Constructive Trusts and Limitation Periods in Malaysia

Abstract

Malaysia, as a former British colony, has inherited much of its trusts law from the English. One notoriously difficult area of law is constructive trusts. Precisely when and why constructive trusts arise are fundamental but imperfectly understood matters. This is unfortunate, because the lack of understanding might, in practice, be critically relevant for the determination of liability. To illustrate, consider the ongoing infamous ‘1MDB’ saga. 1MDB was a government-run strategic development company (allegedly) utilized by the former Prime Minister of Malaysia, Najib Razak, and many others (including his aide, Jho Low) to siphon money to their personal and company accounts. The key events of the highly complex fraudulent scheme took place over a six-year period, leaving behind a long money trail which crossed multiple jurisdictional borders and involved numerous shell companies, international banks, investment companies, and even Hollywood celebrities. While the Malaysian government has focused its efforts on the criminal liability of those allegedly involved, little attention has thus far been paid to the potential private law liabilities, either of those directly breaching trusts or fiduciary duties, or those receiving proceeds of those breaches. These claims would likely be pursued as a matter of course, for example by the liquidators or new directors of 1MDB. At that stage the law of constructive trusts would be crucial for the determination of liability.

One of the first practical hurdles would be the question of limitation: are the constructive trust claims time-barred? As with the law of constructive trusts, the law of limitation in Malaysia is closely modelled on English law. Here, again, the interactions between Malaysian and English law throw up interest but difficult issues of law. This article considers those interactions in the particular context of the applicable limitation periods to constructive trusts claims in Malaysia, to evaluate and assess how English jurisprudence and local developments have shaped the law.