Dixon Coles & Gill (a former firm) v The Rt Rev. Nicholas Baines, Bishop of Leeds
| Jurisdiction | England & Wales |
| Judge | Sir Timothy Lloyd,Lady Justice Nicola Davies,Lady Justice Asplin |
| Judgment Date | 20 July 2021 |
| Neutral Citation | [2021] EWCA Civ 1097 |
| Court | Court of Appeal (Civil Division) |
| Docket Number | Case No: A3/2021/0068 |
[2021] EWCA Civ 1097
IN THE COURT OF APPEAL (CIVIL DIVISION)
ON APPEAL FROM THE HIGH COURT OF JUSTICE
BUSINESS AND PROPERTY COURTS OF ENGLAND & WALES IN LEEDS
HIS HONOUR JUDGE SAFFMAN
Royal Courts of Justice
Strand, London, WC2A 2LL
Lady Justice Asplin DBE
Lady Justice Nicola Davies DBE
and
Sir Timothy Lloyd
Case No: A3/2021/0068
Thomas Dumont QC (instructed by Browne Jacobson LLP) for the Appellant
David Halpern QC (instructed by Lupton Fawcett LLP) for the Respondents
Hearing date: 8 July 2021
Approved Judgment
Introduction
This appeal is from an order of His Honour Judge Saffman sitting in the High Court in Leeds, made on 1 December 2020. The proceedings are brought by former clients against solicitors who acted for them in the past. One of the partners stole money held in the firm's client account on behalf of the claimants. The other two partners were entirely innocent of, and in no way implicated in, the frauds. Some of the losses sued for arose from transactions more than six years before the commencement of the proceedings. The issue on the appeal is whether the innocent partners, who are otherwise undoubtedly liable for the clients' losses, can rely on a limitation defence in respect of those transactions, under section 21 of the Limitation Act 1980. The judge held that they could not, on the basis that they were to be regarded as party or privy to the dishonest partner's fraudulent breaches of trust, but he gave permission to appeal. His judgment can be found at [2020] EWHC 2809 (Ch). Other issues were argued before him; the passage relevant to this issue is paragraphs 124 to 144.
Having had the benefit of fuller argument than was before the judge, it seems to me that the judge was wrong on this point. For the reasons which I set out below, I have come to the conclusion that the innocent partners in the present case are able to rely on a six-year limitation period, and I would therefore allow the appeal.
The essential facts
Dixon Coles & Gill was a long-established and well-respected firm of solicitors in Wakefield. In 2015 there were three partners in the firm: Mrs Linda Box, Mr Julian Gill and Mrs Julia Wilding. Among the firm's clients had been the Diocese of Wakefield which, following a reorganisation, was absorbed into the Diocese of Leeds. Mrs Box had been the diocesan registrar for many years up to 2005 when she became the Chancellor of the diocese of Southwell and Nottingham. In general it is not necessary in this judgment to distinguish between the dioceses of Wakefield and of Leeds and I will use the label the Diocese to refer to whichever is relevant or to both, as the case may be, and to both the Bishop and the Diocesan Board of Finance of each diocese.
The firm acted for the Diocese in many conveyancing transactions over the years, and for other clients. On Christmas Eve 2015 Mr Gill discovered that Mrs Box had made unauthorised payments from the firm's client account. It turned out that she had been doing so for years, and had misappropriated sums into millions of pounds held on behalf of the Diocese and other clients. She was expelled from the partnership in January 2016, and was reported to the police and to the Solicitors' Regulatory Authority. She pleaded guilty to offences of dishonesty and was sentenced to a term of imprisonment and struck off as a solicitor.
The firm was obliged to close in January 2016, and the remaining partners, Mr Gill and Mrs Wilding, face claims by the Diocese and by other clients who seek compensation for the loss of the misapplied funds. I will refer to the partnership as it stood at any material time as “the Firm”, and to Mr Gill and Mrs Wilding, the surviving partners after Mrs Box's expulsion, as DCG.
In these proceedings the Diocese claims against DCG and Mrs Box an account (on the basis of wilful default) of the Firm's dealings with all moneys, investments and assets possessed or received by the Firm or by Mrs Box as trustees for the Diocese, and other related remedies. The Firm is alleged to be liable for Mrs Box's wrongs under sections 10 or 11 (or both) of the Partnership Act 1890, the wrongs having been committed in the ordinary course of the business of the Firm and with the Firm's apparent authority deriving from Mrs Box's position as a partner in the Firm.
