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IN THE HIGH COURT OF JUSTICE
IN THE MATTER OF THE N E HENCHLEY TRUST AND THE W C C HENCHLEY TRUST
||Royal Courts of Justice
Rolls Building, 7 Rolls Buildings
Fetter Lane, London EC4A 1NL
B e f o r e :
CHIEF MASTER MARSH
|| (1) CLAIRE HENCHLEY
(2) ELIZABETH ANNE BAXENDALE
(3) VIVIEN MASH
(4) NATASHA JADE KHAMBHAITA
(5) TORI BRITTANY KHAMBHAITA
(6) CHARLES MARTIN MASH
(7) NICHOLAS JOHN MASH
(8) JAMES HENCHLEY MASH
(9) CAROLINE ELIZABETH BEDDALL
||- and -
||DAVID BRIAN THOMPSON
Richard Wilson QC and James Weale (instructed by Withers LLP) for the Claimants
Elspeth Talbot Rice QC and Andrew Holden (instructed by Carter-Ruck Solicitors) for the Defendant
Hearing date: 5 December 2016
HTML VERSION OF JUDGMENT
Crown Copyright ©
CHIEF MASTER MARSH:
- The Claimants are the beneficiaries of two trusts created by the late WCC Henchley dated 1 September 1960 and 12 September 1960. He died in 1972. By this claim the Claimants seek an order directing the Defendant to provide a full account of his dealings with the assets of the two trusts as a trustee or as a de facto trustee. I have used the latter description of the role he is said to have performed, if he had not been properly appointed as a trustee, in preference to describing him as a trustee de son tort. Both descriptions are opaque but, as Lord Millett remarked in Dubai Aluminium v Salaam  2 AC 366 [at 138], it is preferable to substitute dog Latin for bastard French.
- Mr Henchley was married twice and had children by both marriages. He had two children by his first marriage to Vera, named Patricia and Vivien. Patricia is married to the Defendant. By his second marriage to Nancy, Mr Henchley had four children, Julian, Elizabeth, Claire and Alexander. Vivien, Elizabeth and Claire together with Vivien and Claire's children are the Claimants. I will refer to them throughout this judgment, where necessary, using their given names. By doing so, of course, I intend no disrespect. It is merely a convenient shorthand.
- The NE Henchley Trust ("The Henchley Trust") was settled by a deed dated 1 September 1960. It provided for the trust's assets to be held for Nancy, the settlors' wife, for her life and thereafter for the settlors' children. The two principal clauses of the settlement provided as follows:
"1 THE Trustees shall hold the property upon trust that the Trustees shall with consent in writing of the Settlor during his life and after his death with the consent in writing of the wife during the remainder of her life or until her remarriage and after the death of the survivor or on their remarriage of the wife at the discretion of the Trustees sell the same at such time or times as the Trustees shall think proper so that they shall have full power to postpone the sale of all or any part thereof without being responsible for any loss which may result therefrom.
2 The Trustees shall hold the net proceeds of sale and any other monies applicable as capital and the net rents and profits until sale on trust for the wife during her life or until her remarriage and after her death or remarriage upon trust for the children of the Settlor then living if more than one equal shares absolutely and if any child shall then have died leaving issue him or her surviving such issue shall the share in the trust fund which his or their parent would have taken if he or she had been living and if more than one in equal shares absolutely."
- The principal asset of this settlement was initially a property known as Greyfriars, Cockfosters Road, Enfield. Greyfriars was sold and a property known as San Michele was purchased. That property was sold and 395 Cockfosters Road, Whaddon Lodge was purchased and it remains within The Henchley Trust and is where Nancy resides. It is clear there was at one time other assets held in The Henchley Trust. There is evidence of trust bank accounts and a modest portfolio of investments was referred to in a deed dated 20 November 1972. Under that deed Nancy purported to exercise a power of appointment to appoint the Defendant as a new trustee to The Henchley Trust. The appointment was treated as valid by all concerned until 1998. On 27 October 1998, Eversheds, stating they were writing on behalf of "members of the Henchley family", wrote to the Defendant to say that the deed was invalid. The Defendant executed a deed describing himself as the "purported trustee" and reciting that the deed of appointment was invalid. The deed made provision for him to retire as a trustee in so far as he was validly appointed. However, title to 395 Cockfosters Road remained registered in the Defendant's name until April 2011. On 11 March 2013 Patricia, Julian and Alexander executed a deed of confirmation by which, amongst other things, they assigned their reversionary interests to Elizabeth, Vivien and Claire and other beneficiaries assigned their contingent reversionary interests to them. This deed tidied up a number of previous efforts to achieve that objective, including an agreement made on 5 February 1991.
- The second settlement is the WCC Henchley Trust ("The Childrens' Trust") which was created by the settlor on 12 September 1960. The settlement deed has not survived but there is no dispute about the terms of the trust because its terms were referred to in a letter from Julian to the Defendant dated 9 December 1991. In summary:
i). The assets of the trust were to be divided into two parts.
ii). Julian and Alexander were entitled to the capital of one such half outright upon reaching the age of twenty-one.
iii). As to the other half, Elizabeth, Vivien and Claire were entitled to an equal share of the income for their lifetime. Thereafter, their children and their children's children would be entitled to that income pending the dissolution of the trust twenty-five years after the death of "Prince Edward".
- Mr Henchley's will made no provision for his children on the express basis that they were already provided for under the terms of The Childrens' Trust and the will records that Mr Henchley had settled as trust assets his shares in Fullers Studios Limited, Renoir Litho Limited, Renoir Display Limited and Tru-Tone Photo Litho Limited ("the Companies"). These were all family businesses which were run by Mr Henchley up to his death.
- Although no document evidencing the Defendant's appointment as a trustee of The Childrens' Trust in 1972 following Mr Henchley's death, it appears he was so appointed. The Defendant was also appointed a director of the Companies. In any event, there is no real doubt that he performed the role of a trustee of The Childrens' Trust until at least the early 1990's.
