What is the trustee's duty to account?
What guidance is there as to quite what is required of a trustee, to satisfy this duty?
These questions will be considered, in light of:
(1) RNLI v. Headley [2016] EWHC 1948 (Ch) ('RNLI'), High Court (Master Matthews) on 28.7.16;
(2) Henchley v Thompson [2017] EWHC 225; [2018] WTLR 1289 ('Henchley'), High Court (Chief Master Marsh) on 16.2.17;
(3) Lewis v Tamplin [2018] EWHC 777; [2018] WTLR 215 ('Lewis'), High Court (HHJ Matthews sitting as a Judge of the High Court) on 16.4.18;
(5) Ball v Ball [2020] EWHC 1020 (Ch); [2020] W.T.L.R. 741 ('Ball'), High Court (Chief Master Marsh) on 5.5.20;
(6) Select Lifestyles Ltd v Norman [2022] EWHC 2159 (Ch) ('Select'), High Court (Deputy Master Collaco Moraes) on 13.7.2022;
(6) Jordan v Warburton [2023] EWHC 846 (Ch) ('Jordan'), High Court (HHJ Pearce sitting as a Judge of the High Court) on 3.2.23;
(6) Alizade v Kudlick [2023] EWHC 1082 (Ch); [2023] W.T.L.R. 795 ('Alizade'), High Court (Deputy Master Francis) on 10.5.23;
A trustee is under a duty 'to account' to his beneficiary/beneficiaries. This duty (i.e. obligation) exists by reason of the trust relationship. It is said to be '...part of the irreducible minimum obligations of trustees' (Henchley, paragraph 25). But what is an 'account' the trustee is obliged to provide - and what will amount to an adequate 'account'. As Chief Master Marsh in Ball said:
'What will comprise an adequate account will depend on the circumstances.' (paragraph 22)
Later, in Ball, at paragraphs 26 and 27, Chief Master Marsh set out extracts from 2 earlier authorities (Henchley and RNLI):
'As to what the provision of an account by trustees means in practice it is again helpful to refer to Henchley v Thompson at [62]:
"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."'
In a similar vein, Master Matthews (as he then was) in RNLI v. Headley [2016] EWHC 1948 (Ch) observed at [11]:
"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."'
Chief Master Marsh in Ball then 'accepted' what he described as a 'helpful summary' (paragraph 28) provided by counsel, as to 'what is required from the trustees in providing an account to the beneficiaries' (paragraph 28). That summary, in 4 parts, read:
'i) They must say what the assets were;
ii) They must say what they have done with the assets;
iii) They must say what the assets now are;
iv) They must say what distributions have taken place.'
Chief Master Marsh in Ball then added, at paragraph 29:
'It hardly needs to be said that the level of detail the trustees must provide and the formality of the statements and documents will vary with the size and nature of the trust.'
In Select, under the heading 'The Law', the Deputy Master made the following comments (in respect to an application for an order to 'account'):
'...what is the nature of the account that is sought? In respect of that, it is not a financial set of accounts that for example have to be filed at Companies House. What is required is a narrative account by the trustee of his dealings with the assets under his or her control. That was explained by the then Chief Master Marsh in the case of Ball ...'
In Jordan, the Judge, while considering '...law relating to an account' (paragraph 27), noted Chief Master Marsh's 4 part summary in Ball, and said that '...that is a very convenient and easy summary of the duties.' (paragraph 27). The Judge in Jordan then added, paragraphs 27 and 28:
'These are not, it seems to me, duties that are disproportionately onerous on somebody who takes control of somebody else's property.
