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	England and Wales High Court (Chancery Division) Decisions
You are here: BAILII >> Databases >> England and Wales High Court (Chancery Division) Decisions >> Cattley & Anor v Pollard & Ors [2006] EWHC 3130 (Ch) (07 December 2006) URL: http://www.bailii.org/ew/cases/EWHC/Ch/2006/3130.html Cite as: [2007] Ch 353, [2007] 2 All ER 1086, [2006] EWHC 3130 (Ch)

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IN THE HIGH COURT OF JUSTICE
CHANCERY DIVISION

		Royal Courts of Justice Strand. London. WC2A 2LL
		Date: 7 December 2006

Mr Richard Sheldon QC (sitting as a deputy Judge of the High Court):

Introduction

1. This is the trial of preliminary issues concerning limitation as ordered to be tried by Master Bragge on 17 March 2006 and 10 October 2006. The issues I have to decide raise questions of law as to the scope of ss. 21(l)(a) and 21(3) of the Limitation Act 1980 ("the 1980 Act") and questions of fact concerning the application of s. 32 of the 1980 Act and of the equitable doctrine of laches.

Background

2. The background facts, which are not now disputed, are as follows.
3. Mr Guy Pollard ("Mr Pollard") was a solicitor. He was a partner in the firm of Parker Groom until about 1994. He then practised as a sole practitioner until about April 1995 under the trading name Parker Pollard. From about April 1995 until about June 1996 he was a partner in the firm of Parker Greenfield Whiston ("PGW"). Thereafter, after a short period in practice as a sole practitioner, he was a partner in the firm of Pollard & Lawrence from 1 December 1996 until 1 August 1997.
4. Mrs. Linda Jane Pollard (formerly Clarke) ("Mrs Pollard") was the personal secretary and girlfriend of Mr Pollard. They were married on 17 July 1999.
5. On 11 June 1987, Robert Henry Shearer ("Mr Shearer") made his last known Will and Testament ("the Will"). Mr Pollard was Mr Shearer's nephew.
6. Under the terms of the Will, Mr Shearer appointed Mr Pollard and Mr Pollard's partners at the time of his death in the firm of Parker Groome as the Executors and Trustees of his Will.
7. Amongst other provisions, the Will provided that, after specific pecuniary legacies, the residue of Mr Shearer's estate be held on trust as to specified portions such that his nephews and nieces each had a life interest in the income from a portion of the estate and thereafter that portion was held upon trust for the surviving children of the nephew or niece in question who attained eighteen years of age.
8. Mr Shearer died on 30 August 1987. Mr Pollard and a partner in Parker Groome, Mr John Comely Wood, became Executors and Trustees of Mr Shearer's estate ("the Estate"). The administration of the Estate was undertaken by Mr Pollard.
9. Between 31 December 1987 and the end of 1996 Mr Pollard misappropriated some £317,000 of the assets in the Estate. I should emphasise that this is now no longer disputed: however as will appear below this allegation was disputed by Mr Pollard for some time. Of the total amounts misappropriated, the following are of particular relevance in these proceedings:

The Danish monies and the Warrender monies

i) £224,585.78 held to the credit of an account in the name of Mr Shearer at Copenhagen Handelsbanken ("the Danish monies") was fraudulently transferred to the credit of Bourne Ltd, a company registered in the Isle of Man, at the request of Mr Pollard using a Power of Attorney granted to him by Mr Shearer prior to the latter's death.

ii) The shares in Bourne Ltd had been transferred to Mr Pollard by Mr Shearer before he made his Will with the intention that the shares be held by Mr Pollard on trust for Mr Shearer and, following his death, on trust for the beneficiaries under the terms of the Will.

iii) The Danish monies were transferred to Bourne Ltd's account at Barclays Bank plc in the Isle of Man which held other funds acquired from the Estate. Of the total sum of £504,861.77 held by Bourne Ltd between 30 August 1987 and January 1990, £155,188.19 was stolen by Mr Pollard from the Estate.

iv) Of that sum of £155,188.19, between 27 November 1989 and 10 January 1990 Mr Pollard deposited £110,687.52 at accounts in the name of Warrender Ltd at Barclays Bank plc, Isle of Man, until about July 1996 when £89,839.72 was transferred out to the personal benefit of Mr Pollard. Between 26 March 1990 and 4 July 1996 a further £46,437.23 was paid to Mr Pollard or for his benefit representing interest that had accumulated on the accounts of Warrender Ltd. Accordingly, the total monies stolen from the Estate which passed through the accounts of Warrender Ltd totalled about £157,000 ("the Warrender monies").

v) Warrender Ltd was a company registered in the Isle of Man formed on behalf of Mr and Mrs Pollard in late 1989. Mr and Mrs Pollard were the sole directors and each 50% shareholders. The only monies ever credited to Warrender Ltd's bank accounts were the Warrender monies.

14 Geldock Rd

vi) In addition, in May 1988 Mr Pollard stole from the Estate sums of £11,000, £20,000 and £50,300 (a total of £81,300) which were used towards the purchase in his own name of 14, Geldock Road, Little Billing, Northamptonshire ("14 Geldock Rd") - Mrs Pollard moved into the property with Mr Pollard. On 20 April 1995, Mr Pollard transferred 14 Geldock Rd into the joint names of himself and Mrs Pollard (then Linda Jane Clarke). On about 9 October 2002, Mr Pollard (whilst he was in prison following the criminal convictions to which I refer below) transferred 14 Geldock Rd into the sole name of Mrs Pollard. That is where she still resides.

Criminal proceedings

10. In March 2001, Mr Pollard was charged by the police. On 20 May 2002, at the Crown Court sitting in Birmingham, following a trial lasting 5 weeks, Mr Pollard was found guilty on 23 counts of theft, attempted theft and false accounting. He was sentenced to a term of imprisonment. Eight of those counts related to the misappropriations from the Estate which I have set out earlier in this judgment.

The First Proceedings

11. On 27 February 1998, Mr Frank David George Cattley ("Mr Cattley") was appointed trustee of the Estate. Mr Liam O'Malley ("Mr O'Malley") was appointed as trustee on 28 October 2002. They are the claimants in the two sets of proceedings with which I am concerned.
12. On 27 June 2003, proceedings were commenced by the trustees against Mr Pollard, the firms of which Mr Pollard was a partner at the relevant time, his (innocent) former partners and Mrs Pollard ("the First Proceedings"). The claims were for replacement of £317,457, compensation, alternatively damages arising from Mr Pollard's fraudulent breaches of trust.
13. Summary judgment was entered against Mr Pollard on 12 January 2004 in the principal sum of £317,457. A compromise was reached with all the other Defendants other than Mrs Pollard in October 2004.
14. On 10 February 2005, the claimants applied for further permission to amend the Particulars of Claim (the Particulars of Claim already having been re-re-amended). By his order made on 26 August 2005, Master Bragge dismissed the application but gave permission to the claimants to appeal. He dismissed the application on the grounds that the proposed amendments arguably raised new causes of action which were time barred.
15. The claimants did not initially seek to appeal Master Bragge's order: instead they issued a new set of proceedings (see below). On 9 June 2006, the claimants applied for permission to appeal out of time against Master Bragge's order. That application is one of the matters with which I have had to deal and I refer to it further below.

The Second Proceedings

16. The claimants commenced new proceedings against Mrs Pollard alone on 7 November 2005 ("the Second Proceedings"). The claim is said on the claim form to be for payment of specified sums or for damages or equitable compensation:

"arising from [Mrs Pollard's] dishonest part, and her knowing assistance, in the fraudulent breaches of trust by [Mr Pollard] from which she benefited and her own breaches of duty as a constructive trustee (or such duties as arise as if she is to be treated as a constructive trustee) which has caused loss and damage to the Estate.."

17. The Particulars of Claim in the Second Proceedings plead, in paragraph 4, the fraudulent breaches of trust by Mr Pollard relating to the Danish monies, the Warrender monies and 14 Geldock Rd (which I have summarised earlier in this judgment). Mr Pollard's fraudulent breaches of trust are admitted by Mrs Pollard in her Amended Defence.
18. Paragraph 5 of the Particulars of Claim sets out further the case in respect of the Warrender monies. This paragraph is also admitted by Mrs Pollard in her Amended Defence.
19. Paragraph 6 of the Particulars of Claim sets out further the case in respect of 14 Geldock Rd. This paragraph is also admitted by Mrs Pollard in her Amended Defence save for the following pleas in Paragraphs 6.5 and 6.6 of the Particulars of Claim which are denied:

6.5 It is the Claimants' case that insofar as [Mrs Pollard] has any legal or beneficial interest in 14 Geldock Road, she is a constructive trustee (or to be treated as such) in respect of all monies used in the purchase of 14 Geldock Road insofar as that money derived from the payments (totalling £81,300) made by Mr Pollard from monies stolen from the Estate.

6.6 As a constructive trustee (or treated as such), the Defendant owes and owed the Estate and the beneficiaries fiduciary duties including the duty to safeguard all assets of the Estate.

20. In paragraph 7 of the Particulars of Claim, Mr Pollard's criminal convictions are pleaded.
21. Paragraph 8 of the Particulars of Claim is headed "The case against the Defendant". Paragraphs 8.1 and 8.2 plead the following:

8.1 It is the Claimants' case that the Defendant is liable to the Claimants and/or liable to indemnify the Estate as she was a dishonest party to and has knowingly and dishonestly assisted and benefited from each of the fraudulent acts of Mr Pollard highlighted in paragraphs 4 to 6 above.

8.2 Further and in the alternative, insofar as 14 Geldock Road is concerned [Mrs Pollard] is in breach of her duties as a constructive trustee (or such duties as arise if she is to be treated as a constructive trustee).

22. Paragraph 8.4 sets out the matters upon which the Claimants rely. There are a number of references to inferences which can be drawn from certain facts that Mrs Pollard "knowingly and dishonestly assisted Mr Pollard" in the relevant fraudulent breaches of trust. In her defence, Mrs Pollard denies all allegations of dishonesty.
23. I shall refer to the claims made in Paragraph 8 as "the Dishonest Assistance Claims."
24. Paragraph 10 quantifies the claim against Mrs Pollard as £238,424 (representing the total of the Warrender monies of some £157,000 and the £81,300 used in the purchase of 14 Geldock Rd). Paragraph 11 sets out additional claims for equitable compensation in respect of the lost opportunity to obtain capital growth, income and interest.
25. Paragraph 12 of the Particulars of Claim sets out a separate tracing claim in respect of 14 Geldock Rd ("the Tracing Claim"). It is alleged that the £81,300 was fraudulently transferred from the Estate by Mr Pollard in breach of his fiduciary duties to the Estate and used to purchase 14 Geldock Rd. The transfers by Mr Pollard of 14 Geldock Rd to Mrs Pollard are claimed not to be bona fide transfers for value to a purchaser without notice. The way the Tracing Claim is formulated means that the claimants could succeed without having to prove that Mrs Pollard acted dishonestly.
26. In her Amended Defence, Mrs Pollard asserts that the Dishonest Assistance Claims are barred by the provisions of the 1980 Act or by analogy. It is said that a six year period of limitation applies and that the causes of action became statute barred six years after each alleged theft. The equitable doctrine of laches is also relied upon.
27. As regards the Tracing Claim, at the hearing before me Mr Halpern QC, who appeared for Mrs Pollard, accepted that this claim was not time barred. He conceded that a twelve year period of limitation applied to this claim by virtue of ss 15 and 18 of the 1980 Act. Since a limitation period was specified by statute, Mr Halpern accepted that the doctrine of laches had no application to the Tracing Claim.
28. In the Reply to the Amended Defence, in response to the pleas of limitation, the claimants assert that:

i) by virtue of s. 21(1) of the 1980 Act, there is no limitation period.

ii) Further the action is said to have been brought on behalf of beneficiaries of the Estate entitled to a future interest in trust property which has not yet fallen into possession. By virtue of s. 21(3) of the 1980 Act time does not start to run against such beneficiaries until their interest falls into possession.

iii) Alternatively, if there is a limitation period, it is said that, by virtue of s. 32 of the 1980 Act, any period of limitation does not begin to run until the claimants discovered Mrs Pollard's fraud or could with reasonable diligence have discovered it and they say that this only occurred or could have occurred after 6 years before the Second Proceedings were commenced (i.e. after 7 November 1999).