- It is also clear in relation to The Henchley Trust that Doris Watson and Walter Martin were validly appointed as trustees of that trust. Mr Martin died on 26 February 1996 and Ms Watson died on 3 March 2003. Such documents as there are suggest they were also trustees of The Childrens' Trust along with the Defendant.
- In any event, even if the Defendant was not properly appointed as a trustee of the two trusts, he acted as a de facto trustee for lengthy periods. There is the possibility that Nancy was a trustee of The Childrens' Trust at one time. The evidence for this is, however, slight.
- The Defendant is now aged eighty. During the 1970's he and Harry Solomon founded Hillsdown Holdings which was floated on the London Stock Exchange in 1985. He retired from the board of Hillsdown Holdings PLC in 1989 at the age of fifty-three and sold the balance of his shares which yielded several hundred million pounds. He has created a charitable trust and has been a sole donor of assets to that trust which has given away over £20,000,000 to registered charities and has an endowment of over £110,000,000 to give away in the future.
- The Defendant says he was asked to assist Nancy following the death of Mr Henchley because he was an experienced businessman. Nancy was a director of the businesses owned by The Childrens' Trust and the Defendant was asked to take a role advising those businesses. The extent to which the Defendant played an active role in relation to those businesses and The Childrens' Trust (and indeed The Henchley Trust) is a matter which is in dispute.
- There are a considerable number of disputed issues of fact relating to both trusts. The disposal hearing of the Part 8 claim took place without any evidence being tested by way of cross-examination and it would not be right for the court to draw conclusions where there are issues in dispute save in the few instances where the documents provide an unequivocal answer or the answer is otherwise entirely plain. I also remark that the way in which the evidence has emerged is not entirely satisfactory. Claire, the first Claimant, made a witness statement in support of the application which provides a summary of the relevant background but it did not exhibit all the documents in her possession that are relevant to the trusts. The Defendant provided what can fairly be described as a forthright witness statement in response which was then met with a further statement from Claire challenging some of the assertions he made and producing further documents which cast doubt on his account of events. The Defendant made a statement dealing with the additional evidence in which he recorded his disquiet about the approach adopted by Claire on behalf of the Claimants. It will be necessary in this judgment to refer to the evidence in some detail but I record at this stage that I do not regard either the tone or some of the language adopted, particularly by the Defendant, to have been helpful.
- Put shortly, the Claimant's case is that the Defendant was either an actual or de facto trustee of both trusts and the Claimants are to entitled, as of right, to an order that the Defendant provides an account relating to both trusts regardless of whether or not there has been any wrongdoing, or indeed any suspicion of wrongdoing. Although it is not, or should not be, controversial, an account provided by a trustee should not be confused with accounts in the conventional sense as the term is applied to business accounts. They are related, and may even be first cousins, but there are distinct differences. I will return to this subject later in this judgment.
- The Defendant's response to the application, put shortly, is that:
i). He has already provided an account of his dealings with the trusts.
ii). It is impossible to provide more information, or to provide detailed accounts, and he should not be ordered to do so.
iii). Any claim to substantive relief in relation to his conduct as a trustee is statute barred in the case of The Childrens' Trust and and/or will be defeated by laches.
iv). It would, in any event, be inequitable to order him to produce an account for the trusts for a number of reasons including:
a. The substantial delay between the end of the Defendant's limited role in relation to the trusts and the request for an account;
b. The receipt by Elizabeth, Vivien and Claire of what are described as "audited accounts" for The Childrens' Trust in 1991;
c. The parties apparently agreed a settlement in 1991 by which Patricia, Julian and Alexander released their interests in The Henchley Trust in favour of Elizabeth, Vivien and Claire;
d. The Childrens' Trust appears to have been wound up in 1996 some 20 years ago;
e. The Claimant's conduct in bringing the claim is a factor to be taken into account by the court when deciding whether to exercise its discretion to make an order for an account.
- There is no dispute that a de facto trustee is subject to the same duties as an actual trustee see Lewin on Trusts 19th edition 42-101 and Lord Esher MR in Soar v Ashwell  2QB 390 at 394.
- Equally, there is no issue between the parties that a trustee has an obligation to account to the beneficiaries. The core obligations of a trustee are summarised by G Thomas and A Hudson in the Law of Trusts 2nd edition at 10.146 as follows:
"The absolute minimum that a trustee must do if there is to be a trust is that he must (1) at least hold and safeguard the trust property, (2) provide information to the beneficiaries concerning the terms of the trust, so that they are in a position to check that the trusts are being carried out, and (3) keep accurate and reliable accounts and records of his custodianship to prove that the trusts are observed. Accountability of the trustees to the beneficiaries is one of the fundamental defining features of the trust; the trustee cannot be allowed to treat the trust property as his own; he cannot be relieved of his duty to explain his custodianship; and the beneficiary cannot be deprived of the information he needs to check on, and possibly the trustees' performance." [my emphasis]
- The duty to account was described by Millett LJ, as he then was, in Armitage v Nurse  Ch 241 (at 253G) as one of the "irreducible core obligations" owed by trustees to beneficiaries.
- The issues that arise for determination concern not whether the trustees of the two trusts had a duty to account but whether on this application, made in June 2016 and heard in December 2016, the court should make an order for an account. The legal issues in dispute include:
i). Does the court have a discretion whether or not to order an account where a beneficiary has shown that a trustee had a duty to account?
ii). Does the concept of laches apply to the obligation to account?
iii). Is the claim for an account statute barred in this case?
iv). Are the underlying claims for breach of trust statute barred?
- The principal issue on the facts, assuming that the court has a discretion, is how should that discretion be exercised?
- Mr Wilson QC who appeared for the Claimants submitted that once a duty to account is shown the court need only ask itself two questions. First, has there been an account? Secondly, if no account has been provided, has there been a release by the beneficiaries from the obligation to provide an account? He submits that if no account has been provided and there has been no release the court must make an order for an account.
