Johns v Johns

[2004] NZCA 42

IN THE COURT OF APPEAL OF NEW ZEALAND

CA108/03

BETWEENS H C JOHNS

Appellant

ANDL R JOHNS AND C C HOLLOWAY

First Respondents

ANDL R JOHNS

Second Respondent

Hearing:19 November 2003

Coram:Gault P
Tipping J
Glazebrook J

Appearances:  B P C Carter for Appellant

G J Judd QC for Respondents

Judgment:31 March 2004 

JUDGMENT OF THE COURT DELIVERED BY TIPPING J

Introduction

[1]       The primary questions in this appeal from Potter J concern the interpretation of a deed of trust and whether the two causes of action in issue should be struck out on limitation grounds.  The appellant, Mr Stephen Johns, to whom we will refer as the plaintiff, wishes to pursue the first cause of action against the first respondents, who are his father, Mr L R Johns, and a Mr C C Holloway, as trustees of a family trust settled by his father in 1967, and the second against his father personally.  Potter J struck out certain aspects of the first cause of action, which alleged breaches of trust by the trustees and held that the second cause of action brought against Mr L R Johns personally for breach of fiduciary duty should be largely struck out unless, pursuant to s28 of the Limitation Act 1950, there was postponement of the limitation period, so as to bring the claim within time. 

[2]       As the case is one involving strike out, the facts upon which the Court must act are those alleged in the plaintiff’s pleadings, which must for present purposes be taken as capable of proof.  Causes of action or aspects thereof should only be struck out before trial on the basis that they are statute or otherwise barred, if the defendant can establish that proposition conclusively.  If there is any real doubt about the matter, the case should be allowed to go to trial where all issues of fact and law can be fully explored.  This is no more than the ordinary strike out principle applied in the context of a strike out application which is based on limitation grounds.

[3]       The best way of recounting the relevant background is to refer to the plaintiff’s allegations of fact as set out in his most recent pleading which is a fourth amended statement of claim dated 1 August 2002.  It was on that pleading that the matter was addressed in the High Court and no further pleading has been filed or tendered.

[4]       The proceeding was commenced on 11 January 2000.  The six year period prescribed by s21 of the Act in respect of claims for breach of trust therefore runs from 11 January 1994.  If and to the extent that the plaintiff’s claims or any of them are subject to a six year limitation, either directly or by analogy, the plaintiff cannot rely on any event or circumstance which occurred prior to 11 January 1994. 

[5]       In his fourth amended statement of claim the plaintiff puts his case on the following basis.  By deed dated 18 December 1967 his father, Mr L R Johns established what was known as the L R Johns Family Trust, to which we will refer henceforth simply as the Trust.  The plaintiff says that the present trustees or, if the Trust has been wound up, the trustees of the Trust at the time of its winding up, were the first respondents, namely Mr L R Johns and Mr C C Holloway.  The plaintiff is a beneficiary with others under the trust.  We will have occasion a little later to examine in some detail the basis upon which he is a beneficiary.  The plaintiff’s father, Mr L R Johns was both settlor and a trustee.  He was not a beneficiary and indeed clause 7(d) of the trust deed provides that in the exercise of their power of sale the trustees could sell to any trustee other than the settlor.  This aspect of the matter features in the allegations which are made against Mr L R Johns. 

[6]       Prior to 1974 the principal assets in the trust were:  (a) 2500 shares (a 25% holding) in a company called Johns and Laughland Ltd (J&L Ltd); (b) 50% of a leasehold interest in land and buildings at 60 Frost Road, Mt Roskill, Auckland; and (c) 50% of the buildings located at 60 Frost Road, Mt Roskill.  Prior to 1974 J&L Ltd had carried on a successful manufacturing business from premises at 8 Crum Avenue, New Lynn and from those at 60 Frost Road, Mt Roskill.  The company manufactured cabinets and laminated bench tops.  Mr L R Johns and a Mr John Laughland were the directors of J&L Ltd until Mr Laughland resigned as a director in or about 1979/1980.

[7]       As at 1974 the shareholding in J&L Ltd was as follows: 

Mr L R Johns   A shares – 200            B shares - 2300

Mr John Laughland                A shares – 200            B shares – 2300

The Trust  B shares – 2500

The J Laughland Family Trust  B shares - 2500

[8]       On 10 March 1987 J&L Ltd changed its name to L R Johns Ltd.  That company was placed into voluntary liquidation by its shareholders in 1989 after its then remaining assets had been distributed to its shareholders.  L R Johns Ltd was struck off the Register of Companies on 27 November 1990. 

[9]       On 28 November 1973 J&L Ltd purchased the property at 8 Crum Avenue for $95,000.  It spent $15,000 on improvements.  J&L Ltd’s operations were thereafter carried out in the premises at 60 Frost Road which were NZ Railway leasehold land, and on the freehold land at 8 Crum Avenue.  In February 1974 Mr L R Johns incorporated a new company, Johns Kitchenmakers Ltd (J K Ltd), and he and Mr John Laughland agreed to divide the business and assets of J&L Ltd and go their separate ways.

[10]     On or about 31 March 1974 J K Ltd acquired the assets of that part of the business of J&L Ltd that had previously been conducted at Crum Avenue.  J&L Ltd continued to own the Crum Avenue property and the Trust retained a 50% share of the premises at Frost Road.  Mr Laughland incorporated a new company Jola Kitchens Ltd (Jola) which in March 1974 acquired the assets of and thereafter operated that part of the business of J&L Ltd which it had previously conducted at Frost Road. 

[11]     Mr L R Johns took over sole control of J&L Ltd during the 1979/80 financial year.  He acquired the shares of Mr Laughland and the Laughland Family Trust so that he personally thereafter held 400 A shares and 7,100 B shares, with the Trust continuing to own the remaining 2500 B shares which, without distinction between the classes of shares, gave it a 25% interest in J&L Ltd.  The plaintiff contends that the value ascribed to the assets and shares of J&L Ltd for the purpose of fixing a price for the acquisition of its business by Jola and J K Ltd was at least $240,000 less than the true value of the business.  That consequence is said to have arisen as a result of a failure to take any account of goodwill in the purchase price.  Mr L R Johns owned 4999 of the 5000 shares in J K Ltd.  The trust did not own any shares in that company.

[12]     During the course of or prior to the liquidation of J&L Ltd, now called L R Johns Ltd, 25% of the Crum Avenue property was transferred to the Trust.  The remaining 75% was transferred to Mr L R Johns.  In 1995 Mr L R Johns purchased the trust’s 25% share in Crum Avenue for $110,000; this being alleged to be an undervalue of at least $23,750.  There were subsequent transactions which need not be described for present purposes. 

[13]     The plaintiff then proceeds to allege under the broad heading “Breaches of Trust” that the trustees owed him and the other beneficiaries of the Trust a variety of duties.  He contends that the trustees (the first respondents) breached the trust in all or any of the following respects:

14.1In 1974 being a person who stood to gain from the proposed transfer of the assets and business of the first company (in the case of Lewis Richard Johns by virtue of his shareholding in the second company, and in the case of the other trustees by virtue of their professional association with Mr Johns), and therefore had a conflict of interest in the transaction they actively co-operated in the transfer of assets and to the disadvantage of the Trust and/or failed to take steps that would or might have prevented the transfer or would or might have ensured that the transfer was effected for full value.

14.2Having a conflict of interest for the reasons set out in paragraph 14.1 failed to ensure or to take any steps that might have ensured that a fair market rental for the Crum Avenue property was paid by the second company after that company acquired the business of the first company and commenced occupying the Crum Avenue property in February 1974.

Particulars

From 1 April 1974 until 1977 the second company occupied the Crum Avenue property at an annual rental of $11,000.00 being 10% of the purchase price of the property in 1973.  In April 1977 the rent was due for review and the first company obtain a valuation of the property by Yarnton and Noble, Registered Valuers, for the purpose of fixing the new rental.  The valuer recommended a rental of $17,440 but notwithstanding this advice rental for the three years from 1977 was fixed at $15,650 per annum.  Thereafter at all times the rental paid by the second company for its occupation of the Crum Avenue property was below the property market rental for the property.

