Henchley & ors v Thompson & anr [2024] WTLR 559

Analysis

The settlor executed a trust deed dated 12 September 1960 (the trust), under the terms of which the trustees were given a power of appointment over capital and income for the benefit of the beneficiaries and their respective issue. The power was limited by a deed dated 28 March 1978 so that it could be exercised only in relation to the capital of the trust fund to which a beneficiary then enjoyed an interest in possession. In default of appointment, the capital and income of the trust fund was to be held for such of the beneficiaries living on the perpetuity day (which was to be calculated by reference to a royal lives clause) or who attained the age of 30 and, if more than one, in equal shares, but subject to a division of the trust fund into two half shares to be held for the benefit of the settlor’s sons (of which he had two) and daughters (of which he had four). Each of the sons’ shares was to be held absolutely and each of the daughters’ shares was to be held on trust to pay the income to the respective daughter during her lifetime and then for her children. As all of the settlor’s children attained the age of 30, the trust fund was held as to 25% for each of his sons and 12.5% of the income for each daughter for life, with the remainder to her children and remoter issue.

Three of the settlor’s daughters, Claire, Elizabeth and Vivien, and members of their families were the claimants of proceedings relating to the trust. The fourth daughter, Patricia, was the first defendant, in her capacity as executrix of her late husband (Mr Thompson), who had been a trustee from 1972 until the trust ended in April 1993 (the relevant period), and this judgment was in respect of her application asking the court to approve and settle an account of the trust (the updated account). The claimants opposed the application.

The evidence before the Deputy Master included a reconstructed summary balance sheet for the trust at 16 November 1972, which the Deputy Master considered to be a full and detailed account of the transactions from contemporaneous documents and information from publicly available resources. It was the bedrock of the substantial financial dealings that took place over the relevant period and showed that the trust assets were then valued at £52,329. The updated account showed the income and expenditure, including rental income, dividends, interest, capital gains, expenses, taxation, and distributions and loans, during the relevant period.

The claim was issued in June 2016, seeking orders that (among other things) Mr Thompson provide an account of his dealings with the assets of the trust, such account to be verified by affidavit and supported with relevant documents. The claim was heard by Chief Master Marsh in December 2016 ([2017] EWHC 255 (Ch)), who made a detailed order for Mr Thompson to file an account in respect of the trust. An order was also made for the claimants to provide copies of documents in their possession or power relating to the trust.

Mr Thompson filed the account exhibited to an affidavit dated 28 August 2017, when he was 81 years old and stated that he had little recall of the affairs of the trust. In March 2017, the claimants disclosed nine lever arch folders of documents and a further 80 pages and Mr Thompson obtained a further 5,000 pages of documents from others, including certain professionally drawn annual trust accounts that had been audited. The Deputy Master stated that although not every individual transaction was evidenced, overall a detailed picture of the affairs of the trust was constructed from mainly contemporaneous documents.

In June 2019, Mr Thompson issued proceedings against the settlor’s second wife, Nancy, seeking an order that she should provide copies of all files and documents held by her in relation to the trust. A substantial number of documents, including bank statements and cheque stubs relating to individual transactions, were found in Nancy’s house by the second claimant and copied to Mr Thompson.

On 29 December 2020 Mr Thompson died, and after Patricia took out a grant of probate, in February 2022 an order was made substituting her (in her representative capacity as the executrix of Mr Thompson’s estate) as first defendant. Orders were also made for the first defendant to update the estate account by reference to the new documents by 29 April 2022, with further orders for points of dispute and reply. The updated account, which preparation was described by the Deputy Master as having been a ‘herculean task’, was filed and verified in May 2022. A Scott schedule was filed by the claimants in August 2022 disputing items in the updated account. Points of reply, including allegations that the Scott schedule did not comply with the order of February 2022, or with the provisions of CPR Practice Direction 40A, were served in November 2022. The application for the approval of the updated account was issued in February 2023.

Held:

1. (1) As to the law, there was no issue between the parties:
   1. (a) The court had jurisdiction to examine a trustee’s accounts and settle or approve them when the beneficiaries did not do so.
   2. (b) The court could order the taking of the account and review the account and objections. If the account was not approved, the successful party would ask the court to enter judgment against the trustee and order payment into the trust of whatever was due.
   3. (c) The procedure would be governed by CPR PD 40A and any orders made by the court.
   4. (d) The court need not have documentary evidence for every single item in an account, but could approach the evidential burden according to the facts of the case.
   5. (e) Where, as in this case, the account was in common form, it was for the claimants to falsify the account to show the position before any breach of trust, as opposed to an account on the footing of wilful default, where the requirement would have been for the claimants to show an omission, charging the trustee with what was received, surcharged with what they ought with reasonable diligence to have received.
2. (2) As to the objections that the claimants were permitted to make to the updated account, the Deputy Master stated that the Civil Procedure Rules were rules and not guidance; the overriding objective in CPR r1.1 required the court, so far as was practicable, to enforce compliance with rules, practice directions and orders. In this case, the orders made required that points of dispute should be made in a specific format common to taking an account; that any evidence filed should be limited to the objections; and that company-level objections (where the trust held shares in certain companies) were not permitted. CPR PD 40A, at 3.2(c) and (d), required specificity as to any inaccuracies of the account and the grounds in each case. Furthermore, as the account was ordered to be taken in common form, any attempt to surcharge it by making allegations of neglect or omission was not permitted. The Scott schedule should have been concise and focused, so that complex factual matters could be set out by the parties to facilitate judicial decision item by item, but following the prescribed approach.
3. (3) The Deputy Master:
   1. (a) stated that the original Scott schedule did not sufficiently condescend to the detailed particulars by reference to the lines in the updated account;
   2. (b) highlighted several failures of the claimants to comply with the requirements of the court orders and rules;
   3. (c) determined that several items comprised new objections or were irrelevant; and
   4. (d) identified company-level objections that did not need to be determined.
4. (4) The Deputy Master held that on the balance of probabilities the updated account should be approved as having been prepared as best as it could have been in the circumstances, notwithstanding that there were certain gaps. He dismissed the balance of the claimants’ claim and approved and settled the updated account.

JUDGMENT DEPUTY MASTER LINWOOD: [1] The Eagles in their iconic 1976 hit Hotel California sang ‘You can check out any time you like but you can never leave’. Mr Holden submitted at a hearing in May 2023 that the First Defendant was in the same position as the WCC Henchley Trust (‘the Trust’) has not …

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