- This proposition, however, is not supported by authority in quite such stark terms. Snell's Equity 33rd Edition at paragraph 20 015 puts the position the following way:
"Since the judicature reforms the court has enjoyed a discretion whether to order a general account even once the requisite relationship is proved, and it will not do so where the effect of the reversal of the onus of proof would be "to enable the plaintiff to blackmail the defendant, or where the account is unnecessary or unlikely to be fruitful."
- Support for the power being discretionary can be found in remarks made by Lord Millett in Libertarian Investments Limited v TA Hall a decision of the Court of Final Appeal of Hong Kong at :
"Once the trust or fiduciary relationship is established or conceded the beneficiary or principal is entitled to an account as of right. Although like all equitable remedies an order for an account is discretionary, in making the order the court is not granting a remedy for wrong but enforcing performance of an obligation."
- The reference in the passage in Snell's Equity to blackmail derives from the decision in Campbell v Gillespie  1Ch 225. In that case certain businesses and property were held on trusts for the benefit of the Claimant's creditors. The Defendant acted as the trustee. The estate was re-conveyed to the Claimant and the re-conveyance contained a recital that the Claimant's debts had been paid. At that stage a detailed account was not required and not long afterwards the trustee destroyed all the books of account. The Claimant then alleged that the trustee had acted fraudulently and brought a claim for fraud and an account on the basis of wilful default. Those elements of the claim were not pursued and the Claimant instead sought an order for a common account. The judge, Cozens-Hardy J, decided that he had a discretion under the then applicable rule, Order 55 rule 10, to decline to make an order for an account and although he felt "unable to acquit the defendant of some misconduct" declined to make an order to direct a common account from 1887 1896 as to do so "
would be to enable the plaintiff to blackmail the defendant."
- Mr Wilson QC submitted that the discretion arose solely from the provision in the RSC whereas under CPR Part 64 and the Practice Direction a similar position no longer obtains because the default position under the CPR is that the court will not make an administration order where it has other powers it is able to exercise.
- I am unable to accept Mr Wilson QC's submission that the court is bound to order an account and the court has no discretion where there has been a failure to account and no release. To my mind that puts the position far too high. The view expressed by Lord Millett in Libertarian Investments Limited, although not strictly binding on this court carries very considerable weight as do the views of the commentators to which I have referred. There is no absolute entitlement to obtain an order for an account. It is one thing for the duty to account being part of the irreducible minimum obligations of trustees, but quite another to say that the court must always, without exception, make an order for an account to be provided. The duty and an entitlement to an order from the court are quite different. I can accept, however, that the court will, in the exercise of its discretion, ordinarily make an order for an account where an account has not been provided and furthermore, there may be very limited circumstances in which the court will decline to make such an order. Nevertheless, it is plain to my mind there is a discretion even if it is one which will be applied sparingly. I will discuss later in this judgment how such a discretion may be exercised, but even a lengthy delay in requesting an account may be of limited assistance to the trustee, in the absence of a release, because without an account the beneficiaries do not know what has happened to the trust income and assets. All the more so, where there are succeeding generations of beneficiaries who neither have, nor could have, any direct knowledge of how the trust assets have been managed and distributed.
- I would also observe that the remark by Cozens Hardy J in Campbell v Gillespie concerning the ability of the beneficiary to "blackmail" the trustee is a curious one. Perhaps it goes no further than indicating that the court may exercise its discretion to decline to make an order for an account where to do so would either put the trustee in an impossible position due to the destruction of records, or place undue and unfair pressure on the trustee due either to a lapse of time or conduct which is short of a form of release. Blackmail is used in this very loose way and the notion of oppression is more apt.
- Laches and limitation may conveniently be looked at together. Pursuant to section 21(1) of the Limitation Act 1980 there is no limitation period where a beneficiary under a trust brings a claim in respect of any fraud or fraudulent breach of trust to which the trustee was a party or privy, or to recover from the trustee trust property or the proceeds of trust property received by the trustee or converted to his use. Subsection (3) applies in circumstances in which subsection (1) is not applicable and provides:
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.
For the purposes of this subsection, the right of action shall not be treated as having accrued to any beneficiary entitled to a future interest in the trust property until the interest fell into possession."
- Section 23 of the 1980 Act provides:
"An action for an account shall not be brought after the expiration of any time limit under this Act which is applicable to the claim which is the basis of the duty to account."
- At the hearing, the submissions revolved principally around the proviso to section 21(3) and the relevant date for the dissolution of The Childrens' Trust. Have the interests of the fourth to ninth claimants vested? If not, the period of limitation has not started to run. The trust period is agreed to be 25 years after the death of "Prince Edward". However, due to the date of the trust, the reference to Prince Edward cannot be to the Prince Edward who is a son of the current monarch, because he was born after the trust came into being. It is a matter of conjecture who the draftsman may have had in mind but it is an issue that I cannot determine. The issue was not fully argued and there is no evidence relating to it. There is no other sensible basis upon which to proceed other than to assume for the purposes of this application that the interests of the fourth to ninth Defendants have not vested. This was the way in which the claim proceeded up to the hearing. In due course, the issue of construction will need to be resolved.
- The right starting point is section 23 of the 1980 Act which directs attention to the basis of the duty to account. The limitation period will be that period which is applicable to the basis in question. Here, it is a fundamental element of the Claimants' case that they are entitled to an order for an account against the Defendant regardless of whether there has been any wrongdoing. Their claim is based solely on their entitlement to an account as beneficiaries of the trusts. And there is no doubt that the notion of an application for an account in common form, such as the application made here, is not dependent upon the party applying establishing grounds beyond there being a duty to account.