14.3By failing to ensure or to take steps to try to ensure that a fair market rental was paid for the Frost Road premises by Jola Kitchens Limited after February 1974.

Particulars

From 1 April 1974 Jola Kitchens Limited occupied the Frost Road property.  The rental paid by Jola Kitchens Limited was less than the rental previously paid by the first company for its occupation of the premises.  The agreement by the first defendants (being owners – as trustees of the Trust – of a 50% share of the property at Frost Road) to the reduced rental to be paid by Jola Kitchens Limited enabled Lewis Richard Johns and John Laughland to reach agreement for the transfer of the business assets of the first company to the second company and Jola Kitchens Limited to the advantage of Lewis Richard Johns at the expense or cost of the Trust.

14.4By selling the Trust’s interest in the Crum Avenue Property in 1995 to Lewis Richard Johns in breach of clause 7(d) of the Trust Deed and for less than its current value.

[14]     It will be noted immediately that, save for the allegation in paragraph 14.4, all the allegations of breach of trust concern events taking place in the 1970s.  The latest of these breaches of trust is said to have occurred during 1977.  Potter J struck out all the allegations save those contained in paragraph 14.4.  The latter were not struck out because the transaction there in issue took place during 1995, ie. within the period of six years permitted by s21 of the Limitation Act 1950, to which we shall be coming in due course.

[15]     There then follows, as paragraph 15 of the plaintiff’s pleading, an allegation that the transferees in the transfers referred to in earlier paragraphs of the statement of claim had sufficient knowledge of the history of the Crum Avenue property and the interest of the trust in the property that they, the transferees, received and held or hold the Crum Avenue property as trustees under a constructive trust for the Trust as beneficiary.  The relevant transferees are Mr L R Johns; the plaintiff’s sister, Gail Patricia Johns who received an undivided half share in Crum Avenue in 1996; and the first respondents and one Christopher Norman Lord, a solicitor.  They are said to have received the Crum Avenue property, presumably the remaining half share, in August 1996.

[16]     The prayers for relief based on the breach of trust allegations in the first cause of action are directed at the first respondents as trustees or “either” of them, ie. Mr L R Johns as trustee and Mr C C Holloway.  First, there is a claim for an order directing the trustees or “any” of them to make good to the Trust any loss that may have been suffered by it in consequence of the breaches of trust alleged.  Then there are claims for compound interest, the taking of accounts, for setting aside the “purchase of trust property” by Mr L R Johns, or for damages in lieu. 

[17]     There is then a claim for an order declaring that the “second defendants” and Christopher Norman Lord hold the Crum Avenue property in whole or in part as trustees “of” the Trust.  There are several strange features of that claim.  The first is that there is only one second defendant, ie. Mr L R Johns.  The second is that Mr Christopher Norman Lord is not a defendant at all.  The third is that the request for a declaration that the people alleged should hold the Crum Avenue property in whole as trustees “of” (presumably for) the Trust seems to overlook the undivided half share of the plaintiff’s sister.  Finally, there is a claim for exemplary damages in the sum of $100,000 which appears to be wholly unsupported by any necessary averment to justify it.  That then is the basis of the plaintiff’s first cause of action against his father and Mr Holloway as trustees of the L R Johns Family Trust. 

[18]     The second cause of action, said to be “further and/or alternative”, is brought against Mr L R Johns alone and in his personal capacity.  This cause of action is headed “Breach of Fiduciary Duty by the Second Defendant (other than as trustee of the Trust)”.  The first allegation is that Mr L R Johns in his capacity as a director and shareholder of J&L Ltd owed the plaintiff, the Trust and J&L Ltd a fiduciary duty by reason of the facts then set out.  One must assume for present purposes that the alleged fiduciary duty can be established and it is therefore unnecessary to traverse all the factual allegations said to support its existence.  It is notable that the plaintiff says that his father owed not only him but also the Trust and J&L Ltd a fiduciary duty.  Neither the Trust nor J&L Ltd are plaintiffs, so the material allegation is confined to the proposition that Mr L R Johns owed his son a fiduciary duty in the two capacities mentioned, ie. Mr L R Johns’ capacity as director and shareholder of J&L Ltd. 

[19]     There then follow allegations as to what specific duties the overall fiduciary duty cast upon Mr L R Johns personally, ie. other than as a trustee of the Trust.  The plaintiff then mentions the transactions of which he complains, largely as per the first cause of action, and contends that his father breached his fiduciary duty to him in that:

12.1He failed to obtain in 1974 a proper or adequate valuation of the business of [J&L Ltd] including goodwill.

12.2In February 1974, he caused and allowed [J K Ltd] to take over the manufacturing activities of [J&L Ltd] at substantially less than their full value and, thereby knowingly and for his own benefit caused the diminution of the value of the Trust’s assets being shares in [J&L Ltd].

12.3He failed to ensure or to take steps that might have ensured that a fair market rental for the Crum Avenue property was paid by [J K Ltd] from February 1974 (see particulars to paragraph 15.2).

21.4He failed to ensure or to take steps that might have ensured that a fair market rental was paid for the Frost Road premises by Jola Kitchens Limited after February 1974 and by agreeing to or allowing Jola to pay less than a market rent for the premises he obtained the agreement of John Laughland to the transfer of the business of [J&L Ltd] to [J K Ltd] and Jola on the terms agreed (see particulars to paragraph 14.3) and to the transfer to him in 1979/80 by John Laughland and the Laughland Family Trust of their shares in [J&L Ltd].

21.5In 1995 he sought and obtained the agreement of the Trust to sell its share in the Crum Avenue property in breach of the terms of the Trust Deed and for less than its current market value.

[20]     Finally, before the claim for relief, the plaintiff makes the following allegations which may at some later stage need careful attention for the purpose of determining whether or not they amount to allegations of fraud:

22.THE breaches of trust and misconduct of the second defendant referred to in paragraphs 21 were deliberate and knowing and were undertaken with the intention of

22.1transferring all or some of the assets of the Trust (i.e., the value of the Trust’s shares in the first company) into the sole name or control of the second defendant at the expense of the beneficiaries of the Trust, or

22.2acquiring benefits of the Trust for himself or the second company although he was not a beneficiary of the Trust.

[21]     The claim for breach of fiduciary duty against Mr L R Johns personally includes a claim for an order directing him to make good any loss suffered by the Trust in consequence of the actions taken by him which are complained of; an order directing that he pay compound interest on such amount as he is required to make good to the “plaintiff”.  That of course is a wholly different matter from the amount he may be required to make good to the Trust.  There are then claims for the taking of accounts without any further specification, for an order setting aside Mr L R Johns’ acquisition of trust property, and for an order declaring that the shares in J K Ltd are held in trust by him as to all or part thereof for the Trust.  A similarly unsupported claim for exemplary damages in the sum of $100,000 is also made.

The Limitation Act 1950

[22]     It is convenient now to set out s21(1) and (2) of the Act to which particular attention is required.

21       Limitation of 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 thereof in the possession of the trustee, or previously received by the trustee and converted to his use.

(2)       Subject as aforesaid, 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 6 years from the date on which the right of action accrued:

Provided that the right of action shall not be deemed to have accrued to any beneficiary entitled to a future interest in the trust property until the interest fell into possession.

