1 WLR 39), concluding section 21(1)(b) could apply to transfers to companies controlled by defaulting trustees and that there were triable issues under section 32. Supreme Court: appeal dismissed ([2018] UKSC 14).