Royal National Lifeboat Institution & Ors v Headley & Anor

This is my judgment on an application made by claim form under Part 8 of the CPR by the five claimants, who are all charities. They claim as five of the ten (charitable) remaindermen under the trusts of the will dated 10 August 1993 of Evelyn Irene Farmer, who died on 12 January 1996. Their interests are absolute in remainder expectant on the dropping of two lives, those of the son and daughter in law of the testatrix. The son is now dead. The daughter in law is, so far as is known, still alive. The claimants’ interests have accordingly not yet fallen into possession.

The named defendants to the claim are the two executors of the will, who were solicitors in the firm of Headleys. They obtained probate on 1 March 1996, at which time the net estate did not exceed £145,000. They subsequently fully administered the estate. Some accounts were provided to some of the remaindermen in 2007. Thereafter, there was correspondence between the solicitors for the remaindermen and the executors, seeking further and better information. This was not however provided. Unfortunately, however, by the time the claim was issued, on 2 February 2016, and unknown to the Claimants, the First Defendant had already died, on 11 November 2015. Accordingly, by virtue of CPR r 19.8(3)(b), the claim as against the First Defendant must be treated as a claim against his estate.

The claim as sought in the claim form is one for an order under CPR Part 64, that the Defendants

“provide the claimants with proper particulars and accounts of (i) the property comprising the trust estate and (ii) the income, expenditure and distributions of the trust, in each case for the period since 1 October 2007,”

as well as costs and other appropriate relief. It is supported by a witness statement of Alice Rose Vale, a solicitor in Wilsons Solicitors LLP (“Wilsons”), the firm acting for the Claimants. This statement is unchallenged. No evidence has been filed by or on behalf of the surviving trustee, the Second Defendant. Indeed, despite the fact that the Second Defendant is a solicitor, and letters have been written to his firm, Headleys, quite extraordinarily there has not even been an acknowledgment of service on his behalf.

The evidence shows that on 10 December 2007 Headleys wrote on behalf of the Defendants (the trustees) to the Claimants enclosing an interim account for 2007 up to September that year. They said they would revert with information on the investment portfolio when they had received a response from the trustees’ financial adviser. However, no further information has ever been provided, despite requests.

Wilsons were instructed in February 2014, and they wrote to Headleys on 18 March 2014 and 17 April 2014, without any response. Ms Vale contacted the Second Defendant by telephone, who said he would forward the requested information to her within about two weeks. A letter in June 2014 from Headleys explained that the accountant needed further information before completing the accounts. Wilsons wrote again in August, but merely received a holding letter to say that the Second Defendant was on holiday.

In March 2015 Wilsons sent a letter of claim to Headleys. There was no response. Wilsons wrote again in May 2015. There was again no reply. Ms Vale once more telephoned the Second Defendant, who explained that there was a problem with the accounts but that they would be sent within a fortnight. In June 2015 Ms Vale left numerous messages with Headleys for the Second Defendant to call her. Finally he called to say that he had received the accounts and had dictated a letter to her, which should arrive within a couple of days. No letter arrived. Ms Vale telephoned again in July and August, but without success. In November 2015 she wrote to Headleys enclosing draft proceedings, and threatening to issue proceedings if there was no response. There was none. As already stated, the claim form was finally issued on 2 February 2016.

The claimants only became aware of the death of the First Defendant after the proceedings had been issued and served. Certificates of service show that on 8^th February 2016 the proceedings were posted out to both defendants, the First Defendant at his home and the Second at the offices of Headleys. Having heard nothing from the First Defendant, Wilsons wrote again to him at his home address on 18 April 2016, enclosing a notice of hearing of the claim. The First Defendant’s widow, Mrs Headley, telephoned Wilsons to explain that her husband had died the previous November, and that all previous correspondence had gone to Headleys. She confirmed this in a letter to Wilsons dated 2 May 2016, which also enclosed a certified copy of the First Defendant’s death certificate.