The trust deed

[23]     It is also convenient to set out those provisions of the deed of trust which are important for present purposes.  Those are the recital and clauses 1, 2, 3 and 8 which are in the following terms:

W H E R E A S  the Settlor desires to make provision on the Trusts hereinafter set out of the sum of TEN POUNDS (£10.0.0.) and all such other property as the Settlor or any other person or Corporation may from time to time transfer to the Trustees by way of gift, sale, transfer or other disposition during the continuance of the Trusts hereinafter mentioned (such property being hereinafter termed the Trust Fund) for the use and benefit of the wife of the Settlor and of the children both born and unborn of the Settlor and of the wives and/or husbands of the children both born and unborn of the Settlor and of the grandchildren of the Settlor (the said persons and classes of persons being hereinafter referred to where reference to them as a class is intended as “the beneficiaries”) or to any one or more of the beneficiaries exclusive of any one or more of the beneficiaries in the discretion of the Trustees as hereinafter more particularly set out NOW THEREFORE THIS DEED WITNESSSETH that in pursuance of the premises the Settlor DOTH HEREBY DIRECT AND DECLARE and the Trustees DO HEREBY ACKNOWLEDGE that the trustees shall stand possessed of the Trust Fund UPON THE TRUSTS and with the powers and discretions following that is to say:

1.        THE Trustees shall stand possessed of the Trust Fund until the date of distribution as hereinafter defined or (as to all or any part of the Trust Fund) until earlier distribution by the trustees to the beneficiaries or any of them in the exercise of the powers and discretions of the trustees as hereinafter set out.

2.        THE date of distribution shall be the date which is the 80^th annual anniversary of the date of these presents and the period during which the Trusts hereby created and all powers of the Trustees deriving thereunder including the power of accumulation shall subsist shall be for the period from the date of these presents until the 80^th annual anniversary hereof. 

3.        THE Trustees shall subject to Clause 8 pay apply and vest in their sole and uncontrolled discretion as they may from time to time think fit prior to the date of distribution the whole or portion or portions of the Trust Fund both as to the capital or the income thereof and including any accumulated income not already vested in a particular beneficiary or beneficiaries and without being required to pay and apply the whole or any portion of the income for any particular year or years for or towards the personal support and benefit advantage maintenance education or advancement in life of the beneficiaries or any one or more of the beneficiaries or jointly for any two or more of the beneficiaries or to one or some of the beneficiaries exclusive of any one or others of the beneficiaries AND at the date of distribution shall stand possessed of the residue of the Trust Fund including accumulated income not already vested in a particular beneficiary or beneficiaries UPON TRUST in equal shares for the children of the settlor who shall be living at the date of distribution but subject to the proviso hereinafter contained and for the estate of such child or children who shall die so that it is uncertain whether such child or children of the settlor survived the date of distribution and if any such child or children of the settlor shall die before the date of distribution leaving lawful issue who shall survive the date of distribution then such lawful issue shall take in equal shares if more than one the portion or portions of the Trust Fund which his her or their parent would have taken had such parent survived the date of distribution.

…

8.        THE income derived from the Trust Fund shall (notwithstanding anything hereinbefore set out) during each income year in which it is derived become vested in equal shares in all the beneficiaries in existence during such income year PROVIDED THAT the foregoing powers and discretions of the Trustees shall to the extent that the Trustees expressly pay to and/or apply for the benefit of any particular beneficiary or beneficiaries any income during that income year shall take effect in priority to and in precedence over the general provision for distribution herein contained to the extent that the Trustees have in fact so paid or applied such income.

First cause of action (breach of trust)

[24]     The question whether those parts of the first (breach of trust) cause of action which were struck out by the Judge, were rightly struck out, turns on the proviso to s21(2) of the Act.  There is no allegation of fraud in the first cause of action and no claim for the recovery of trust property or the proceeds thereof from the trustees.  Section 21(1) does not therefore apply so as to remove the plaintiff’s first cause of action from the constraints of s21(2).  The plaintiff’s claim for breach of trust is not subject to any other limitation period, so it is common ground the six year period prescribed by s21(2) applies, unless the proviso can be invoked.  The events in question occurred no later than the end of 1977.  A claim for breach of trust commenced on 11 January 2000 is therefore clearly out of time unless the plaintiff can show that he is relevantly a beneficiary of the Trust entitled to a future interest which has not yet fallen into possession, or which fell into possession after 11 January 1994. 

[25]     It is convenient first to analyse the interests which the plaintiff, as a child of the settlor, has in the Trust.  We will then examine those interests against the legal criteria which the proviso involves.  The plaintiff has three different interests in the trust property.  We are using the word “interest” without prejudice to the legal issues for the moment. 

[26]     His first interest and the one upon which attention seems primarily to have been focussed in the High Court is his interest as a discretionary beneficiary.  That interest is created by the combined effect of clauses 1 and 3 of the trust deed.  Under those clauses the plaintiff has the prospect of receiving distributions of capital and income, but solely in the discretion of the trustees.  We will call this the plaintiff’s discretionary interest.

[27]     The plaintiff’s second interest arises under the second part of clause 3 which directs the trustees to hold the residue of the trust fund at the date of distribution upon trust for the settlor’s children equally, with substitution of grandchildren in the case of any child who does not survive to the date of distribution.  This interest is not discretionary.  It is as of right contingent on survival.  We will call this second interest the plaintiff’s residual interest.

[28]     The third interest which the plaintiff has is created by clause 8, to which at least the first part of clause 3 is made subject.  Notwithstanding any of the preceding provisions of the deed, clause 8 vests the income derived from the trust fund in equal shares in all the beneficiaries in existence during each income year.  Prima facie that clearly vests income equally in all the beneficiaries either as earned or perhaps at the end of each income year.  The former is the literal effect of the words and there is no suggestion elsewhere that vesting is postponed to the end of the income year.  Indeed the qualification of a beneficiary to take a vested interest is existence “during” the income year, which tends to suggest existence at any time during that year. 

[29]     The initial vesting effected by clause 8 must of course accommodate the proviso to that clause.  It provides that if the trustees expressly pay or apply income from the income year to any beneficiary, such payment or application shall take effect “in priority to and in precedence over” the general vesting provisions set out earlier in the clause.  This rather strange way of expressing the matter leaves some difficulty in determining whether the clause 8 interest vests, subject to being divested by a discretionary act of the trustees; or does not vest at all, until it is known what discretionary payments or allocations have been made in or in respect of the income year.  The vesting would then necessarily be only to the extent of whatever income was left over.  Literally read, there is a vesting subject to divesting but it may well be that the preferable construction is the alternative.  It may not matter for present purposes which is the proper construction.  The point is whether under clause 8, which creates what we will call the plaintiff’s income interest, he has an interest which satisfies the proviso to s21(2).

Discretionary interest

[30]     We will examine first the plaintiff’s discretionary interest.  Potter J was undoubtedly correct in concluding that this was not “an interest in the trust property” to which the plaintiff was “entitled”.  On this basis it cannot be a future interest which had not yet fallen into possession.  The simple reason is that it is not an interest within the meaning of the proviso at all.  We agree with Mr Judd QC’s submission on this aspect of the case. 

[31]     Few citations are necessary to support the view that a so-called discretionary interest in trust property does not constitute a legal or equitable interest in that property and thus does not qualify under s21(2) which must be regarded as referring to interests of that kind.  In Hunt v Muollo [2003] 2 NZLR 322, 325 this Court described the position of discretionary beneficiaries in the following way:

[11]     It is generally regarded as settled law that a discretionary beneficiary’s interest in a normal discretionary trust is no more than a mere expectancy. It is simply an expectation or hope (in Latin a spes) that the trustee’s discretion may be exercised in the beneficiary’s favour: see Dal Pont and Chalmers, Equity and Trusts in Australia and New Zealand (2nd ed, 2000) at p 505. The position, as stated, is supported by high authority: see Gartside v Inland Revenue Commissioners [1968] AC 553 at p 607 per Lord Reid and at p 615 per Lord Wilberforce. An ordinary discretionary beneficiary has no interest, legal or equitable, in the assets of the trust: see Queensland Trustees Ltd v Commissioner of Stamp Duties (1952) 88 CLR 54 at pp 62 – 65, Commissioner of Stamp Duties (Queensland) v Livingston [1965] AC 694 (PC) and Pearson v Inland Revenue Commissioners [1981] AC 753 at p 775 per Viscount Dilhorne and at p 786 per Lord Keith of Kinkel. It is only on the making of a distribution to the discretionary beneficiary that the beneficiary obtains any interest in property, and then only to the extent of the distribution.