The Issues

29. By orders made by Master Bragge on 17 March 2006 and 10 October 2006, the issues of limitation and laches were ordered to be tried as preliminary issues.
30. On 18 October 2006, Mr Justice Lightman ordered that the trial of these preliminary issues be widened to include the claimants' application in the First Proceedings for permission to appeal out of time against the order of Master Bragge dated 26 August 2005 and, if granted, the appeal itself. On 1 November 2006 I adjourned that application until I gave judgment on the other issues because of time constraints and because the application might be rendered otiose depending on my decision on the other issues. Accordingly, that application falls to be considered once I have delivered this judgment and I need say no more about it for the present.
31. The remaining issues which fall for me to decide accordingly all arise in the context of the Second Proceedings.
32. The issues which I have to decide are as follows:

i) Does s. 21(l)(a) of the 1980 Act apply to the Dishonest Assistance Claims with the consequence that there is no applicable period of limitation? ("the Section 21(l)(a) Issue");

ii) If the Dishonest Assistance Claims are subject to the six year primary limitation period under s 21(3) of the 1980 Act, has time begun to run given that there are beneficiaries entitled to a future interest in the trust property which interest has not yet fallen into possession? ("the Section 21(3) Issue");

iii) If there is a six year primary limitation period, do the provisions of s. 32 of the 1980 Act as applied to the facts postpone the running of time and, if so, did time begin to run after 7 November 1999 (being the date 6 years before the Second Proceedings were commenced) with the consequence that the Second Proceedings are not time barred? ("the Section 32 Issue");

iv) Does the doctrine of laches have any application and if so does it avail Mrs Pollard? ("the Laches Issue").

33. In the course of argument at the hearing, all of these issues were argued by reference to the Dishonest Assistance Claims in the Second Proceedings. As I have mentioned, Mrs Pollard accepted that the Tracing Claim was not time barred and consideration of the position in the First Proceedings awaits the outcome of this judgment.

The Section 21(1) Issue

34. Mr Godsmark QC, who appeared for the claimants, argues that s. 21(1 )(a) of the 1980 Act applies to the Dishonest Assistance Claims with the consequence that there is no applicable limitation period. Mr Halpern QC argues that s. 21(l)(a) has no application to these claims and that they attract a six year limitation period under s 21 (3) or by analogy.
35. Section 21 of the 1980 Act, so far as material to this issue, provides:

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.

(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 cause of action accrued....

36. For the purposes of these provisions, "trust" and "trustee" is extended to include "implied and constructive trusts" (s. 38 of the 1980 Act; s 68(17) of the Trustee Act 1925).
37. As long ago as 1958, it was said that the apparently simple words of the precursor to s 21(l)(a) give rise to "considerable difficulties of interpretation whenever the court is concerned" (see G.L. Baker v Medway Building and Supplies Ltd [1958] 1 WLR 1216 at p 1221 per Dankwerts J.). This case is no exception.
38. It was common ground before me that, since Mr Pollard committed his fraudulent breaches of trust whilst he was an express trustee under the Will, the claims made against him (including those in relation to the Warrender monies and 14 Geldock Rd) would be caught by s. 21(1) (a) (and (b)) with the consequence that no period of limitation applies as regards those claims.

Argument and discussion

39. Mr Godsmark argued that s 21(l)(a) also applies to others who participated in the fraudulent breaches of trust. He says that:

a) S. 21(l)(a) is not confined to an action against the trustee (unlike s.21(l)(b));

b) The provision clearly envisages that a fraud may involve more than one person (or party);

c) It applies to "any fraud. ..to which the trustee was a party..".

40. Mr Godsmark says that the allegations in the present case are that Mrs Pollard dishonestly participated in a fraudulent breach of trust by an express trustee. He argues that accessory liability is an exceptional but long standing form of equitable liability which has long been treated for limitation purposes in the same way as the liability of express trustees.
41. As to the nature of accessory liability, my attention was drawn to Royal Brunei Airlines Sdn. BHD v Tan [1995] 2 AC 398 and in particular the passages in the speech of Lord Nicholls at 381H - 382F, 384D-G and 386D - 387C. The liability of an accessory to a trustee's breach of trust is not dependent upon receipt by the accessory of trust property. The Privy Council held that an accessory will be liable if there is dishonest assistance on his part in the breach of trust by the trustee irrespective of whether or not the breach of trust by the trustee was itself dishonest and fraudulent.
42. The lynchpin of Mr Godsmark's argument, that for limitation purposes claims against a dishonest accessory to a fraudulent breach of trust are to be treated in the same way as claims against the fraudulent trustee, are the judgments of the Court of Appeal in Soar v Ashwell [1893] 2 QB 390. In that case, trustees under a will entrusted the trust fund to a solicitor for investment. The solicitor distributed part of the fund invested to the beneficiaries under the will but retained part in his own hands. Some 12 years later, the surviving trustee brought an action claiming an account of the money retained by the solicitor. The Court of Appeal held that the solicitor must be considered as having been in the position of an express trustee of such money with the consequence that lapse of time did not bar the action.
43. At p 393, Lord Esher said:

If there is created in expressed terms, whether written or verbal, a trust, and a person is in terms nominated to be the trustee of that trust, a Court of Equity, upon proof of such facts, will not allow him to vouch a Statute of Limitations against a breach of that trust. Such a trust is in equity called an express trust. If the only relation which it is proved the defendant or person charged bears to the matter is a contractual relation, he is not in the view of equity a trustee at all, but only a contractor; and equity leaves the contractual relation to be determined by the common or statute law. If the breach of the legal relation relied on, whether such breach be by way of tort or contract, makes, in the view of a Court of Equity, the defendant a trustee for the plaintiff, the Court of Equity treats the defendant as a trustee become so by construction, and the trust is called a constructive trust; and against the breach which by construction creates the trust the Court of Equity allows Statutes of Limitation to be vouched.

44. Lord Esher is here drawing a distinction between two types of breach of trust: breach of express trusts and breaches of constructive trust where there is no pre-existing trust but where the duties of a trustee are imposed "by construction" in the view of the court of equity.
45. Lord Esher went on to consider in more detail the categories of person who would be considered to be in the same position as an express trustee by a court of equity. Mr Godsmark placed particular reliance on the following part of the judgment of Lord Esher MR which I have emphasised, but which also needs to be read in context. Lord Esher said at 394-5:

There was an express trust created, but Ashwell was not at any time nominated as a trustee of that trust. He was the solicitor of the nominated trustees. As such solicitor he was entrusted by the nominated trustees to take and have in his hands the trust money, with a direction on their behalf to deal with it according to the terms of the trust. Assume that he misappropriated that money to his own use, and that that was all; the misappropriation would at once of itself make him the holder of the money in trust for the rightful owner, but, if that were all, only a trustee by construction of a constructive trust. But the questions in this case are whether Ashwell was not, in view of a Court of Equity, a trustee of the money before the alleged breach by misappropriation, and, if he was, under which class of trust he was with regard to limitations. The moment the money was in his hands, he was in a fiduciary relation to the nominated trustees; he was a fiduciary agent of theirs; he held the money in trust to deal with it for them as directed by them; he was a trustee for them. He was therefore a trustee of the money before he committed, if he did commit, the alleged breach of trust, and was in possession of and had control over the money before he committed, if at all, the alleged breach of trust.

The cases seem to me to decide that, where a person has assumed, either with or without consent, to act as a trustee of money or other property, i.e., to act in a fiduciary relation with regard to it, and has in consequence been in possession of or has exercised command or control over such money or property, a Court of Equity will impose upon him all the liabilities of an express trustee, and will class him with and will call him an express trustee of an express trust. The principal liability of such a trustee is that he must discharge himself by accounting to his cestui que trusts for all such money or property without regard to lapse of time.

There is another recognised state of circumstances in which a person not nominated a trustee may be bound to liability as if he were a nominated trustee, namely, where he has knowingly assisted a nominated trustee in a fraudulent and dishonest disposition of the trust property. Such a person will be treated by a Court of Equity as if he were an express trustee of an express trust I am of opinion that the present case is within the description of that which is treated as and is called in equity an express trust, and that the inquiry as to the alleged breach cannot be stopped by the Statute of Limitations.

I am clearly convinced by the evidence that Ashwell became on receipt of the money a trustee of it, and that, as he has not been shewn to have accounted for it, the defendant, his executrix, is liable as such for a breach of trust by him. (Emphasis added)

46. It is important to note that Lord Esher decided the case on the basis that Ashwell as solicitor already stood in a fiduciary relationship before the alleged misappropriation and received the money in question as trustee i.e. he was already a trustee of the money before he committed the alleged breach of trust. The passage which I have emphasised and upon which Mr Godsmark placed such heavy reliance was therefore obiter. Nevertheless, that passage does make it clear that Lord Esher considered that no period of limitation would apply to a person who had dishonestly assisted a nominated trustee in a fraudulent and dishonest disposition of the trust property: such a person would be considered by the courts of equity to be in the same position as an express trustee.
47. Mr Godsmark also relied on the following part of the judgment of Bowen LJ which I have emphasised, but which also needs to be read in context. Bowen LJ stated at p 395-6 (citations omitted):

The question therefore arises whether the claim of the plaintiff can be barred through lapse of time, by analogy to the Statute of Limitations. That time (by analogy to the statute) is no bar in the case of an express trust, but that it will be a bar in the case of a constructive trust, is a doctrine which has been clearly and long established….

An express trust can only arise between the cestui que trust and his trustee. A constructive trust is one which arises when a stranger to a trust already constituted is held by the Court to be bound in good faith and in conscience by the trust in consequence of his conduct and behaviour. Such conduct and behaviour the Court construes as involving him in the duties and responsibilities of a trustee, although but for such conduct and behaviour he would be a stranger to the trust. A constructive trust is therefore, as has been said, "a trust to be made out by circumstances." It is not unreasonable in the latter class of cases, where the liability of a stranger to the trust arises from his conduct and depends on the proof of his contemporary acts, that time should run in favour of the person to be charged. In such cases conflicts of evidence are possible or probable, and to deny to the person to be charged the shelter or benefit of a period of limitation would be obviously dangerous and unjust.

Although this general principle of justice has been authoritatively laid down in Courts of Equity, there has been some variety and inconsistency both in the language used about constructive trusts and in the line of demarcation that has been drawn between the cases of express and constructive trusts. First, the doctrine that time is no bar in the case of express trusts has been extended to cases where a person who is not a direct trustee nevertheless assumes to act as a trustee under the trust. This extension of the doctrine is based on the obvious view that a man who assumes without excuse to be a trustee ought not to be in a better position than if he were what he pretends. Secondly, the rule as to limitations of time which has been laid down in reference to express trusts has also been thought appropriate to cases where a stranger participates in the fraud of a trustee. Thirdly, a similar extension of the doctrine has been acted on in a case where a person received trust property and dealt with it in a manner inconsistent with trusts of which he was cognizant. Fourthly, in some other cases, language has been employed in regard to the question of limitations of time in certain instances of constructive trust which can scarcely be reconciled with the language held., in other cases.

