Court of Appeal endorses purposive approach to limitation in claims against directors
On 6 February 2026 the Court of Appeal handed down Judgment in South Bank Hotel Management Co Ltd v Galliard Hotels Ltd [2026] EWCA Civ 56, holding that claims for breaches of a director’s duties fell within s.21(1)(b) Limitation Act 1980 (“LA 80”).
S.21(1)(b) LA80 provides that no limitation period applies to claims brought by a beneficiary against a trustee “to recover from the trustee trust property or the proceeds of trust property in the possession of the trustee, or previously received by the trustee and converted to his use.” Directors are treated as trustees for these purposes.
In the present case, South Bank was the beneficiary of a trust in respect of the freehold interest in land. South Bank alleged that in breach of his duties, its director caused a Lease to be granted from that freehold to a company he controlled – leaving the freehold a “husk”.
The Respondents argued that s.21(1)(b) LA 80 was not engaged because (amongst other things): (i) South Bank retained the freehold that was the subject of the trust so there could be no conversion; (ii) nor could South Bank be seeking to recover property it still retained ; and (iii) the conversion was not to the director’s use as he was not the majority shareholder in the company to which the Lease was granted.
Newey LJ conducted a detailed analysis of the scope and purpose of s.21(1)(b) and rejected each of these arguments. In particular he held that: (i) there was a conversion because the legal state of the trust property had been changed – there had been “a taking of [South Bank’s] property in defiance of the company’s rights of ownership of it”; (ii) a claim for compensation in respect of the loss of rights in the annex was a claim to “recover” trust property, as “recover” was apt to cover a claim for equitable compensation; and (iv) a minority shareholding coupled with control over the receiving company was sufficient to establish that conversion was to the defaulting director’s “use” – Newey LJ expressly left open whether a minority shareholding alone would be sufficient.
The decision reinforces the purposive approach to s.21(1)(b) and clarifies the breadth of circumstances in which s.21(1)(b) LA80 will apply to defaulting directors where they have derived some benefit from company property.
South Bank also succeeded on two other aspects of its appeal relating to (i) continuing breaches of contract; and (ii) the meaning of “good faith” within s.44 Companies Act 2006.
The judgment can be found here.
Saaman Pourghadiri, led by James Willan KC of Essex Court Chambers, was instructed by South Bank by Nick Ractliff and Caitlin Ferguson of PCB Byrne LLP.