- Section 21(3) of the 1980 Act applies to an action by a beneficiary to recover trust property or in respect of any breach of trust. Plainly the former is not applicable and, to my mind, neither is the latter. The Claimants' case is not put forward on the basis that, by failing to account, the Defendant has acted in breach of trust but, rather, by virtue of his obligation to account which they seek to enforce. The remedy they seek is one seeking a positive order enforcing the obligation, not a remedy for breach. It seems to me that section 21(3) has no application and the 1980 Act has no limitation period which applies to proceedings brought by a beneficiary for an order for an account in common form, as opposed to an account based on wilful default. Support for this conclusion can be found in obiter remarks by Harman J in Attorney General v Cocke  1 Ch 414 (at 421E).
- This puts a narrow construction on the phrase "breach of trust" as it is used in section 21(3). It might be said that any failure of a trustee to perform his obligations is a breach of trust. Records should have been maintained and accounts regularly provided. However, an application for an account in common form is not based upon a breach of trust and has never been seen as being contingent on any adverse finding against a trustee. The obligation that is relied upon is matched with the remedy sought. Subject to the court's discretion, the order is essentially administrative in nature, and arises from the court's supervisory jurisdiction over trusts. I do not consider that the draftsman of the Limitation Act contemplated such a claim being treated as a breach of trust.
- If there had been a limitation period, then it would not have been open to the court to consider the question of laches see Re Pauling's Settlement Trusts  1 WLR 86 at page 115 per Wilberforce J; discussed by Chadwick LJ in Re Loftus deceased  1 WLR 591 at [35 37]. On the basis that the court has a discretion whether to make an order for an account, I am not convinced that consideration of the doctrine of laches adds a great deal bearing in mind delay on its own will not be sufficient to make out laches. It is more likely that the sort of considerations relied upon by the Defendant as grounds for the court refusing to make an order will be persuasive than that the Defendant could establish laches.
- What of the underlying claims? The Defendant relies upon the principle that an account should not be ordered in the exercise of the court's discretion, where any substantive claims arising from the account would be time barred or barred by delay. As a starting point, it is plain that any substantive claim would be based upon a breach of trust and, therefore, would fall within section 21(3) of the 1980 Act. The doctrine of laches would have no application. It is equally clear that more than 6 years would have elapsed from the date when any such breach of trust may have occurred.
- The difficulty with the Defendant's case on underlying claims is that no-one knows what they might be and, although this is not alleged, it is impossible to rule out a claim falling within section 21(1). Moreover, I am unconvinced the court should be influenced by potential limitation issues in respect of inchoate claims when all the claimants seek is an account in common form. The beneficiaries simply wish to know what has happened to the trust assets. It is possible that claims for breach of trust might follow from the provision of an account but, in the first instance, the beneficiaries will be better off than they were before by having obtained information about the trust assets which they did not previously possess. The remedy is not an empty one.
- If the underlying issues were to be relevant, the question arises as to whether the proviso to section 21(3) applies such that claims by the Settlor's grandchildren would not be barred because their entitlement under the trust has not vested. As I have already indicated, there is considerable uncertainty about vesting and only brief submissions were made about it at the hearing. The issue has not been fully explored and it would not be right, in my judgment, to determine it. If, as Ms Talbot Rice QC who appeared for the Defendant submitted, the reference to Prince Edward must have been a reference to the Duke of Windsor, the period of 25 years under The Childrens' Trust would have expired in 1997. There are, however, real doubts about whether at the date of creation of the settlement in 1960 the draftsman could have intended to refer to the then Duke of Windsor by describing him as Prince Edward, a title which, even if not technically lost on his appointment as a Duke, would not have been a way in which he would normally have been described.
- I am content not to decide this point because, having determined that the court has a discretion whether or not to make an order for an account, the passage of time is plainly a significant issue even if laches does not apply either in respect of the claim for an account or any claim which might arise out of the account. Furthermore, it seems to me that it is wrong in principle to have regard to substantive allegations which have explicitly not been made and which do not form the basis of the application. To my mind the claim stands or falls on the basis upon which it is put forward, namely that the beneficiaries under the trust have an entitlement to know what has happened to the trust assets and income.
- The position in relation to The Henchley Trust is relatively straight forward. The house which is the principal, and possibly now the only, asset of the trust is occupied by Nancy and Elizabeth. The property is substantial and is estimated to have a current value of approximately £3,000,000. The Defendant has no recollection of what may have happened to the share portfolio which is referred to in the Deed of Appointment. He has no recollection of how the shares were dealt with, when they were sold or what became of the proceeds of sale. As with The Childrens' Trust, he says he maintained no records himself of the trust. Any records were held by Doris Watson as the trusts' bookkeeper and record keeper. In any event, he points to the near certainty that the shares named in the 1972 deed would have no value now (they included, for example, shares in Turner & Newall Limited). The Defendant's brother-in-law Julian claims to have contributed over £400,000 to pay insurance, maintenance and building costs for the property and had there been any value in the share portfolio it would certainly have been used up long ago in maintaining the property. The Defendant says, therefore, he has no information which he can provide and to order an account would be an entirely pointless exercise. He was unaware until it was pointed out to him relatively recently that his name remained on the title.
- The relevant facts relating to The Childrens' Trust are far more contentious. There is, however, helpful information dating from the early 1990's some of which has been obtained by Claire from HMRC. Their records are limited but they are stated to show that The Childrens' Trust closed in 1996. By "closed" HMRC means that no further tax returns were issued to the trustees for completion but it does not necessarily mean that the trust ceased to exist. HMRC is unable to explain why a decision was taken no longer to issue tax returns from 1996. It is also of note that HMRC's records about the identity of the trustees in 1996 do not suggest that by that date the Defendant was still a trustee although their records are plainly imperfect because HMRC has consistently stated that Claire was a trustee at that time which is undoubtedly incorrect. It seems very likely that the appointed trustees in 1996 were Doris Watson, Jonathan Sharp and Martyn Scarterfield.