It is not necessary in the present appeal to discuss the somewhat fluctuating expressions that can be discovered in equity authorities on the subject of constructive trusts. One thing seems clear. It has been established beyond doubt by authority binding on this Court that a person occupying a fiduciary relation, who has property deposited with him on the strength of such relation, is to be dealt with as an express, and not merely a constructive, trustee of such property. (Emphasis added)

Lord Bowen went on to hold (at p 398) that Ashwell fell into the category of persons he describes in the last paragraph. Accordingly the passage emphasised is again obiter. It is also not easy to reconcile with some of the language he uses in the second paragraph of the passage I have quoted but it is clear that he treated a person who had dishonestly assisted a nominated trustee in a fraudulent and dishonest disposition of the trust property as being an exception to that rule and that no limitation period would apply to such a person.

48. As authority to support the proposition I have emphasised in the above passage, upon which Mr Godsmark QC placed particular reliance, Bowen LJ cites the well known case of Barnes v. Addy. (1874) 9 Ch 244 which was concerned with the nature of accessory liability, although the question of limitation does not appear to have been in issue.
49. At p 405 Kay LJ referred to certain cases "of what are, strictly speaking constructive trusts in which the Statute of Limitations cannot be set up as a defence." However, the types of case which he then describes are limited to the first category described by Bowen LJ (stranger assuming to act and acting as trustee elsewhere described as trustees de son tort) and to cases which involve accessories to a breach of trust who have taken possession of trust property knowing that it was trust property.
50. Mr Godsmark submitted that the passages I have emphasised in the judgments in Soar v Ashwell were approved by the Privy Council in Taylor v Davies 1920 AC 636. It must be borne in mind that in Taylor v Davies the argument that no limitation period applied was based on the equivalent of s 21(l)(b) and not s 21(l)(a) of the 1980 Act i.e. a claim "to recover trust property or the proceeds thereof still retained by the trustee".
51. Mr Godsmark relied on the passage at p 651 of the judgment in Taylor v Davies where there is a reference (with approval) to "the persons enumerated in the judgment of Bowen LJ in Soar v Ashwell" but I consider it clear from the context that this is a reference only to the first category described by Bowen LJ (those not named as trustees nevertheless assuming to act and acting as trustee - trustees de son tort).
52. Mr Godsmark also relied on the sentence at p 653 of Taylor v Davies:

The exception [in the equivalent of s 21(l)(b)] no doubt applies, not only to an express trustee named in the instrument of trust, but also to those persons who under the rules explained in Soar v Ashwell and other cases are to be treated as being in like position.

At first sight this might lend support to Mr Godsmark's submission. However, this sentence must be read in context. The immediately two preceding sentences read as follows:

The expressions "trust property" and "retained by the trustee" properly apply, not to a case where a person having taken possession of property on his own behalf, is liable to be declared a trustee by the Court; but rather to a case where he originally took possession upon trust for or on behalf of others. In other words, they refer to cases where a trust arose before the occurrence of the transaction impeached and not to cases where it arises only by reason of that transaction.

And the sentence relied on by Mr Godsmark is qualified by the immediately following words:

but in their Lordships' opinion [the exception] does not apply to a mere constructive trustee of the character described in the judgment of Sir William Grant.

The latter is a reference to the judgment in Beckford v Wade (1805) 17 Ves 87, 97 where Sir William Grant drew a distinction between direct trusts and constructive trusts imposed by a Court of equity after the facts and circumstances, from which the constructive trust arises, have happened.

53. Accordingly, whilst it is true that the passages in Soar v Ashwell upon which Mr Godsmark placed particular reliance were not disapproved in Taylor v Davies, I consider that the references to Soar v Ashwell need to be read as having been qualified by the context.
54. In Taylor v Davies the defendant was an inspector, appointed under an insolvency statute, to oversee assignments for the benefit of creditors. Even though he was subject to pre-existing fiduciary obligations to the creditors and could not therefore rely upon a transfer made to him by the assignee without having made full disclosure to the creditors, it was held by the Privy Council that he was not a "trustee" of the property within the meaning of the limitation statute. In order to be such a trustee, the Privy Council considered that, for the purposes of the equivalent of s. 21(l)(b) of the 1980 Act, it was necessary for a trust relationship in relation to the property in question to have arisen before the occurrence of the transaction complained of; if the trust is only imposed by reason of the transaction the exceptional rule that there is no period of limitation will not apply. The Privy Council, having considered Soar v Ashwell in some detail clearly considered that the inspector fell within the second category of constructive trusteeship on the ground that the trust relationship only arose on the occurrence of the transaction complained of. No reference is made as to whether the transaction constituted a breach of trust by the assignee who, unlike the inspector, held the property on trust but there is no suggestion that the assignee had committed a fraudulent breach of trust. Accordingly, Taylor v Davies was not a case to which the passages I have emphasised in the judgments in Soar v Ashwell had any application. However, it does seem implicit in the judgment in Taylor v Davies that, although the inspector owed fiduciary duties, he had no power to deal with the trust property and thus his trusteeship of the property the subject of the impugned transaction only arose when that transaction occurred.
55. Taylor v Davies was followed in Clarkson v Davies [1920] AC 100 which did involve fraud. In the latter case, the Privy Council held (at p 110) that the claim would have been time barred (it was dismissed on other grounds). This holding was on the basis that the claim was for a constructive trust affecting money which never was reduced into possession as the property of the Provincial Association: the trust only arose by reason and at the time of the transaction impeached and not before.
56. These two Privy Council cases draw a distinction between constructive trusts which are imposed by reason of the impugned transaction and trusts which arise before the occurrence of the transaction. This distinction assumes some importance when considering the later cases. In the case of dishonest assistance in a fraudulent breach of trust, there will be a pre-existing trust but the issue then becomes whether this is sufficient for limitation purposes as regards the dishonest assister or whether the trust relationship as regards the dishonest assister has to have arisen before the transaction impugned. Taylor v Davies was concerned with the equivalent wording of s. 21(l)(b), not s. 21(l)(a), but in that context the sentence I have already quoted ("The expressions "trust property" and "retained by the trustee" properly apply, not to a case where a person having taken possession of property on his own behalf, is liable to be declared a trustee by the Court; but rather to a case where he originally took possession upon trust for or on behalf of others") would suggest that there has to be a pre-existing trust relationship as regards the defendant in relation to the property which he received.
57. Mr Godsmark also relied on the following passages in Lewin on Trusts (17th Ed) at paras 44.44 and 44.45 which suggest that accessories fall outside the category of constructive trustee who are entitled to raise a defence of limitation.

44-44 A person who dishonestly assists a trustee to commit a breach of trust is himself liable as a constructive trustee. It is now clear that the liability is based on the dishonesty of the accessory and the honesty or dishonesty of the formally appointed trustee is irrelevant. Previously it was thought that liability was based on knowing assistance in a fraudulent breach of trust on the part of the trustee; it was then well established [citing Soar v AshwellJ that the accessory was himself treated as an express trustee and before the Trustee Act 1888 was not entitled to raise a defence of limitation. The rule may be regarded as exceptional, since the accessory has not assumed the duties of a trustee, and so appears to be a constructive trustee of the second kind, though the trust pre-dates his involvement, but the principle of the rule survived the Trustee Act 1888 and has apparently survived the redefinition of the accessory's liability as not dependent on the dishonesty of the formally appointed trustee, hi other words, accessories fall outside the category of constructive trustee who is always entitled to raise a defence of limitation notwithstanding section 21(l)(a)ofthe 1980 Act.

44-45 The consequence is probably that the accessory remains always unable to plead a defence of limitation, since his dishonesty will suffice to bring himself within s 21(l)(a). That follows if dishonesty necessarily constitutes a "fraud or fraudulent breach of trust which the trustee was a party or privy" within that paragraph, as it appears to do, and if the accessory is to be regarded as "the trustee" for the purposes of that paragraph, as it is thought he is...

58. In support of these views, which are somewhat tentatively expressed, there are references in Lewin to Soar v Ashwell and the decision of the High Court in the Isle of Man in Barlow Clowes International Ltd v Eurotrust International Ltd [198/1999] 2 O.F.L.R. 42. Whether those views are correct in the light of subsequent authority is the question to which I now turn.
59. Paragon Finance plc v Thakerar [1999] 1 All ER 400 involved a claim against solicitors who had become involved in a mortgage fraud. The plaintiffs sought permission to make amendments to introduce new causes of action alleging fraudulent breaches of trust and intentional breaches of fiduciary duty in respect of which they submitted no period of limitation applied. The plaintiffs relied on s 21(l)(a) of the 1980 Act.
60. On this issue, Millett LJ (with whom Pill LJ and May LJ agreed) considered the antecedent law and the effect of the Limitation Act 1939. He describes (at p 408) how, before the Trustee Act 1888 came into operation, a claim against an express trustee was never barred by lapse of time. This rule applied to trustees de son tort and to fiduciaries who were in an analogous position to trustees who abused the trust and confidence reposed in them to obtain their principal's property for themselves - such persons are, he said properly described as constructive trustees. Millett LJ continued (at 408j - 409g):

Regrettably, however, the expressions 'constructive trust' and 'constructive trustee' have been used by equity lawyers to describe two entirely different situations. The first covers those cases already mentioned, where the defendant, though not expressly appointed as trustee, has assumed the duties of a trustee by a lawful transaction which was independent of and preceded the breach of trust and is not impeached by the plaintiff. The second covers those cases where the trust obligation arises as a direct consequence of the unlawful transaction which is impeached by the plaintiff.

A constructive trust arises by operation of law whenever the circumstances are such that it would be unconscionable for the owner of property (usually but not necessarily the legal estate) to assert his own beneficial interest in the property and deny the beneficial interest of another. In the first class of case, however, the constructive trustee really is a trustee. He does not receive the trust property in his own right but by a transaction by which both parties intend to create a trust from the outset and which is not impugned by the plaintiff. His possession of the property is coloured from the first by the trust and confidence by means of which he obtained it, and his subsequent appropriation of the property to his own use is a breach of that trust In these cases the plaintiff does not impugn the transaction by which the defendant obtained control of the property. He alleges that the circumstances in which the defendant obtained control make it unconscionable for him thereafter to assert a beneficial interest in the property.

The second class of case is different. It arises when the defendant is implicated in a fraud. Equity has always given relief against fraud by making any person sufficiently implicated in the fraud accountable in equity. In such a case he is traditionally though I think unfortunately described as a constructive trustee and said to be 'liable to account as constructive trustee'. Such a person is not in fact a trustee at all, even though he may be liable to account as if he were. He never assumes the position of a trustee, and if he receives the trust property at all it is adversely to the plaintiff by an unlawful transaction which is impugned by the plaintiff. In such a case the expressions 'constructive trust' and 'constructive trustee' are misleading, for there is no trust and usually no possibility of a proprietary remedy; they are 'nothing more than a formula for equitable relief...

