BAILII is celebrating 24 years of free online access to the law! Would you
consider making a contribution?
No donation is too small. If every visitor before 31 December gives just £5, it
will have a significant impact on BAILII's ability to continue providing free
access to the law.
Thank you very much for your support!
[New search]
[Printable RTF version]
[Buy ICLR report: [2001] 1 WLR 112]
[Help]
Case No: A3/1999/1182
IN THE SUPREME COURT OF JUDICATURE
COURT OF APPEAL (CIVIL DIVISION)
ON APPEAL FROM HIGH COURT OF JUSTICE
QUEEN'S BENCH DIVISION (Commercial Court)
Mr Justice Langley
Royal Courts of Justice
Strand, London, WC2A 2LL
Date: 20 July 2000
B e f o r e :
LORD JUSTICE WALLER
LORD JUSTICE CLARKE
and
SIR CHRISTOPHER STAUGHTON
- - - - - - - - - - - - - - - - - - - - -
|
COMPANHIA
DE SEGUROS IMPERIO
|
Appellant
|
|
-
and -
|
|
|
HEATH
(REBX) Ltd & Ors
|
Respondents
|
- - - - - - - - - - - - - - - - - - - - -
(Transcript of the Handed Down Judgment of
Smith Bernal Reporting Limited, 180 Fleet Street
London EC4A 2HD
Tel No: 0171 421 4040, Fax No: 0171 831 8838
Official Shorthand Writers to the Court)
- - - - - - - - - - - - - - - - - - - - -
J Flaux Esq QC, Mr A Fenton (instructed by Barlow Lyde & Gilbert for
the Appellant)
P Gross Esq QC, Mr P Edey (instructed by Freshfields for the
Respondents)
- - - - - - - - - - - - - - - - - - - - -
Judgment
As Approved by the Court
Crown Copyright ©
LORD JUSTICE WALLER:
Introduction
This is an appeal on one aspect of a judgment of Langley J dated 30 March 1999,
now reported at [1999] Lloyd's Rep IR 571. By his judgment Langley J found
that all claims brought by the appellant ("Imperio") against the respondents
("Heaths") were statute-barred at the date the writ was issued.
It is possible to take the background directly from the judgment of Langley J.
"By a generally indorsed Writ of Summons issued on September 12 1995 Imperio
made the following claims for damages against Heaths:
(1) Damages for breach of four written binding authority agreements made on
various dates between May 1977 and April 1979 the breaches alleged being
(i) "the operation" of the binding authorities;
(ii) the failure to act with all reasonable skill and care in their operation;
(iii) the failure to act as authorised or instructed in connection with their
operation;
(iv) the failure to protect Imperio's interests or to act in what Heaths
honestly believed to be the best interests of Imperio in relation to the
operation of the binding authorities;
(v) the failure to provide information relating to the authorities; and
(vi) "the arranging of reinsurance" for Imperio in respect of the risks written
under the authorities.
(2) Damages for negligence and/or breaches of duty or duties "including but
not limited to fiduciary duty or duties" in connection with the binding
authorities, the breaches alleged being in exactly the same terms as the
alleged breaches of contract.
(3) Damages for negligent misstatement and/or negligent misrepresentation
and/or collateral warranty, relying in each case on statements made in various
documents dated between 1976 and 1979 about the binding authorities and their
operation.
Thus the claims made by Imperio relate to the operation by Heaths of various
binding authorities entered into in the years 1977 to 1979. Imperio was one of
a number of approximately 40 companies forming a Pool for each of which Heaths
held underwriting authority and on behalf of which Heaths accepted the
reinsurance of various long-term US casualty risks. Heaths also acted as
brokers on behalf of cedants to broke business to the Pool.
During the years 1976-1979 over 1000 policies were issued in the name of the
Pool. Imperio agreed to take a line of between 4% and 5% on any one risk. But
Article 15 of the first of the four binding authorities agreed by
Imperio provided that:
FRONTING AGREEMENT
It is understood and agreed that in the event of any Company/ies hereto being
unable to appear on any document issued by [Heaths] or being precluded
therefrom for any reason whatsoever, the remaining Companies hereto agree to
assume their increased proportion of liability hereunder subject to [Heaths]
arranging 100% reinsurance of such increased liability with those Companies who
are not appearing on the document.
On 117 separate risks Imperio was used by Heaths to front for the rest of the
members of the Pool (with the exception of one member, which would not agree to
front or be fronted) and the fronted line was generally 96.7% of the risk.
Imperio was only paid premium on its net line of 4% to 5% and was reinsured by
the other members of the Pool. In 53 of the 117 cases Imperio was sent a
policy for signature showing the fronted line and/or a cover note recording the
reinsurance by the other Pool members of the fronted line.
