Davies & Anor v Sharples & Anor [2006] EWHC 362 (Ch) (09 February 2006)

Neutral Citation Number: [2006] EWHC 362 (Ch) Case No: 4MA70347 IN THE HIGH COURT OF JUSTICE CHANCERY DIVISION MANCHESTER DISTRICT REGISTRY Royal Courts of Justice Strand, London, WC2A 2LL 9/2/2006 B e f o r e : MR JUSTICE PATTEN VICE-CHANCELLOR OF THE COUNTY PALATINE OF LANCASTER ____________________ Between: (1) JOHN HOWARD DAVIES (2) PETER KENYON DAVIES Claimant - and - (1) JOHN MILES SHARPLES (2) PENELOPE HELEN GREEN Defendant ____________________ Miss Katherine Dunn (instructed by Woodcock & Sons) for the Claimant Mr Simon Booth (instructed by Brighouse Wolff) for the Defendant Hearing dates: 21 - 23 November 2005 ____________________ HTML VERSION OF JUDGMENT ____________________ Crown Copyright © Mr Justice Patten : Introduction These proceedings concern the estate and the trusts of the will of the late John William Sharples ("The Testator") who died on 15 July 1938 leaving a will ("the Will") dated 13 July 1934. The Testator had two children, William and Mary. William in turn had two children, Jack and Kathleen. Mary had three children, Marjorie, Hilda and Betty. By the Will he appointed his son (William Sharples) and his grandson (Jack Sharples) to be his executors and trustees. Under clause 8 of the Will after various specific gifts and legacies his residuary estate was divided into two parts comprising five-eighths and three-eighths of the residue. The five-eighths share ("the Sharples share") was directed to be held upon trust to pay William Sharples the sum of £5000 for his own use and benefit absolutely with the residue of the share being held upon trust to pay the income thereof to William for life upon protective trusts and thereafter to hold the capital and income for Jack Sharples and his sister Kathleen in equal shares. There are provisions for gifts in substitution if a grandchild should die in the Testator's lifetime, but nothing in the event turns on these. On 1 April 1957 Jack and Kathleen Sharples assigned their interests in the Sharples share to their father William absolutely. William died on 10 December 1966, but by his Will dated 10 January 1964 he left his residuary estate ( which included the assets comprised in the Sharples share) on trust for Jack and Kathleen absolutely in the proportions of five-eighths and three-eighths respectively. They were the executors of his Will and obtained a grant of probate on 7 April 1967. Jack remained the sole executor and trustee of the Testator's Will until 27 June 1972 when the First Defendant, Mr John Sharples and the Second Claimant, Mr Peter Davies, were appointed as additional trustees. Jack died on 28 December 1991 and they remained the trustees of the Testator's Will. By his will dated 3 October 1989, Jack Sharples appointed John Sharples and Charles Reginald Gray (now deceased) to be his executors and trustees and directed his residuary estate to be held on trust to pay the income to his widow Muriel during her lifetime and thereafter as to capital and income on trust for his children John Sharples and the second Defendant, Penelope Helen Green, absolutely in the now familiar shares of five-eighths and three-eighths respectively. Mrs Muriel Sharples died on 31 May 1995. Kathleen Sharples died on 20 January 1989. By her will dated 6 November 1985 her residuary estate was left to be divided between the defendants in equal shares. They have therefore between themselves become absolutely entitled under the wills of Jack and Kathleen to the assets which until 1957 were comprised in the Sharples share. The three-eighths share of residue ("the Cunliffe share") was directed to be held on trusts which provided for a fund to be set aside in order to pay an annuity of £260 for the Testator's granddaughter Hilda Cunliffe during the joint lives of herself and her mother Mary Cunliffe. After the death of Hilda or Mary (whichever should first occur) the annuity fund was to fall back into the Cunliffe share, which was held on trust for Mary for her life and thereafter for her three daughters in equal shares. Each of the three daughters survived their mother (who died on 11 April 1969) and became absolutely entitled to one-third of the Cunliffe share. Betty died on 12 June 2001 leaving two sons who are the Claimants in these proceedings. Hilda (who was blind from birth) died on 13 November 2003 unmarried and without issue. The Claim Probate of the Testator's Will was granted to William and Jack Sharples on 7 November 1938. The net residuary estate comprised a fund with a value of £36,836 consisting of various assets including land shares and other investments. On this basis, the Sharples share had a value at probate of £23,022 and the Cunliffe share a value of £13,814. The estate accounts show that the sum of £5,000 due to William Sharples out of the Sharples share was transferred to a separate account in the books of the trust designated "the William Sharples Legacy Account". It was then paid to William in seven instalments, varying in amount between £1,000 and £400 between 16 March 1945 and 15 July 1952. No other capital distributions were made in respect of either the Sharples or the Cunliffe share until about 1969. Following the payment of the £5,000 to William the residuary estate (taking probate values) consisted of £18,022 (representing the balance of the Sharples share) and £13,814 (the undistributed Cunliffe share). In percentage terms the division was 56.61/43.39 per cent. Although there were no other capital distributions until after Mary Cunliffe's death, income was distributed from the start in the ratio of 5:3 reflecting the original split under the Testator's will between the Sharples and the Cunliffe shares. This was obviously in accordance with the terms of the trusts of the Will, but once the £5,000 had been appropriated to the William Sharples Legacy Account, income from the balance of the residuary estate should have been divided in the ratio of 56.61/43.39. What in fact happened was that the trustees continued to divide any distributions of income from the residuary estate in the ratio of 5:3 ratio thereby treating the £5,000 payment to William as a legacy charged on the whole estate rather than as a distribution out of the Sharples share in accordance with the trusts of the Will. Between 1939 and 1969 a total of £91,490.36 was distributed by way of income. £57,169.51 was paid out in respect of the Sharples share and £34,320.85 in respect of the Cunliffe share. However, the trustees levied a charge to interest on the £5,000 payable to William Sharples with the result that the imbalance in the distribution of income was largely corrected during the period up to William Sharples' death in December 1966. After the death of Mary Cunliffe in 1969 all distributions of capital and income were made in the 5:3 ratio without regard to the prior payment of the £5,000 out of the Sharples share. This is the period covered by the claim. The schedules prepared by the Claimants show that between 1970 and November 1992 £128,938.26 was distributed by way of income of which £80,586.40 was paid to those entitled to the Sharples share. Had the 56.6/43.39 ratio been applied an additional £7,594.45 would have been received by the Cunliffe family instead of being paid to the Sharples side. Between 1969 and 1995 the assets comprised in the Testator's residuary estate were either transferred in specie to the beneficiaries under the trusts of the Will, or sold and the proceeds distributed. The last assets to be realised were three properties known as 20, 26 and 16 Preston New Road, Blackburn. 