61. I shall refer to these two classes of case, as did counsel before me, respectively as "Category 1" and "Category 2". The points to note from the above passage are firstly that Millett LJ's description of Category 1 does not include strangers who dishonestly participate in a breach of trust by the trustee. Such a stranger is not a defendant "who has assumed the duties of a trustee by a lawful transaction which was independent of and preceded the breach of trust". On the other hand, his description of Category 2 focuses on the case where a defendant is implicated in a fraud and where there is never a trust in the real sense of that word i.e. Lord Esher's second category and the same type of situation as referred to in Taylor v Davies when referring to Beckford v Wade i.e. a trust only imposed once the facts and circumstances have happened. Nevertheless some of the language used by Millett LJ in describing Category 2 is apt to cover the position of a person who dishonestly assists in a breach of trust (e.g. "He never assumes the position of a trustee, and if he receives the trust property at all it is adversely to the plaintiff by an unlawful transaction which is impugned by the plaintiff"). However, it is important to bear in mind that in Paragon, Millett LJ, as he later made clear, was not dealing with claims for dishonest assistance.
62. In Paragon, the solicitors were treated as falling within Category 2. Although they were fiduciaries and held the plaintiffs' money on trust for them, there was no breach of this trust as the money which was obtained by the solicitors from the plaintiffs and otherwise would have been subject to this trust was obtained by fraud: accordingly this trust never came into being but was replaced ab initio by the Category 2 constructive trust in their favour.
63. Millett LJ continued:

The importance of the distinction between the two categories of constructive trust lies in the application of the statutes of limitation. Before 1890 constructive trusts of the first kind were treated in the same way as express trusts and were often confusingly described as such; claims against the trustee were not barred by the passage of time. Constructive trusts of the second kind however were treated differently. They were not in reality trusts at all, but merely a remedial mechanism by which equity gave relief for fraud. The Court of Chancery, which applied the statutes of limitation by analogy, was not misled by its own terminology; it gave effect to the reality of the situation by applying the statute to the fraud which gave rise to the defendant's liability.

In support of the latter proposition Millett LJ cited the passage of Lord Esher in Soar v Ashwell at p 393 which I have quoted earlier. Again it is I think of some significance that Category 2 were described as being "not in reality trusts at all, but merely a remedial mechanism by which equity gave relief from fraud."

64. Millett LJ went on to consider whether the Trustee Act 1888 (which extended the definition of trustee to include a trustee whose trust applies by construction and implication of law as well as an express trustee) abolished the distinction between the two categories of constructive trust in view of its literal reading. He held that this was not the case and the former distinction between the two categories continued to apply. In reaching this conclusion Millett LJ relied on Taylor v Davies and Clarkson v Davies [1923] AC 100 at 110-111 where the distinction was drawn between "a trust which arises before the occurrence of the transaction impeached and cases which arise only by reason of that transaction."
65. Millett LJ went on to consider whether the position had been changed by the Limitation Act 1939 which adopted a similarly extended meaning of "trust" and "trustee" and which is also to be found in the 1980 Act. Millett LJ held that there were "formidable arguments" in favour of the view that the former distinction between the two kinds of constructive trust had not been changed. He did not have finally to decide the question because for the purposes of the case before him he only had to find that the limitation defence was reasonably arguable.
66. In coming to this view Millett LJ considered (at 41 lj - 412c) the decision of the High Court of the Isle of Man in Barlow Clowes International v Eurotrust International Ltd [1998/1999] 2 O.F.L.R. 42. That case concerned transactions involving the receipt by third parties of funds which had been transferred to them in breach of trust by persons (including Mr Clowes) who owed preexisting fiduciary duties. Millett LJ characterised the court's holding on the facts as Category 1 on the basis that the trust arose before the occurrence of the transactions impeached.
67. However, the Isle of Man court also held that (1) the rule in Taylor v Davies had no application to a person who knowingly assists in a fraudulent breach of a pre-existing trust and (2) the former distinction between the two categories of constructive trust had been abrogated by the Limitation Act 1939 and therefore by the Manx Act. Millett LJ clearly disagreed with the latter holding.
68. As regards the former holding, Millett LJ said that it was not relevant to anything he had to decide because the defendants in Paragon were not charged with "knowing assistance": it was not alleged that the defendants were strangers implicated in a breach of trust committed by the trustees or others in a fiduciary position - on the contrary it was alleged that despite their fiduciary position the defendants allowed themselves to be implicated in a fraud committed by others.
69. Mr Godsmark relied on this comment: he said that Paragon was, unlike the case before me, not concerned with dishonest assistance claims. Mr Godsmark said that he did not seek to argue that Millett LJ was wrong: his point was that the analysis of Millett LJ did not apply to those who have dishonestly assisted in a fraudulent breach of trust who have historically been treated differently.
70. Mr Godsmark also relied on the following passage in the judgment of Millett LJ in Paragon (at p 414c):

(10) A principled system of limitation would also treat a claim against an accessory as barred when the claim against the principal was barred and not before. There is, therefore, a case for treating a claim against a person who has assisted a trustee in committing a breach of trust as subject to the same limitation regime as the claim against the trustee: see J W Brunyate Limitation of Actions in Equity (1932). But the borrowers, who obtained the money by deceit and were the principal wrongdoers, were neither trustees nor fiduciaries. If guilty of fraud, they can plead the statute. It would be extraordinary if the defendants were liable in equity as accessories or co-conspirators without limit of time when the claim against the principal wrongdoers was barred.

71. Whilst this passage does provide some support for Mr Godsmark's argument, it is to be noted that Millett LJ is only postulating an argument ("There is., a case...") which he then proceeds to answer on the facts before him. I do not read this passage as indicating that Millett LJ is accepting that the same period of limitation should necessarily be applicable to a claim against the trustee and a claim against the accessory. It seems to me that there is an illogicality in making a dishonest assistance claim subject to the same period of limitation as a claim against the trustee. In the light of Royal Brunei v Tan (which was decided after Paragon), a person dishonestly assisting in a breach of trust is liable whether or not the trustee has been fraudulent. Where the trustee's breach is not fraudulent a claim against him would be subject to a six year limitation period and, if fraudulent, there would be no applicable period of limitation. It would appear illogical for a dishonest assistance claim against the accessory to be subject to a six year limitation period if the trustee's breach of trust is not fraudulent but subject to no period of limitation if the trustee's breach were fraudulent: the accessory, to be made liable, has to have been guilty of dishonesty in both cases and there is no readily apparent rationale as to why a different period of limitation should apply.
72. I was also referred to Gwembe Valley Development Company Ltd v Koshy [2003] EWCA Civ 1478, [2004] 1 BCLC 131. Mr Godsmark placed no reliance on this decision in support of his case and distinguished it on the basis that it was not concerned with accessory liability. I was also referred by him to Halton International v Guernroy Ltd[20Q6] EWCA Civ 801 which he again distinguished on the basis that it was not a case dealing with accessory liability. Mr Halpern only relied on these cases to show that in both the Court of Appeal adopted with approval Millett LPs distinction between Category 1 and Category 2.
73. Mr Godsmark accepted before me, as he had to, that no pre-existing trust relationship on the part of Mrs Pollard had arisen before the transactions which are impeached occurred. He said this did not matter because there was a preexisting trust relationship involving Mr Pollard which was a sufficient basis for his argument.
74. Mr Halpern submitted that the Dishonest Assistance Claims against Mrs Pollard fall within Category 2 and that it follows from Millett LJ's analysis in Paragon that the exception in s 21(l)(a) does not apply.
75. Mr Halpern relied on Underhill & Hayton's Law of Trusts and Trustees (16th Ed) at p 924 where, having referred to Paragon, the following is stated:

Within the second category able to plead the Limitation Act are included persons who knowingly receive trust property in breach of trust, or who innocently receive trust property for their own benefit but who then insist on retaining it or dealing with it as if it were their own property after becoming aware that it was trust property that they had received, and persons who dishonestly assist in a breach of trust or other fiduciary duty. [Emphasis added]

In support of the proposition I have emphasised, the authors refer to Birks & Pretto Breach of Trust (2002), Chapter 6 Assistance by C Mitchell pp 209 -211. In fact this does not support (or at most only partly supports) the proposition stated. Having doubted the view expressed in Lewin that "the accessory [probably] remains always unable to plead a defence of limitation, since his dishonesty will suffice to bring him within section 21(l)(a)", Mr Mitchell states:

The better view must rather be that if an action for dishonest assistance is relevantly an action "in respect of a primary breach of trust - and it is submitted that it is - then the action will be affected by section 21(l)(a) in the event that the trustee has acted fraudulently, but if he has not then it will not be affected. And in the latter case, section 21(3) would therefore seem to apply again on the assumption that an action for dishonest assistance is an action "in respect of the primary breach.

Thus, Mr Mitchell is of the view that no limitation period will apply if there is dishonest assistance in a fraudulent breach of trust but such a period would apply if there is dishonest assistance in a non-fraudulent breach of trust -which as he later points out could be regarded as anomalous since the decision in the Royal Brunei renders the distinction between a fraudulent and non-fraudulent breach of trust irrelevant to the liability of a dishonest assister.

76. Mr Halpern also relied on the following passages from the speech of Lord Millett in Dubai Auminium Co Ltd v Salaam [2003] 2 AC 366. At para 139, Lord Millett referred to Taylor v Davies and Clarkson v Davies and continued:

In the latter case the Lord Justice Clerk (Scott Dickson) explained, at p 110, that the distinction was between a trust which arose before the occurrence of the transaction impeached and a claim which arose only by reason of the transaction. In the former case the defendant is treated as a trustee even though not expressly appointed as such; in the latter case he is a stranger to the trust at the time of the transaction.

Lord Millett is here focusing on whether the defendant has assumed the position of trustee before the transaction impugned. Even if there is a preexisting trust, a stranger who is only sought to be made liable as a constructive trustee by reason of the transaction impugned would not be treated as if he were an express trustee.

77. Having referred to Paragon, Lord Millett continued:

141 Unlike HB in Mara v Browne [1896] 1 Ch 199, Mr Amhurst did not assume the position of a trustee on behalf of others. He never had title to the trust funds or claimed the right to deal with them on behalf of those properly entitled to them. He acted throughout on his own or his confederates' behalf. The claim against him is simply that he participated in a fraud. Equity gives relief against fraud by making any person sufficiently implicated in the fraud accountable in equity. In such a case he is traditionally (and I have suggested unfortunately) described as a "constructive trustee" and is said to be "liable to account as a constructive trustee". But he is not in fact a trustee at all, even though he may be liable to account as if he were. He never claims to assume the position of trustee on behalf of others, and he may be liable without ever receiving or handling the trust property. If he receives the trust property at all he receives it adversely to the claimant and by an unlawful transaction which is impugned by the claimant. He is not a fiduciary or subject to fiduciary obligations; and he could plead the Limitation Acts as a defence to the claim, [emphasis added].

78. This at first sight appears to be largely a repetition of what Millett LJ had said in Paragon at p 412 in describing Category 2 in a passage which I have already quoted. However, there are some differences in language, notably the omission of the reference to there being "no trust" and the language Lord Millett uses in describing Category 2 clearly covers the position of dishonest accessories such as Mr Amhurst (who was treated for the purposes of the decision as having acted dishonestly). Lord Millett had earlier (at para 81) identified one of the issues as being whether and in what circumstances a firm and its innocent partners may be vicariously liable for "a partner's dishonest assistance in a breach of trust". At para 85, the claim is identified as having involved a breach of fiduciary duty on the part of the plaintiffs chief executive in misappropriating the plaintiffs funds and Mr Amhurst was alleged to have dishonestly participated in the scheme. The passage I have emphasised in the above citation makes it clear that Lord Millett considered that Mr Amhurst could have pleaded a limitation defence. It is also to be noted that, as regards the case postulated by Millett LJ in Paragon at p 414c, the claim against Mr Amhurst was subject to a defence under the Limitation Acts, whereas the claim against the chief executive would not have been (see JJ Harrison (Properties) Ltd v Harrison [2002] 1 BCLC 162).
79. At para 135 of Dubai Aluminium, Lord Millett said: "Every statement in a judgment must be understood in the context in which it is made, and this is particularly the case if it employs expressions such as "constructive trust" or constructive trustee", for they have more than one meaning, and meanings have changed over time". Mr Halpern submitted that the passages in the judgments in Soar v Ashwell relied upon by Mr Godsmark must be read in the light of this comment and that these passages must now be regarded as a "heresy".