It is the use of Imperio as a front which lies at the heart of the dispute,
albeit it is far from being the only complaint which Imperio makes.
Heaths pleaded that Imperio's claims were statute-barred. The date (the
cut-off date) six years prior to the issue of the Writ is September 12
1989."
The Issues before Langley J
By an order dated 20 May 1998 Rix J had ordered that the limitation issue
should be tried as a preliminary issue on the basis of certain assumptions.
Those assumptions included that (1) all the facts and matters pleaded by
Imperio in the points of claim were true and correct; and (2) that Heaths
deliberately concealed facts relevant to Imperio's claim within the meaning of
section 32(1)(b) and/or section 32(2) of the Limitation Act 1980. In relation
to those assumptions the judge said this:-
"As the hearing has progressed the two major questions which have emerged have
been whether or not any limitation period applies at all to the claim made by
Imperio on the basis of breach of fiduciary duty (questions of acquiescence or
laches were expressly excluded from the scope of the preliminary issues ordered
by Rix J) and whether the facts assumed to have been concealed by Heaths were
or could with reasonable diligence have been discovered by Imperio outside the
limitation period within the meaning of section 32 of the 1980 Act."
Langley J held that the facts assumed to have been concealed by Heaths could,
with reasonable diligence, have been discovered by Imperio outside the
limitation period within the meaning of section 32 of the 1980 Act. Thus he
decided that such causes of action as Imperio had pleaded in relation to breach
of contract and/or tort were statute-barred. In relation to that aspect no
permission to appeal was sought. As to the claim for breach of fiduciary duty
Langley J held that the six year limitation period applicable to causes of
action in contract and tort should be applied by analogy in a like manner under
section 36(1) of the Limitation Act 1980 and that that claim too was barred.
It is on that aspect that permission to appeal was granted and on that aspect
only that an appeal has been pursued.
The Limitation Act 1980
The material provisions of the 1980 Act read as follows:-
" 2. Time limit for actions founded on tort
An action founded on tort shall not be brought after the expiration of six
years from the date on which the cause of action accrued.
5. Time limit for actions founded on simple contract
An action founded on simple contract shall not be brought after the expiration
of six years from the date on which the cause of action accrued.
21. Time limit for actions in respect of trust property
(1) No period of limitation prescribed by this Act shall apply to an action
by a beneficiary under a trust, being an action -
(a) in respect of any fraud or fraudulent breach of trust to which the
trustee was a party or privy; or
(b) to recover from the trustee trust property or the proceeds of trust
property in the possession of the trustee, or previously received by the
trustee and converted to his use.
(2) . . . .
(3) Subject to the preceding provisions of this section, an action by a
beneficiary to recover trust property or in respect of any breach of trust,
not being an action for which a period of limitation is prescribed by any
other provision of this Act, shall not be brought after the expiration of six
years from the date on which the right of action accrued.
For the purposes of this subsection, the right of action shall not be
treated as having accrued to any beneficiary entitled to a future interest in
the trust property until the interest fell into possession.
(4) . . .
36. Equitable jurisdiction and remedies
(1) The following time limits under this Act, that is to say --
(a) the time limit under section 2 for actions founded on tort;
(b) the time limit under section 5 for actions founded on simple contract;
(c) . . . .
shall not apply to any claim for specific performance of a contract or for
an injunction or for other equitable relief, except in so far as any such
time limit may be applied by the court by analogy in like manner as the
corresponding time limit under any enactment repealed by the Limitation Act
1939 was applied before 1st July 1940.
(2) Nothing in this Act shall affect any equitable jurisdiction to refuse
relief on the ground of acquiescence or otherwise."
Submissions of Mr Flaux QC
We have received detailed skeleton arguments but in summary Mr Flaux's
submissions can be put as follows.
(1). A claim for compensation for a dishonest breach of fiduciary duty is an
equitable claim originally exclusive to the courts of equity.
(2). There is no reference to such a claim in the Limitation Act 1980 and thus
there is no period of limitation applicable thereto unless it be by virtue of
section 36.
(3). Section 36 did not require a court to engage in a hypothetical enquiry as
to whether the court would have applied statutory time limits by analogy
to the particular type of equitable relief. The section required an enquiry as
to whether the courts of equity had in fact applied a relevant time limit by
analogy to a dishonest breach of fiduciary duty.
(4). There was no case where the courts of equity had applied any time limit
under the relevant Limitation Acts to a dishonest breach of fiduciary duty. He
submitted in particular that Metropolitan Bank v Heiron (1880) 5
Ex.D.319 was not such a case or that if it was it could no longer be relied on
in the light of A.-G. for Hong Kong v Reid [1994] 1 AC 324.