20 and 26 Preston New Road were compulsorily acquired by Lancashire County Council in February and July 1991 and 16 Preston New Road was sold privately on 22 September 1992. The sale prices were £74,000, £53,500 and £67,000 respectively. Again, the net proceeds of sale were distributed in the 5:3 ratio and by about November 1992 most of the sums had been paid out. Various small payments making up the balance were made between 1992 and 1995 but by then all the assets comprised within the residuary estate appear to have been realised and distributed. The Claimants' case is that the overpayments of income and capital to the Sharples side were in breach of trust and this is not disputed. The overpayment of income amounted, as I have said, to £7,594.45 over the period from 1970 to 1992. The position about capital is that as a result of overpayments between 1970 and 1989, the Sharples beneficiaries had received most of their share of the assets of the residuary estate and the distribution of 35.44 per cent of the proceeds of sale of 20 Preston New Road would have satisfied their entitlement in full. This calculation (which is contained in the schedules annexed to the Particulars of Claim) has, of course, been prepared retrospectively, taking into account the prices achieved for the three Preston New Road properties. It is not suggested that the trustees could have made this calculation until these prices had been agreed. But once the properties had been sold and the proceeds of sale were in hand, the trustees had it within their power to make an adjustment in the final capital distribution, which would have corrected the accrued deficit in payments to the Cunliffe beneficiaries due to prior distributions in the 5:3 ratio. The Claimants calculate that the Sharples beneficiaries should have received £20,000 less than they did out of the proceeds of sale of 20 Preston New Road and that the entire proceeds of sale of 26 and 16 Preston New Road should have been paid to the Cunliffe beneficiaries rather than the three-eighths which they actually received. Once the last capital distributions had been made from the proceeds of sale of the three Blackburn properties, the trustees no longer had any assets in the estate which they could use to correct the underpayment of capital to the Cunliffe beneficiaries. Whilst the claim for income dates from 1970 the claim in relation to capital is therefore limited to the distributions made in September, October and November 1992 and to the deficit which arose as a result of the trustees' failure to adjust the final payments so as to ensure an overall distribution of assets in the ratio of 56.61:43.39. The precise quantification of the claim is not admitted at this stage and will be a matter for trial or a subsequent taking of accounts before the District Judge. For the purpose of this hearing, I have to proceed on the assumption that the Claimants' calculations are correct. I should also mention at the outset, that Mr Booth, who appears on behalf of the Defendants, does not accept the Claimants' formulation of their case in relation to the overpayments of capital. He says that the overpayments of capital (like those of income) should be treated individually as and when made for the purpose of determining whether the claims are now statute barred. The postponement of liability to the distribution in 1992, has the effect of saddling the Defendants with liabilities for breaches of trust which occurred over a long period of time and for most of which, the first Defendant was not responsible. This is a point which will need to be argued out at the trial. For the purposes of this preliminary issue, Mr Booth accepts that I should deal with the case as a matter of principle based on the way in which the Claimants' formulate their case. The Defendants' primary defence is that the claims are either statute barred or precluded by laches on the part of the Claimants. On 22 June 2005, District Judge Rawkins ordered these defences to be tried as a preliminary issue in the action. At the hearing Mr Booth indicated that he would not be relying on any defence of laches in respect of the claims and it was agreed that argument should be confined to the issues arising under the Limitation Act. Limitation In order to determine whether any part of the claim is statute barred, it is first necessary to identify the causes of action which are being asserted in the proceedings. The Claimants sue in two separate capacities. As the personal representatives of their mother Betty Cunliffe and their aunt Hilda Cunliffe, they seek payment of the income and capital which Betty and Hilda should have received between Mary Cunliffe's death in 1969 and 1995 when the last payments of income were made. The second Claimant, Mr Peter Davies, as an alternative to the direct claims by the estates of Betty and Hilda Cunliffe, also brings a claim as a trustee of the Testator's Will for reimbursement of the overpayments of capital and income made during the period of his trusteeship as monies paid under a mistake. The claims made on behalf of the estates of Betty and Hilda Cunliffe can be broken down into the following categories: (1) A restitutionary claim based on unjust enrichment against the recipients of the mistaken overpayments of capital and income. A claim of this kind is made against the Defendants in the following capacities: i) against both Defendants as the personal representatives of Kathleen Sharples in respect of overpayments to her of income between 1970 and her death in 1989; ii) against the first Defendant alone as the personal representative of Jack Sharples in respect of overpayments of income between 1970 and his death in 1991; iii) against both Defendants in respect of overpayments of income and capital since the deaths of Jack and Kathleen. This claim is made against them both personally and as the personal representatives of Jack and Kathleen. The Defendants were the only recipients of the income and capital attributable to the estate of Kathleen Sharples, but the payments of capital and income made to the estate of Jack Sharples were held on trust to pay the income from the estate to Muriel Sharples until her death in 1995 when the Defendants became entitled to his estate including the capital and income derived from the Testator's residuary estate through the Will of William Sharples; (2) A claim against the first Defendant for breach of trust in respect of overpayments of capital and income made since 27 June 1972 when he was appointed a trustee of the Testator's Will; (3) A claim against the first Defendant as the personal representative of Jack Sharples for overpayments made by Jack Sharples in breach of trust as a trustee of the Testator's Will. This claim covers overpayments of income from the Testator's residuary estate from 1970 and therefore extends the claim for breach of trust to cover all the overpayments of income which are in issue. The other claim is the one made by the second Claimant as a trustee of the Will of the Testator for the recovery of the mistaken overpayments of capital and income made to the Sharples beneficiaries during his trusteeship. This covers the period from 27 June 1972 and therefore includes all the capital overpayments made in 1992. It is brought against the Defendants in the same capacities as the claim made by the Claimants as the personal representatives of Betty and Hilda