On 24 June 2016 Wilsons issued an application for the First Defendant’s name to be removed from the proceedings and for consequential amendments to the claim form, and costs. It was supported by a second witness statement of Ms Vale, also dated 24 June 2016.

At the hearing of both the application and the claim, on 4 July 2016, Mathew Roper of counsel appeared for the Claimants. The Second Defendant was neither present nor represented. The Claimants applied for an order that the name of the First Defendant be removed from the proceedings. The Claimants argued that, the First Defendant being survived by his co-trustee, the obligation to provide trust information devolved upon that co-trustee, the Second Defendant. In any event all the trust documentation and other information appeared to be in the Second Defendant’s hands. There was therefore no need for the First Defendant’s estate to be a party. I accepted this argument, and made the order sought accordingly.

On the substantive issue, the Claimants argued that it was the duty of trustees to be ready with their accounts. Prima facie beneficiaries had the right to production of accounts. The Claimants referred to what Millett LJ said in Armitage v Nurse [1998] Ch 241, 261, CA:

“Every beneficiary is entitled to see the trust accounts, whether his interest is in possession or not.”

There is some danger of misunderstanding here. When the books and cases talk about beneficiaries’ “entitlement to accounts” or to trustees being “ready with their accounts” they are not generally referring to annual financial statements such as limited companies and others carrying on business (and indeed some large trusts) commonly produce in the form of balance sheets and profit and loss accounts, usually through accountants, and – in the case of limited companies – file at Companies House. Instead they are referring to the very notion of accounting itself. Trustees must be ready to account to their beneficiaries for what they have done with the trust assets. This may be done with formal financial statements, or with less formal documents, or indeed none at all. It is no answer for trustees to say that formal financial statements have not yet been produced by the trustees’ accountants.

What Millett LJ meant in Armitage v Nurse was that every beneficiary, whether in possession or in reversion, was entitled to an accounting, and to see the documents which justified this. And this is obviously right. But his statement has to be seen in the context of that case. There, there was an argument about limitation, and in particular about the construction of s 21(3) of the Trustee Act 1925. Under this provision a right of action was not treated for limitation purposes as having accrued to a beneficiary with a future interest until that interest had fallen into possession.

The argument put forward was that the policy behind s 21(3) was explained by the rule that a reversionary beneficiary was not entitled to any accounting until his interest fell into possession, so the beneficiary would not know whether he had a claim or not before his interest fell into possession. Millett LJ denied that that was the explanation for the provision, because every beneficiary was entitled to an accounting and to see the documents in support of it. But what Millett LJ did not deal with – as it did not arise in that case – was what kind of accounting, and in relation to what, different classes of beneficiary were entitled to. That is the question in this case.

The right to an accounting, and to see trust documents as part of it, is an aspect of the court’s inherent jurisdiction to supervise and if appropriate intervene in the administration of a trust: see Schmidt v Rosewood Trust Ltd [2003] 2 AC 709, PC. The Claimants relied on this case for the proposition that, save in exceptional circumstances, trust accounts and other documents must be disclosed to all beneficiaries on demand, because the Court’s jurisdiction would be so exercised. Again, I do not think that it necessarily follows that all such documents must be disclosed to all beneficiaries. It must depend on what is needed in the circumstances for the beneficiaries to appreciate, verify and if need be vindicate their own rights against the trustees in respect of the administration of the trust. That will vary according to the facts of the case.

As I have already said, the Claimants seek from the Second Defendant disclosure of “proper particulars and accounts of (i) the property comprising the trust estate and (ii) the income, expenditure and distributions of the trust” since 1 October 2007 (emphasis supplied). At the hearing I questioned the width of the disclosure sought, on the basis that the Claimants’ entitlement was only to capital on the death of the life tenants, one of whom was still alive. There was therefore no entitlement in the Claimants to income that had accrued and been paid out up to now. Accordingly, as it seemed to me, there was no entitlement to information about income, because that concerned only the life tenants.

