When does the clock start ticking on trustees’ negligence?

21 June 2021

Matthew & Others v Sedman & Others [2021] UKSC 19

The Supreme Court recently handed down a judgment dealing with time limits in a “midnight deadline” case. The claim was brought by new trustees and beneficiaries of a will trust against the former professional trustees. The claim involved allegations of negligence against the former trustees, along with breach of trust and breach of contract.

Along with clarification of the law on time limits, the case also serves as a useful reminder of trustees’ duties and the type of action a trustee may face in the event they fail to carry out those duties to the required standard.

The Claim

The claim was brought by the current trustees and beneficiaries of the Evelyn Hammond Will Trust (“the Trust”) against the former trustees.  The former trustees were all professional trustees, being employees or partners of an accountancy firm who had retired as trustees in August 2014.

The Trust provided that income was to be payable to one of the beneficiaries during her lifetime and upon her death assets were to be distributed to the other beneficiaries. The principal assets in the Trust were shares in Cattles Plc valued at almost £400,000. Cattles Plc had acquired Welcome Financial Services Limited. In 2009, trading in Cattles’ shares was suspended and both companies entered into court sanctioned schemes of arrangements. The scheme of arrangement for Welcome Financial Services Limited (“the Welcome Scheme”) required any claims on behalf of shareholders to be submitted to the administrators before the end of 2 June 2011.  This was known as the Bar Date.

The Trust had a claim in both schemes but the former trustees did not submit a claim to the Welcome Scheme by the Bar Date and accordingly lost the Trust’s ability to claim in respect of the shareholding.

The new trustees and the beneficiaries issued proceedings against the former trustees for negligence, breach of trust and fiduciary duties on 5 June 2017. The former trustee defendants applied for summary judgment and/or to strike out the claimants’ claim in respect of their failure to submit a claim to the Welcome Scheme in time. The former trustee defendants argued that this claim was out of time in that it had been issued more than 6 years after the cause of action accrued. They argued that the claim should have been issued by no later than 2 June 2017, i.e. 6 years after the Bar Date in accordance with the time limit set out in the Limitation Act 1980. Specifically, the Limitation Act 1980 makes provision for a time limit for actions in respect of trust property providing that “an action by a beneficiary … in respect of any breach of trust,…., shall not be brought after the expiration of six years from the date on which the right of action accrued”.

 

The Supreme Court’s Decision

In both the High Court and the Court of Appeal the former trustee defendants were successful on this issue and the Claimants then appealed to the Supreme Court. The case turned on whether, when a cause of action commences on the stroke of midnight (the trustees could have claimed against the Welcome Scheme at any time up to the end of 2 June 2011), the following day was to be included when calculating the 6 year limitation period.

The issue was whether 3 June 2011 was included for the purposes of calculating the time limit. The claimants argued that it should not be included. It was common ground that where a cause of action accrues part way through a day, that day should not be included for the purposes of calculating the time limit. For example, in a road traffic accident which occurs at 4pm in the afternoon on 1 June, 1 June is ignored when calculating the time limit and time starts to run on 2 June. The claimants argued that their cause of action accrued part way through a day, being a fraction of a second after midnight. They therefore argued that 3 June was to be disregarded and time started to run on 4 June 2011 and so that latest day for making their claim was 3 June 2017. 3 June 2017 was a Saturday and so their deadline was Monday 5 June 2017 being the next working day for the court. 

The former trustee defendants argued that a “midnight deadline” case was distinct from a case where the cause of action arose part way through a day in that the action had accrued by the beginning of 3 June 2011 and so the claimants had the whole of that day to bring the claim.

The Supreme Court agreed with the former trustee defendants. The court distinguished midnight deadlines from other actions and found that the day which commenced at or immediately after the midnight hour had to be included in the calculation of the six-year period under the Limitation Act 1980. Whether the cause of action accrued at the expiry of 2 June or the very start of 3 June, there was no significant difference and 3 June was in effect a complete undivided day. 

Accordingly the new trustees and the beneficiaries lost their ability to claim in respect of the former trustees’ failure to submit a claim under the Welcome Scheme in time.

 

Comment

The case serves a useful reminder to potential claimants in negligence actions that where there may be a claim, including for breach of trust, they should be mindful that the prescribed statutory time limit is 6 years. It is important to correctly identify when a cause of action arises and ensure that the right to bring the claim is protected by either issuing protective proceedings in court or entering into a standstill agreement with the potential defendants.

It is also a reminder for trustees of their duties, as of course limitation defences will not always be available. Trustees must (amongst other duties) exercise reasonable care and skill and act in the best interests of the beneficiaries at all times.

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