Cunliffe, but does not cover the period between 1970 and 1972. One point needs to be made about these claims before considering the application of the relevant provisions of the 1980 Limitation Act. It concerns the capacity in which the Defendants are sued in order to recover overpayments since 1970. It will be apparent from my summary of the restitutionary claims (including that brought by the second Claimant as a former trustee) that they all allege accountability based on receipt of mistaken overpayments of capital and income from the Testator's residuary estate in excess of their entitlement under the Testator's Will. It needs, however, to be borne in mind that neither the first nor the second Defendant, nor Jack or Kathleen Sharples ever received any payment from the Testator's estate as beneficiaries under the trusts of his will. The effect of the 1957 assignment was to surrender the interests in remainder of Jack and Kathleen and to make William Sharples absolutely entitled to the Sharples share. The trusts of the Will in relation to that share were therefore effectively terminated and certainly came to an end on William's death in 1966. The entitlement of the Defendants to the distributions made from 1966 to 1992 was as residuary beneficiaries under the wills of Jack and Kathleen as to which there is no dispute. The relevant entitlement is that of William Sharples, who following the 1957 assignment became the sole beneficiary entitled to the Sharples share and (if relevant) the only capacity in which the Defendants have received the overpayments as beneficiaries under the trusts of the Testator's Will is as the personal representatives of Jack and Kathleen, who were themselves the personal representatives of their father William. The Defendants rely on sections 21 and 22 of the Limitation Act 1980 ("the 1980 Act") both in relation to the restitutionary claims and to the claims against the first Defendant for breach of trust. In response reliance is placed by the Claimants on s.32 (1) (c) of the 1980 Act. They say that they were unaware that the Sharples beneficiaries had been paid more than their due share of the Testator's residuary estate until 2003 when after a detailed examination of the estate accounts it was discovered that the £5,000 paid to William Sharples had been improperly accounted for. The proceedings were issued on 21 September 2004, which is therefore the relevant date at which time stopped running for Limitation Act purposes. By amendment, reliance is also placed on s.32(1) (b) of the 1980 Act (deliberate concealment) based on a letter written by the solicitors to the Trust to Jack Sharples in June 1970, which refers to the need to deduct the £5,000 from the Sharples share of the estate. The Claimants say that this information was not passed on to the first Defendant and to the second Claimant by Jack Sharples and that the overpayments continued to his knowledge notwithstanding the advice contained in the solicitor's letter. This is a matter on which I heard some evidence and to which I shall come later in this judgment. So far as relevant, ss 21 and 22 of the 1980 Act provide as follows: " 21 Time limit for actions in respect of trust property (1) No period of limitation prescribed by this Act shall apply to an action by a beneficiary under a trust, being an action— (a) in respect of any fraud or fraudulent breach of trust to which the trustee was a party or privy; or... b) to recover from the trustee trust property or the proceeds of trust property in the possession of the trustee, or previously received by the trustee and converted to his use. (2) Where a trustee who is also a beneficiary under the trust receives or retains trust property or its proceeds as his share on a distribution of trust property under the trust, his liability in any action brought by virtue of subsection (1)(b) above to recover that property or its proceeds after the expiration of the period of limitation prescribed by this Act for bringing an action to recover trust property shall be limited to the excess over his proper share. This subsection only applies if the trustee acted honestly and reasonably in making the distribution. (3) Subject to the preceding provisions of this section, an action by a beneficiary to recover trust property or in respect of any breach of trust, not being an action for which a period of limitation is prescribed by any other provision of this Act, shall not be brought after the expiration of six years from the date on which the right of action accrued. For the purposes of this subsection, the right of action shall not be treated as having accrued to any beneficiary entitled to a future interest in the trust property until the interest fell into possession. (4) No beneficiary as against whom there would be a good defence under this Act shall derive any greater or other benefit from a judgment or order obtained by any other beneficiary than he could have obtained if he had brought the action and this Act had been pleaded in defence. 22 Time limit for actions claiming personal estate of a deceased person Subject to section 21(1) and (2) of this Act— (a) no action in respect of any claim to the personal estate of a deceased person or to any share or interest in any such estate (whether under a will or on intestacy) shall be brought after the expiration of twelve years from the date on which the right to receive the share or interest accrued; and ... b) no action to recover arrears of interest in respect of any legacy, or damages in respect of such arrears, shall be brought after the expiration of six years from the date on which the interest became due. " Breach of Trust It seems now to be common ground that the claims made against John Sharples personally and through him, against Jack Sharples for breach of trust, are subject to s.21 (1) - (2) of the 1980 Act and are not therefore subject to any period of limitation in respect of the overpayments of trust property received by them as trustees and converted to their own use. I should make it clear that it is not suggested that the breaches of trust involved in the overpayments to the Sharples beneficiaries were in any sense fraudulent. They were clearly made on the basis of a misunderstanding as to the correct formula for distribution after 1970. Section 21 (1) (a) of the 1980 Act is not therefore applicable. In these circumstances, any claims for an account based on a breach of trust by John or Jack Sharples not covered by s.21 (1) (b) are subject to the six year limitation period prescribed by s.21 (3). The effect of this is that John Sharples is only liable as a trustee to account for the overpayments which he received for his own use after 27 June 1972 as a result of distributions which he authorised as a trustee of the Testator's Will. This will not, therefore, include the distributions of income made to Kathleeen Sharples up to her death in 1989 or to Jack Sharples and his estate up to the death of Muriel Sharples in 1995. His liability will be limited to accounting for any overpayments of income which were made and received by him after 1989 (as a residuary beneficiary of the estate of Kathleen Sharples) and after 1995 (as a residuary beneficiary under the trusts of the Will of Jack Sharples). For the same reason he has no Limitation Act defence to the claim to recover from him the amount of the overpayments of capital made in 1992 insofar as those payments were received and retained by him. But Miss Dunn accepts that the claim against him