Beneficiaries’ right to accounts – a recent case

There has been a very useful recent decision in a claim for accounts brought by a number of charity beneficiaries against Executor trustees. The Court Judgment is (perhaps surprisingly) well worth a read itself, but in the meantime, here is an undeniably engrossing summary.

The case provides particularly useful guidance on which beneficiaries are entitled to what accounting information from Trustees and provides an interesting example of the Court ordering Executors to pay costs personally.

Background

John Headley and Kevin McCole were the Executors of the Will of Evelyn Farmer. Both were solicitors at Headleys Law firm in Leicestershire. The Will created two life interests for adult beneficiaries: the Testator’s son and daughter-in-law. Upon the death of the son and daughter-in-law the Estate would pass to ten charities (the “remaindermen”), including the Claimants in the present case: the RNLI, the British Red Cross Society, The Guide Dogs for the Blind Association, RSPCA and Leonard Cheshire Disability.

The Deceased died in 1986. Her Estate was worth no more than £145,000 and was administered by the Defendant Executors in 1996. Over the ensuing years the Claimant charities repeatedly chased the Executors for particulars and accounts of the property comprising the trusts estate, and the income, expenditure and distributions of the trust. The Executors provided some of the Estate accounts in 2007 to the charities but then they did not disclose anything further.

Eventually the charities had to issue a claim against the Executors in 2016 for an order under Part 64 of the Civil Procedure Rules for proper particulars and accounts of (i) the property comprising the trust estate and (ii) the income, expenditure and distributions of the trust. The claim was subsequently amended to a claim against only one of the two Executors, as it transpired one had died a year before the proceedings.

Although the Defendants did not defend the claim, Master Matthews took it upon himself to consider precisely what information the charities were entitled to. In particular Master Matthews was concerned with whether the charities were entitled to information about the income when they were not beneficiaries of the income.

The general principle

Millets LJ in the case of Armitage v Nurse [1998] Ch 241 , 261, CA said that “Every beneficiary is entitled to see the trust accounts, whether his interest is in possession or not.”

As such trustees must be ready to account to the beneficiaries for what they have done with the trust assets.

That “account” can sometimes be done by way of formal financial statements, or with less formal documents or even potentially with no documents at all.

However, not all documents must be disclosed to all beneficiaries, and what the general principle fails to address is what class of beneficiary is entitled to what kind of accounting and in relation to what information.

Decision

Master Matthews said that the answer depends on what is needed in the circumstances for the beneficiaries to appreciate, verify and, if need be, to vindicate their own rights against the trustees in respect of the administration of the trust. In this case, the charities’ interest was limited to the trust capital, but they had no rights or interest in the trust income which remained payable to a surviving life tenant.

Accordingly the judge had no difficulty in ordering an account of capital and details of the trust investments, but they were not entitled to an account in respect of income elements of the trust, as they had no rights in respect of the income.

Costs

The judge then turned to whether the charities could recover the costs of the claim. He considered that although there was undoubtedly a breach of duty by the Executors in failing to provide information to beneficiaries, that did not necessarily justify an adverse costs order.

However, this was a case where the Executors’ neglect has been gross and the refusal to provide information was unreasonable. Accordingly the surviving Executor was ordered to pay the Charities’ costs.

Now the general rule is that Executors can recover from the Estate their reasonably incurred costs (Trustee Act 2000 s.31 (1)). This would usually include being indemnified from the Estate for an adverse costs order; such the Estate would pay the costs rather than the Executors themselves (CPR 46.3). Once more though, the judge digressed from the usual rule as he considered that the Executor had acted for the benefit other than that of the Estate. Accordingly the Executor was ordered to pay the costs personally.

As is so often the case, the judge reduced the charities’ costs by approximately 25%.

Key Points to Remember

  1. Beneficiaries are entitled to accounts from Trustees, but the information they are entitled to will depend on the circumstances.
  2. A claim for an account should be limited to information in respect of which the claimant has an interest.
  3. Executors’ unreasonable refusal to provide information to beneficiaries can lead to an adverse costs order against the Executors personally.
  4. Despite a successful claim, the charities still suffered irrecoverable costs to the value of around 25% of their total costs of the claim.

If you are having difficulties in obtaining information from Executors/trustees, let us know – we would be happy to help.

For more information please contact Tony Cockayne, Head of the Disputed Wills & Trusts team on 01392 687601 or email tony.cockayne@michelmores.com.