(5). If the construction of section 36 allowed the hypothetical enquiry to be
made, then the authorities demonstrated that the courts of equity would not
have applied the statutory time limits by analogy to a dishonest breach of
fiduciary duty. If any analogy was to be found it was with section 21(1)(a) a
fraudulent breach of trust to which no period of limitation applied.
(6). Thus the limitation provisions of the 1980 Act had no application to the
claim for a dishonest breach of fiduciary duty pleaded in paragraph 14 of the
points of claim.
Submissions of Mr Gross QC
Once again I shall seek to summarise the very detailed submissions.
(1). The claim for breach of fiduciary duty was in reality no more than a
different way of putting the breach of contract and/or tortious claims and thus
sections 2 and 5 applied to bar that cause of action.
(2). In the alternative, if the dishonest breach of fiduciary duty was a
separate claim then it was a claim for equitable relief falling within section
36 and a claim to which the courts of equity would have applied by analogy the
limitation periods set out in sections 2 and 5.
(3). The proper construction of section 36 did involve the court putting
itself in the position that a court of equity would have placed itself prior to
1st July 1940. Thus even if authority were unavailable to establish that a
court had in fact applied the limitation periods by analogy since they would
have done so section 36 applied to bar a remedy.
(4). In fact there was authority for a court having applied by analogy the
periods of limitation to a breach of fiduciary duty claim and thus even on the
narrower construction of section 36 the claim should be barred. He relied on
the Metropolitan Bank v Heiron (supra) and submitted that even if that
case in one sense did not survive A.-G. for Hong Kong v Reid (supra)
that did not affect the critical proposition for which he cited it i.e. the
proposition that the courts of equity did apply statutes of limitation by
analogy to claims for compensation for alleged dishonest breaches of fiduciary
duty.
Preliminary thoughts
In relation to a pool arrangement, such as existed in this case, I admit that
my starting point was that I would have expected the rights and duties to be
defined by the contracts entered into or by terms implied as of necessity into
the arrangements with each principal or possibly by reference to a duty of care
in tort. I would have expected the obligations of fidelity of Heaths to one
principal as opposed to another to be defined by those terms, either expressly
or by implication. I would have expected that if damages were being claimed
because of some failure by Heaths the cause of action to be relied on would be
in contract or in tort.
I would also, it is right to say, have expected that if it could be alleged
that during the currency of the agency the agent had used his position to make
a profit or had obtained property of the principal, equity might have come to
the assistance of the principal in supplying a proprietary remedy, but that for
any claim to damages or compensation the essential question would be whether a
breach of contract had taken place or possibly a breach of a duty of care in
tort. I would not have expected in relation to a claim for damages or
compensation for misconduct in the course of carrying out the pool
arrangements, there would have been any necessity to turn to equity for help.
I am furthermore somewhat comforted in the above initial thoughts by the fact
that if one turns to Bowstead & Reynolds on Agency 16th Edition, there are
many paragraphs on the fiduciary duties of agents but first, there is no
mention anywhere of equitable compensation or equitable damages as a remedy for
breach of such duties, and second, in dealing with remedies, the distinction
that is drawn is between "proprietary or personal remedies", a proprietary
remedy being defined accurately as "an application of equity's main technique,
of requiring the legal owner of money or other property to hold it as trustee".
Some advantages of a proprietary remedy are also noted, one being that "the
doctrine of laches will apply rather than the provisions of the Limitation
Acts" [see paragraph 6-042]. Illustrations of circumstances where the statutes
of limitation had been held not to apply are limited to circumstances where a
proprietary remedy was established; Burdick v Garrick (1870) L.R. 5 Ch.
App. 233, and North Atlantic Land and Timber Co v Watkins [1904] 1 Ch 242 [see paragraph 6-055].
If the position were that for breach of fiduciary duty a remedy in equitable
compensation or equitable damages was available to which the statute of
limitations would not apply, that would certainly have been a matter of great
relevance, and one would have expected it to be mentioned. Furthermore, it
would be somewhat surprising that if it was right it was not a point which had
been established by some authority or another.
Mr Flaux would submit that these first thoughts are misguided. He submitted by
reference to the House of Lords decision in Nocton v Lord Ashburton
[1914] AC 932 and more recently the Court of Appeal decision in Bristol
& West Building Society v Mothew [1998] Ch.1 that there are certain
duties that an agent will owe which are fiduciary duties strictly so called,
(primarily a duty of fidelity and loyalty) which arise independently of
contract. He further submitted by reference to those authorities that equity
did, in circumstances where the common law would not have provided a remedy,
grant "equitable compensation" or possibly "equitable damages" in relation to
breaches of such fiduciary duties.