At the hearing I specifically referred to the decision of Hoffmann J at first instance on this question, in the case of Nestle v National Westminster Bank, (1988) 10 Tru LI 112, [2000] WTLR 795, which was later taken to appeal (and affirmed) on other points: see [1993] 1 WLR 1260. Counsel had not come prepared to discuss this case, or to argue this point. (This is not a criticism; it might be thought a somewhat recondite point.) Accordingly, at the end of the hearing, I invited counsel to submit a Note on the legal basis for ordering the Second Defendant to provide the trust accounts and other information sought. Counsel did indeed produce such a Note, dated 7 July 2016, which I received the next day.

Counsel had by this time had an opportunity to consider the decision of Hoffmann J, and specifically referred to it in the Note. In that case, the plaintiff was the remainder beneficiary under the will trust of her grandfather, who died in 1922. The trust fund was then worth about £50,000. The last outstanding life interest under the trust was that of her father John, who died in 1986. Thereafter she was absolutely entitled to the trust fund, by that time worth some £269, 203. The plaintiff complained that, after adjusting the 1922 value for changes in the retail prices index to date, it should have been worth about £1 million. She further said that, if adjusted for increases in the ordinary shares index on the stock market, that part of the fund which her grandfather had invested in ordinary shares would have been worth over £1.8 million. She attributed the fact that it was not worth so much to breach of trust on the part of the bank trustee in both misinterpreting the trust investment clause and investing badly.

Almost at the end of his judgment, after dealing with the main arguments for the plaintiff, and dismissing them, the judge said this:

“There was a claim by Miss Nestle for income accounts for the funds since their inception. For the period during which any income might have accrued to capital, namely until John Nestle turned 25 in 1938, those accounts were delivered a long time ago. In respect of the period since that date she has as a capital beneficiary no interest in the disposal of the income and is not in my judgment entitled to accounts.”

In the present case the complication which arose in Nestle from the accumulation of income to capital does not arise, as here the will created two life interests for adult beneficiaries, with no power to accumulate the income to capital. Counsel says this of the Nestle case:

“In that case, the Plaintiff’s request for income accounts was refused because she was a capital beneficiary. Hoffman J did not however find that the Plaintiff had been barred from obtaining capital accounts until her remainder interest vested in possession, nor is there any obiter dictum to that extent. The Claimants also emphasise that the Plaintiff had been provided with extensive capital accounts while her interest was vested in interest.”

I accept that what Hoffmann J says in the passage that I have cited is only about income accounts. He was not concerned there with entitlement to capital accounts, let alone with preventing the Plaintiff from obtaining capital accounts until her interest vested in possession. But that was my point in raising the matter at the hearing. What the Claimants seek in the Claim Form is not just accounts of the trust estate (ie the capital), which I do not question, but also of the income, expenditure and distributions of and from the trust fund, which (at least in part) I do.

Counsel referred to the statement of principle in Underhill & Hayton’s Law of Trusts and Trustees, 19^th ed 2015, para 56.3:

“As Millett LJ also stated, ‘Every beneficiary is entitled to see the trust accounts, whether his interest is in possession or not’, so that he has the means to discover whether there has been a breach of trust which can be remedied. Thus, beneficiaries with a life interest or an interest in remainder, whether in income or in capital and whether vested or contingent, have accounting rights, as do beneficiaries under discretionary trusts and also (in principle) objects of a fiduciary power of appointment.”

Counsel says it would “be unjust to make the Claimants wait until their interests vest in possession to receive accounts and information, by which time their remedies and means of enforcement against the defendants could be limited or extinguished.” I agree, and until I read this submission in the Note I did not think that I had suggested otherwise. To make clear: I see no objection in principle to the Claimants obtaining an accounting now as to the capital in which they are interested as remaindermen. So far as expenses and distributions are concerned, the accounting to the Claimants as to capital will obviously show what capital expenses and what capital distributions (if any) have been made. The Claimants will be able to complain now of any breach of trust that affects their (capital) future interests.

However, Millett LJ in Armitage v Nurse did not say that all beneficiaries are entitled to all the same information and to see all the same documents. The editors of Underhill & Hayton say that all beneficiaries have accounting rights, but not that those rights are always the same for all beneficiaries.