Of course, as the authors of Snell's Equity recognise, the standard of record keeping one can expect would depend on the circumstances. A paid trustee would be expected to keep very clear and detailed records. An unpaid trustee would be expected to keep less detailed records. It is more easy to understand somebody who would destroy their own documents not having kept receipts, than it would be to understand somebody who was in the habit of keeping receipts failing to keep them in respect of monies of which they are the trustee. Therefore, in the scale of trustees, it might be said that somebody such as [the trustee], who appears to me to have relatively limited knowledge of his own financial circumstances, might not to expected to have had the finer details of the circumstances of his mother at his fingertips.'[0]
In Alizade, after noting Chief Master Marsh's observations in paragraph 22 to 24 of Ball, the Deputy Master said, at paragraph 42:
'However trustees are not required in the provision of accounts to beneficiaries to explain why they dealt with trust assets in any particular way, or what factors they took into account in exercising their powers in any particular way. In Lewis v Tamplin [2018] EWHC 777; [2018] WTLR 215, HHJ Matthews made this point in the following terms at paragraph 61:-
"This jurisdiction is simply about providing to trust beneficiaries information about the trust, its assets and the trustees' stewardship of it and them. It is not about compelling trustees to convict themselves out of their own mouths of breach of trust (cf Bishopsgate Investment Management Ltd v Maxwell [1993] Ch 1, CA)"
and then, further on in the same paragraph
"… whilst the beneficiaries may properly ask the trustees to tell them if they did this or that with a trust asset, in general I do not consider that the beneficiaries are entitled to ask why they did or did not do it, or for a general "explanation of their position" on a particular point (although I accept that, if any of this is revealed by a document otherwise produceable, it cannot be withheld on that ground alone)"'
Former trustee - still under a duty to account?
In Alizade, the Deputy Master held, at paragraph 35, that 'In my judgment, the fact that a trustee has retired does not operate as such to discharge him from the obligation to account...'[1]
Where trustee fails to produce an adequate account
A beneficiary can apply to Court, for a Court Order, requiring the trustee to produce an (adequate) account. Where the Court is persuaded that trustee has failed to produce an 'account', or at least an adequate 'account', to the beneficiary, the Court may (not must) order that, the trustee provide an 'account' in common form (Ball, paragraphs 21(1) and (22))[2]
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[0] In Jordan v Warburton [2023] EWHC 846 (Ch) ('Jordan'), a lady had died. Her property had been sold (July 2007)(paragraphs 7 and 16), with the proceeds of sale £124,358 (paragraph 17) being paid into a joint bank account of the deceased and her son (paragraph 31). He then went and spent some of the money in that account.
[1] In Alizade v Kudlick [2023] EWHC 1082 (Ch); [2023] W.T.L.R. 795, the Deputy Master Francis continued, at paragraph 35 (to quote the whole sentence):
'In my judgment, the fact that a trustee has retired does not operate as such to discharge him from the obligation to account, if he has not already done so, although it may be a relevant factor for the court to take into account in the exercise of its discretion whether or not to order an account on the facts of the case.'
[2] Two points
(a) A claim for an 'account' does not require the claimant to allege that the trustee had commited a breach of trust (other than failing to prove an adequate 'account'). In Ball v Ball [2020] EWHC 1020 (Ch); [2020] W.T.L.R. 741, Chief Master Marsh made the point that the beneficiary does not need to show, in order to obtain a Court order, requiring the trustee, to produce an account (in common form), that the trustee has acted in breach of this duties (other than failing 'to account'). Chief Master Marsh said, at paragraph 22:
'It is not necessary, however, for the claimant beneficiary to show that the trustees have acted in breach of their duties (other than by failing to account). An account in common form is, in essence, the provision of information by the trustees to the beneficiaries. If the beneficiary considers there have been breaches of trust, a further step must be taken to challenge the account.'
(b) As to the discretion, and that factors that go into whether or not to order that the defendant/trustee, produce an adequate account, see Alizade v Kudlick [2023] EWHC 1082 (Ch); [2023] W.T.L.R. 795 ('Alizade').
In Alizade, Deputy Master Francis:
(i) noted that Chief Master Marsh in Henchley v Thompson [2017] EWHC 225; [2018] WTLR 1289 had directed himself, on when a Court should order an 'account' from a trustee who had not produced one (or not produced an adequate one):
'...a court should not lightly decline to make an order where a trustee hold or has held assets for the beneficiaries of a trust...'