The passages on which Mr Flaux relied in Nocton were in the speech of
Viscount Haldane, the first at p.956 where he said
"When, as in the case before us, a solicitor has had financial transactions
with his client, and has handled his money to the extent of using it to pay off
a mortgage made to himself, or of getting the client to release from his
mortgage a property over which the solicitor by such release has obtained
further security for a mortgage of his own, a Court of Equity has always
assumed jurisdiction to scrutinise his action. It did not matter that the
client would have had a remedy in damages for breach of contract. Courts of
Equity had jurisdiction to direct accounts to be taken, and in proper cases to
order the solicitor to replace property improperly acquired from the client, or
to make compensation if he had lost it by acting in breach of a duty which
arose out of his confidential relationship to the man who had trusted him.
This jurisdiction, which really belonged to the exclusive jurisdiction of the
Court of Chancery, had for the client the additional advantage that, as
illustrated by the judgment of Lord Hatherley L.C. in Burdick v Garrick
(1870) L.R. 5 Ch. 233, the statute of limitations would not apply when the
person in a confidential relationship had got the property into his hands."
(my emphasis)
Further, at p. 958 Viscount Haldane said:-
"My Lords, the conclusion at which I have arrived is that this action ought
properly to have been treated as one in which the plaintiff had made out a
claim for compensation either for loss arising from misrepresentation made in
breach of fiduciary duty or for breach of contract to exercise due care and
skill. The main head of claim, that relating to the mortgage of 1904, is
barred in equity by the acquiescence of the plaintiff, and at law by the
statute of limitations."
Millett LJ's judgment in Mothew also supports the proposition that
fiduciaries may owe duties independent from contract but the following points
appear from that judgment:-
1. The expression "fiduciary duty" is properly confined to those duties which
are peculiar to fiduciaries and the breach of which attracts legal consequences
differing from those consequent upon the breach of other duties; (16C-D) breach
of duty by a fiduciary is not necessarily a breach of fiduciary duty
(16-17);
2. Equitable compensation for a breach of duty of skill and care resembles
common law damages, and there is no reason why common law rules of causation,
remoteness and measure of damage should not be applied by analogy. It should
not be confused with equitable compensation for breach of fiduciary duty which
may be awarded in lieu of rescission or restitution, (17G-H);
3. That left those duties which are "special to fiduciaries and which attract
those remedies which are peculiar to the equitable jurisdiction and primarily
restitutionary or restorative rather than compensatory" (18A);
4. The fiduciary duty arises from the relationship of trust and confidence and
its nature is primarily one of loyalty, but, acting for two parties to the
knowledge of both does not mean that there is no fiduciary obligation owed.
The obligation to act in good faith, not to act intentionally at the
expense of one to the benefit of the other and not to be in a position of
actual conflict remains (19);
5. No breach of fiduciary duty was established and thus the remedy for such
breach was not in issue (24E). The remedy, if any, as I understand it, would
have been primarily restitutionary or restorative rather than compensatory.
I accept that fiduciary duties do arise independently of contract and that in
situations where an agent is acting for two principals, as in the instant case,
one principal has a cause of action for an intentional breach of fiduciary duty
independent from causes of action in contract or in tort. I also accept that
historically equity might have provided either remedies that were restorative
or remedies that were compensatory. Thus I accept that sections 2 and 5 of the
1980 Act are not directly applicable and would reject the first submission of
Mr Gross.
I also accept, as did Mr Gross, that there is no reference in the Limitation
Act 1980 to breach of fiduciary duty or dishonest breach of fiduciary duty.
Thus the answer to this appeal turns on whether by section 36, sections 2 or 5
are to be applied by analogy.
Construction of section 36
A claim to "equitable damages" or "equitable compensation" is a claim to
equitable relief as Mr Flaux accepted. Thus section 36 applies to it.
Furthermore, in my view, the court is not looking to see whether a limitation
period was actually applied to a dishonest breach of fiduciary duty by analogy
before 1 July 1940, but looking to see whether it would have been
applied. It might, for example, have been so obvious that in a claim for
"equitable damages" equity would follow the law and apply the statutes of
limitation by analogy that one could not in fact find an authority precisely in
point. What the court must do is act "in like manner" to a court sitting prior
to 1 July 1940.
Would a court of equity have applied statutes of limitation by analogy?
The question seems to me to be this. Would a court of equity have applied
limitation by analogy to a claim for equitable compensation or damages for a
dishonest breach of fiduciary duty?