- The only document which could meaningfully be described as accounts were prepared by Hunter Jones Halford & Co, a firm of Chartered Accountants, who acted for the trustees. The accounts comprise a balance sheet as at 5 April 1991 and an income and expenditure account for the year ended 5 April 1991. Comparative figures are shown for the previous 12 month period and year end. There are, in addition, notes to the balance sheet and income and expenditure account providing some further explanation. The copy of the accounts which has been located are neither signed by the accountants nor the trustees. They have been described in the defendant's submissions as "audited trust accounts". To my mind, that is a misleading description. First, the accounts have not been audited as such. The accountants may have signed a report described as an "auditors report" but the accounts have merely been prepared from books, vouchers, information and explanations received and they are certified to be in accordance therewith. That is some considerable distance from an audit which implies a degree of interrogation such that the accounts can be considered to be robust. Furthermore, the accounts are in the form of business accounts rather than trust accounts. The distinction is, I consider, an important one.
- Although trust accounts, like business accounts, deal with assets, liabilities, income and expenditure, the information to be supplied to beneficiaries need not be in any particular form. This was a matter discussed by Master Matthews in the Royal National Lifeboat Institution and others v John Hedley  EWHC 1948 (Ch). After referring to remarks made by Millett LJ in Armitage v Nurse  Ch 241, 261,CA that:
"Every beneficiary is entitled to see the trust accounts, whether his interest is in possession or not",
Master Matthews went on to say:
"11. There is some danger of misunderstanding here. When the books and cases talk about beneficiaries "entitlements 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 produced in the form of balance sheets and profit and loss accounts, usually through accountants, and in the case of limited companies filed 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."
- There are some surprising features in these accounts including:
i). As at 5 April 1990 The Childrens' Trust had a portfolio of quoted investments valued at £78,008. However, during 1990 a loss on disposal of quoted investments of £25,659 was incurred and during 1991 the loss was £64,346. By 5 April 1991 the entire share portfolio had been liquidated at a substantial loss. Even taking into account the fact that 1990 and 1991 were years of economic recession, the loss is surprisingly large. It might suggest that insufficient thought had been given to the spread of investments.
ii). In both financial years the balance sheet records as assets sundry debtors. The notes reveal that as at 5 April 1990 PIMS International PLC owed the trust £18,094. As at 5 April 1991 the debt was £37,475. The notes also record that Nancy's liability to the trust increased from £904 as at 5 April 1990 to £12,684 as at 5 April 1991. She is recorded in the notes to account as a trustee of The Childrens' Trust but, as I have indicated, the evidence for her being a trustee is slight and indeed this is the only occasion where she has been referred to as a trustee. In any event, the point remains that the trustees were apparently lending money to Nancy at a time when the trusts assets were facing significant losses and substantial liability to tax.
iii). The balance sheet for each year shows a liability to taxation. In 1990 it was £58,758 and 1991 it was £59,477.
- Both years show an accumulated deficiency in the revenue account of respectively £49,427 and £98,964.
- Although perhaps it is a minor point, in 1990 the trust is shown to have a debt of £12,000 for rates although it is not shown as owning any property for the same period.
- Note 7 records that:
"No adjustments have been included in these accounts in respect of the Deed of Appointment dated 28 March 1978 for past income allocations."
That deed is not available and it is not known what the allocations may have been.
- PIMS International PLC is shown as a debtor of the trust in both financial years. PIMS was a company involved in the provision of media distribution, marketing and delivery services, lithography and general printing. Julian, Nancy and Alexander were all directors of PIMS although Nancy was not a shareholder. Hunter Jones Halford & Co who prepared the trust accounts were also auditors to PIMS. The only accounts for PIMS placed before me are for the year to 31 December 1989 (a period which overlaps with the 1990 trust accounts) during which PIMS made an operating profit of £609,524. Quite why PIMS should have owed a small sum to the Childrens' Trust is a mystery.
- Although further accounts have not been located, there is reference in correspondence to accounts having been produced from 1983 to 1991. Barker Hibbert & Co Chartered Accountants, who acted for Vivien, wrote to her on 18 December 1991 referring to those accounts. A letter from Brian Fugler, the solicitor acting for the trustees (himself also a director of PIMS), wrote to Philip Hamer & Co who acted for Elizabeth on 9 December 1991 referring to accounts for the last 10 years. The impression is given that those accounts had only recently been produced, which is consistent with there being a substantial liability to HMRC for tax at around that date.
- Various tax computations are also available together with income schedules for Elizabeth, Vivien and Claire. They confirm that each of them received £10,000 at the age of 30 and that there was no trust income in 1989, 1990 and 1991. The schedules show individual tax liability for, in the case of Patricia, 1974 to 1988 (it is a shorter period for the other two) but the trust income is shown in a column marked: "Net amount should have been paid". This rather odd heading suggests the income had not in fact been received, but why that might be is unclear. A further tax calculation has been located which is headed "Computation of income vesting in beneficiaries" showing income up to 1984. It is plain that The Childrens' Trust was active and income producing up to that date. The aggregate income that was distributed in that year was slightly in excess of £16,000.
- The tax computations suggest that 1991 and 1992 may have been a watershed for The Childrens' Trust. The accounts indicate that significant tax liabilities had been incurred which had to be discharged and the assets of the trust had much diminished. In addition, the contemporaneous documents suggest that there had been a degree of unhappiness amongst the beneficiaries. Documents of significance include:
i). A letter from the Defendant to Vivien dated 17 January 1991. It appears that Vivien had been critical of Julian, albeit his role in relation to the trusts is unclear. The Defendant states that he had tried without success for over 10 years to "liquidate the funds but could not tie down the Inland Revenue". He reports to Vivien what he describes as the "good news" that Patricia, Julian and Alexander had agreed to waive their rights to benefit from The Henchley Trust. He goes on to say:
"This action should more than compensate for the problems on the other trust, because it means that you, Elizabeth and Claire will each receive one third of the [Henchley Trust] instead of one eighth."