[32]     In Armitage v Nurse [1998] Ch 24, which was cited in the present case, but not in Hunt v Muollo, Millett LJ (with Hirst and Hutchison LJJ concurring) said at 44 that the interest of a discretionary beneficiary, such as that now under consideration, did not qualify in terms of the United Kingdom exact equivalent to the proviso to s21(2). This was because the discretionary beneficiary was merely the object of a discretionary power or trust which might never be exercised in her favour. A little earlier His Lordship had said that the beneficiary in question had only the right to require the trustees to consider from time to time whether to make payment to her, or accumulate, as was the alternative in that case.

[33]     We respectfully agree that a right of that kind cannot properly be regarded as an “interest” in the trust property, whether present or future, for the purposes of the proviso to s21(2).  We are unable to accept Mr Carter’s submissions to the contrary.  They cannot be reconciled with the authorities mentioned, or indeed with conventional concepts of what amounts to an interest in trust property.  That interest must be either legal or equitable.  It cannot extend to the so-called interest of a discretionary beneficiary which is neither legal nor equitable.

[34]     Mr Carter argued that if Potter J were right, a discretionary beneficiary could never sue for breach of trust unless, fortuitously, the trust was distributed in the beneficiary’s favour within six years of any breach of trust occurring.  That does not follow.  Section 21 of the Act does not prevent a discretionary beneficiary from suing for breach of trust within six years of the occurrence of the breach.  Whether a discretionary beneficiary can do so is a point which is not before us.  To obtain damages for a breach of trust a beneficiary must be able to show some loss of or damage to what the beneficiary was entitled to receive.  The word “entitled”, as used in the proviso, is significant.  Unless there is an entitlement which has been damaged or lost, the beneficiary has suffered no loss.  The problem for a discretionary beneficiary is that he or she has no entitlement to any interest in the trust property.  As Hunt v Muollo clearly demonstrates, the discretionary beneficiary’s “interest” is of a different kind.  And far from supporting Mr Carter’s argument, as he suggested, the decision of the Court of Appeal in Armitage v Nurse, properly analysed, supports Potter J’s conclusion.  Nevertheless a discretionary beneficiary may well be able to bring proceedings to compel proper administration of the trust.  In this respect we note that in Jacobs’ Law of Trusts in Australia (6^th ed, 1997) at para 317 (p 68) the learned authors, Justices Meagher and Gummow, state that although a discretionary beneficiary has no proprietary interest in the trust assets he has sufficient standing to compel proper administration of the trust. 

[35]     Mr Carter submitted that Lewin on Trusts (17^th ed, 2000) at page 1392 also supported his interpretation of Armitage v Nurse.  The authors cite that case as authority for the proposition that:

A beneficiary who will become entitled to income or capital at a given age has a future interest despite the existence of a discretionary power in the trustees to pay it to him or apply it for his benefit in the meantime.

The difficulty with counsel’s argument is that it overlooks the point that on the facts stated the future interest of the beneficiary is the residual one, not the intermediate discretionary one.  Lewin’s statement certainly helps the plaintiff on his residual interest argument but not his present argument which is concerned with his discretionary interest. 

[36]     Mr Carter also cited in support of his discretionary interest argument the following passage from Parker & Mellows, The Modern Law of Trusts (7^th ed, 1998) at 696:

The Court of Appeal has recently had to consider the precise meaning of “future interest” in the context of this proviso in Armitage v. Nurse.  Trustees held income upon trust to accumulate it until the beneficiary in question reached the age of 25 subject to a power to pay it to her or apply it for her benefit.  The Court of Appeal held that while she was under the age of 25 she had a future interest for the purposes of the proviso, rejecting an argument by the trustees that the fact that she was entitled to see the trust documents was sufficient to give her an interest in possession thereunder.  Millett L.J. held that the rationale of the proviso was that a beneficiary “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.  Similar reasoning would apply to exclude a person who is merely the object of a discretionary trust or power which may never be exercised in his favour”.  While it is clearly appropriate that a beneficiary of a fixed trust with a future interest should be able to impeach any breaches of trusts committed since the trust was created when his interest vests in possession, it is superficially rather startling that a discretionary beneficiary or the object of a power to whom no income is appointed until (say) 20 years after the creation of the trust may at that point maintain an action for any breach of trust which has occurred during the previous 20 years.  However, there seems no way of avoiding this conclusion since the wording of the statute provides no obvious means of distinguishing between the two cases.

[37]     Under the trusts in issue in Armitage v Nurse the trustees held the income produced by the trust fund upon trust to accumulate it until the beneficiary Paula attained 25, with a discretionary power to pay it to her or to apply it for her benefit in the meantime. Thereafter, until Paula attained 40, the trustees held the income upon trust to pay it to her. The capital was held in trust for Paula at 40 with trusts over in the event of her death under that age. There was a discretionary power to transfer capital to Paula in instalments after she had attained 25: see Millett LJ at 32.

[38]     In order to address Mr Carter’s argument based on Parker & Mellows, it is desirable to cite the whole of what Millett LJ said on this topic in Armitage v Nurse, despite the fact that the passage is of some length.  We will omit His Lordship’s discussion of what he called the first question, as it is of no present relevance, and pick up the citation at the point where Millett LJ turns to the second question at 44:

The second question is whether Paula had a present interest while she was under the age of 25 or whether she had only a future interest which fell into possession when she attained that age. The judge held that she had merely a future interest. In my judgment, he was right. Until Paula attained 25 the trustees held the trust fund upon trust to accumulate the income with power instead to pay it to Paula or to apply it for her benefit. She had no present right to capital or income but only the right to require the trustees to consider from time to time whether to accumulate the income or to exercise their power to pay or apply it for her benefit. That, in my judgment, is not an interest in possession. Paula was, of course, a beneficiary and as such was entitled to see the trust documents. The respondents submit that this was sufficient to give her an interest in possession within the meaning of the section, and cite Leedale (Inspector of Taxes) v Lewis [1982] 3 All ER 808, [1982] 1 WLR 1319 in support. In my judgment, that case does not assist the respondents. As Lord Wilberforce pointed out ([1982] 3 All ER 808 at 816, [1982] 1 WLR 1319 at 1329):

‘The word “interest” is one of uncertain meaning and it remains to be decided on the terms of the applicable statute which, or possibly what other, meaning the word may bear.’

The statutory language and context in that case compelled the conclusion that an object of a discretionary trust of capital and income had an interest in settled property. A-G v Heywood (1887) 19 QBD 326 was to similar effect. That decision was approved in Gartside v IRC [1968] 1 All ER 121, [1968] AC 553, where, however, a different conclusion was reached because of the different context in which the word ‘interest’ was used.

The meaning of the word must, therefore, be ascertained from the context in which it appears. As the tax cases show, the evident policy of a taxing Act may sometimes make it necessary that an object of a discretionary trust or power should be treated as having an interest and sometimes it may show the contrary. The question thus depends upon identifying the legislative purpose which s 23 of the 1980 Act is intended to achieve.

The respondents submit that the policy to which s 23 of the 1980 Act gives effect is that it would be unfair to bar a plaintiff from bringing a claim unless and until he is of full age and entitled to see the trust documents and so has the means of discovering the injury to his beneficial interest. The difficulty with this argument, in my judgment, is that it proves too much. Every beneficiary is entitled to see the trust accounts, whether his interest is in possession or not. The rationale of s 23 appears to me to be different. It is not that a beneficiary with a future interest has not the means of discovery, but that he 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. Similar reasoning would apply to exclude a person who is merely the object of a discretionary trust or power which may never be exercised in his favour.

[39]     In the light of the precise import of what Millet LJ said, we regard the last part of the passage cited above from Parker & Mellows as problematic.  The Court of Appeal’s decision in Armitage v Nurse does not lead to the conclusion that a discretionary beneficiary to whom income is distributed, may make a claim for a breach of trust which occurred say 20 years before the income distribution took place.  The simple reason is that such a beneficiary is not and never was entitled to anything more by way of income distribution.  The breach of trust cannot therefore have legally damaged the beneficiary’s position as a discretionary beneficiary.  The position of the same beneficiary vis-à-vis accumulations of income not distributed in which the beneficiary has a residual interest is of course a different issue. 