My concern was and is that I do not see any basis for the Claimants’ having an accounting at this stage as to the income accrued or paid to the income beneficiaries, one of whom, indeed, is still alive and presumably receiving it. The same applies to expenses being charged to income. If the Defendants do not pay the income to the life tenants, only they and not the Claimants can complain about it. Therefore the Claimants do not need this information in order to protect their interests. This is what Hoffmann J decided at first instance in Nestle v National Westminster Bank. Once the second life drops, of course, the Claimants will also be entitled to the income accruing thereafter, and will be entitled to an accounting of everything, capital and income, for the future.

Counsel referred in his Note to three cases as “examples of remainder beneficiaries obtaining an order for disclosure of accounts and information while a prior interest subsisted”. These cases were Re Tillott [1892] 1 Ch 86, Re Dartnall [1895] 1 Ch 474, CA, and Re Cowin (1886) 33 ChD 179. As I have already made clear, there is in my judgment no objection in principle to disclosure to a remainderman during the subsistence of a prior interest. My concern was a different one. I therefore need not go through these cases.

But I will mention Re Tillott [1892] 1 Ch 86 for a different reason. In that case the plaintiff was entitled under a will trust to a one twelfth share in the capital of the residue, contingently on the death of his mother, who was a life tenant. The residue included Bank of England Consols. He had already obtained from the court an order that the defendant will trustee write to the Bank of England authorising it to inform the plaintiff of the amount of such Consols and to produce all the documents relating to property in which the plaintiff was interested. He now sought an order that the defendant trustee authorise the Bank to inform him of any incumbrances on that property, such as charging orders or stop notices. The trustee objected, on the grounds that the plaintiff might thereby obtain information as to the dealings of other contingently entitled remaindermen with their own shares.

Chitty J held that the plaintiff was entitled to have the further information sought, so that he would know whether the fund in which he was interested was incumbered or not. As to the argument of the trustee, Chitty J added that:

“this may give the Plaintiff more information than he is entitled to ask, because as there are twelve shares in this fund, it may be that there are several distringases of the fund obtained by persons who have charges on the continent interest of the other persons, and it is clear that the trustee is not bound to give the cestui que trust of one share any information as to the dealings of the other cestui que trust in whose share he has no interest, shewing whether those shares are or are not incumbranced.”

The statement that one capital beneficiary had no right to information about what other capital beneficiaries had done with their shares of course supports the view of Hoffmann J that a person with an interest in capital had no right to accounts of income because she had “no interest in the disposal of the income”. As it happens, the judge did not specifically mention the fact that the plaintiff had only an interest in remainder after a life interest, but he must surely have been aware of it.

It is clear from counsel’s Note that, on the basis of the decision of Hoffmann J, the Claimants no longer seek accounts of past and present income. They now seek the following:

In my judgment the Claimants are entitled to categories a. and b. as sought. They are entitled to category c. as part of category a., but only so far as the trustees seek to deduct such fees and expenditure from trust capital. And in taking an account of capital they will be entitled to see supporting documents and vouchers. As to category d., there are two separate points. First, the Claimants will see the expenses sought to be allocated to capital as part of category c. As at present advised I do not see why it is any concern of the Claimants if the trustees seek to allocate any of their expenses to income rather than capital. That concerns only the income beneficiary. Second, the Claimants will see capital receipts flowing from sales as part of categories a. and b. If any of the capital assets is shown as being disposed of without a capital receipt the Claimants will be able to ask why.

The information in categories e. and f. is of a different quality. That in category e. concerns the constitutive trust documents, which must include instruments of retirement and appointment of trustees. Since the Claimants are admitted beneficiaries of the will trust they should be able, in the absence of special circumstances, both to see such documents (see O’Rourke v Darbishire [1920] AC 581, HL), and to obtain confirmation that the Second Defendant is the current sole trustee, or one of several trustees or a former trustee (in the latter two cases disclosing the identity of those appointed by him): see Murphy v Murphy [1999] 1 WLR 282. As to category f., the trustees of a life interest trust with minor remaindermen are obliged in principle to inform such remaindermen of their rights when they come of age: see Burrows v Walls (1855) 5 De GM&G 233, 253; Brittlebank v Goodwin (1868) LR 5 Eq 545, 550. By extension of reasoning it must be their obligation to inform remaindermen, if they do not already know it, that their interests have now fallen into possession.