He also mentions the involvement of Roy Copus who is, or was, involved with the trust. Mr Copus had further involvement with the trust in the early 1990's and in the Defendant's first witness statement he describes Mr Copus as someone who he currently employs. Mr Copus has been able to produce some additional documents recently in the circumstances explained in the Defendant's second witness statement. He is described there as someone who works for a company owned by the Defendant and his family. The Defendant, in any event, makes it clear in his 17 January 1991 letter that there was little likelihood after tax had been paid of anything being left to distribute to the beneficiaries (he is presumably referring to The Childrens' Trust).
ii). On 5 February 1991 Patricia, Julian and Alexander executed a document purportedly renouncing any interest in both trusts in favour of Vivien, Elizabeth and Claire. The effect of the document is in doubt. However, the document was signed by both those who were renouncing and the other beneficiaries who are some of the Claimants to this claim.
iii). On 9 December 1991 Julian wrote to the Defendant amongst other things summarising the terms of The Childrens' Trust. He appears to have had quite extensive dealings with the Inland Revenue and have made unsuccessful attempts to "liquidate" The Childrens' Trust. He suggests the Inland Revenue will not allow it to be liquidated.
iv). On 12 December 1991 Neil Baxendale (Elizabeth's husband) wrote to the Defendant. He expresses his understanding that there will be no monies remaining in the trust and refers to payment of the outstanding tax liabilities. Clearly he is referring to The Childrens' Trust. He expresses a desire "
to see this matter settled once and for all as soon as possible."
v). On 18 December 1991 Mr Kay of Barker Hibbert & Co wrote to Vivien saying he had looked through the accounts for the years from 1983 to 1991. He refers to advances having been made to PIMS and to there being very little left in The Childrens' Trust. He offers Vivien a copy of the 1991 accounts. On the same day Mr Kay wrote to Mr Sharp of Hunter James Halford & Co referring to the payment of tax "
in respect of the income from the trust [Vivien] did not receive." On 23 December 1991 Mr Sharp wrote to Vivien explaining how the sum shown as drawn by her in 1987 was made up.
vi). On 14 January 1992 Patricia wrote to Vivien and her husband enclosing two cheques one of which is for Vivien's outstanding income proceeds from the trust. This must be a reference to The Childrens' Trust. She concluded the letter by saying:
"I am really pleased that we have managed to just about sort out the trust affairs now. Arrangements are now going ahead to appoint new trustees for the [Henchley Trust] most probably a bank."
vii). On 9 March 1992 Mr Copus sent a fax to Patricia referring to both trusts. So far as The Childrens' Trust is concerned, the arrangements he had in mind were intended to lead to the trust being wound up once tax issues had been dealt with and Julian had repaid borrowings plus interest. Curiously he said that "any residual cash shortfall in trust to be settled out of Hillsdown Court", that being the name of the property occupied by the Defendant and Patricia. With regard to The Henchley Trust he describes 395 Cockfosters Road as the sole asset of that trust and proposes that a professional trustee be appointed. Similar sentiments are expressed in a letter from Mr Copus to Patricia on 11 May 1992. He says the plan is to wind up The Childrens' Trust as soon as possible, the only significant asset being the debt due from Julian. Any tax shortfall was to be met by Patricia. He also said:
"In view of the fact that this trust [The Childrens' Trust] is about to be wound up, there is probably little point in making any further changes to the trustees as the final negotiations with the Inland Revenue can be looked after by Mr Sharp and myself."
viii). A letter from Mr Copus to Mr Sharp of Hunter Jones Halford & Co dated 9 July 1992 says he has been told by Patricia that Mr Sharp and Julian have been appointed trustees to The Henchley Trust. This is consistent with a letter from Mr Sharp to Julian dated 2 May 1997 enclosing the tax return for The Henchley Trust for him to sign. However, there are indications in the documents which suggest that Mr Sharp was only appointed a trustee in 1999 and doubts about whether Julian was ever appointed.
- I have already observed that the evidence overall has unfolded in somewhat unsatisfactory manner. Claire's witness statement made in support of the claim explains in measured and clear terms the relevant background and why the relief is sought. It might have been helpful, however, had she explained in more detail why the claim seeking accounts was not brought until 2016 whereas the most recent events relating to The Childrens' Trust appear to be in the early 1990's. In any event, such explanation as she is able to give is contained in her second statement. In her first statement she summarises correspondence between the Claimants' solicitors, Withers LLP, and the Defendant before the claim was issued. The Defendant describes such correspondence as "aggressive" but in my judgment that is a mischaracterisation. It was the Defendant who adopted a forthright and at times unhelpful approach. For example, following the initial exchange of correspondence between Withers and the Defendant in March and April 2014 the Defendant replied on 24 April 2014 saying that he had nothing further to add to his letter of 27 March 2014 despite Withers having raised a number of reasonable enquiries in their letter of 16 April 2014. Withers wrote again on 14 July 2014 and 14 August 2014 the Defendant responded saying he was unable to help any further. There was then a lengthy gap in the correspondence until Withers wrote again on 20 November 2015. The letter clearly refers to there being two trusts and pointed out that if he failed to provide any further information an order from the court would be sought. In response the Defendant asserted that he had never been a trustee of the trust (singular). He relied on the letter from Eversheds dated 27 October 1998. He then declined to provide any assistance in relation to enquiries with HMRC.
- The Defendant refers on a number of occasions to the Claimants having harassed him and also makes a number of gratuitous references to the generosity of his philanthropic activity. No doubt what he says on that subject is true, but it is not clear why he felt the need to refer to it. All in all, it is in my judgment fair to characterise the Defendant's pre-action response as unhelpful and it is notable that in his first witness statement in response to the claim he seeks to distance himself from the trusts and his role as a trustee or de facto trustee.
- The Defendant takes issue with Claire's conduct in holding back some documents from her first statement which were then revealed in her second statement. I do not consider, however, that such an approach merits criticism given that the Claimants' application for an order for an account in common form is based upon the duty to account and there are no express allegations of wrongdoing which are relied upon as the basis for making an order. Given the lack of engagement by the Defendant, and his initial attempt to distance himself from the two trusts, it was proper to deploy such additional material as the Claimants had in their possession. In any event, such criticism, and other issues which the Defendant has raised as factors which should affect the court's discretion, carry very little weight, if any, when the interests of the fourth to ninth Claimants are taken into account.