for overpayments made by him to Mrs Green is subject to the six year limitation period under s.21(3) and no deliberate concealment is alleged on the part of the first Defendant. That part of the claim for breach of trust against Mr Sharples is therefore statute barred and the monies are only recoverable (if at all) on the basis of the restitutionary claims against the second Defendant. By the same token the claim based on breach of trust against John Sharples as the personal representative of Jack Sharples (which is a claim for overpayments of income from 1970 to 1991) is limited by s.21 to the monies received and retained by Jack Sharples during that period and does not include overpayments of income made to Katherine Sharples or any other third parties. His accountability for those payments depends upon establishing deliberate concealment which I will come to later. The restitutionary claims by the Cunliffe beneficiaries These claims are designed to catch all of the overpayments of income from 1970 up to 1995 and the overpayments of capital in 1992 and to obtain re-imbursement of the overpayments from their actual recipients. The cause of action asserted leads to a personal remedy. It is not a proprietary or tracing claim. Accountability is based on the receipt of the overpayment and apart from the Limitation Act, the only defence would be one based on change of position. I am not concerned with those issues at this hearing. These claims are based on the decision of the Court of Appeal in Re Diplock [1948] Ch 465 (later affirmed by the House of Lords as Ministry of Health v Simpson [1951] AC 251 ). The case concerned distributions of the residue of the Testator's estate amongst 139 charities on the basis of a gift of the residuary estate on trust for "such charitable or other charitable or benevolent object or objects in England" as the executors should think fit. The gift was challenged by the Testator's next of kin and was declared by the House of Lords to be invalid ( Chichester Diocesan Fund and Board of Finance v Simpson [1944] AC 341 ). Actions were then commenced by the next of kin against the charities who had participated in the distribution. The Court of Appeal held that they had a personal claim in equity against the charities to recover what had been paid. In Gillespie v Alexander [1947] Ch 716 Wynn-Parry J had said that in cases where an executor or administrator had paid money or transferred property of the estate to a person not entitled to it the only remedy of the legatee or next of kin was either to sue in the name of the executor or administrator at common law for money had and received or to pursue a claim in equity in their own name on a basis analogous to the common law claim. This meant that the mistake relied upon had to be one of fact not a mistake of law. This restriction has now of course been removed by the decision of the House of Lords in Kleinwort Benson Limited v Lincoln CC [1999] 2AC 349 even in relation to common law claims for money had and received but in Re Diplock the Court of Appeal (after an extensive review of the earlier authorities) did not accept that the claim in equity was so limited. At p.502 Lord Greene MR summarised the position as follows: " What then is the conclusion to be drawn on this part of the appellants' claim from what we fear has been a long citation of the authorities? It is not, we think, necessary or desirable that we should attempt any exhaustive formulation of the nature of the equity invoked which will be applicable to every class of case. But it seems to us, first, to be established and that the equity may be available equally to an unpaid or underpaid creditor, legatee, or next-of-kin. Second, it seems to us that a claim by a next-of-kin will not be liable to be defeated merely (a) in the absence of administration by the court: or (b) because the mistake under which the original payment was made was one of law rather than fact; or (c) because the original recipient, as things turn out, had no title at all and was a stranger to the estate; though the effect of the refund in the last case will be to dispossess the original recipient altogether rather than to produce equality between him and the claimant and other persons having a like title to that of the recipient. In our judgment there is no authority either in logic or in the decided cases for such limitations to the equitable right of action. In our judgment also there is no justification for such limitations to be found in the circumstances which gave rise to the equity. And as regards the conscience of the defendant upon which in this as in other jurisdictions equity is said to act, it is prima facie at least a sufficient circumstance that the defendant, as events have proved, has received some share of the estate to which he was not entitled. "A party" said Sir John Leach in David v. Frowd (1) "claiming under such circumstances has no great reason to complain that he is called upon to replace what he has received against his right." Earlier in the judgment (at p.480) he had rejected any precise analogy between the equitable claim and the common law claim for money had and received with its basis in the mistake made by the payer. The focus in equity is on the conscience of the recipient and his lack of entitlement to retain what he has received. The Court of Appeal then turned to the question of limitation. The testator in that case had died in March 1936 and nine of the ten actions under consideration had been initiated in March 1945. The actions were of course brought by the next of kin as those entitled under the Administration of Estates Act 1925 in the event of the partial intestacy created by the invalidity of the gift of the residuary estate. They contended (successfully) that the applicable limitation period was one of twelve years because the personal restitutionary claim by the next of kin was an "action in respect of [a] claim to the personal estate of a deceased person… on intestacy" within the meaning of what is now s.22(a) of the 1980 Act. It was therefore unnecessary to decide when time began to run for Limitation Act purposes because the twelve year period extended to a point several years prior to the Testator's death. Miss Dunn invites me to apply the decision in Re Diplock to the personal claims by the Cunliffe beneficiaries. A twelve year period back from 21 September 2004 would include the capital distributions made on 19 October 1992 and 3 November 1992, but not that made on 3 September 1992. It would also catch income distributions after 21 September 1992. But (s.32apart) this does not assist the Claimants unless time only began to run from the date of the overpayments. If the cause of action in respect of the restitutionary claims accrued at the date of the Testator's death, or even at the end of the executor's year, the twelve year period expired in July 1947 and the claims are statute barred. For the Claimants to overcome the primary Limitation Act defence they have therefore to establish not only that twelve years is the correct period of limitation, but also that time runs for the personal claims from the dates of the mistaken overpayments. Miss Dunn submits that this must follow as a matter of commonsense because prior to that date the beneficiary or next of kin would have had no claim. I accept, of course, that s.22(a) of the 1980 Act does have an application to restitutionary claims brought by beneficiaries or next of kin against the recipients of property which