[40]     Millet LJ’s last sentence is difficult.  It draws a contrast with the immediately preceding sentence, seemingly recognising that a person who is merely the object of a discretionary trust is not a beneficiary with a future interest.  That is consistent with what he had said earlier.  He may have had in mind the situation in the case before him in which the discretionary beneficiary had a further interest in the trust fund capable of falling into possession at a future date.  But, standing alone, the sentence suggests that a mere discretionary beneficiary fits the rationale of the proviso.  But he or she does not fit the clear requirement of a future interest in the trust property.  We are unable to accept that this requirement can be construed as extending to a mere discretionary expectation.

[41]     Contrary to what Parker & Mellows suggest, the two cases posited by them are at least potentially distinguishable.  In the one case the beneficiary’s interest has been damaged.  In the second case, involving no appointment of income for 20 years, the breach of trust must logically have taken place during an income year in respect of which the trustees decided not to allocate income to the plaintiff.  The breach may of course have affected the level of income available in subsequent years, but on that premise the beneficiary, if only a discretionary beneficiary as regards income as opposed perhaps to accumulations, does not have a future interest for the purposes of the proviso.  We do not therefore consider that the final part of what Parker & Mellows say is sufficient to support the argument which Mr Carter advanced, contrary as it is to the clear weight of authority as regards discretionary interests.  In our view Potter J was entirely right in her conclusion that the plaintiff’s discretionary interest did not fall within the proviso to s21(2).  To the extent that the plaintiff relied on the contrary argument to overcome the six year limitation, we are satisfied his appeal must fail. 

Residual interest

[42] It will be recalled that this interest derives from the second part of clause 3 (see para [27] above). The plaintiff has a right to a share in the residue of the trust fund contingent on survival to the date of distribution. It seems that this point was not dealt with in any detail in the High Court. All the Judge said about it was at her para [33]:

That a discretionary beneficiary may also be named as a final beneficiary to take if living at the distribution date, does not change the situation.  For whether or not there is anything to ultimately vest in possession in the final beneficiaries depends entirely upon how the trustees choose to exercise their discretion in the intervening period as is demonstrated in the case of the Trust.  Distribution of the Trust’s assets and winding up of the Trust prior to the distribution date (again a matter entirely within the discretion of the trustees), means that there is no interest for final beneficiaries at the distribution date.

[43]     Mr Carter argued that the Judge was in error in this approach.  He submitted that despite the fact that the trustees might pay out all the income and capital to the discretionary beneficiaries before the date of distribution, there should be no distinction between “a beneficiary who will become entitled to income or capital at a given age” and “a beneficiary who will become entitled to a share of the trust fund on the date of distribution”.  In the first case the beneficiary may not live to the specified age.  In the second case the beneficiary may not be alive at the date of distribution.

[44]     Mr Judd presented argument broadly in support of the Judge’s approach.  Specifically he submitted that there was no future interest because there was no guarantee there would be anything left.  The trustees could either make a final distribution and wind up the trust without distributing to the plaintiff, or they could use their discretionary powers to distribute all of the trust property to others.  It is desirable to recall the key issue.  It is whether what we are calling the plaintiff’s residual interest is a future interest in the trust property to which the plaintiff is entitled but which has not yet fallen into possession.  That question can conveniently be approached in three steps, matching its three parts. 

[45]     The first question is whether the plaintiff’s residual interest amounts to a future interest in the trust property.  The answer to that must be in the affirmative.  The plaintiff has an interest in the trust property.  The fact that it is contingent on survival to the date of distribution and on there being trust property available for distribution at that time does not prevent it from being an interest:  see Re Pauling’s Settlement Trusts, cited at para [66] below, and the passage from Lewin cited in paragraph [35] above. We recognise it is not clear in the example given by Lewin whether vesting in interest is postponed to the given age or only vesting in possession. It is of course the postponement of possession until the date of distribution, inherent in either situation, which makes the interest a future interest for the purposes of the proviso.

[46]     In general terms future interests, ie. those which have not yet fallen into possession, can be of three kinds:  (1) interests which are indefeasibly vested but of which possession is postponed to let in an intermediate interest; (2) interests which are vested subject to divesting in favour of a substitute interest; and (3) interests which are contingent.  It is unnecessary, for present purposes, to discuss the subtle distinctions which can arise in this area of the law.  They include whether a condition to which an interest is subject is a condition precedent (which makes the interest contingent), or a condition subsequent (which makes the interest vested subject to divesting).  Reference can be made generally to Williams on Wills (7^th ed, 1995) at 790ff, the chapter on vesting; and to Garrow and Alston’s Law of Wills and Administration (5^th ed, 1984) at 379ff, the chapter on vested and contingent gifts. 

[47]     The question in the present case concerns the proper meaning of the expression “future interest” in the proviso to s21(2) of the Act.  The future interest, of which the proviso speaks, is one in respect of which, ex hypothesi, possession, ie. enjoyment is delayed.  Once the interest falls into possession time starts running.  Interests which are indefeasibly vested or are vested subject to divesting but of which in each case possession is deferred, must qualify as future interests for the purposes of the proviso.  The only viable issue, albeit the argument did not focus sharply on the point, is whether contingent interests are future interests.  A contingent interest is one in respect of which both vesting and possession depend upon whether the contingency is or is not fulfilled.  The element of futurity is implicit in the contingency.  It would be highly anomalous if the question whether such an interest as this was or was not a future interest for the purposes of the proviso depended upon whether the contingency was fulfilled.  If that were the case no-one would know whether the interest qualified as a future interest until it was known whether the contingency had been fulfilled.

[48]     It would be equally unsatisfactory if a beneficiary’s ability to invoke the proviso depended upon the subtleties surrounding the issue whether an interest is contingent or not.  Those subtleties involve questions such as whether the gift is truly conditional and, if so, whether the condition is precedent or subsequent.  The purpose of the proviso is to defer the obligation to sue for breach of trust until the interest which the beneficiary has falls into possession and is then of tangible benefit.  It hardly matters against that rationale whether the interest is vested subject to divesting, absolutely vested with possession delayed, or contingent.  In all cases there is a contingency as to whether possession will be enjoyed.  Even with an absolutely vested interest, of which possession is delayed, the beneficiary may not live to enjoy possession.  In that event the interest falls into the beneficiary’s estate.  The key to the proviso is the fact that possession is deferred.  Time starts running only when an interest which is capable of falling into possession as of right, does fall into possession.  The potential for the beneficiary in question never to acquire possession is inherent in the structure and purpose of the proviso.  It should not matter upon what analytical basis possession is deferred.

[49]     The proper interpretation of the expression “future interest” for the purposes of the proviso must recognise the vital importance of the context, as Millett LJ emphasised in Armitage v Nurse.  In the present context, and for the reasons discussed, a future interest is simply an interest of which the beneficiary may enjoy possession as of right at a future time.  The limitation period for suing in respect of damage caused to such an interest by a breach of trust does not start running vis-à-vis the beneficiary in question, until, in the case of contingent interests, the contingency upon which possession depends is fulfilled.  If it is not fulfilled that beneficiary’s interest will have suffered no actual harm from the breach of trust, because the beneficiary never enjoys it in possession.  The crucial difference between contingent and vested interests on the one hand and discretionary interests on the other is that possession of the former interests, if enjoyed at all, is enjoyed as of right; whereas discretionary interests are never enjoyed as of right; their enjoyment is always subject to the discretion of the trustees.

[50]     The position of a beneficiary who is the subject of a gift over, ie. here the settlor’s grandchildren, does not need discussion for present purposes except to say that such a beneficiary must logically be a beneficiary with a future interest in the trust property which has not yet fallen into possession if that is the case with the prior beneficiary.  For the reasons given that is so even though the grandchild’s interest is contingent on his or her parent not surviving to the date of distribution and on there being trust property available for distribution at that time.