- The Defendant's evidence is that his involvement with both trusts was quite limited. He describes Doris Watson as being the designated administrator for the trusts. She performed the role of bookkeeping for the trusts and kept all of their accounts and records. When payments were made out of the trusts she would be the one to deal with payments. If he needed to sign any documents then Doris Watson would supply the document to him. Any records she may have had about the trusts had not survived and are no longer available.
- The Defendant is not able to give any explanation about what happened to the portfolio of shares which at one time formed part of The Henchley Trust other than to surmise that they must have been sold many years ago. He says he has no further information about The Henchley Trust and no documents available to him.
- So far as The Childrens' Trust is concerned, the Defendant points to the trust having made substantial distributions in 1983 and 1985 respectively to Julian and Alexander in accordance with the terms of the trust. Each of Elizabeth, Vivien and Claire received £10,000 on their 30th birthdays and there is evidence of other distributions. In about 1991 Elizabeth received over £20,000 of income from the trust in order to help settle her litigation with Julian concerning a loan. School fees were paid out to pay for the private education of Elizabeth, Claire and Alexander. Other expenditure was met from the trust. In short the Defendant says that by 1991, taking into account tax liabilities, the trust had virtually no assets left and the position revealed in the 1991 accounts is a true and accurate one. Aside from information gleaned from the documents to which I have referred, he is not able to provide any further assistance save that he acted as 'peacemaker' in 1991 to resolve differences between the beneficiaries concerning the trusts and he believes that The Childrens' Trust was wound up.
- Despite the Claimants' case being based upon their being entitled to an account in common form, regardless of any assertions of breach of trust, Claire's evidence raises issues which are designed to suggest that there are matters which need to be looked into. In her first witness statement she points to letters filed by Wontner Smith & Co on 30 October 1978 on the Companies House files relating respectively to Fullers Studios Limited and TruTone Securities Limited. The letters raise concerns on the part of the auditors concerning a failure by the Defendant to declare conflicting interests in dealings with Hillsdown Holdings Limited. The Defendant suggests the letters were merely 'sour grapes' on the part of the auditors who knew that they were being replaced. To my mind that makes light of the letters which raise issues of real concern albeit that they relate to two events which took place some 38 years ago.
- In her second statement, Claire raises further issues concerning the Defendant's dealings with trust assets which she suggests give rise to questions that need to be dealt with. In particular, she gives further information about transactions entered into which involved the Defendant and, amongst other companies, Hillsdown Holdings Limited (as it then was). She also points to a number of properties having been owned by The Childrens' Trust about which no reference is made by the Defendant in his first statement. She relies upon public records to show that the trust held four parcels of land, Preston Road Properties, Milton Works, Turnmill Street and Benjamin Street. In the case of the Preston Road properties, some of the properties were transferred to PIMS for a consideration of £130,000. As to the portfolio of shares belonging to The Childrens' Trust, she points to correspondence which suggests that Julian may have been involved with the share portfolio although he was never a trustee.
- The Defendant has made a full response to Claire's second witness statement in part based on recollection and in part based on the limited records that are available. He pours scorn on the suggestion that the shares in the Henchley Trust would have had a substantial value if the values are translated to modern day values. He has provided some explanation for the inter-company dealings and loans. His evidence is that to the extent there were any loans, they were all repaid and that the asset sales were dealt with by Nancy in her capacity as a director of the companies and Julian. He denies that he procured such loans and denies any question of wrong dealing or undeclared conflicts of interest. He concludes his evidence by saying
"In my view, the claimants 'reply' evidence changes nothing. It does not change the fact that (despite the claimants' denials) full, audited accounts were provided to the sisters up to 1991. This was followed by a 25 year gap during which time the trusts record keeper and professionals involved destroyed their records pertaining to the trusts. Nor does it change the fact that I have no further information to provide the claimants and no ability to reconstruct this information at this stage."
- In relation to delay, Claire's second statement makes the following points
i) Information relating to the companies belonging to The Childrens' Trust only emerged recently and she had no reason to believe that "improper transactions had taken place".
ii) She has attempted to resolve issues in an amicable way without resort to proceedings.
iii) It was her appointment as a trustee of The Henchley Trust in 2012 which caused her to investigate the position in relation to that trust and it was in the context of the enquiries she pursued in that connection arose concerning The Childrens' Trust.
iv) She suggests that the management of the two trusts by the trustees was chaotic and this has contributed to the delay. She says that it was unclear whether there was one trust or two and that Defendant has contributed to this confusion.
v) In any event, even if she and her siblings could be criticised, no such criticism attaches to the other claimants who belong to the following generation.
- The court has a discretion whether or not to make an order for an account in common form to be produced by a trustee. Although it would not be right to say that there is a presumption in favour of making an order for an account, in my judgment, the court will not decline to make an order lightly where a trustee holds or has held assets for beneficiaries of a trust.
- The duty to account must also be seen alongside an obligation to keep and to retain records. Although it is perfectly acceptable for trustees, amongst themselves, to divide responsibilities such that one of the trustees is designated to be the record keeper, that does not absolve the trustees collectively from their duties to the beneficiaries. It is not an answer in this case, therefore, for the Defendant to say that he left record keeping to Doris Watson and he can, therefore, be absolved from providing an account because no documents have been retained.