Conclusions

80. Having set out the rival arguments at some length, I can express my conclusions on the s. 21(l)(a) issue quite shortly. I have not found this issue easy to decide.
81. Mr Godsmark asserted that I was bound by the decision of the Court of Appeal in Soar v Ashwell, including the passages in the judgments on which he placed particular reliance and which have never been disapproved. I agree that I am bound by the decision in Soar v Ashwell but that does not help Mr Godsmark's argument. On analysis, the judgments in Soar v Ashwell make it clear that the decision that no limitation period applied is based on the finding that Mr Ashwell as a solicitor owed pre-existing fiduciary duties when he received the funds. As such he was treated as if he were an express trustee of the funds before the misappropriations occurred. This is fully in accordance with the analysis of Millett LJ in Paragon: Mr Ashwell was in Category 1 (with the consequence that no limitation period applied). The passages in the judgments in Soar v Ashwell on which Mr Godsmark particularly relied were obiter. I am not therefore bound by them and in my view, in the light of Paragon, the cases in the Court of Appeal which adopt Millett LJ's analysis in Paragon and the passages in the speech of Lord Millett in Dubai Aluminium, they can no longer stand as good law.
82. Whilst I do not consider that the decision in Paragon is conclusive on the issue before me, it does provide considerable support for Mr Halpern's position. It seems to me that the case against Mrs Pollard as regards the Dishonest Assistance claims cannot fall within Category 1. There was no preexisting trust relationship on the part of Mrs Pollard which had arisen before the transactions which are impeached occurred. I accept that there may be some scope for argument as to whether the case against Mrs Pollard falls within Category 2 as described by Millett LJ in Paragon as he was there focusing on a case where there was no trust in the real sense of the word and he was not concerned with a claim for dishonest assistance in a fraudulent breach of trust. But I am of the view that his description of Category 2 is apt to cover the position of claims for dishonest assistance in a fraudulent breach of trust and in Paragon he was already drawing the distinction first expressed in the Privy Council cases between those whose trusteeship preceded the transaction impugned (Category 1) and those who only became trustees on the occurrence of the transaction (Category 2): see, in addition to the passages already cited, p 412 j -413b (to which I refer below) andp 413h - 414c.
83. When I put it to Mr Godsmark that Millett LJ's description of Category 2 appeared on its face to include accessories, Mr Godsmark sought to draw a distinction between those who are direct accessories to a fraud committed by the express trustee (as in the case before me) and indirect accessories in the sense of being accessories to a fraud committed by a constructive trustee. He said only the latter could plead a limitation defence. In my judgment, there is no justification for this distinction.
84. It seems to me that any scope for argument about the extent of Category 2 is removed by what Lord Millett said in Dubai Aluminium. He was there dealing with a claim for dishonest assistance in a fraudulent breach of trust, as in the present case, and stated that the Limitation Act could be pleaded as a defence to the claim. Mr Godsmark sought to persuade me that I should not follow what Lord Millett said on the basis that the point does not appear to have been argued, Soar v Ashwell was not cited and the point was not covered in the other speeches. I am not so persuaded. Lord Hutton and Lord Hobhouse agreed with Lord Millett. Lord Millett can be taken to have had Soar v Ashwell well in mind since he referred to it in his judgment in Paragon.
85. I am acutely conscious that I have not yet considered the wording of s. 21(l)(a) of the 1980 Act. Mr Godsmark relied on the apparently wide words of the section and also on the decision of Danckwerts J in G.L. Baker v Medway Building and Supplies Ltd [1958] 1 WLR 1216. In that case consideration was given to the provisions of the Limitation Act 1939 which were in similar terms to s 21(l)(a) of the 1980 Act. At p 1221, Dankwerts J pointed out that it gave rise to "considerable difficulties of interpretation". It is true that some of the language used by Dankwerts J (eg at p 1222) would suggest that the words of what is now s. 21(l)(a) are wide enough to cover all claims against third parties (possibly even innocent third parties) which have as their origin fraudulent breaches of trust by a trustee. But his judgment on this aspect is somewhat tentative (eg see his conclusion at p 1225) and in any event he went on to hold that the equivalent of what is now s. 32 of the 1980 Act applied to postpone any applicable period of limitation. His decision was the subject of an appeal to the Court of Appeal but on a point which is not relevant to the present case. I consider that the suggestion of Dankwerts J to the above effect, without full citation of authority, cannot be reconciled with the analysis of Millett LJ in Paragon (and adopted in subsequent cases in the Court of Appeal) and in Dubai Aluminium (in none of which was G.L. Baker cited).
86. It seems to me to be clear to follow from the judgments in the above cases that the references in s. 21(l)(a) to a "breach of trust" and "trustee" cannot apply to Category 2 cases. These must be a reference to express trustees and those who are treated as express trustees i.e. those in Category 1 and to breaches of trust by such persons.
87. However, even if one adopts this limited meaning, Mr Godsmark makes the point that s. 21(l)(a) is not on its face limited to claims against such trustees, unlike s 21(l)(b) which is so limited. As a matter of statutory interpretation he says that the Dishonest Assistance Claims are claims "in respect of any fraud or fraudulent breach of trust [i.e. the trusts constituted by the Will] to which the trustee [Mr Pollard] was a party or privy." There is considerable force in this submission which gives full meaning to the words "in respect of and it is supported by what Dankwerts J said in G.L. Baker v Medway Building and Supplies Ltd.
88. I consider that the answer to this submission is supplied by what Millett LJ said in Paragon. In considering whether the former distinction between the two categories of constructive trust had been abrogated by the Limitation Act 1939, among the "formidable arguments" in favour of the negative answer Millett LJ considered the question of whether Parliament in enacting the 1939 Act had intended to adopt the wider recommendation of the Law Reform Committee or merely put an end to the mischief to which it had drawn attention. Atp412j - 413b, he said:

As a matter of statutory construction the question turns on the meaning of the opening words of s 21(1) of the 1980 Act (re-enacting in similar terms the opening words of s 19(3) of the 1939 Act. As Harpum noted in his influential article "The stranger as constructive trustee" (1986) 102 LQR 267 at 288, these are not apt to cover constructive trusts of the second kind. This is because they refer to ".. an action by a beneficiary under a trust... to which the trustee...". As Harpum observed, these words would appear to be prima facie applicable only to those whose trusteeship precedes the occurrence which is the subject of the claim against them and not those whose trusteeship arises only by reason of that occurrence.

In that article, Mr Harpum, to support the observation referred to, points out that s. 21(l)(a) speaks of an action "by a beneficiary under a trust", the substance of which is some claim against "the" (not "any") trustee.

89. Accordingly, I find that s. 21(l)(a) only applies to claims against express trustees and Category 1 trustees. It also follows that I consider that the views tentatively expressed in Lewin, and by Mr Mitchell, to which I have earlier referred are wrong.
90. In reaching this conclusion, I bear in mind that the provisions of s. 21(l)(a) are an exception to the normal applicable periods of limitation. Category 2 encompasses persons who dishonestly participate in a fraud. In general, fraud claims are subject to a primary limitation period of six years (see s. 2 of the 1980 Act). It is not illogical that this period should also apply to Category 2 claims. The exception in s. 21(l)(a) only applies to express trustees or Category 1 trustees who are treated in the same way for limitation purposes.
91. For these reasons, I find that the exception in s. 21(l)(a) of the 1980 Act has no application to the Dishonest Assistance Claims against Mrs Pollard.
92. Mr Halpern submitted that, were s. 21(l)(a) not to apply, the Dishonest Assistance Claims would be subject to a primary period of limitation of six years from the date the cause of action accrued because such claims fall within s. 21(3) of the 1980 Act (subject to the s. 21(3) Issue) or because the court should apply by analogy the periods of limitation set out in the statute with regard to analogous common law claims. This submission was not disputed by Mr Godsmark (subject to his arguments on the remaining issues). Subject to those remaining issues I accept Mr Halpern's submission. As to s. 21(3), in Gwembe Valley Development Company Ltd v Koshy [2003] EWCA Civ 1478, [2004] 1 BCLC 131 the claim was treated in principle as being subject to s. 21(3) (see para 112) even though it was considered to be a Category 2 claim (see para 119). This supports the submission that the Dishonest Assistance Claims fall within s. 21(3) if they do not fall within s. 21(l)(a). But even if both s. 21(1) and s 21(3) are concerned only with claims against express trustees and Category 1 trustees, I consider it clear that the Dishonest Assistance Claims are analogous to claims for deceit or knowingly procuring a breach of contract and hence fall within ss 2 and 36 of the 1980 Act (see also Royal Brunei Airlines Sdn. BED v Tan [1995] 2 AC 398 at p 387B-C; Coulthard v Disco Mix Club Ltd [2000] 1 WLR 707 at pp 729-730).
93. Accordingly subject to consideration of the remaining issues, I find that the Dishonest Assistance Claims are subject to a primary limitation period of six years from the date the cause of action accrued.

The Section 21(3) Issue

94. I have already set out part of section 21 (3) of the 1980 Act. For the purpose of this issue I need to set it out in full.

(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 cause 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.

95. The rationale for the last subparagraph was explained by Millett LJ in Armitage v Nurse [1998] Ch 241 at p 26IB as being that a beneficiary with a future interest should not be compelled to litigate (at considerable personal expense) in respect of an injury to an interest which he may never live to enjoy.
96. There are currently nine life beneficiaries under the trusts constituted by the Will, There are seventeen residual beneficiaries whose interests have yet to fall in possession. In these circumstances, the claimants submit that, by virtue of the last subparagraph of s 21(3), time has not started to run as regards these seventeen residual beneficiaries and the Second Proceedings are therefore not time barred.
97. If the Claimants succeed on this issue, the result will be that the Second Proceedings are not time-barred as against the residual beneficiaries. However, they will be time-barred (subject to the Section 32 Issue) as against the life beneficiaries. Section 21(4) of the 1980 Act provides that a time-barred beneficiary cannot benefit from a judgment in favour of a non time-barred beneficiary. This would be a matter for the internal administration of the Estate and would not affect the ability of the claimants to pursue the Second Proceedings against Mrs Pollard for the benefit of the residual beneficiaries.
98. Mr Halpern points out that section 21(3) applies to actions brought by beneficiaries. The Second Proceedings are brought by the trustees. But as Mr Halpern also pointed out, a beneficiary has no cause of action against a third party save in exceptional circumstances (see Hayim v Citibank [1987] AC 730 at p 748F per Lord Templeman). S 21(1) also refers to an action brought by a beneficiary but I consider that it would be surprising if it did not apply also to actions brought by trustees (including new trustees appointed in place of trustees who have committed a fraud on the trust estate) on behalf of the beneficiaries.
99. At p 922 of Underhill and Hayton, Law of Trusts and Trustees (16th Ed), the following is stated:

Oddly, ss 21(1) and (3) only apply at face value to actions by a beneficiary under a trust, so that an action by a trustee on behalf of his beneficiaries (who maybe unborn or unascertained) against a cotrustee or former trustee or a third party (owning trust property or in its traceable product or personally liable in respect of dishonest assistance in breach of trust or dishonest dealings with the trust property) is neither helped nor hindered, so the result of an action against such a defendant depends on whether it be brought by a beneficiary or a trustee. This cannot be justified: the courts will surely apply the six year period by analogy with the statutory period for actions by beneficiaries so that the position is as it was under the Trustee Act 1888.