In the House of Lords decision in Knox v Gye (1872) LR 5 HL 656 at
674 Lord Westbury summarised the position in the following way:-
"For where the remedy in Equity is correspondent to the remedy at Law, and the
latter is subject to a limit in point of time by the statute of limitations a
Court of Equity acts by analogy to the statute, and imposes on the remedy it
affords the same limitation. This is the meaning of the common phrase, that a
Court of Equity acts by analogy to the statute of limitations, the meaning
being, that where the suit in Equity corresponds with an action at law which is
included in the words of the statute, a Court of Equity adopts the enactment of
the statute as its own rule of procedure. But if any proceedings in Equity be
included within the words of the statute, there a Court of Equity, like a Court
of Law, acts in obedience to the statute."
Spry Equitable Remedies Fifth Edition p. 419 says:-
". . . a statute of limitations may be raised by analogy in defence to a claim
that is brought in the exclusive jurisdiction of a court of equity, such as in
proceedings for the enforcement of a trust, rather than in its auxiliary or
concurrent jurisdictions. Here there is no question of merely recognising and
giving effect to an abrogation of a right at law or of acting in obedience to a
statute that relates to rights at law. Hence it must be seen first whether
there is a special statutory provision that affects directly, whether expressly
or by implication, the particular equitable right that is in question. But if
there is no such provision, the court may decide that the material equitable
right is so similar to legal rights to which a limitation period is applicable
that that limitation period should be applied to it also. In this latter case
the limitation period is said to be applied by analogy, and the principles that
govern cases of this kind are that if there is a sufficiency close similarity
between the exclusive equitable right in question and legal rights to which the
statutory provision applies a court of equity will ordinarily act upon it by
analogy but that it will so act only if there is nothing in the particular
circumstances of the case that renders it unjust to do so. What is regarded by
courts of equity as a sufficiently close similarity for this purpose involves a
question of degree, and reference must be made to the relevant authorities.
The basis of these principles is that, in the absence of special circumstances
rendering this position unjust, the relevant equitable rules should accord with
comparable legal rules."
Mr Gross referred us to various authorities in which equity had applied the
statutes by analogy and some where it had not, and suggested that the dividing
line was between those cases where the court was giving remedies against
trustees or fiduciaries dissimilar from remedies at law e.g. a proprietary or
restorative remedy against someone already a trustee or a fiduciary, and those
in which it was providing a remedy analogous to that which would have been
available at law. He submitted the distinction had nothing to do with whether
equity was exercising its "exclusive" jurisdiction. The authorities included
Hovenden v Lord Annesley (1806) 2 Sch & Lef 607; Burdick v
Garrick (1870) LR 5 Ch 233; Friend v Young [1897] 2 Ch 421 and
North American Land v Watkins [1904] 1 Ch 242 (where many other
authorities were reviewed).
In my view the authorities cited by Mr Gross and the broad principles set out
in the above quotations support the submission that equity would have taken the
view that it should apply the statute by analogy to a claim for damages or
compensation for a dishonest breach of fiduciary duty. I say that because what
is alleged against Heaths as giving rise to the dishonest breach of fiduciary
duty are precisely those facts which are also relied on for alleging breach of
contract or breach of duty in tort. It is true that there is an extra
allegation of "intention" but that does not detract from the fact that the
essential factual allegations are the same. Furthermore, the claim is one for
"damages". The prayer for relief has now been amended with our leave to add a
claim for "equitable compensation", but the reality of the claim is that it is
one for damages, the assessment of which would be no different whether the
claim was maintained as a breach of contract claim or continued simply as a
dishonest breach of fiduciary duty claim.
Mr Flaux however sought to persuade us that the above conclusion was
fallacious. His argument was that the line to be drawn between those cases
where equity did apply the statutes of limitation by analogy and those where it
did not, was defined by the question whether equity was exercising its
"exclusive" jurisdiction or its "concurrent" jurisdiction. In the former case,
so Mr Flaux submitted, the court would not apply the statutes by analogy, and
in the latter it would. Thus, he submitted, one would find no authority where
the court was exercising its exclusive jurisdiction where the statute
had been applied by analogy.
This does not seem to accord with the above quotation from Spry, but for this
distinction he placed reliance on the following. First he relied on the
passage in Viscount Haldane's speech in Nocton already quoted in which
he suggested that the main head of claim "is barred in equity by the
acquiescence of the plaintiff, and at law by the statute of limitations." He
submitted that Viscount Haldane was drawing a distinction between a claim
within equity's exclusive jurisdiction and a claim within its concurrent
jurisdiction. As Langley J pointed out, the difficulty for Mr Flaux was that
limitation was not in issue; limitation by analogy was not under consideration
and thus Knox v Gye was not cited; furthermore, previously in his speech
Viscount Haldane had referred to the statutes of limitation not applying "when
the person in a confidential relationship had got the property in his hands."