under the will or intestacy should not have been distributed to them. Re Diplock is binding authority that the use of the words "in respect of" in s.20 of the 1939 Limitation Act (now s.22(a) of the 1980 Act) had the effect of widening the scope of the section beyond claims by the legatees or next of kin against the personal representatives to recover their proper share of the estate. The historical analysis leading to this conclusion is set out at pgs 509-512 of the judgment of the Court of Appeal and it is unnecessary to repeat it in detail here. The Court of Appeal was persuaded that the use of the formula "in respect of" in s.20 of the 1939 Act in contrast to the phrase "for the recovery of" which had appeared in s.8 of the Real Property Limitation Act 1874 (repealed by the 1939 Act) was the deliberate borrowing of language which had appeared in s.3 of the Intestates Estates Act 1884 and had been construed by Maugham J in Re Blake [1932] 1 Ch 54 as extending to a restitutionary claim by beneficiaries or next of kin against the recipients of the unauthorised payments. As the decision in Re Blake illustrates, claims of that kind were until the coming into effect of the 1939 Act, treated for limitation purposes as analogous to common law claims for money had and received. They were, therefore, subject to a six year limitation period commencing with the accrual of the cause of action as at the date of the mistaken overpayment. The effect of s.20 of the 1939 Act was therefore to substitute for this a different limitation period of 12 years which applies alike to both restitutionary claims against the parties by beneficiaries or next of kin and claims by them against the personal representatives for the due administration of the estate. It is against this background that the question of when time begins to run has to be considered. The critical words in s.22(a) are "12 years from the date on which the right to receive the share or interest accrued". Two points need to be made about these words. The first is that this is a different limitation from that contained in s.21(3) of the 1980 Act which postpones the running of time in an action for breach of trust against a trustee until after any future interest to which the beneficiary may be entitled has fallen into possession. The wording of s.22(a) is more general and talks of the date on which the Claimant obtained the right to receive the share or interest under the estate. The second point is that what s.22(a) is referring to, is the right to receive a share or interest in the personal estate of the deceased person. It is not concerned with the disputed overpayment as such, but with questions of entitlement as between the beneficiary and the estate. In the case of a claim by a beneficiary or next of kin against the personal representatives for distribution of the estate or the payment of a legacy, this would be the only relevant issue, but Parliament has (on the Re Diplock analysis) chosen to govern the limitation of restitutionary claims against third parties using the same yardstick. It has not simply doubled the six year period previously applicable to such claims by analogy to actions for money had and received. It has imposed a different regime. This was recognised by the Court of Appeal in Re Diplock at p.513 of the judgment where they say this: " It is true that if our construction is right there is some awkwardness as regards the date from which, in the case of a David v. Frowd claim, the period of limitation begins to run; for that date must be "the date when the right to recover the share or interest accrued," that is, the same date as that from which the statute runs in the case of a claim against a personal representative, and without regard to the time when the moneys belonging to the claimant were in fact wrongly paid to the recipient. But in our view the awkwardness (if such it be) is insufficient to override the effect which we think must be given to the earlier part of the section ." A David v Frowd claim is a restitutionary claim of the kind under consideration. Having decided that the period of limitation was 12 years, it was not necessary for the Court of Appeal in Re Diplock to decide when time began to run and this passage is obiter. Nor does it make explicit what the Court of Appeal considered the correct date to be. But the reference to the date of the mistaken payment being irrelevant seems to indicate that time will run from the date when the next of kin or legatee could obtain an order for the due administration of the estate against the personal representative and this would not be later than the end of the year allowed to personal representatives to complete administration of an estate under s.44 of the Administration of Estates Act 1925. That was certainly the view of Lord Simonds when the case reached the House of Lords. Having affirmed the decision of the Court of Appeal on the meaning of "in respect of" s.20 of the 1939 Act he said this (see 1951 AC 251 at p.277): " It is suggested that there is something awkward or inapposite in the terminus a quo, inasmuch as the relevant period is to run "from the date when the right to receive the share ... accrued". I think that this criticism is ill-founded. There is nothing inappropriate in a legatee or next of kin who has brought no action for twelve years after the executor's year has expired being barred from such action whether against the executor himself or against the person to whom the executor has made a wrongful payment. At the least there is nothing so inappropriate in such a result as to deprive the substantive words of the section of their plain meaning. Section 20 applying to this action and, it being conceded that the relevant period had not expired before it was brought, the defence under the statute fails. I think it therefore unnecessary to say anything about s. 26 by way of approval or disapproval of what fell from the Court of Appeal. It is a section which presents many problems ." In Evans v Westcombe [1999] 2AER 777 Mr Richard McCombe Q. C (as he then was) suggested without reference to Re Diplock that time did not run against personal representatives earlier than the conclusion of the administration of the estate but this dictum has, I think, to be read consistently with the decision in Re Diplock. More recently in Re Loftus [2005] 2AER 700 (in a case brought against an administratrix seeking an account of the administration of the estate) Lawrence Collins J held that for the purposes of s.22(a) of the 1980 Act time ran from the later of the date of death or the date when the asset in question fell into the possession of the administratrix. He did not refer specifically to the dictum of Lord Simonds quoted earlier, but instead founded himself on the decision of Chitty J in Re Johnson (1885) 29 Ch D 964 on an application for the general administration of an intestate estate where at pages 970 –971 he said this: " The second question turns on the meaning of the words "present right to receive the same." The intestate Johnson died in 1848, and the Defendants contend that the Plaintiff's right was barred at the end of twenty years from his death, or at all events of twenty-one years, the additional year being conceded in conformity with the general rule that an executor or administrator is allowed in an administration case one year to complete the administration of the estate. In the absence of any special circumstances relating to the getting in of an intestate's estate, I think