100. Lewin on Trusts (17th Ed) at paras 44.20 - 44-21 states (citations omitted save where mentioned):

Section 21(3) of the 1980 Act applies in terms only to actions by beneficiaries. It does not therefore apply to bar an action brought by the Attorney-General to enforce a charitable trust for the benefit of the public at large: there is no beneficiary in such a case [Att-Gen v Cocke. [1988] Ch 414] The same may not be true of a charitable trust for the benefit of a defined class, even if the Attorney-General is the claimant [Magdalen College Oxford v Att-Gen, (1857) 6 HL Cas 189].

Even in the case of a non-charitable trust, however, it may happen that a trustee sues on behalf of his beneficiaries to recover the trust property, or compensation for breach of trust, from his defaulting trustee. The question may then arise as to whether the six year period in section 21(3) applies to such an action. The corresponding section of the Trustee Act 1888 applied to such an action, but the section did not contain the words "by a beneficiary". It seems that such actions were not excluded from the express terms of section 21(3) by design and that (except where the trustee sues to recover trust land) the court would apply the six-year period by analogy with the statutory period for actions by beneficiaries: for it would seem strange if the result of an action against a defaulting trustee depended on whether it was brought by a beneficiary or by his trustee on his behalf.

101. Mr Halpern submitted that the analogy cannot be taken too far. Trustees are not in the same position as future beneficiaries and should fulfil their duties immediately on behalf of those with future interests. He submitted that the rationale for the last sub-paragraph of s 21(3) as explained in Armitage v Nurse has no application to trustees.
102. On this issue I accept the submission of the Claimants. I find that s. 21(3) applies in the present case, at least by analogy to the present claim brought by the trustees. The claimants as trustees have no personal interest in the outcome. The real litigants - those with a real interest in the outcome - are the beneficiaries. I consider that when s. 21(3) refers to an action by beneficiaries, it includes, at least by analogy, actions brought exclusively on their behalf by trustees who do not have any personal interest in the outcome. This approach echoes that followed in Magdalen College Oxford v Att-Gen. (1857) 6 HL Cas 189 and the argument considered by Harman J in Att-Gen v Cocke. [1988] Ch 414 which he appears to have accepted in principle but did not apply to the facts (action brought by the Attorney General for the benefit of the public at large and there were no beneficiaries in any meaningful sense).
103. It follows that the last subparagraph of s 21(3) applies to the Second Proceedings. Time has not begun to run as regards the beneficiaries with a future interest in the Estate and the Second Proceedings are therefore not time barred
104. In the light of my findings on the Section 21(3) issue that the Second Proceedings are not time barred, the Section 32 issue is not strictly necessary to be determined so far as Mrs Pollard is concerned. However, the Section 32 Issue is relevant for the life beneficiaries under the Will since a determination of the Section 32 issue in the claimants' favour will entitle them to benefit from any judgment in these proceedings. It also becomes relevant if I am wrong on the Section 21(3) Issue and there is a six year primary limitation period. I have heard evidence and argument on the Section 32 Issue. For these reasons it is necessary for me to determine the Section 32 Issue.

The Section 32 Issue

105. The claimants contend that, if there is a six year primary limitation period, s. 32 of the 1980 Act applies such that time did not begin to run until after 7 November 1999 which is six years before the Second Proceedings were commenced. This is disputed by Mrs Pollard.
106. S. 32(1) of the 1980 Act provides, so far as material;

.... where in the case of any action for which a period of limitation is prescribed by this Act, either

(a) the action is based upon the fraud of the defendant; or

(b) any fact relevant to the plaintiffs right of action has been deliberately concealed from him by the defendant....

the period of limitation shall not begin to run until the plaintiff has discovered the fraud, concealment or mistake (as the case may be) or could with reasonable diligence have discovered it.

References in this subsection to the defendant include references to the defendant's agent and any person through whom the defendant claims and his agent.

107. I was referred to two cases where the question of reasonable diligence has been discussed. In Paragon, Millett LJ stated (at p 418b-c);

The question is not whether the plaintiffs should have discovered the fraud sooner; but whether they could with reasonable diligence have done so. The burden of proof is on them. They must establish that they could not have discovered the fraud without exceptional measures which they could not reasonably have been expected to take.

I was also referred to Peco Arts Inc v Hazlitt Gallery [1983] 1 WLR 1315 at p 1322-3. I bear these passages in mind when applying the words of the section to the facts as presented to me.

108. It was common ground before me that the issue is not when Mr Pollard's fraud was discovered by the claimants (or could with reasonable diligence have been discovered) but when Mrs Pollard's dishonest participation in the fraud was discovered by the claimants (or could with reasonable diligence have been discovered). However, the two are clearly linked, not least because the latter is dependent on the former.
109. The application of s 32 in the present case turns on the facts. A number of witness statements were before me and the makers of the principal witness statements were cross examined. For the claimants, I heard oral evidence from the trustees of the Estate (Mr. O'Malley and Mr Cattley) and from a beneficiary - Mrs Jane Craig ("Mrs Craig"). For the defendant, I heard oral evidence from Mrs Pollard. In the event, I consider that the Section 32 Issue largely turns on the significance of the contemporaneous documents, although in limited respects cross examination of the witnesses helped to clarify certain matters.
110. Mr Halpern in his closing submissions suggested that some of the evidence given by the claimant's witnesses was disingenuous and incredible. I reject those submissions. I consider that these witnesses were honestly trying their best to remember events which occurred some time ago. I take into account that some of their evidence may have been influenced by reconstructed recollection in the light of subsequent events but in general I accept their evidence including, in particular, that given in their witness statements. Mrs Pollard's evidence was in the event largely irrelevant to the issues which I have to decide.

The facts

111. Before dealing with the rival contentions of the parties I need to summarise the principal facts which are relevant to the Section 32 Issue. I shall do so by reference firstly to the events from 1995 to the end of 1997 and secondly from the beginning of 1998 onwards.

1995 - December 1997

112. By 1995, Mrs Craig had begun to get very concerned that the administration of the Estate had not been finalised some 8 years after Mr Shearer's death. She had tried to get information from Mr Pollard about the progress he had made. In 1995 she instructed solicitors (Nelsons) to correspond with Mr Pollard to expedite the administration of the Estate. No real progress was made, and because of cost concerns, Nelsons were not instructed to pursue the matter beyond February 1996. However, Mrs Craig continued herself to attempt to obtain information about the administration of the Estate directly from Mr Pollard.
113. In late 1995, Mrs Craig filed a complaint against Mr Pollard with the Solicitors Complaints Bureau ("the SCB") (subsequently the Office for the Supervision of Solicitors ("the OSS")). Little progress was made on the complaint but Mrs Craig pressed for further action to be taken in the light of Mr Pollard's continuing failure to respond to her requests for information and the delays in receiving income from the Estate.
114. In 1996, Mr O'Malley (an accountant in the firm of Gresham's who were PGW's accountants) was instructed by PGW to carry out an investigation into whether Mr Pollard (then a partner in PGW) had committed any breaches of the Solicitors Account Rules during his administration of the Estate. Mr O'Malley was not at that stage a trustee of the Estate which only came about much later. It is unnecessary for me to refer in detail to the outcome of that investigation beyond stating that it revealed that there may well have been significant breaches of the Solicitors Account Rules by Mr Pollard by mixing his own funds with funds of the Estate in the Estate's client account. The outcome of these investigations was made known by PGW to the SCB. I am satisfied on the basis of the evidence before me that neither Mr O'Malley nor Mrs Craig at this stage suspected that there was a serious possibility of fraud on Mr Pollard's part. Mr Cattley did have a hunch that fraud was a possibility but this was mere speculation on his part arising from the findings that there may well have been a breach of the Solicitors Account Rules.
115. There were also concerns about the suitability of Mr Pollard's investment of Estate funds which led to Mr Cattley (Mr O'Malley's partner and not at that stage a trustee of the Estate) becoming involved to find a more suitable investment. This led to the Estate's funds (of about £446,000) being passed to Baillie Gifford for investment in August 1996.
116. It appears from a report prepared by the police on January 2000 (see below) that the OSS carried out an investigation of the Estate account and produced a report dated 28 August 1996 which was forwarded to Mr Pollard seeking an explanation for the irregularities which had been discovered. Mr Pollard replied to the OSS on 7 March 1997 purporting to give explanations. (I should add that neither of these documents were before me nor was it suggested to any of the claimants' witnesses in cross examination that they were aware of either of these documents or their contents at the time).
117. On 14 April 1997, the OSS wrote to Mr Pollard asking him to forward his files to the OSS. At this stage Mr Pollard was a partner with Ms Jennifer Lawrence ("Ms Lawrence") but it would seem that she was not at the time made aware of this letter. Mr Pollard did not forward the files as requested. On 1 August 1997, Ms Lawrence expelled Mr Pollard as a partner (apparently as a result of matters unrelated to the Estate). On 18 August 1997, Ms Lawrence sent the files to the OSS.
118. Mrs Craig was still concerned at the delays in the administration of the Estate and payments of income. She contacted the OSS to inspect the files and attended at their offices in Leamington Spa on 27 October 1997. She saw documents relating to Warrender Ltd on the files and saw Mrs Pollard's name (then Linda Clarke) mentioned. Mrs Craig says that she found this very strange and could not understand why these documents would be included on the Estate's files. She raised the matter with the official from the OSS (Mr Peel) who was dealing with the files but does not know whether he took the matter any further.
119. In November and December 1997, Ms Lawrence became increasingly involved in trying to progress the administration of the Estate and ensure that income was promptly paid to the beneficiaries. In December 1997 she was formally instructed on behalf of the Estate. For this purpose she asked for the Estate's files to be returned to her by the OSS. She received them just before Christmas and went through them in detail before the new year.

