Sinclair & Anor v Sinclair [2009] EWHC 926 (Ch)

[2009] EWHC 926 (Ch)Case No HC06C04028IN THE HIGH COURT OF JUSTICECHANCERY DIVISIONIn the matter of the will trusts of Arthur Sinclair deceasedVenue Royal Courts of Justice, Strand, London, WC2A 2LLDate 01/05/2009
Before
MRS JUSTICE PROUDMAN
Between
CLIVE TREVOR SINCLAIRClaimantsMARION EVELYN HALLClaimantBRIAN ARTHUR SINCLAIRDefendant
Miss Constance McDonnell (instructed by Messrs DMH Stallard, Centurion House, 37 Jewry Street, London EC3 2ER) for ClaimantsMr Charles Scott (instructed by Messrs Windsor & Co, 670 High Road, Tottenham, London N17 0AH) for DefendantHearing Hearing dates: 16 February 2009
Judgment
[1]The claimants are Clive Trevor Sinclair and Marion Evelyn Hall, who are brother and sister. The defendant is their elder brother, Brian Arthur Sinclair. A third brother, Michael Sinclair, died on 2nd September 1995. His widow and personal representative, Catherine Sinclair, supports the claim. For convenience sake, and without intending any disrespect, I shall refer to the siblings as Clive, Marion, Brian and Michael, to Michael’s widow as Catherine and to the parties’ parents Arthur and Emily Sinclair as Arthur and Emily respectively.[2]The case concerns the trusts of Arthur’s will. He died on 23rd December 1972. During his lifetime Arthur had run the family building business, Sinclair Builders (sometimes called “Sinclair’s Builders”, and to which I shall refer as “SB”), as a sole trader. SB had been in the family since 1910. Brian had been closely involved but was never more than an employee or salaried partner. Before Arthur’s death the business had run into difficulties. He died owning a number of investment properties in North London, that is to say, properties yielding rents from tenants which were intended eventually to be developed by SB. Arthur also owned a property at Burlington Road Tottenham, known as “the Yard” which was occupied by SB and out of which it operated. There were considerable debts attributable to the business. A Statement of Affairs was prepared in November 1970 and a Receiving Order made in the sum of about £33,000 in 1971. The Receiving Order was discharged by the time of Arthur’s death. Arthur and Emily were unable to support the borrowings required to do so. Money was borrowed against the security of properties that Arthur owned and also against the security of Arthur and Emily’s matrimonial home but the various mortgagees wanted Brian to assume personal and/or primary liability. There was also a substantial overdraft on SB’s business account which was not repaid until 1977, when proceeds of one of the estate properties was applied to discharge it.[3]Brian was in partnership, trading from the Yard, with a Mr Arden as Sinclair & Arden (“S&A”). From the inception of the partnership on 1st January 1972 until Arthur’s death in December of that year, SB and S&A were separate businesses running in tandem. After Arthur’s death, SB was kept alive because it had an NHBC certificate. Brian took over SB after Arthur’s death and no claim has been formulated that it was wrong for him to do so. The names SB and S&A were used interchangeably until Brian and Mr Arden parted company in 1979 and the business became solely SB again.[4]In the events which happened, Arthur appointed his widow, Emily, as his sole executrix and trustee. By Clause 5 of his will Arthur left his residuary estate upon trust for sale, with full power to postpone sale, upon trust for Emily for life and thereafter, in the events which happened, for Clive, Marion, Brian and Michael in equal shares absolutely. There were no submissions as to when the administration of the estate formally ended and the trust began, although there was some evidence that the estate duty position was not resolved, neither were Arthur’s debts fully discharged, until the 1990s.[5]At the time of Arthur’s death his liquid assets totalled £3,050 and his properties were valued at £60,000. The liabilities which were immediately payable totalled £5,348 and the secured debts and liabilities totalled £21,576. Additionally there was an inheritance tax liability of £6,218.73. Debts were paid out of the proceeds of sale of properties as and when they were developed and sold.[6]It is common ground that, with Emily’s approval, Brian assumed sole responsibility from the outset for administering the trusts of the will in all respects. On 1st April 2003 Clive and Marion were appointed trustees in Emily’s place in the circumstances to which I shall refer. Emily died just under two years later on 15th February 2005 at the age of 90. Brian is her sole executor and she left her estate to Marion, Clive, Brian and Catherine in equal shares. The claims[7]The defendant is sued as a constructive trustee or trustee de son tort of the trust from the time of Arthur’s death until Clive and Marion took over the trust in 2003. The issues between the parties in this action fall under four heads, as follows:(1) Claims by Clive and Marion, supported by Catherine, that Brian, as the former trustee, should account to them as the current trustees. I am asked to take the account. Brian’s liability to account is not in dispute. Clive and Marion accept that it would be impracticable now to unscramble what happened and show what the situation would have been if the estate had been properly administered according to law. The position is as it is and the claim is that Brian should repay sums in respect of credits in his favour appearing in the trust accounts drawn up after the event by his accountant Mr Julian Ellis. The claimants seek only to recover sums for which there are no vouchers linking the credits to Brian in the accounts with expenditure on trust properties. It is accepted that the burden rests with Brian to prove that these sums were expended for trust purposes only.(2) Counterclaims by Brian that there are other sums for which he is entitled to be reimbursed or which ought to be brought into the account in his favour on distribution.(3) A claim by Marion and Clive for possession of the Yard, countered by a Part 20 claim by Brian to an interest in the Yard based upon proprietary estoppel or a proprietary constructive trust.(4) A claim by Clive and Marion that Brian should account to them for, and pay, a rent for his occupation of the Yard from 1972 to the present date.