I turn to the question of costs. There are two applications by the Claimants for costs. The first relates to the application to remove the First Defendant from the proceedings. The second relates to the claim itself. As to the former, the application is put on the basis that so far as the Claimants knew, both defendants remained trustees of the will trust, and, had the Second Defendant responded to the pre-action letter in November 2015, threatening proceedings, by informing the Claimants that the First Defendant had died, the Claimants would not have included the First Defendant in them, and it would have been unnecessary to apply for an order removing him and his estate. In my judgment, this application is made out, and I will order that the Second Defendant pay the Claimants’ costs of the application. I will deal below with the question of the Second Defendant’s indemnity against the trust estate for liabilities incurred.

I turn now to the question of the Claimants’ costs of the claim itself. Although there has undoubtedly been a breach of duty by the Defendants in failing to provide information to beneficiaries, such a failure does not necessarily justify an adverse costs order: see Blades v Isaacs [2016] EWHC 601 (Ch). However, here there has been a long and egregious refusal to engage at all with the Claimants. That refusal was, so far as I can see, quite unwarranted.

In Re Skinner [1904] 1 Ch 289, a beneficiary of a will trust brought an action for an account, having had little or no accounting from the executors and trustees (one a professional solicitor, entitled to charge) since the testator died more than two years before the action was commenced. The court made a full administration order, and the question whether the executor trustees should pay the costs was reserved. After subsequently hearing argument, Farwell J held that the plaintiff was entitled to her costs.

The judge said:

“The gist of the complaints against the defendants … is that they would not, and did not, render any proper accounts, though repeatedly requested to do so by the plaintiff and by … their co-executor. Now it is clear that in the case of a small estate like this it is very hard that the plaintiff should be obliged to have recourse to proceedings of this nature in order to get an account. I am always unwilling to make trustees pay costs; but, on the other hand, beneficiaries have a right to expect the performance of their duty by executors, and not the less when one of them has power to make professional charges. In my opinion the conduct of these two defendants amounts to a gross neglect to account. In Heugh v Scard Sir George Jessel laid down the rule thus:

‘It is a matter of some importance that executors and trustees should understand my rule on the subject of costs. The question of costs being discretionary, it is impossible to lay down a rule binding on any other branch of the Court. But it is, nevertheless, well that executors and trustees should understand what I think to be the proper rule. In certain cases of mere neglect or refusal to furnish accounts, when the neglect is very gross or the refusal wholly indefensible, I reserve to myself the right of making the executor or trustee pay the costs of litigation caused by his neglect or refusal.’

Now this present case does appear to me to be one where the neglect was very gross and the refusal wholly unreasonable. The judge before whom the matter originally came reserved the costs down to and including the hearing to be dealt with for further consideration, and on that reservation I now have no hesitation in saying that they ought to be paid by the defendants…”

It my judgment the Claimants’ case here is at least as strong as the plaintiff’s case in Re Skinner. I do not think that the fact that the Claimants originally asked for disclosure in relation to income and I have refused it makes any real difference. The Defendants did not give any of the disclosure to which the Claimants were properly entitled. The income disclosure was only a small part of what they sought. Taking all the circumstances into account, it is right that the Second Defendant should pay the Claimants’ costs. I was not asked to make the costs order on other than the standard basis, and accordingly that is what I do.

However, the Claimants further ask me to order in effect that the Second Defendant should lose the right of indemnity that he would otherwise enjoy under both the general trust law (Trustee Act 2000, s 31(1)) and the CPR (Rule 46.3 and PD 46, para 1). This is sought in relation to the application and in relation to the claim, and both for the Second Defendant’s own legal costs (if any) and also for the costs which I will order him to pay to the Claimants. The argument is based on what is said to be his unreasonable conduct.