Second, Mr Flaux relied on the judgment of Millett LJ in Paragon Finance v
Thakerar & Co [1999] 1 All ER 400, in which Millett LJ explained how
the statute of limitations would be applied by analogy so as to bar a
proprietary claim against a "constructive trustee" (improperly so called
as he would say) alleged to be such by virtue of his conduct where no
pre-existing fiduciary relationship existed; whereas it would not be applied in
relation to a proprietary claim against a constructive trustee (properly
so called as he would say) where the constructive trusteeship flowed from a
pre-existing fiduciary or trust relationship. In my view, it is fundamentally
to misunderstand the judgment of Millett LJ to suggest that he would have
approved the view that a claim for damages brought against a fiduciary,
even alleging a dishonest breach of that duty, would be free from limitation
altogether. In my view, Millett LJ's treatment of Nelson v Rye [1996] 2
All E.R. 186 demonstrates that point and demonstrates beyond peradventure that
the question whether equity was exercising its exclusive as opposed to its
concurrent jurisdiction does not supply the definitive answer as to
whether equity applied the statute by analogy. In Nelson v Rye Laddie J
held that claims to an account in relation to a fiduciary were outside the
scope of the Limitation Act 1980. But he did not consider section 36 and
whether there should be any application of the statutes of limitations by
analogy. Of that decision Millett LJ said this in Paragon at p. 415h:-
"The law on this subject has been settled for more than a hundred years. An
action for an account brought by a principal against his agent is barred by the
statutes of limitation unless the agent is more than a mere agent but is a
trustee of the money which he received: see Burdick v Garrick (1870) LR
5 Ch App 233, Knox v Gye (1872) LR 5 HL 656 and Re Sharpe, Re
Bennett, Masonic and General Life Assurance Co v Sharpe [1892] 1 Ch 154. A
claim for an account in equity, absent any trust, has no equitable element; it
is based on legal, not equitable rights: see How v Earl Winterton [1896] 2 Ch 626 at 639 per Lindley LJ. Where the agent's liability to account was
contractual equity acted in obedience to the statute: see Hovenden v Lord
Annesley (1806) 2 Sch & Lef 607 at 631 per Lord Redesdale. Where, as
in Knox v Gye, there was no contractual relationship between the
parties, so that the liability was exclusively equitable, the court acted by
analogy with the statute. Its power to do so is implicitly preserved by s 36
of the 1980 Act (re-enacting in simpler terms the tortuous provisions of s2(2)
and (7) which were subjected to critical analysis by Megarry V-C in Tito v
Waddell (No 2), Tito v A.-G. [1977] 3 All ER 129 at 248-250, [1977]
Ch 106 at 250-252)."
Thus Millett LJ made clear that even where equity was acting in its exclusive
jurisdiction the statute was applied by analogy.
Metropolitan Bank v Heiron
This case in my view presents a further difficulty for Mr Flaux. The case was
concerned with the recovery of a bribe paid to somebody in a fiduciary
relationship with the plaintiff. The Court of Appeal composed of James, Brett
and Cotton LJJ concluded that the fiduciary did not hold the bribe in trust for
his principal. The court was of the view that the principal could recover the
bribe from the fiduciary but that the action would be one for "equitable debt"
(as per James LJ at p. 323) or "a suit founded on breach of duty or fraud" (as
per Cotton LJ). The court applied the statutes of limitations by analogy and
thus held that the plaintiff's claim was statute-barred.
In A.-G. for Hong Kong v Reid Lord Templeman disapproved Metropolitan
Bank v Heiron in so far as it decided that a bribe was not held on trust
for the principal. In that context Lord Templeman commented at p. 335F-G as
follows:-
"The decision in Metropolitan Bank v Heiron is understandable given the
finding that the fraud was made known to the company more than six years before
the action was instituted. But the same result could have been achieved by
denying an equitable remedy on the grounds of delay or ratification."
That comment may be understandable in the context of holding that a bribe is
held on trust, but of greater relevance, nothing in Lord Templeman's speech
indicates that there was anything surprising in the Court of Appeal in
Metropolitan Bank v Heiron applying by analogy the statutes of
limitation to a claim founded on breach of duty for fraud in the context of a
fiduciary relationship. In my view, accordingly, Mr Gross' submission is right
that this is an example of the court of equity actually applying statutes of
limitation by analogy to a dishonest breach of fiduciary duty, where no
proprietary remedy is claimed.