The Claim Form was issued on 25 September 2018. In their Defence DCG plead that the Diocese's claims against them are statute-barred insofar as they arose more than six years before the issue of the Claim Form.
In October 2019 the Diocese applied for summary judgment against DCG for an order for an account and other relief. That application came on for hearing before HH Judge Saffman, together with another application concerning an issue not material to this appeal. He gave judgment on 28 October 2020 and by his order dated 1 December 2020 he ordered an account against DCG, with the transactions to which the limitation issue is relevant to be included in the account.
Four conveyancing transactions are affected by the issue on this appeal, concerning properties referred to as Headfield School, Ackworth Glebe, St Peter's Car Park, and 2 Kirkgate Lane, South Hiendley. The judge discussed these at paragraphs 155 to 162 in the context of the Diocese's claim for an interim payment. The sums received by the Firm in respect of these seem to have amounted to some £942,000, though about £150,000 of that is accepted to have been received by the Diocese. There are or may be issues about quantum, depending on the details of what happened to the money, but otherwise DCG are liable for these sums subject to the limitation defence.
The nature of the claim
The essential basis of the Diocese's claim is that each of the three partners in the Firm was a trustee of the money held in the client account, and each is therefore liable as trustee to account for what has happened to the money held in that account on behalf of the Diocese. Mrs Box was guilty of fraudulent breaches of trust in taking the money for her own benefit. DCG are liable for breach of trust even though it is accepted that they themselves were innocent, not having any knowledge of or involvement in the frauds. The trusteeship arose in the context of the partnership, but the Defendants are sued as trustees, rather than as partners as such. The trusts affecting the money in the client account arose because of the partnership context, and the same considerations would apply to any partnership which holds money on behalf of clients. Much of the argument before us, as before the judge, concerned partnership law, and that is certainly part of the context, but it is to be borne in mind that the claim is against trustees, alleging breach of trust on their part. The breach of trust was fraudulent on the part of Mrs Box and was innocent, but still a breach of trust, on the part of DCG. It is not necessary for the Diocese to allege that Mrs Box was fraudulent in order to make either her or DCG liable for the breaches of trust. Fraud has to come in on the pleadings in order to defeat a claim to rely on the Limitation Act, and potentially to rely on fraudulent concealment so as to delay the start of the six-year period if it does apply.
Partnership law
Although the Defendants are sued as trustees rather than as partners, it is necessary to consider the relevant provisions of the Partnership Act 1890 because of the way in which the case was argued. These are as follows:
“9. Every partner in a firm is liable jointly with the other partners … for all debts and obligations of the firm incurred while he is a partner.
10. Where, by any wrongful act or omission of any partner acting in the ordinary course of the business of the firm, or with the authority of his co-partners, loss or injury is caused to any person not being a partner in the firm, or any penalty is incurred, the firm is liable therefor to the same extent as the partner so acting or omitting to act.
11. In the following cases; namely—
(a) Where one partner acting within the scope of his apparent authority receives the money or property of a third person and misapplies it; and
(b) Where a firm in the course of its business receives money or property of a third person, and the money or property so received is misapplied by one or more of the partners while it is in the custody of the firm;
the firm is liable to make good the loss.
12. Every partner is liable jointly with his co-partners and also severally for everything for which the firm while he is a partner therein becomes liable under either of the two last preceding sections.
13. If a partner, being a trustee, improperly employs trust-property in the business or on the account of the partnership, no other partner is liable for the trust property to the persons beneficially interested therein:
Provided as follows:-
(1) This section shall not affect any liability incurred by any partner by reason of his having notice of a breach of trust; and
(2) Nothing in this section shall prevent trust money from being followed and recovered from the firm if still in its possession or under its control.”
The relevant transactions were within the ordinary course of the business of the Firm, so there would be no doubt about the liability of the Firm in principle to make good the loss under section 11, and DCG would be liable jointly and severally for the appropriate sums under section 12.
Lord Millett explained the structure and effect of these provisions in his speech in Dubai Aluminium Co Ltd v Salaam [2003] 2 AC 366 at paragraph 110:
“Section 9 is not concerned with the liability of the firm at all but with the liability of...
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