(ii) also said, at paragraphs 36 to 40 of Alizade:
'36. The principal questions with which the Chief Master was concerned in Henchley were whether the court had any discretion whether or not to order an account against a trustee who it was accepted was under a duty to account, and if so how that discretion should be exercised on the facts of that case. On the first of these questions, he concluded as follows (at paragraph 25 of his judgment):-
"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."
37. In paragraph 33 of his judgment, the Chief Master went on to explain how the doctrine of laches interplayed with the court's discretionary power to refuse an account:-
"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."
38. Related to the question of delay in applying for an account was the question whether any such account would serve any purpose where any substantive cause of action which the beneficiaries may wish to pursue once armed with information provided by such accounts may itself be statute-barred. The Chief Master did not consider that this was a relevant factor in determining whether to order accounts on the application of a beneficiary of a trust for reasons which he set out in paragraph 37:-
"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."
This point was picked up again by the Chief Master in Ball v Ball [2020] EWHC 1020 (Ch); [2020] WTLR 741 in considering the observations of HHJ Hodge QC in Al-Dowaisan v Al-Salam [2019] EWHC 301 (Ch) that the question whether any underlying claim would be statute-barred was a relevant consideration in a claim for accounts brought in a commercial context. He said this at paragraph 21:-
" In the context of a business dispute, such as Al-Dowaisan, the court is not only concerned with whether there has been a failure to account but also whether ordering an account to be taken is likely to be of practical utility. As HH Judge Hodge QC observed, the court is unlikely to order an account if no order for monetary payment is likely to follow. However, in relation to a conventional trust, the provision of an account itself will often provide real benefit in itself because a beneficiary is entitled to know what the assets of the trust comprise and how they have been dealt with. The provision of information in this context does not have to be connected with a claim."
39. On the second question in Henchley, how the discretion should be exercised on the facts of the case before him, having directed himself at paragraph 60 that a court should not lightly decline to make an order where a trustee hold or has held assets for the beneficiaries of a trust, the Chief Master did nevertheless decline to make any order in relation to the Henchley Trust where the principal asset of the trust was a property which had been retained, and where the value of the remaining portfolio assets which had been disposed of many years previously was modest and " there was no realistic possibility of the defendant providing any information about its disposal or the use to which the proceeds were placed ". In contrast he did order the defendant to provide an account in relation to the Children's Trust spanning the entire period of his trusteeship from the early 1970s, notwithstanding the defendant's protestations that he had already provided all the information available to him and that it would be pointless to make any order against him because he could do no more. Moreover, although the defendant was then 80 years old, the Chief Master found that that was not a reason not to make an order where it was evident that he retained a considerable degree of vigour and was not hampered by ill-health from undertaking such a task.
40. Ball v Ball also involved a claim, in that case between siblings, for the provision of accounts relating to a will trust created on the death of their father in 1978, under which the income of his estate was left to his widow for life, with his children thereafter entitled to the residue in equal shares, the principal asset of the estate comprising shares in a family company which carried on a retail business. The claim failed principally on the basis that the defendants had adequately discharged their obligation to account by the provision in 2018 of information in a five page letter summarising the assets forming the father's estate at the date of his death, setting out the income from the trust paid to the mother during her lifetime and enclosing extracts from the company's accounts. The Chief Master rejected the contention that the information provided was inadequate or insufficient, notwithstanding that it had not been presented in the traditional format of accounts, or that the
claimants were entitled against the defendants as part of such account to information relating to the conduct as directors of the family company.
41. In paragraphs 22 and 23 of his judgment in Ball, the Chief Master referred back to previous dicta of his own in Henchley (at paragraph 62) and of HHJ Matthews in RNLI v Headley [2016] EWHC 1948 (Ch) (at paragraph 11) as to what the obligation to account entailed, before then endorsing counsel's summary of the constituent elements in paragraph 24 as follows:-
"I accept Mr Lewison's helpful summary of what is required from the trustees in providing an account to the beneficiaries:
i) They must say what the assets were;
ii) They must say what they have done with the assets;
iii) They must say what the assets now are;
iv) They must say what distributions have taken place."'