Conclusion
I have not dealt with some of the authorities as fully as the judge and no
disrespect to the arguments of counsel is intended. But, we have before us
both his decision dealing with the authorities in a way on which I could not
improve and the decision of Mr Jules Sher QC sitting as a deputy judge of the
High Court, Chancery Division in Coulthard v Disco Mix Club Ltd &
Ors [1999] 2 All ER 457 where, prior to the decision of Langley J, he had
come to the same conclusion, albeit it is fair to say that Nocton was
not cited to him. At p. 478 the deputy judge summarised the authorities,
including Knox v Gye, in the following propositions:-
"First, where the court of equity was simply exercising a concurrent
jurisdiction giving the same relief as was available in the court of law the
statute of limitation would be applied. But, secondly, even if the relief
afforded by the court of equity was wider than that available at law the court
of equity would apply the statute by analogy where there was `correspondence'
between the remedies available at law or in equity."
He continued at p. 478d-f as follows:-
"Mr Bate argues that the court of equity will apply the statute by analogy only
where the equitable remedy is being sought in support of a legal right or the
court of equity is being asked to decide a purely legal right, and he cites
passages from Hicks v Sallit (1854) 3 De G M & G 782, 43 ER 307 and
Hovenden v Lord Annesley (1806) 2 Sch & Lef 607. I have no doubt
that the principles of application by analogy to the statute (or, in obedience
to the statute, as Lord Redesdale LC preferred to describe it in its
application to the facts of Hovenden's case), are quite apposite in the
situations envisaged by Mr Bate. But, in my judgment, they have a much wider
scope than that: one could scarcely imagine a more correspondent set of
remedies as damages for fraudulent breach of contract and equitable
compensation for breach of fiduciary duty in relation to the same factual
situation, namely, the deliberate withholding of money due by a manager to his
artist. It would have been a blot on our jurisprudence if those selfsame facts
gave rise to a time bar in the common law courts but none in the court of
equity."
It seems to me that much the same could be said in relation to the fraudulent
breach of contract and equitable claim for breach of fiduciary duty in this
case all based on the same facts.
It is true that Nelson v Rye might have been said to have supported Mr
Flaux but that decision has been comprehensively demolished by Millett LJ in
Paragon and in any event was a decision in which section 36 was not
referred to. The decision of Ebsworth J in Kershaw v Whelan (No 2)
unreported, January 23 1997, was also a decision in Mr Flaux's favour but he
did not feel able to rely on its reasoning to support his argument. In my view
the reasoning of the judge in this case and that of Mr Jules Sher QC in
Coulthard demonstrate that Kershaw v Whelan (No 2) was wrongly
decided and should be overruled.
In my view the appeal should be dismissed.
Sir Christopher Staughton:
I agree that this appeal should be dismissed for the reasons given by Waller
LJ. It seems to me unfortunate that the Plaintiffs, an insurance company in
Portugal, should have to endure a prolonged and expensive contest as to the
rules of equity as they were sixty years ago and more. And all that for the
purpose of determining whether claims that arose before September 1989 are
time-barred.
It is not obvious to me why it is still necessary to have special rules for
the limitation of claims for specific performance, or an injunction, or other
equitable relief. And if it is still necessary to do so, I do not see any
merit in continuing to define the circumstances where a particular claim will
be time-barred by reference to what happened, or might have happened, more than
sixty years ago. If a distinction still has to be drawn between common law and
equitable claims for limitation purposes, I would hope that a revised statute
will enact with some precision where that distinction should be drawn, rather
than leave it to the product of researches into cases decided long ago.
LORD JUSTICE CLARKE:
1. I agree that this appeal should be dismissed for the reasons given by Waller
LJ. I add some observations of my own because of the curious nature of the
exercise. I entirely agree with Sir Christopher Staughton that it should not
be necessary in the year 2000 to decide whether a claim is time barred by
reference to what a court of equity either did or would have done more than
sixty years ago.
2. I agree with Waller LJ that the outcome of the appeal turns on the correct
application of section 36(1) of the Limitation Act 1980 to the facts of this
case. The time limits in sections 2 and 5 of the Act do not apply directly.
The claim with which the appeal is concerned is based on alleged breaches of
fiduciary duty on the part of the defendant to act in what it honestly believed
to be the best interests of the plaintiff. It was originally described in the
prayer to the points of claim as a claim for damages. Detailed analysis of the
position has revealed that the basis of the claim is equitable and that the
claim is one for compensation. It was, however, no doubt described as a claim
for damages because that is what, in truth, it is. As Waller LJ has put it,
the reality of the claim is that it is a claim for damages which would be
assessed in the same way as a claim for damages at common law. As I see it, it
is a claim for equitable compensation, but not the kind of equitable
compensation which may be awarded in lieu of rescission or specific
restitution.
3. As a claim for equitable relief it falls within the expression "other
equitable relief" in section 36(1) of the 1980 Act, which thus provides, so far
as relevant, that the time limits in sections 2 and 5 shall not apply
"except in so far as any such time limit may be applied by the court by
analogy in like manner as the corresponding time limit under any enactment
repealed by the Limitation Act 1939 was applied before 1st July
1940".