[51]     The next logical question, and our second step, is to ask whether the plaintiff is “entitled” to the future interest for the purposes of the proviso.  The concept of entitlement must match the meaning of a future interest.  It signifies an interest of which the beneficiary may enjoy possession as of right in the future.  The plaintiff in respect of his residual interest is certainly entitled to a future interest in that sense.

[52]     The third question concerns the subject of falling into possession.  The future interest to which a plaintiff as beneficiary is entitled must be such that it has either not yet fallen into possession or it fell into possession within the six year period preceding the commencement of the proceeding.  In the present case the plaintiff’s residual interest has either not yet fallen into possession or it fell into possession within the six year period.  We will elaborate on these alternatives. 

[53]     For that purpose it is appropriate to examine further the concept of the date of distribution.  The first and primary meaning of that expression in the trust deed, is as defined in clause 2, namely the 80^th anniversary of the date on which the deed was signed.  That makes the date of distribution 18 December 2047.  No doubt this 80 year date, although not so expressed, was selected as being the maximum period allowed by the Perpetuities Act 1964 (see s6).  The interests which the children of the settlor have as at the 80 year date are obviously future interests.  It is necessary, however to bring into play clause 1, which directs the trustees to stand possessed of the trust fund until the date of distribution as defined, or until earlier distribution by the trustees to the beneficiaries.  That provision clearly implies a power to distribute the whole of the Trust fund prior to 18 December 2047, and thereby effectively advance the date of distribution.  Awkwardly, however, the definition of the date of distribution does not expressly include such advanced date. 

[54]     The question which arises is how the prima facie futurity of the plaintiff’s residual interest measures up against the de facto advancement of the date of distribution which the trustees claim to have occurred.  There is understandably no suggestion in the fourth amended statement of claim that the date of distribution has been advanced by the trustees so as to make the date on which de facto final distribution took place equivalent to the defined date of distribution.  Nor is there any such express allegation in the statement of defence.  The point could be comprehended in the general plea in that document that the plaintiff’s action is statute barred by virtue of the provisions of the Limitation Act 1950.  Paragraph 29 of the statement of defence to the fourth amended statement of claim pleads the Act in this broad and loose way.

[55]     There are no relevant findings on the point in Potter J’s judgment, no doubt because the point was not raised in front of her in a way which required such findings.  It will be recalled that the Judge’s only reference to this topic was her comment (see para [42] above) that distribution prior to the distribution date meant that there was no interest for what she called the final beneficiaries at the distribution date.  That way of putting the matter clearly suggests that the Judge was of the view that a discretionary distribution prior to the distribution date did not have the effect of advancing that date as defined.  Neither counsel in this Court argued in express terms, or even implicitly, that a discretionary full distribution prior to the defined distribution date had the effect of substituting the date of such de facto final distribution for the distribution date as defined. 

[56]     It does not matter for limitation purposes which is the correct approach.  The last financial statements for the Trust, namely those for the year ended 31 March 1996, show total Trust funds of $20,957, made up of capital of $17,461 and retained earnings of $3,496.  In the notes to these financial statements, under a heading “Cessation of Operation”, is the statement that these “were the final financial statements of the Trust”.  We do not need to examine transactions which occurred after 31 March 1996.  It is sufficient to draw attention to the fact that the documents in evidence include a resolution of trustees dated 13 July 1999 to the effect that, in accordance with clause 3 of the Trust deed, final distributions in the sums of $3,588, $3,588 and $3,590 be made from capital to the three beneficiaries (including the plaintiff) there named. 

[57]     It is quite clear from the material mentioned that as at the six year date, ie. 11 January 1994, the Trust was still in operation and the trustees were still possessed of trust property.  Indeed trust property remained in their hands until 13 July 1999, when the final capital distributions were made.  The point is that, whichever is the correct analysis of the date of distribution, the plaintiff’s residual interest did not fall into possession, if at all, until 13 July 1999 at the earliest.  That is the key point; it is not appropriate for present purposes to adopt the approach suggested by Mr Judd of ascribing to the plaintiff separate interests in respect of separate items of trust property. 

[58]     If one assumes that time started running against the plaintiff for the purposes of s21(2) on 13 July 1999, the plaintiff commenced his proceeding some six months thereafter, well within the six years allowed.  There is no basis on which it can be said that the plaintiff’s residual interest, if it has fallen into possession at all, did so prior to 11 January 1994.

[59]     The consequence of the foregoing discussion is that, subject to the point inherent in the Judge’s approach, the plaintiff has commenced his proceeding within time.  It should perhaps be added for completeness that the plaintiff’s authority to sue for breach of trust does not depend on the interest falling into possession.  That event simply starts time running for the purposes of s21(2).  He may sue before time starts running.  The deemed accrual of his cause of action is a deemed accrual only for limitation purposes. 

[60]     The point raised by the Judge’s approach is whether the fact that there is no longer any trust property in existence following the so-called winding up of the trust, makes any difference to the plaintiff’s ability to invoke the proviso.  The first thing to note about this aspect of the case is that whether a beneficiary has a future interest for the purposes of the proviso should be examined without reference to the actual state or amount of the trust property.  For the purposes of the proviso the expression “the trust property” is an abstract rather than a concrete concept.  Unless this were so the proviso would be defeated when it was most needed; for example if the trustees had, by breach of trust, lost the whole of the trust property so that there was no trust property in existence at the time the application of the proviso came in issue. 

[61]     As Millett LJ said in Armitage v Nurse the rationale for the proviso is that beneficiaries should not have to sue unless and until their interest falls into possession and can be tangibly enjoyed.  If at that point a beneficiary’s interest would have been worth a substantial sum had the trustees not committed breaches of trust, they, the trustees, can hardly be heard to say that the proviso cannot be invoked because there is now no trust property, or what there was has been fully distributed.  It might be objected that there is an element of circularity in this approach, because it will not be known whether breaches of trust have been committed unless the proceeding can be brought.  Nevertheless in the light of the statutory purpose of the proviso, it would be even more unsatisfactory to allow trustees to rely on the absence of any actual trust property to prevent a beneficiary, who might enjoy as of right an interest in possession if there were trust property, from taking proceedings to establish that fact.

[62]     One also has to contemplate a situation where some trust property exists but it would have been significantly greater in amount if there had been no breach of trust.  It would be illogical to take the view that the proviso can be invoked if, for example, the trust property comprises $10 when it should have comprised $100,000 had there been no breaches of trust; but cannot be invoked if there is no trust property, when there should have been trust property worth $100,000.  Discretionary distributions so as to reduce the trust property to nothing (whether accompanied by formal winding up or not) cannot affect a beneficiary’s claim that had there been no breaches of trust there would have been additional property in which he, at least contingently, was entitled to share.

[63]     For those reasons we do not regard the so-called winding up of the trust and the distribution of the then residue of the trust property to the residual beneficiaries as a ground upon which the plaintiff is disentitled from relying on the proviso.  He should be allowed to bring proceedings in an attempt to show that his future interest in the trust property has been harmed to the extent of his proportionate interest in whatever property (or its value) would have existed had the trustees not committed the breaches of trust alleged against them.  Notwithstanding the so-called winding up, the plaintiff must be entitled to pursue this line of reasoning in respect of breaches alleged to have occurred within the six year period.  It would, in our view, defeat the legislative purpose of the proviso if he were not allowed to do so in respect of breaches occurring outside the six year period.

Income interest

[64]     It remains to examine the plaintiff’s income interest under clause 8 of the trust deed (see paras [28] and [29] above).  As there indicated, the plaintiff’s clause 8 interest is either vested subject to divesting, or contingent upon there being income which has not been distributed on a discretionary basis.  On either footing, for the reasons already given, the plaintiff has a future interest in income which has not yet fallen into possession, at least as regards future income years.  If, by breaches of trust, the trustees have diminished the extent or value of the trust property, the plaintiff’s future interest has, contingently at least, been harmed.  It must therefore follow that he has a right to sue by dint of the proviso, and is not barred by s21(2) from doing so.  This is a further or alternative basis upon which the plaintiff’s claim is not statute barred. 