1998 onwards

120. Following her review of the files, Ms Lawrence met with Mrs Craig and Mr Michael Shearer (another beneficiary) on 1 January 1998. There was a four hour meeting between Mr O'Malley and Ms Lawrence on 2 January 1998. There was a further meeting between Ms Lawrence and a number of beneficiaries (including Mrs Craig) on 20 February 1998 which was also attended by Mr Cattley (who became a trustee of the Estate seven days later). Although there was much cross examination as to what was said at these meetings, I consider that, for the reasons I now set out, it is unnecessary for me to make any detailed findings as to what was or was not disclosed by Ms Lawrence at those meetings.
121. At some point in the middle of January 1998, Ms Lawrence produced a 66 page File Resume for the police setting out details of what she had found in the Estate's files and issues which arose from those findings ("the Resume"). (Ms Lawrence had reported the matter to the police in early January 1998 and on about the 8 or 9 January the police had carried out a search at Mr Pollard's home). A copy of the Resume was sent to Mr Cattley in April 1998 (by which time he had been appointed a trustee). Even though Mr Cattley said that the Resume was placed on the file without his knowledge whilst he was on holiday and that he did not read it until very much later, Mr Godsmark, in my view quite properly, accepted that the trustees must for the purposes of s. 32 be fixed with knowledge of the contents of the Resume by the end of April 1998. Since nothing turns on the discovery of facts between January 1998 and April 1998 for the purposes of the Section 32 Issue, I therefore proceed on the basis that the facts contained in the Resume were discovered by the trustees or could with reasonable diligence have been discovered by April 1998 and it matters not precisely which of those facts were discussed at the earlier meetings. In the light of the evidence I have seen and heard, I find that nothing of any significance was said at the meetings which went beyond the facts as disclosed in the Resume.
122. I shall consider the contents of the Resume in detail when I deal with the rival contentions of the parties.
123. The next series of events which I should mention arose from unfair dismissal proceedings brought by Mrs Pollard and another secretary of Mr Pollard, Mrs Buckton, before an industrial tribunal. Both had been dismissed by Ms Lawrence on 24 March 1997. The hearing of their claim commenced before Christmas 1997 and was adjourned part heard. At the resumed hearing on 13 January 1998, Ms Lawrence sought an adjournment on the basis that Ms Lawrence had uncovered wrongdoing on the part of Mr Pollard and contended that the proceedings should be adjourned to await the outcome of the police investigation. The application for an adjournment was refused. Ms Lawrence then led evidence about Mr Pollard's wrongdoing and alleged that Mrs Pollard and Mrs Buckton were involved in and had knowledge of that wrongdoing.
124. The proceedings attracted the attention of the local press. On Wednesday 14 January 1998, the Kettering Evening Telegraph reported, under the headline "Police launch fraud probe", that at the industrial tribunal proceedings Ms Lawrence "claimed to have uncovered a fraud involving [Mrs Pollard] and [Mr Pollard]". There was a newspaper report to similar effect on the following day. On 16 January 1998, the same newspaper reported that a police investigation was being carried out into alleged misappropriations of client funds by Mr Pollard and that Ms Lawrence claimed at the tribunal hearing that "[Mrs Pollard] and Dorothy Buckton knew about the alleged fraud". It also reported that Mrs Pollard, and Mr Pollard, denied the allegations. In cross examination, both Mr O'Malley and Mr Cattley accepted that they saw these newspaper reports at the time.
125. The decision of the industrial tribunal was delivered on 19 March 1998. It included the following:

27. More seriously, what is being said by the respondents about the applicants is that they well knew that Mr Pollard was up to no good, and particularly in the case of [Mrs Pollard] were actively involved in his misfeasance [at para 22(b) the allegation of Ms Lawrence was said to have been that Mrs Pollard in particular was well aware of the defrauding of the Estate, which had been the source of funds which purchased the house which she now occupied with Mr Pollard]

28.... The evidence produced on behalf of the respondents was not, in the view of the tribunal, sufficient to justify the Tribunal in rejecting either [Mrs Pollard's] or Mrs Buckton's account of the extent to which either of them was aware of any default by Mr Pollard: and so we accept the applicants' accounts....

30.... there is no direct evidence (other than the applicants' references on letters) that either of the applicants did have actual knowledge of Mr Pollard's misfeasance.

126. Reliance was placed by both parties on correspondence passing between Mrs Craig and Ms Lawrence in March 1998. On 8 March 1998 Mrs Craig wrote a letter to Ms Lawrence which included the following:

We have made contact with Mr Curtis, the investigating officer from the Northamptonshire Fraud Squad and he has expressed serious reservations about the early disclosure of facts to [Mr Pollard]. He is still in the process of fact gathering about the case and to date he can see little evidence of fraudulent activity. He will of course be continuing his detailed investigation but until this process is completed he feels that a Civil action would be premature. Furthermore, he felt that the Crown Prosecution Service may refuse to prosecute if too many facts have been revealed to Pollard.

Mrs Craig then expresses concern about the costs of instructing counsel and whether it would be borne by the Estate or the beneficiaries.

127. On 12 March 1998, Ms Lawrence replied and referred to a telephone call she made with Mr Curtis:

He has made it clear that he did not say that he could see little evidence of fraudulent activity. As I understand it, he made it clear that... he was in the early days of his investigation. He was not in a position to say accordingly whether or not an offence of fraud would follow Mr Curtis also expressed the same concern in respect of the civil action, and the extent to which it might prejudice the investigation, that I also expressed. It is for that reason, amongst others than I made it very clear at the meeting that in the first instance we should obtain Counsel's Opinion, not only in respect of the breach of trust but also the general winding up of the estate. During the meeting I also made it very clear to you that in my view, and as a result of what I had discovered, you have an exceptionally good case in fraud, breach of trust, and indeed negligence.

128. The police investigation continued. Mrs Craig was interviewed by police and made a statement to them on 29 June 1998. Mrs Pollard was interviewed by the police on 14 December 1999 and I have seen a transcription of the tape recording of that interview.
129. In January 2000, the police produced a Financial Report for "Operation Hacienda" ("the Hacienda Report"). It runs to 27 pages of single spaced typing and has 55 appendices including a number of analysis schedules. It sets out in detail Mr Pollard's dealings with the Estate and finds that some £317,000 has been misappropriated by Mr Pollard from the Estate. An estate account issued to the lifetime beneficiaries in February 1997 is said to have excluded payments made to himself or for his benefit, thus concealing these payments from the beneficiaries. The report also concluded that Mr Pollard's explanations for alleged irregularities which he gave to the OSS in March 1997 were false. The report pointed out that Mr Pollard was still asserting that he was personally entitled to the Danish Monies: although there were indications that this assertion was improbable the report points to nothing conclusive to prove that this assertion was wrong. Significantly, the report concludes that even if Mr Pollard's assertions were to be accepted, he had still withdrawn from the estate some £41,000 more than the amounts to which he was entitled. I consider the Hacienda Report further in the context of my consideration of the Resume.

The rival contentions

1995-97

130. Mr Halpern sought to suggest that the claimant's witnesses knew or suspected more in the period 1995 - 1997 than they were prepared to say in the evidence before me about Mr Pollard's frauds. Mr Cattley did say that when he was told by Mr O'Malley about the latter's findings that Mr Pollard had mixed his own funds with that of the Estate that his suspicions were first aroused. Mrs Craig said that she might have thought in early 1997 that there was something worse than Mr Pollard being incompetent but that this was not a serious consideration at this point. It is clear to me on the basis of the evidence I have heard and the documents that I have seen that neither the trustees nor the beneficiaries (other than Mr Pollard himself) knew of Mr Pollard's frauds during this period, nor could they with reasonable diligence have discovered Mr Pollard's frauds. It follows that the same applies to the alleged fraud of Mrs Pollard. All that had been established was that Mr Pollard had mixed his own funds with those of the Estate and whilst this was a clear breach of the Solicitors Account Rules it did not follow that he had been fraudulent. There was no information available to the trustees, the beneficiaries or their legal representatives to gainsay the explanations which had been preferred by Mr Pollard and the estate account which he had produced in February 1997 covered up his fraudulent conduct.
131. It follows that s. 32 of the 1980 Act applies to postpone the running of the period of limitation until at least 1998.

1998 onwards

132. The main focus of Mr Halpern's contentions was the findings made by Ms Lawrence as a result of her consideration of Mr Pollard's files. He contended that Ms Lawrence discovered not only Mr Pollard's frauds but also those of Mrs Pollard by January 1998. He relies on the Resume and on what occurred at the Industrial Tribunal. He points out that Ms Lawrence was retained as a solicitor to the Estate at the time and says that in any event the trustees and at least some of the beneficiaries were aware of her findings.
133. For reasons mentioned earlier, I proceed on the basis, for the purposes of s 32, that the trustees should be fixed with knowledge of what was in the Resume by April 1998. The Resume is a long and at times rambling document. It is important to bear in mind the following conclusions which are expressed by Ms Lawrence at the end of the Resume:

"It seems to be that there are several possibilities re Shearer:

(1) Theft of Danish Kroner

(2) Obtaining by deception of interest on client account....

(3) If Danish Kroner and Bourne Ltd is his - then massive tax evasion

(4) If either are his then a large mixing of trust funds."

134. The following points arise from these conclusions. Firstly, Ms Lawrence concludes that there are "several possibilities" i.e. she is not there suggesting that any one of the possibilities she delineates is more probable than the others. Secondly, two of the "possibilities" mentioned by Ms Lawrence (those numbered 3 and 4) do not involve a fraud on the Estate.
135. I then turn to the detail of the document upon which Mr Halpern relied. As he accepted, I am concerned with whether the frauds of Mrs Pollard were discovered or could with reasonable diligence have been discovered and he also accepted that the thrust of the Resume was directed towards irregularities perpetrated by Mr Pollard. Nevertheless he submits that the Resume does show that the trustees or the beneficiaries discovered Mrs Pollard's frauds or that it disclosed sufficient material from which such frauds could with reasonable diligence have been discovered by them. In order to deal with these submissions it is necessary to consider what the Resume did disclose about the frauds which are now alleged against Mrs Pollard which can conveniently be considered by reference firstly to the alleged fraud on her part relating to the Warrender monies and secondly to the alleged fraud on her part relating to 14 Geldock Rd.
136. As regards the fraud relating to the Warrender monies, Mr Halpern relied on the following parts of the Resume as disclosing fraud on the part of Mr Pollard and also Mrs Pollard. At paragraph 49 of the Resume there is reference to the Danish monies. Ms Lawrence points out that at no time in any of the Estate Accounts or Schedules of Assets produced by Mr Pollard had there been reference to the Danish monies and the beneficiaries had at no time been advised that they existed. She then reviews a number of documents and comments that some documents are missing. She then refers to the transfer of the Danish monies into the account of Bourne Ltd in the Isle of Man. At page 40 of the Resume she refers to the possibility of there being tax evasion and to a letter written by Mr Pollard on 15 February 1988 which states: "I have used the account of Bourne Ltd as a convenience for myself in respect of this money while reinvestment thereof is considered." At p 41 there is reference to there having been at least a clear mixing of Mr Pollard's own money with monies belonging to the Estate. At p 65, Ms Lawrence says:

It occurs to me that if of course it is shown that the Danish money did in fact belong to him then by and large the mixing of money is serious but not as serious as it would be if it shown [sic] that the Danish money was not his.

She then refers to letters from Mr Pollard which appear to state contradictory positions on whether the Danish monies belonged to him.