It is not in dispute that the Limitation Act 1939 repealed statutes which
contained similar provisions to sections 2 and 5 of the 1980 Act. It follows,
as I see it, that those time limits may be applied by analogy "in like manner"
as those time limits were applied.
4. I agree with Waller LJ that that cannot mean that it is necessary to find an
identical case decided before 1940 in which a court of equity in fact applied a
previous statute by analogy. The section cannot, to my mind, have been
intended to be read so narrowly. It must mean that the court is to have power
to apply sections 2 and 5 by analogy in the kind of case in which equity would
have done the same. In such a case the court will be applying the provision by
analogy "in like manner as the corresponding time limit ... was applied before
1st July 1940". The correct approach is to identify if possible the
principle which the courts of equity adopted and to apply a similar principle
now.
5. I would certainly have expected a court of equity to apply the common law
time limits by analogy on the facts of this case. As Waller LJ has pointed
out, and as the judge demonstrated by a detailed analysis of the points of
claim, the essential nature of the pleaded case is the same whether it is put
as damages for breach of contract, damages for breach of duty or damages (or
compensation) for breach of fiduciary duty. The only additional element is the
defendant's alleged intention, which on the facts here adds nothing of
substance to the claim for damages. Indeed it would be quite unnecessary to
include this claim if it were not thought necessary to do so in order to
advance the time bar argument.
6. In Coulthard v Disco Mix Club Ltd [1999] 2 All ER 457 at 478 Mr Jules
Sher QC said this (in a passage already quoted by Waller LJ):
"... one could scarcely imagine a more correspondent set of remedies as
damages for fraudulent breach of contract and equitable compensation for breach
of fiduciary duty in relation to the same factual situation, namely the
deliberate withholding of money due by a manager to his artist. It would have
been a blot on our jurisprudence if those selfsame facts gave rise to a time
bar in the common law courts but none in the court of equity".
In my opinion precisely the same is true on the facts of this case. If the
claims for damages for breach of contract and duty are time barred, as it is
agreed that they are, no rational system of law should permit the plaintiff to
proceed with a claim for damages which is essentially based on the same facts,
merely because it is strictly a claim for compensation in equity.
7. As I listened to the argument, it seemed to me that there is a danger of
over-analysing questions of this kind. To my mind the position is put
succinctly and correctly in the passage from the fifth edition of Spry
on Equitable Remedies which Waller LJ has quoted. Spry said
(at p 419):
"... it must be seen first whether there is a special statutory provision that
affects directly, whether expressly or by implication, the particular equitable
right in question. But if there is no such provision, the court may decide
that the material equitable right is so similar to legal rights to which a
limitation provision is applicable that that limitation period should be
applied to it also. In this latter case the limitation period is said to be
applied by analogy, and the principles that govern cases of this kind are that
if there is a similarity between the exclusive equitable right in question and
legal rights to which the statutory provision applies a court of equity will
ordinarily act upon it by analogy but that it will so act only if there is
nothing in the particular circumstances of the case that renders it unjust to
do so. What is regarded by the courts of equity as a sufficiently close
similarity for this purpose involves a question of degree, and reference must
be made to the relevant authorities. The basis of these principles is that, in
the absence of special circumstances rendering this position unjust, the
relevant equitable rules should accord with comparable legal rules.
8. The authorities to which we were referred and which have been considered in
detail by Waller LJ seem to me to support the approach set out in that passage.
The application of that approach to the facts of this case leads to only one
conclusion. To adopt the words of Spry, there is a sufficiently close
similarity between the exclusive equitable right in question, namely the claim
for compensation for breach of fiduciary duty, and the legal rights to which
the statute applies, namely the claim for damages for breach of contract
founded on simple contract and the claim in tort for damages for breach of
duty, that a court of equity would (and will) ordinarily act on the statute of
limitation by analogy. There is nothing in the particular circumstances of the
case to make it unjust to do so. On the contrary, it is just to do so because
there is no reason why, if the claims for damages for breach of contract and
tort are time barred, the claim for damages for breach of fiduciary duty should
not be time barred also. As Spry put it, the relevant equitable rules
should accord with the comparable legal rules.
9. For these reasons and those given by Waller LJ, I too would dismiss the
appeal.
Order: No costs ordered; consent order to be made up by counsel and
submitted to the associate.
(Order does not form part of approved judgment.)
BAILII:
Copyright Policy |
Disclaimers |
Privacy Policy |
Feedback |
Donate to BAILII
URL: http://www.bailii.org/ew/cases/EWCA/Civ/2000/219.html
