Udeshi & Ors v Sieratzki

The claim arose from the 2003 collective enfranchisement of Parkside, Knightsbridge and a later 2007 settlement. The claimants alleged that the defendant, having funded the shortfall for 11 non-participating flats, owed fiduciary duties to the participating lessees and breached those duties by keeping the profits from later lease deals. The court treated the defendant's applications to strike out and for summary judgment as raising two dispositive legal issues: limitation and standing.

Key legal principles and grounds for decision:

• The causes of action for the alleged breaches accrued in 2003 (completion and share allotment) and 2007 (the settlement agreement), so limitation was governed by a six-year period for these equitable claims absent pleaded fraud or a properly pleaded misapplication of company property.
• The court held the pleaded claims fell outside s.21(1) Limitation Act 1980 (which disapplies limitation for claims to recover trust property or fraudulent breaches by trustees) because the claim was for secret profits/arising from the impugned transaction rather than recovery of pre-existing trust property; consequently s.21(3) (six-year limitation) or its analogy applied and the claims were time barred.
• The claimants lacked standing: the pleaded claim was not a representative or derivative action (no permission sought or granted), the company (the obvious plaintiff for a company loss) had been discontinued as a party and the pleaded route of recovery to the company for distribution to current shareholders was legally and practically defective; the rule in Foss v Harbottle and the requirement for permission for derivative claims were relevant obstacles.

The court therefore concluded there was no real prospect of success and granted summary judgment for the defendant.

This was a first instance hearing on the defendant's applications dated 11 August 2019 and 23 February 2020 seeking strike out or summary judgment against claims issued on 21 March 2019. The claimants (a flat owner and her adult sons) pursued equitable compensation or an account of profits arising from the defendant's financing of the shortfall to acquire 11 non-participating flats in the 2003 collective enfranchisement and from a 2007 settlement. Following discontinuance of proceedings against the company and other directors, the defendant remained the sole active defendant.

Nature of the claim / relief sought:

• An account or enquiry and equitable compensation for profits allegedly obtained by the defendant from the non-participating flats; the claim sought payment into the company for distribution to shareholders.

Issues framed by the court:

• Limitation: whether the causes of action were statute-barred, particular attention to Limitation Act 1980 (s.21(1), s.21(3), s.32 and related provisions) and whether any exception (fraud, deliberate concealment or claim to trust property) applied.
• Standing / capacity to sue: whether the claimants could pursue the claim on their own behalf, as representatives, or derivatively for the company, and whether Foss v Harbottle or the need for derivative permission prevented their case.
• Procedural compliance with the Civil Procedure Rules, including an incorrect issue fee and service issues.

Court's reasoning in brief:

• The court identified the dates on which the causes of action accrued: completion (31 March 2003), share allotment (7 April 2003) and the 2007 settlement (22 March 2007). The pleaded case was for breaches of fiduciary duty producing secret profits rather than recovery of pre-existing trust property.
• Accordingly the claims fell outside s.21(1)(b) Limitation Act 1980 and were governed by the six-year period in s.21(3) or its analogue; no properly pleaded allegation of fraud/active concealment that would delay limitation had been advanced and, in any event, contemporaneous documents demonstrated the claimants were aware of the material facts by 2003 (or at latest 2007), so limitation had expired.
• Attempts to rely on provisions of the Land Registration Act 2002 or on general arguments of illegality were held not to change the limitation analysis for an equitable money/account claim.
• On standing the claim as pleaded was not a representative or derivative action, no permission to pursue such an action had been sought, the company (the proper plaintiff for company losses) had been discontinued and the pleaded mechanism of recovery to current shareholders was legally flawed; reflective-loss principles and the derivative permission hurdle meant the claimants had no realistic route to recover the company’s alleged loss.
• The failure to pay the correct issue fee was accepted as an irregularity; the judge found it was not culpably deceitful in the circumstances and would not by itself justify striking out, although the correct fee would be payable if proceedings continued.

Outcome: the court concluded the claims were time barred and the claimants lacked standing, so there was no real prospect of success. The court granted summary judgment for the defendant.

The judgment also notes the claimants were unrepresented and the hearing arrangements made to assist them, but the court found those factors did not alter the legal outcome.

This was a first instance decision. The court granted summary judgment for the defendant and dismissed the claim. The court held the claim was statute-barred (six-year limitation applied under s.21(3) Limitation Act 1980 or by analogy) because the pleaded causes of action accrued in 2003 and 2007 and no properly pleaded fraud/ concealment or claim to pre-existing trust property disapplied limitation. The court also held the claimants lacked standing because the claim was neither a permitted representative nor a derivative action, the company (the natural claimant for company loss) had been discontinued, and reflective-loss/derivative-permission rules barred the pleaded route. For those reasons there was no real prospect of success and summary judgment was appropriate.