CPR rule 46.3 provides:

“(1)

This rule applies where –

(a)

a person is or has been a party to any proceedings in the capacity of trustee or personal representative; and

(b)

rule 44.5 does not apply [this concerns costs payable under a contract, and does not apply here].

(2)

The general rule is that that person is entitled to be paid the costs of those proceedings, insofar as they are not recovered from or paid by any other person, out of the relevant trust fund or estate.

(3)

Where that person is entitled to be paid any of those costs out of the fund or estate, those costs will be assessed on the indemnity basis.”

Practice Direction 46 para 1 provides:

“1.1

A trustee or personal representative is entitled to an indemnity out of the relevant trust fund or estate for costs properly incurred. Whether costs were properly incurred depends on all the circumstances of the case including whether the trustee or personal representative (‘the trustee’) – 

(a)

obtained directions from the court before bringing or defending the proceedings;

(b)

acted in the interests of the fund or estate or in substance for a benefit other than that of the estate, including the trustee's own; and

(c)

acted in some way unreasonably in bringing or defending, or in the conduct of, the proceedings.

1.2

The trustee is not to be taken to have acted for a benefit other than that of the fund by reason only that the trustee has defended a claim in which relief is sought against the trustee personally.”

In my judgment, notwithstanding the lack of participation or explanation on behalf of the Defendants, it is clear that the Second Defendant in failing to account to the Claimants over so many years acted for a benefit other than that of the estate, and in failing to take part in these proceedings at all acted unreasonably. I have no hesitation in saying that any costs incurred by the Second Defendant in the context of these proceedings, including the costs which I have ordered him to pay to the Claimants, were not ‘properly incurred’ within s 31(1) and CPR rule PD46 para 1.1, and hence he is not entitled to be reimbursed out of the trust fund in respect of them.

I have been asked by the Claimants to assess their costs summarily. This case involved a hearing which did not last more than one day and (with the aid of a written Note from counsel after the hearing) disposed of the claim. In my judgment it falls within para 9(2)(b) of the Practice Direction to CPR Part 44. I will therefore assess the costs summarily.

As to the costs of the application, the total costs claimed on the costs statement of 30 June 2016 are £711 profit costs, £250 for counsel and court fees of £100, making £1060 (plus VAT of £190.30). The solicitor rates claimed are significantly above the guidelines for the Grade A fee-earner (£270 against £217), and above the guidelines for the Grade C fee-earner (£175 against £161). I bear in mind that these are only Guidelines, and that they were last adjusted in 2010. But I also bear in mind that price and wage inflation since 2010 have been historically low. The application was not in any way demanding, and there would be no justification for a premium. I therefore consider that the profit costs claimed should be reduced to £500, with counsel’s fee and the court fee making £850, plus VAT of £150 (on solicitors’ and counsel’s fees only), totalling £1000.

As to the costs of the claim other than the application, the total claimed was as follows: £6679 profit costs, £1250 for counsel, court fees of £480 and a train fare to court of £45.80, making £8454.80 (plus VAT of £1585.80). I make the same points regarding rates claimed. There were also Grade D fee-earners involved, but the rates claimed for them are either less than or only slightly above the Guidelines, so I will leave those out of account. I bear in mind that, especially given the lack of participation by the defendants, this was a case concerning a small estate (not exceeding £145,000), and was not a particularly difficult case in law or in fact to prepare or present. The witness evidence was relatively short and straightforward and (as it happens) unchallenged. Since there was no opposition, there was no need for solicitor attendance at the hearing. In these circumstances, I think that profit costs of £6679 are excessive. I will allow £5000. I will also disallow the train fare, but allow the other disbursements. That makes £6730, plus VAT of £1250 (on solicitors’ and counsel’s fees only), a total of £7980.

I invite counsel for the Claimants to submit for approval an appropriate form of order to give effect to this judgment.