that the latter contention is correct, and that the Plaintiff's claim for the general administration of the intestate's estate is barred… But I am of opinion that the claims of the Plaintiff in her own right and as administratrix of her deceased sister are not barred in reference to such of the assets as came into the possession of T. C. Johnson the administrator, within twenty years before the 11th of April, 1883, the day on which the writ was issued… The right to a legacy and the right to receive a legacy are, (as was pointed out by Lord Romilly in Earle v. Bellingham (1)), obviously distinct rights. And the observation applies equally to a share of the residue of an intestate's estate. But the enactments speak not merely of a right to receive, but, emphatically, of a present right to receive. The next of kin have no present right to receive from the administrator a reversionary asset belonging to the intestate, before it falls into possession and is possessed by him, nor where he is compelled to take proceedings to recover an outstanding asset, before he recovers it or obtains possession of it. " That limited exception has no application in this case. There is no suggestion that the trustees had difficulties in getting in the estate and it is important not to confuse what Chitty J said in Re Johnson with the postponement of the limitation period in cases where the beneficiaries' interest has yet to fall into possession. Those entitled under a will (even if only entitled to an interest postponed to a prior life interest) have the locus necessary to bring proceedings for the due administration of the estate. Moreover, even if the date on which their own interests vested in possession were relevant, that would not assist the Cunliffe beneficiaries in this case because they became absolutely entitled to interests in possession on the death of Mary Cunliffe in 1969, more than 12 years prior to the commencement of these proceedings. Miss Dunn's principal objection to this result is that it means (in cases like the present) that time has run for the full limitation period before the overpayment has even occurred. There are, I think, really two answers to this. The first is that this is simply the consequence (as already explained) of merging the limitation period for restitutionary claims by beneficiaries and next of kin with that applicable to claims against the personal representatives for the due administration of the estate. A failure to distribute legacies and the residuary estate to those immediately entitled to it is easily catered for by a limitation period of 12 years commencing with the death of the Testator or intestate, particularly when one bears in mind the application of the exceptions for cases of fraud or the continuing possession by the personal representative of trust property contained in s.21 (1) and (2) of the 1980 Act which are incorporated by the opening words of s.22 (a). A personal representative who retains part of the estate for distribution will remain liable to an action for an account at the suit of a legatee or next of kin so long as he fails to make a distribution, or if he distributes but retains part of the estate to which he is not beneficially entitled. John and Jack Sharples will therefore be liable for the overpayments they have personally received, whichever of either s.21 or s.22 applies. The application of these provisions to the restitutionary claims by beneficiaries against third parties where the third party is not also one of the personal representatives can cause the difficulties highlighted by Miss Dunn. But I consider that I am bound by the weight of authority to regard time as running in such cases from the same starting point. The second answer to Miss Dunn's argument is however more fundamental. Mr Booth submits that s.22 (a) simply has no application to this case and that (except to the limited extent that John and Jack Sharples made overpayments to themselves) the limitation period is that prescribed by s.21 (3): i.e. 6 years from the breach of trust. This would mean that all the other claims to both income and capital are statute barred unless s.32 applies to extend time. The Defendants cannot challenge the authority of Re Diplock in this court, but they say (rightly) that the claim under consideration by the Court of Appeal in that case was one by next of kin under an intestacy to recover what the personal representatives had wrongly distributed to the various charities. It was not a claim to enforce the terms of a trust, or (as in this case) to recover property distributed by John Sharples as a trustee in breach of trust. An express inter vivos trust would clearly not be within the terms of s.22(a) and the restitutionary claims would be caught either by s.21(3) or by analogy with common law claims for monies had and received by the 6 year limitation period applicable to claims in contract under what is now s.5 of the 1980 Act. In either case the period would be 6 years from the overpayment. The real issue therefore is whether s.22(a) has any application to cases of trusts created by a will once the administration of an estate is complete and the personal representatives continue in office only as trustees. The earlier authorities certainly support a distinction of this kind. In Re Timmis [1902] 1 Ch 176 Kekewich J decided that executors who had paid away part of a final settlement under the trusts of a will to the wrong beneficiary were subject to a six year limitation period under what was then s.8 of the Trustee Act 1888 (which applied to actions against a trustee for non-fraudulent breaches of trust) rather than the 12 year period prescribed by s.8 of the Real Property Limitation Act 1874 (which dealt with the recovery of legacies and which was replaced by what is now s.22(a) of the 1980 Act). At p.184 the judge said this: " The question, therefore, is whether the Act of 1874 applies or not. That seems to me to depend entirely on the question whether the defendants are to be regraded as executors or as trustees. If they are executors, they are sued for a legacy, a share of residue, and then the Act of 1874 applies. If they are sued, not as executors, but as trustees, then in order that the plaintiff may recover money from them, the statute of 1874 is inapplicable, and, there being no other Statute of Limitations applicable, the statute of 1888 comes in, and the plaintiff's action is barred ." To the same effect is the decision of Tomlin J in Re Oliver [1927] 2 Ch 323. Mr Booth submits that a relevant way of testing the issue is to ask whether the overpayments in question resulted from breaches of trust. That is not in issue in this case. The claim against John and Jack Sharples proceeds in part on that basis. If the case is within s.21(3) then, he says, there is no room for the application of s.22. The two provisions operate on a mutually exclusive basis dealing with quite different situations. Time runs under s.21(3) from the date of the breach and the possibility highlighted by Miss Dunn of the limitation period expiring prior to the overpayment being made cannot arise. I think this analysis is broadly correct. The provisions of s.22 are not intended in my judgment to deal with breaches of trust committed by trustees long after the period of administration has come to an end. They are intended (as their origins in s.8 of the Real Property Limitation Act 1874 makes clear) to cater for failures by a personal representative properly to administer the estate. This