137. At p 45 the formation of Warrender Ltd is mentioned with Mrs Pollard as co shareholder with Mr Pollard and her appointment as a director. There is reference to Mrs Pollard lying at the Industrial Tribunal when she denied knowledge of being a director. At paragraph 54 Ms Lawrence refers to the transfer of monies from Bourne Ltd's accounts to those of Warrender Ltd.
138. As regards 14 Geldock Rd, paragraph 59 of the Resume refers to an entry on 4 May 1988 of £11,000 on the Estate client account which did not appear in the Estate account prepared by Mr Pollard and which was queried by Mr O'Malley when he conducted his investigation in 1996. Ms Lawrence states: "As I understand it that referred to a deposit in respect of the purchase of 14 Geldock Rd... Pollard's home with [Mrs Pollard]". Another entry dated 27 May 1988 is for a transfer to Mr Pollard's account of £50,300. At p 65, there is reference to a handwritten note on Mr Pollard's purchase file of 14 Geldock Rd dated 25 May 1988 to the following effect:

Mortgage	30,000
Bourne	20,000
RH Shearer deed	50,300
	100,300

139. The starting point seems to me to ask whether the Resume, when read as a whole and taking the above points into account in particular, disclosed the fraud of Mr Pollard. It is clear that it disclosed sufficient information to suspect that Mr Pollard had acted fraudulently. It is also clear that it disclosed at the least that Mr Pollard had mixed his own funds with those of the Estate.
140. However, there was one key fact which remained unresolved. Mr Pollard was asserting that the Danish monies had been given to him personally by Mr Shearer before he died. This assertion was repeated by Mr Pollard to the police (see eg para 17.6 of the Hacienda report). Indeed, unknown at the time to the trustees and the beneficiaries, this assertion was supported by what Mrs Pollard said to the police in her interview on 14 December 1999. At p 19 of the transcript of that interview, Mrs Pollard was asked about the Danish monies. Mrs Pollard referred to the power of attorney which Mr Shearer had given to Mr Pollard prior to his death over his affairs in Denmark. When asked about Mr Shearer's intentions in relation to the Danish money, Mrs Pollard responded (at p 20 of the transcript):

...I can't remember when she told me but [Mr Pollard's] mother told me that there was some money in an account in Denmark and that [Mr Shearer] had always wanted [Mr Pollard] to have it.

Although in her oral evidence before me, Mrs Pollard continued to deny that that there had been wrongdoing on the part of Mr Pollard, in her Defence she accepts that Mr Pollard stole the Danish monies.

141. If this explanation were to be accepted, namely that the Danish monies totalling some £225,000 belonged to Mr Pollard, it would follow that Mr Pollard had mixed his own funds with those of the Estate, in breach of the Solicitor's Account Rules but there would at least prima facie be a complete answer to allegations that he was guilty of defrauding the Estate in relation to the Warrender monies (of which the principal amount was some £110,000, the balance of £46,437 being interest on that amount) and 14 Geldock Rd (where the sum involved was £81,300), namely that these represented payments out to him from the personal funds which he had mixed with those of the Estate.
142. Although there were grounds for suspecting that Mr Pollard's assertions in this respect were false, there was no independent documentary evidence or other material to gainsay those assertions. Mr Halpern accepted that there was nothing in the Resume to show that Mr Pollard was a liar when claiming that the Danish monies belonged to him. It is important to remember that Mr Pollard was a solicitor whose explanations could not be lightly brushed aside. I consider that it cannot be said that the trustees or beneficiaries had discovered a fact which was a necessary part of the fraud - namely that the Danish monies formed part of the Estate - when Mr Pollard (and Mrs Pollard) were asserting the opposite. Mr Pollard continued to deny fraud and was only convicted after a trial lasting 5 weeks.
143. The question which then arises is whether the trustees or beneficiaries could with reasonable diligence have discovered this fact which was key to proving fraud before 7 November 1999. In my judgment, they could not. Ms Lawrence's Resume makes reference to many missing documents and, as I have mentioned, Mr Halpern accepted that there was nothing in the Resume to gainsay Mr Pollard's assertion that the Danish monies were his. The frauds were by no means straightforward, as is apparent from the Hacienda Report. The police took until January 2000 to produce the Hacienda Report. Even at that stage, the report did not refer to any clear evidence which undermined Mr Pollard's explanation that the Danish monies belonged to him (see para 17.5).
144. However, the Hacienda Report went on to conclude that even if Mr Pollard's assertions were to be accepted as regards the Danish monies, he had still withdrawn from the Estate some £41,000 more than the amounts to which he was entitled. It was not suggested by Mr Halpern that this conclusion, which was based on a detailed analysis of the payments made by or at the instigation of Mr Pollard out of the Estate, was discovered or could with reasonable diligence have been discovered before 7 November 1999. The Hacienda Report, on the basis of the detailed analysis following the police investigation, also concluded that the estate account issued to the lifetime beneficiaries in February 1997 concealed payments from the beneficiaries and that Mr Pollard's explanations for alleged irregularities which he gave to the OSS in March 1997 were false. I do not consider that these conclusions were, or could with reasonable diligence have been, discovered by the trustees or the beneficiaries before 7 November 1999.
145. 1 bear in mind the resources which were available to the police which would not have been available to the trustees and beneficiaries as exemplified by the police search of Mr Pollard's home in January 1998, and the interviews which they conducted. By contrast, the funds available to the Estate at the end of 1997 were no more than about £500,000 and the amount distributed to the beneficiaries in 1997 by way of income from the Estate was of the order about £12,000. In the event, the trustees and the beneficiaries decided to await the outcome of the police investigation. I consider that in all the circumstances it was reasonable for them to have adopted this course. Even if they had decided to investigate the matter further, there is no reason to suppose that they would have discovered the facts required to prove fraud before 7 November 1999 by which date the police, with the extra resources available to them, had not yet produced the Hacienda report.
146. Mr Halpern also relied on the events before the Industrial Tribunal to which I have already referred. These do not in my judgment affect the conclusions which I have reached. It is not without significance that the claims of Ms Lawrence were not accepted by the Industrial Tribunal which proceeded on the basis that the allegations against Mrs Pollard had not been made out.
147. Mr Halpern also placed particular emphasis on Ms Lawrence's letter dated 12 March 1998 in which she expressed the view that there was "an exceptionally good case in fraud" against Mr Pollard. This view seems to have been based on what she had discovered in Mr Pollard's files and reflected in her Resume. There is no suggestion that any new facts had come to light since she prepared her Resume - in which she had concluded that there were four "possibilities" two of which did not involve fraud on the Estate. Mr Cattley described Ms Lawrence as having a reputation for being a larger than life character who possibly made allegations which were unfounded which would need to be looked into. Mrs Craig gave evidence suggesting that Ms Lawrence had an axe to grind against Mrs Pollard and she had to try and separate gossip and rumour from the actual facts. It is also to be noted that Ms Lawrence accused Mrs Buckton before the Industrial Tribunal of being complicit in Mr Pollard's frauds but there seems to have been little evidence to support this accusation. I consider that there is some truth in the suggestion that Ms Lawrence was guilty on occasion of hyperbole. For the reasons I have given, I do not think that Ms Lawrence's assertion that there was an exceptionally good case in fraud against Mr Pollard stands up to scrutiny in the light of what she says in the Resume -at least in the absence of evidence to gainsay the explanations of Mr Pollard in relation to the Danish monies.
148. I have so far focussed on the frauds of Mr Pollard. It follows from my findings in relation to him that I reach the same conclusions arising from s 32 as regards the alleged frauds of Mrs Pollard since the case against her is dependent on his frauds. If the trustees or beneficiaries had not discovered Mr Pollard's frauds or with reasonable diligence could not have done so, the same applies to Mrs Pollard's frauds. But I would go further. The case against Mrs Pollard is based on her dishonest assistance in Mr Pollard's frauds. That requires an element of dishonesty on her part. On the basis that, as Ms Lawrence herself concluded in the Resume, Mr Pollard's conduct may not have been a fraud on the Estate, the facts which would need to be discovered to establish Mrs Pollard's dishonesty are at yet one further remove.
149. Accordingly, I conclude that, as at 7 November 1999, the fraud of Mrs Pollard was not discovered by the trustees or the beneficiaries nor could they with reasonable diligence have discovered it. Or to adopt the language of Millett LJ in Paragon, the claimants have established to my satisfaction that they could not have discovered Mrs Pollard's fraud without exceptional measures which they could not reasonably have been expected to take. I also find that a fact relevant to the claimants' right of action (namely that the Danish monies belonged to the Estate) had been deliberately concealed from them and the beneficiaries by Mr Pollard and that as at 7 November 1999, that concealment was not discovered by the trustees or the beneficiaries nor could they with reasonable diligence have discovered it.
150. I therefore find for the claimants on the Section 32 Issue and it follows that the Second Proceedings are not time barred on this ground also.

The Laches Issue

151. The equitable doctrine of laches only applies to claims not covered by a statutory period of limitation. This issue would only have been necessary for me to determine if I had found, under the Section 21(1 )(a) issue, that there was no applicable period of limitation. But in case I am wrong in finding that section 21(l)(a) does not apply to the Dishonest Assistance Claims, I should deal with the Laches Issue.
152. Mr Halpern contended that, if there were no applicable statutory period of limitation, the Dishonest Assistance Claims were barred by the equitable doctrine of laches.
153. In principle, had I found for the claimants on the Section 21(l)(a) Issue, the doctrine of laches could apply (see Green v Gaul [2006] EWCA Civ 1124 at paras 33-41 where indications to the contrary in Gwembe were not followed). In Green v Gaul at para 42, what was described as the modern approach to the defences of laches, acquiescence and estoppel was set out. Preconceived formulas derived from earlier cases were discouraged.

The inquiry should require a broad approach, directed to ascertaining whether it would in all the circumstances be unconscionable for a party to be permitted to assert his beneficial right.

154. Unconscionability depends on all the circumstances but, for the doctrine of laches to apply, would usually require some form of unconscionable conduct on the part of the claimants. Delay alone is unlikely to be sufficient for the doctrine to apply unless coupled with conduct on the part of the claimant which would make it inequitable for him to enforce the claim.
155. In support of his argument that the Dishonest Assistance Claims were barred by laches, Mr Halpern relied upon the following conduct of the claimants and its impact on Mrs Pollard:

i) The Claimants knew or ought to have known of the alleged fraud well before 1999. It would be unconscionable for the claimants to have more time in equity than they would be given for a claim for deceit at common law.

ii) The claimants in any event had a considerable amount of material available to them in early 1998.

iii) The allegations of fraud made by Ms Lawrence against Mrs Pollard (such as in the Industrial Tribunal proceedings), following an enquiry she made at the expense of the Estate, have never gone away.

iv) The Claimants brought proceedings in 2003 against Mrs Pollard but the claims against her were not properly spelled out against her until more recently: the allegations should have been made promptly and should not have been left hanging over Mrs Pollard's head.

v) Mrs Pollard has faced uncertainty over whether she will lose her home.

156. I have no hesitation in rejecting Mr Halpern's argument. I do not consider that the circumstances render it unconscionable for the claimants to have made the Dishonest Assistance Claims in the Second Proceedings. There is nothing to suggest that Mrs Pollard has acted to her detriment as a result of conduct on the part of the claimants. As she accepted in evidence before me, Mrs Pollard had fraud allegations hanging over her head whilst the police investigations were taking place and she only heard in about March 2001 that she would not be charged. As regards the specific points made by Mr Halpern, I would refer to my findings on the Section 32 Issue in connection with his first and second points. As regards the third point, the allegations made by Ms Lawrence against Mrs Pollard were made in Ms Lawrence's personal capacity in the Industrial Tribunal proceedings and not on behalf of the Estate. The allegations were in any event not accepted by the Tribunal. As for the fourth and fifth points they in my view fall well short of the type of circumstances to which the doctrine of laches would apply.
157. Accordingly, I find that laches has no application to this case.

Conclusion

158. In conclusion, I find that:

i) Section 21(l)(a) of the 1980 Act does not apply to the Dishonest Assistance Claims and that the normal primary period of limitation of 6 years from the date of the accrual of the cause of action applies;

ii) Section 21(3) of the 1980 Act applies to postpone the running of the primary period of limitation as regards the beneficiaries with future interests with the consequence that the Second Proceedings are not time barred;

iii) Section 32 of the 1980 Act also applies to postpone the running of the primary period of limitation until after 7 November 1999 with the consequence that the Second Proceedings are not time barred;

iv) The doctrine of laches has no application to the claims made in the Second Proceedings.