[65]     We should add both in relation to the present point and the residual interest issue that the respondents’ argument did not address whether a beneficiary with only a contingent interest in the trust property could or could not sue for breach of trust.  As it happens that stance was not inappropriate.  The concept of a future interest as employed in the proviso does include a contingent interest.

[66]     Only one authority need be cited on this point.  It is the decision of Wilberforce J in Re Pauling’s Settlement Trusts [1962] 1 WLR 86 at 115. His decision was affirmed on exactly the same basis by the Court of Appeal: see [1964] Ch 303, 353. Pauling’s case involved a marriage settlement under which the children of the marriage were entitled to capital following the satisfaction of their mother’s life interest.  In order to qualify as a capital beneficiary, each child had to attain the age of 21 or marry under that age.  In the proceedings the children alleged that the trust estate had been diminished by various breaches of trust.  The trustees pleaded the equivalent of our s21(2).  The children invoked the proviso.  Wilberforce J dealt with this point at 115 saying:

I must now deal with certain special defences.  (1) The Limitation Act, 1939. The relevant provision is, of course, s 19(2), and the whole question is whether the plaintiffs’ rights are preserved by the proviso. In my judgment, they are. Undoubtedly they had “a future interest” and, in my judgment, that interest did not fall into possession when the bank by an, ex hypothesi, invalid advance raised a sum of money out of the capital. Mrs Young husband’s consent to the advance was not, in my view, equivalent to a release of her life interest, and the only way (without a release) in which a capital sum could fall into possession would be by means of a valid advance. This defence, in my judgment, fails.

[67]     As noted, this case involved an interest in the trust estate which was contingent on the beneficiaries attaining the age of 21 or marrying under that age.  Both Wilberforce J and the Court of Appeal had no difficulty in holding that such an interest was a “future interest” for the purposes of an identical statutory provision to the one in issue in the present case.  The analogy with the present case is compelling.  Here, the plaintiff’s residual interests are contingent upon his being alive at the date of distribution, or during the income year in question.  They are just as much future interests, until they fall into possession, as was the interest of the children in Pauling’s case.  Incidentally the use by Wilberforce J of the expression “ex hypothesi” suggests that he was mindful of the circularity issue which we have mentioned in para [61] above, but regarded it as appropriate to deal with the limitation point on the basis that the plaintiffs would be able to establish the breaches of trust they alleged. 

Second cause of action (breach of fiduciary duty)

[68]     The principal issue in relation to this cause of action was whether the plaintiff’s equitable claim for breach of fiduciary duty was barred by analogy with s21(2) of the Limitation Act.  As it is an equitable claim, the Limitation Act does not apply directly to the claim for breach of fiduciary duty.  But s4(9) of the Act preserves the ability of the Courts to apply to any claim for equitable relief an analogous time bar corresponding to one provided for in the Act.  Broadly speaking the basis for doing so is that the equitable claim is sufficiently analogous to the statute barred claim to make it inequitable to allow it to proceed. 

[69]     The leading case on the doctrine of limitation by analogy is Knox v Gye (1872) LR 5 HL 656. Lord Westbury said at 674:

[W]here the remedy in Equity is correspondent to the remedy at Law, and the latter is subject to a limit in point in time by the Statute of Limitations, the Court of Equity acts by analogy to the statute, and imposes on the remedy it affords the same limitation. 

The doctrine only applies, of course, if there is no specific statutory limitation on the equitable cause of action.  It is generally referred to as an example of equity following the law.

[70]     The subject was examined by the High Court in Matai Industries Ltd v Jensen [1989] 1 NZLR 525 (Tipping J), and briefly by this Court in P F Sugrue Ltd v Attorney-General [2004] 1 NZLR 207 at paragraph [70]. The matter does not require close or detailed examination in the present case, in the light of the fact that we have already determined that the plaintiff’s claim for breach of trust is not barred by s21(2) because it is saved by the proviso. As the first cause of action is not statute barred, the second cannot logically be barred by analogy with it. That really concludes the matter but as the point was the subject of argument, and for completeness we will examine, albeit more briefly, whether the circumstances of the present case would have supported the suggested limitation by analogy if the first cause of action had been statute barred.

[71]     After examining a number of authorities and texts on the subject of limitation by analogy, Potter J held that the breach of fiduciary duty cause of action should be struck out “by analogy pursuant to s4(9) of the Act” unless rescued by s28, a subject which it is unnecessary for us to address.  The Judge did not closely compare the ingredients of the two causes of action nor were we invited to embark on such an exercise in this Court.  Some analysis is, however, necessary before examining the legal position a little further.  There is in the present context an immediate and obvious difference between the two causes of action which should be identified at the outset.  What effect it may have on the legal position will be considered below.

[72]     In the first cause of action Mr L R Johns is sued in his capacity as a trustee of the Trust.  In the second cause of action he is sued, not as a trustee, but as a shareholder and director of J&L Ltd.  The plaintiff alleges that in those capacities his father owed him certain fiduciary duties.  The allegations of breach of trust and breach of fiduciary duty are made in paras [14] and [21] respectively of the fourth amended statement of claim:  see paras [13] and [19] above.  In simplified form the allegations of breach of trust are that:

1.Mr L R Johns actively co-operated in selling the assets of J&L Ltd to J K Ltd at less than fair value. 

2.Mr L R Johns allowed J K Ltd to lease the Crum Avenue property at less than fair market rental.

3.Mr L R Johns failed to ensure that Jola paid fair market rental for the Frost Road premises. 

[73]     In similarly simplified form the allegations of breach of fiduciary duty are that:

1.Mr L R Johns failed to obtain an adequate valuation of the assets (including goodwill) of the business of J&L Ltd when they were sold to J K Ltd.

2.Mr L R Johns allowed J K Ltd to take over the manufacturing assets of J&L Ltd at substantially less than their full value, thereby causing a diminution in the value of the shares of J&L Ltd owned by the Trust.

3.Mr L R Johns failed to ensure that J K Ltd paid a fair market rental for the Crum Avenue property.

4.Mr L R Johns failed to ensure that Jola paid a fair market rental for the Frost Road premises, thereby obtaining Mr John Laughland’s agreement to the sale and purchase and share transactions in issue.

5.Mr L R Johns obtained the Trust’s agreement to sell its share of the Crum Avenue property in breach of the terms of the Trust deed and for less than its current market value.  (The relevant events occurred in 1995 so this allegation cannot be barred because it concerns events within the six year period.)

[74]     Breach of trust allegation 1 and breach of fiduciary duty allegations 1 and 2 amount effectively to the same thing (leaving aside for the moment the different capacities in which Mr L R Johns is sued).  All three allegations claim that Mr L R Johns participated in selling the assets of J&L Ltd to J K Ltd too cheaply.  Breach of trust allegation 2 and breach of fiduciary duty allegation 3 are identical, namely of participating in leasing Crum Avenue at less than a fair market value.  Breach of trust allegation 3 and breach of fiduciary allegation 4 are similarly identical.  They allege participation in leasing the Frost Road premises to Jola at less than fair market rental.  Breach of fiduciary duty allegation 5 can be put to one side as not time barred in any event.  The legal issues can therefore be approached on the basis that Mr L R Johns is sued for essentially the same alleged defaults both as breaches of trust and as breaches of fiduciary duty. 

[75]     As noted above, it is common ground between the parties that the doctrine of limitation by analogy is preserved by s4(9) of the Act which is in the following terms:

4        Limitation of actions of contract and tort, and certain other actions

(9)       This section shall not apply to any claim for specific performance of a contract or for an injunction or for other equitable relief, except in so far as any provision thereof may be applied by the Court by analogy in like manner as the corresponding enactment repealed or amended by this Act, or ceasing to have effect by virtue of this Act, has heretofore been applied.