can include payment of legacies or the distribution of a residuary estate when it is to be subject to immediate division and no successive interests are involved. But in cases where the acts complained of take place after the trusts have come into effect that is a matter, which in my judgment, falls to be regulated by the provisions of s.21(3) and not by s.22(a). Miss Dunn contended that s.21(3) was rendered inapplicable by the words "not being an action for which a period of limitation is prescribed by any other provision of this Act". The effect is that s.21(3) cannot apply to a case which is covered by s.22. Section 22 does not, she says, exclude cases of breach of trust. On the contrary, the claims made in Re Diplock could, if brought against the executors, have been characterised as claims for breach of trust. The claims in this action remain covered by s.22(a) even if the administration of the estate is over. The difficulty about this argument is that it gives insufficient weight to the capacity in which the Defendants became liable for the acts they committed. In Re Diplock the Court of Appeal and the House of Lords clearly proceeded on the basis that they were considering an action brought against personal representatives for their actions as personal representatives in the administration of the estate. It is not a decision which has any application to a trustee properly so called. The duty of a trustee is to invest and manage the trust property and ultimately to distribute it in accordance with the terms of the trust. He is accountable to the beneficiaries for his conduct in that regard. An executor may, of course, be appointed to be both executor and trustee, but once the estate has been got in and the debts and other expenses paid, the administration is complete and he becomes functus as a personal representative. He continues as a trustee and is liable for any subsequent overpayments on that basis. I do not, therefore, accept that the actions of Mr John Sharples and his father Jack after 1970 are to be governed by s.22(a). The presumption is that the administration of the estate was by then complete and I have seen no evidence to suggest otherwise. Miss Dunn's alternative submission on this point was that even if s.22(a) has no application to a trustee, s.21(3) does not extend to the restitutionary claims brought by the Cunliffe beneficiaries against the Sharples beneficiaries. It is limited to claims by a beneficiary against the trustees. The decision in Re Diplock turned on the use in what is now s.22(a) of the words "in respect of" whereas s.21(3) refers to an action to recover trust property. This therefore rules out s.21(3) and the 1980 Act only applies if some part of it is brought in by analogy. The closest analogy, she says, is to s.22(a). It is certainly true that s.8 of the Trustee Act 1888 which was replaced by s.19 of the 1939 Limitation Act, was framed in terms of "an action or other proceeding against a trustee … to recover money or other property". But in s.19 the words "or in respect of any breach of trust" were added and I see no reason to give those words a narrower meaning than that given to the phrase "in respect of any claim to the personal estate" which were considered in the Court of Appeal in Re Diplock. Some support for this view can be found in the decision of Danckwerts J in G. L. Baker Ltd v Medway Building & Supplies Ltd [1958] 2 AER 532 where he held that the words "in respect of any fraud or fraudulent breach of trust to which the trustee was a party" in what is now s.21(1) (a) of the 1980 Act allowed the plaintiff company to recover monies which its auditor had paid in breach of trust to the Defendant company of which he was a director. The defendant company was liable because it had received the payment by virtue of the auditor's fraudulent breach of trust. The personal claim by the second Claimant This is a personal claim at common law to recover all the sums mistakenly overpaid during the second Claimant's trusteeship. Miss Dunn accepts that the limitation period normally applicable to such claims is one of six years from the date of payment, either by analogy with claims for breach of contract under s.5 of the 1980 Act, or by treating the cause of action as a species of contractual claim. In Re Diplock (at p.514) the Court of Appeal certainly seemed to accept that the reference in s.5 to an action founded on a simple contract, did cover actions for money had and received. In the recent decision of the House of Lords in Kleinwort v Benson Ltd v Lincoln C. C [1999] 2 AC 349 the point was not considered because it was accepted that the postponement provisions in s.32(1)(c) applied so that time could only run from the moment when the mistake (whether of fact or law) was discovered or could with reasonable diligence have been discovered. In these circumstances it seems to me that the correct approach is to identify the first point in time at which the mistake was or could have been discovered if later than the expiration of six years. Section 32 The effect of all this is that whether the personal claims by the Cunliffe beneficiaries against the Sharples beneficiaries are governed by s.22(a) or by s.21(3) they are statute barred except to the extent that s.21(1)(b) or s.32 applies. It is common ground that the personal claims by the Cunliffe beneficiaries are an action for relief from the consequences of a mistake within the meaning of s.32(1)(c). There is no limitation period in respect of overpayments made to and retained by John and Jack Sharples for their own use. The personal claim by the second Claimant is also for the reasons already stated statute barred except to the extent that s.32 applies. The Claimants therefore need to establish that time did not begin to run until after 21 September 1998 both for the personal claims of the Cunliffe beneficiaries and the second Claimant as trustee and for the claims based on breach of trust in relation to payments made by John and Jack Sharples to third parties such as the second Defendant. So far as relevant s.32(1) provides as follows: "32 Postponement of limitation period in case of fraud, concealment or mistake (1) Subject to [subsections (3) and (4A)] below, 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 plaintiff's right of action has been deliberately concealed from him by the defendant; or (c) the action is for relief from the consequences of a mistake; 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 to any person through whom the defendant claims and his agent. (2) For the purposes of subsection (1) above, deliberate commission of a breach of duty in circumstances in which it is unlikely to be discovered for some time amounts to deliberate concealment of the facts involved in that breach of duty." Deliberate Concealment The Claimants rely principally on s. 32(1)(c) but as already indicated, there is an allegation of deliberate concealment made in relation to the actions of Jack Sharples as a trustee. This is based on the letter referred to earlier in this judgment. In essence, the case against him is that he knew from the letter that the ratio for the distribution of income and capital needed to be corrected but did nothing about it. It is not, however, suggested that this information was passed on to the first Defendant and there is no plea of deliberate concealment in relation to distributions authorised by him after Jack Sharples' death, including the capital payments made in 1991 and 1992 to the second