- I have earlier in this judgment made some observations about the nature of trusts and accounts. They are different to trading accounts for a business entity. In the case of the latter, the accounts, in accordance with accounting conventions, provide a balance sheet which gives a snap shot as to the asset position on a date and a trading report covering a period. Trust accounts, particularly where there are beneficiaries with interests which have not vested, must be able to show from period to period (the frequency of accounts is not fixed) how the trust assets have been dealt with, including what distributions and disposals have taken place. A beneficiary reading trust accounts must be in a position to assess whether the trust assets conform with the trust instrument, that the class of assets held is appropriate for the trust. The style of the accounts, and the level of detail provided will necessarily vary. The accounts produced for 1990 and 1991 may have been suitable for submission to the Inland Revenue, as it then was, for the purposes of assessing tax liability and providing a general summary of the trusts position. However, they were not suitable to provide a beneficiary with an adequate understanding of how the trustees had managed the trust assets in the relevant periods. If, as seems very likely, the accounts for the preceding periods were prepared in a similar form, I do not consider it can be said that at any time adequate trust accounts have been prepared. Nevertheless, the accounts went some way to providing the beneficiaries with relevant information and the 1990 and 1991 accounts certainly gave rise to questions which could have been asked. Indeed, it may well be that questions were asked because there is reference to the beneficiaries of The Childrens' Trust being unhappy at the time.
The Henchley Trust
- The position in relation to The Henchley Trust is rather less acute than The Childrens' Trust. The principal asset of The Henchley Trust is a property and that asset has been preserved. The evidence shows that substantial contributions from outside the trust have been required to provide the outgoings on the property and there is every reason to suppose that the modest portfolio of shares which is referred to in the 1972 deed of appointment would have been exhausted many years ago on routine outgoings for the property. It is troubling, however, that, apparently, no accounts for this trust have ever been prepared in any format. The trustees from time to time have singularly failed in an important obligation.
- It is significant that the terms of this trust were not intended to benefit the settlors' grandchildren save in the event of one of his children pre-deceasing Nancy. The childrens' interests under this trust will vest upon Nancy's death. Based upon the Defendant's evidence, the property is the only asset within the trust and I consider that the circumstances are sufficiently exceptional to persuade me that the court should not exercise its discretion in favour of ordering an account in common form. The value of the portfolio of assets other than the property as at 1972 was modest and there is no realistic possibility of the Defendant providing any information about its disposal or the use to which the proceeds were placed. Although I consider that the request for an account was a proper and reasonable one, I will decline to make an order.
The Childrens' Trust
- I consider that the only proper basis upon which I can determine the Claimants' application for an account in common form is on the assumption that the fourth to ninth Claimants, along with others, are a class of future beneficiaries of the trust whose interests had not vested at the time of the hearing. To my mind, there would need to be a compelling case for the court to decline to make an order for an account in common form so as to provide the fourth to ninth Claimants with an explanation of what has happened to the trust assets and, if it were the case that the trust was wound up, how that occurred. I turn to consider, therefore, the individual points made by the Defendant which might individually or when taken together militate against such an order being made.
- First and foremost, the Defendant says that he has provided all the information which was available to him and it would be pointless to make an order for an account against him because he could not do more than he has done. In this regard, I express a degree of disappointment that the Defendant's energies appear to have been principally focused on defending this claim rather than pursuing enquiries which might help the Claimants. As I have already observed, his response to the reasonable and measured enquiries put to him before the claim was issued was unhelpful. His approach to this litigation has been combative. He has sought to blame others for what he says is an inability to provide an account but I remain unconvinced that he has done everything that is open to him. By way of example, although he has stated the efforts made to retrieve information held by Mr Copus, he has not said what efforts he has made to obtain information from others. Nancy and Julian would appear to me to be prime candidates. It is not, as he appears to suggest, for the beneficiaries to make their own enquiries and produce their own accounts.
- It does not suffice for the Defendant to say that he has a limited involvement and kept no records. The limited papers which have been produced for the purposes of these proceedings show that he had an active involvement and that during the 1980's, when the trust assets rapidly eroded, he and business entities connected with him and Julian had dealings with the trust assets.
- It is possible that the Defendant cannot produce full and detailed trust accounts at this remove, but the information he has provided in his witness statements is not produced in a form which provides any real explanation and is not readily available to be interrogated by the beneficiaries. The grandchildren in particular are not in a position to understand how the assets of The Childrens' Trust and its income were disposed of. It seems to me that the Defendant has lost sight of his obligation to the settlor's grandchildren and as a trustee of a trust with interests that had not vested he cannot blame the settlor's children for his inability to fulfil his obligations.
- Equally, it is unsatisfactory for the Defendant to say that the trust was wound up in the early 1990's. Quite how that winding up can have occurred is not explained. It is possible that the trust assets were distributed but some sort of final account was necessary. I am bound to say that I find the 1990 and 1991 accounts troubling. They appear to indicate that over a lengthy period of time there was a failure to account to the Inland Revenue for tax. They also show that loans were made by the trust to PIMS and apparently to Nancy (who possibly was a trustee giving rise to serious issues of conflict of interest). The Defendant should be able to provide some illumination about why this was done. When considering the Defendant's submission that it is inequitable for him to produce an account, I must take account of the apparently disorganised manner in which The Children's Trust was operated. Examples of this include a liability to tax accruing over a number of years and the very rapid erosion of the value of trust assets.
- Although the Defendant is elderly, it is clear from the manner in which he has conducted this claim that he retains a considerable degree of vigour. It is not suggested that due to ill-health he is unable to pursue enquiries and he is in a position to employ others to assist him. (It is right to record that the Defendant refers to ill-health in his statement but it is not explained or supported by medical evidence). I am not satisfied there are compelling reasons why he should not be required to account for the trustees' dealings with the assets of The Childrens' Trust.
- At present it is unclear, despite what he says in his evidence, how far the Defendant will be able to do so. The Part 8 claim form seeks a full account of his dealings with the trust in his capacity as a trustee or a de facto trustee. I accept it is likely he will not be able to provide a full account for the entire period of his trusteeship. I will consider upon this judgment being handed down the precise terms of the order but I have in mind that he will provide, where figures are not available, a narrative account of the trustees' dealings with the assets of The Childrens' Trust and an explanation of the efforts he has made to obtain information.
- I will therefore decline to make an order for an account in respect of the Henchley Trust but make an order relating to the Childrens' Trust.
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