[76]     The whole subject of limitation by analogy is helpfully reviewed by the authors of Equity and Trusts in New Zealand (General editor Andrew Butler - published in 2003):  see chapter 35.1.3.  We shall refer to this work hereafter as “Butler”.  Examples found in the case law are given and discussed by the authors.  They contrast the approach in New Zealand with that taken in Canada.  They suggest that the “more reticent approach” taken by the Supreme Court of Canada is to be preferred.  This is not the occasion to survey the whole field or to come to any final conclusions as to the differences in approach suggested and, to the extent that the differences are material, which is the ultimately preferable approach to take.  We add here that there is also a helpful review of the topic and an up-to-date discussion of a number of Australian and English cases in Meagher Gummow & Lehane’s Equity – Doctrines and Remedies (4^th ed, 2002) at chapter 34, p1009ff.

[77]     Butler notes that in Matai Industries Ltd v Jensen [1989] 1 NZLR 525 the High Court approached the matter primarily by reviewing the allegations in the statement of claim. The authors note that the Judge held that as the negligence claim was statute barred, so too should be the equitable claims on the basis that “the degree of correspondence” (cf Lord Westbury in Knox v Gye) between the allegations was such that it would be “highly inequitable if the statutory bar could be circumvented simply because essentially the same case was pleaded as an equitable cause of action as well negligence at common law”. 

[78]     The authors suggest that in Matai Industries the Court approached the matter without any particularly detailed comparison of the respective heads of liability, to see whether a negligence claim which was barred did contain within it elements of breach of fiduciary duty.  As it happens both claims in the present case (breach of trust and breach of fiduciary duty) are equitable in nature and origin.  The issue arises because the former is subject to a statutory limitation whereas the latter is not.  In principle, however, the question whether there should be limitation by analogy is the same.  The equitable bar by analogy depends on a corresponding claim being statute barred rather than on the historical origin of the allegedly corresponding claim.  What matters is that the corresponding claim, whatever its origin, is statute barred.  The analogy is with the statute, rather than with the common law as such.  It is the statute not the common law which creates the bar; albeit most statute barred claims are of common law origin. 

[79]     In S v G [1995] 3 NZLR 681 (CA) the plaintiff was suing a medical practitioner for several sexual assaults. She had pleaded as causes of action trespass to the person, negligence and breach of fiduciary duty. The Court of Appeal, in a judgment delivered by Gault J, held that as the first two causes of action were statute barred, the breach of fiduciary duty claim should be barred by analogy. This was on the basis that “the pleaded claims are really alternatives in respect of essentially the same conduct”. But the Court also observed that the obligations imposed on a fiduciary depended on the particular relationship involved and might be very different from obligations in contract and in tort. Butler suggests that the Court thereby left the door open to the possibility of a fiduciary claim surviving, notwithstanding the barring of a common law claim.

[80]     That way of putting the matter, understandable as it was in the particular context, tends, with respect, to look at the issue from the wrong end.  The fiduciary claim will always prima facie survive the statutory barring of an allied common law or indeed equitable claim.  There will be a bar by analogy only when the fiduciary claim parallels the statute barred claim so closely that it would be inequitable to allow the statutory bar to be outflanked by the fiduciary claim.  In order to determine how close the parallel is the Court must examine not only the underlying facts but also the nature of the relationship between the parties and the policy and purpose of the different causes of action.  If there is a sufficient difference in any material respect, the suggested parallel is unlikely to be close enough to make it appropriate in equity to apply an analogous bar. 

[81]     This, we think, is the point Butler is making at 31.1.3(4)(c), (d) and (e) (pp 966-967) by reference to the decision of Paterson J in Simpson v Elliott (unreported 14/3/01, High Court Auckland, CP54/99) and the decision of the Supreme Court of Canada in KM v HM (1992) 96 DLR (4^th) 289. The judgments in Matai Industries and S v G should not be read as suggesting that the issue can be concluded solely by reference to the degree of concurrence of the factual allegations.  That of course must be the first focus because, if there is no sufficient degree of concurrence in that respect, the suggested analogy is likely to fail at that point.  If, however, there is factual concurrence in the sense that the different causes of action are simply different ways of putting the same factual complaint, and there are no policy or other reasons militating against it, the case for an analogous bar is likely to have been made out.

[82]     In view of the close correspondence of the factual ingredients of the causes of action in the present case, two further issues must be examined to determine whether the bar by analogy would have applied if the first cause of action had been statute barred.  The first concerns whether there are any policy or allied differences between the two causes of action that might suggest there should be no bar by analogy, despite their close factual correspondence.  The second issue concerns the different relationships between the parties deriving from the different capacities in which Mr L R Johns is being sued.  In policy terms it is not easy to discern any material difference between a breach of trust and a breach of fiduciary duty based on the same or very similar factual allegations.  If, for example, Mr Johns in his capacity as trustee had been sued, both for breach of trust and for breach of fiduciary duty in relation to the same factual complaints, the case would have been a strong one for applying an analogous bar.  The statutory policy inherent in s21(2) of the Act, whereby claims for breach of trust are barred after six years, could hardly not apply to a claim for breach of fiduciary duty based on the same facts.  There would also in that situation be no material difference in the two relationships.

[83]     The question therefore ultimately comes down in the present case, to the significance of the different capacities in which Mr Johns is sued.   On the assumption we are making, Mr Johns, in his capacity as trustee, has the benefit of the statutory limitation provided by s21(2).  Should he, on that same assumption, have the benefit of the same limitation in his capacity as a director and shareholder of J&L Ltd?  Do the duties which he, ex hypothesi, owes the plaintiff in those capacities have sufficient concurrence with the duties which he owes the plaintiff as a trustee of the Trust?  For the present strike-out purposes one must assume that the plaintiff will be able to establish that his father owed him the pleaded fiduciary duties in the two capacities alleged.  That assumption may not of course be borne out after examination. 

[84]     For the purposes of this discussion the plaintiff is being treated as statute barred in relation to his claims for breach of trust.  But he says that so far as his claims for breach of fiduciary duty are concerned, there is no statute bar and his father is being sued in materially different capacities.  There should therefore be no equitable bar by analogy.  In response Mr Johns says, in effect, that it would be inequitable if the different capacities in which he is sued made all the difference when, in substance, the complaints are exactly the same.  The trust and reliance concepts in relation to the duties of a trustee are much the same as those which relate to the duties of a fiduciary.  Mr Johns says that even if he does owe the alleged duties qua director and shareholder, the plaintiff cannot say he trusted or relied on him in some materially different way in those capacities as against the reliance which he placed on him in his capacity as a trustee of the trust. 

[85]     The point is far from easy.  There is very close factual correspondence.  The purpose of the two causes of action, in broad terms, is much the same.  Their hallmark is trust and reliance.  In the end, however, we consider the different capacities would have made it inappropriate to apply any bar by analogy.  That difference would have introduced a material distinction from the point of view of the relationships between the parties.  The duties of Mr L R Johns as trustee do not necessarily so closely correspond with his duties, such as they may be, as shareholder and director to have made it inequitable if his son, the plaintiff, were able to avoid the (assumed) statutory bar on the breach of trust cause of action.  The absence of an analogous bar would not of course have meant that the equitable claim would necessarily have survived against a plea of laches. 

Conclusion

[86]     As the plaintiff’s first cause of action is not statute barred for the reasons given in the first part of this judgment, the second cause of action cannot, as noted earlier, be barred by analogy.  There was no other basis upon which it was said to be barred.  The consequence is that the appeal must be allowed.  We make an order to this effect, set aside the orders made by Potter J and dismiss the strike out application made in the High Court.  The respondents are to pay the appellant for his costs in this court $6,000 plus disbursements, including the reasonable travel and accommodation expenses of counsel, to be fixed if necessary by the Registrar.  Costs in the High Court are to be determined in that Court in the light of the outcome of the appeal.

Solicitors:
Haigh Lyon, Auckland for Appellant
Anthony R Thomas, Auckland for Respondents