Defendant. Deliberate concealment adds nothing to the personal claims because they are brought within s.32(1) by the provisions of s.32(1)(c) and therefore the only issue in relation to those claims is when the mistake was or could reasonably have been discovered. But in relation to the claims based on breach of trust s.32(1)(b) provides the only possible entry into s.32(1). It may therefore enable time to be postponed in relation to the claim for breach of trust against Jack Sharples with regard to mistaken overpayments made to third parties. It does not (for the reasons already stated) apply to the first Defendant in respect of distributions made by him to the second Defendant or to other third parties in breach of trust. During the course of the hearing, I heard evidence from both Claimants and from the first Defendant. Mr Sharples was shown a copy of the letter to his father from the trust solicitors, L & W Wilkinson, dated 1 June 1970 which contained the following paragraphs: " I have done some homework on the papers since talking to you on Friday. Your Father's £5,000 legacy, of which he appears to have had only £4,500, was to come out of his five-eighths of the grandfather's Estate, the remainder of the five-eighths being settled upon him for his life, like Mrs. Cunliffe's three-eighths was. The Estate has never in fact been divided into five-eighths and three-eighths. Therefore, when Capital calculations are made for duty purposes the £4,500 has to be brought back to arrive at the proper proportions and then taken out again. This is what has been done. When you come to think of it, the same principle must be applied to income calculations and this can only be done by debiting interest upon the £4,500 your Father actually took out, otherwise one would never arrive at the correct figure for five-eighths and three-eighths of the income. " Mr Sharples was never shown this letter by his father and was unaware of the arrangements which had been made. He believed (as did the second Claimant) that the distributions advised by the solicitors and accountants who managed the estate were in accordance with the trusts of the Will. He said that he would not have wanted things to have been dealt with in any other way. I, of course, accept this. The overpayments were a mistake of which he was not aware at the time. He was therefore unable to cast any further light on the letter other than to identify some handwritten comments on it as being those of his father. Two of these notes are of interest. The first (which refers to the paragraphs quoted above) states that " all this was fully understood previously ". At the bottom of the letter he has also written: " can the total WS estate be reduced by the three-eighths of £5000 repayable which might be regarded as a debt to the Cunliffe side ". These comments appear to indicate an understanding on the part of Jack Sharples that some adjustment had to be made to the Cunliffe share in order to take account of the £5000 paid to William Sharples. But I am not satisfied that I can infer simply from this that Jack Sharples deliberately thereafter concealed the need to make the adjustment from his fellow trustees and the beneficiaries and set out to distribute the estate without making that adjustment. There is nothing to suggest that he did not assume that the solicitors' advice would be given effect to by the professionals responsible for advising the trustees on what was available for distribution. I am not therefore satisfied that a case under s.32(1)(b) was made out in relation to the claim against Jack Sharples. Due Diligence The real issue under s.32(1) is whether the second Claimant (in relation to his personal claim) or the Cunliffe beneficiaries whom the Claimants represent, could with reasonable diligence have discovered the existence of the mistaken overpayments earlier than they did. It is not suggested that Hilda or Betty Cunliffe ever realised that they were receiving less than they were entitled to or that the Claimants actually discovered the mistake earlier than 2002 when they came to investigate the position following their mother's death. A dispute apparently arose about her shareholding in Bispham Hall, Brick and Terra Cotta Co. Ltd, a family company, which caused the Claimants to examine the apparent disparity between the number of shares held by the Cunliffe side of the family and those held by the Sharples side. A copy of the Will of the Testator was obtained in May 2002, which was the first occasion on which the second Claimant had apparently seen it. Until then he had acted on the advice of the accountants, Porter Matthews & Marsden. Attempts were then made to obtain further documentation and it was only in about April 2003 that they were supplied with the ledger and accounts relating to the residuary estate. The first Claimant is a retired chartered accountant and with some professional help the errors in the amounts of the distributions were eventually revealed. It was put to the second Claimant and he accepted, that he used to go to see Jack Sharples to discuss the estate and was shown the accounts for rent received from the estate property. He did not ask to see the Will or any of the trust papers. He could have asked Jack Sharples to see these, but he assumed (as did John Sharples) that everything was correct. The question for decision is whether the Claimants could, with reasonable diligence, have discovered the true position earlier. Mr Booth accepts that it is not enough to show that it was physically possible to have made the discovery at a earlier stage. There has to be a reason for making the necessary enquiries. He also accepts that in relation to the personal claims of the Cunliffe beneficiaries it is the position of Betty and Hilda Cunliffe which has to be considered. The concept of reasonable diligence seems to involve two considerations. The first is whether the Claimants were put on inquiry or had reasonable cause to take the steps which would have led to the discovery of the mistake and the second is whether having been put on inquiry they acted sufficiently diligently in taking the necessary steps to ascertain the existence of the mistake. In the present case, there was no reason for any of the Claimants (including the Cunliffe beneficiaries) to question the word of the professional accountants who had dealt with the administration of the trusts of the estate since the Testator's death. There was nothing to put a reasonable person in the second Claimant's position (still less Hilda and Betty Cunliffe) on inquiry and as subsequent events have shown, it required considerable investigation of the old records and papers before the true position was revealed. Mr Booth submitted that the second Claimant should have familiarised himself with the terms of the trust, but I am far from satisfied that this would in itself have caused him or anyone in his position to conduct a review of all previous payments of capital and income in order to check whether the £5,000 to William Sharples had been properly accounted for. The error was not readily discoverable and the Claimants did not in my judgment have any reason to suppose that an error existed. I therefore take the view that time did not begin to run under s.32(1)(c) earlier than the first part of 2002. For these reasons, the personal claims of the Cunliffe beneficiaries and of the second Claimant are not statute barred. BAILII: Copyright Policy | Disclaimers | Privacy Policy | Feedback | Donate to BAILII