[3a] In Royal National Lifeboat Institution (RNLI) v Headley [2016] EWHC 1948 (Ch); [2016] W.T.L.R. 1433, the claimants (5 charities) were remaindermen under a trust. The claimants' entitlement was only to capital on the death of both life tenants, the settlor/testatrix's 2 children). The charities were not entitled to any income which arose prior to both life tenants' deaths ('...here the will created two life interests for adult beneficiaries, with no power to accumulate the income to capital.' (paragraph 19)). They were entitled to the capital only (following both life tenants' deaths). One of the children was still alive. Despite repeated requests, the trustees (2 solicitors (though 1 recently died)) were unresponsive to requests for an accout of the trust. On an application for an order, ordering the defendant trustees (then the surviving trustee D2) to account, Master Matthews:

(a) explained how, while all beneficiaries are entitled to an account (with Millett LJ making this point in Armitage v Nurse [1998] Ch 241, 261), what Millet LJ did not address, as was what kind of accounting, and in relation to what, different classes of different classes of beneficiary were entitled to - and that this was the issue in the case before him. At paragraphs 10 to 13, Master Matthews said:

'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.”

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.

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. 13. 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.' [words in bold are in italics in original]

(b) considered the underlying basis for the duty on trustees to account. He said, at paragraph 14:

'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.' [words in bold are in italics in original]

(c) On the facts on RNLI, Master Matthews focused in on: (i) what the claimants' entitlement was, qua the type of beneficiary they were, under the trust; and (ii) how this limited the width of information, the claimants' would be entitled to an account of. Master Matthews said, at paragraph 15 and 16:

'As I have already said, the Claimants seek from the [D2] 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...at the end of the hearing, I invited counsel to submit a Note on the legal basis for ordering [D2] to provide the trust accounts and other information sought. Counsel did indeed produce such a 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.' [words in bold are in italics in original] [a 'distringases' was (it is now obsolete) a writ directed to the sheriff of the county, commanding the sheriff to distrain upon the goods/chattels of a person] ['cestui que trust' - can be read as beneficiary]

Master Matthews then went through, at paragraph 29 to 31, the type of information, the charities/claimants were entitled to seek, under an order from the court, against the trustee/D2, to be included in the 'account'.