Background

[8]Emily retained a firm of solicitors in relation to the administration of the estate and Brian was being advised in relation to business matters by a firm of accountants. It rapidly became evident in the course of this trial that the family did not have more than a basic idea of the nature of interests under a trust or of the duties of a trustee. Even now the parties’ understanding of what a trust entails is limited and Brian’s oral evidence showed some confusion both as to his duties and as to the rights of persons with successive interests. It is a curious and indeed deplorable feature of this case that Emily and Brian were apparently left without clear advice at the outset. I have seen one letter dated 29th October 1973 to Emily from the solicitors dealing with the administration of the estate. The terms of this letter would have been confusing and obscure to a lay person. Of course I do not know what advice was in fact given (the letter appears to be written in the context of a continuum of advice) and it may be that Emily did have the benefit of proper and full advice from her solicitors. Brian’s evidence is that there was indeed some continuing advice at an early stage. It is not for me to ascribe blame: the solicitors and accountants are not here to explain themselves and Arthur died a long time ago. However it is a sobering thought in the context of this deeply unhappy and divisive family dispute that if the parties, having had the matter properly explained to them, had sat down and discussed it at the outset the present problems would not have arisen. All the beneficiaries were of age. Either there would have been agreement or objections would have been raised and Emily and Brian would have appreciated the consequences of proceeding as they did. As it is, the parties were left to fend for themselves, presumably on the basis that they were a united family. However, everyone knows that families do fall out, particularly over money.[9]Neither Emily nor Brian understood the onerous duties of a trustee and, with at least the passive acquiescence of Emily, Brian administered the trust in a manner which he now realises and acknowledges was wrong as a matter of law. In fact his administration did not even begin to comply with trust law requirements. He did not draw up trust accounts, he mixed trust moneys with those of SB and he set up a running account between himself and the trust, drawing on trust moneys for the requirements of SB. He mortgaged a trust property to help him raise money for SB’s general purposes. As S&A and SB he continued to occupy the Yard rent-free and it apparently never crossed his mind that he ought not to do so. It is common ground that none of this was done with the express consent of Clive, Marion, Michael or Catherine. Brian did however keep careful records in the form of ledgers and cash books and every year he retained Mr Julian Ellis, a chartered accountant, to perform a reconciliation exercise which had the effect of showing the state of account between Brian and the trust. Tax returns were also duly made. It is important to note that, although no conventional trust accounts were kept at the time, Mr Ellis contemporaneously prepared annual accounts in relation to all transactions relating to both SB and the trust. These accounts form the basis for the trust accounts which Mr Ellis prepared in 2003.[10]The trust properties were largely in poor condition and did not achieve a high rental income. Trust properties were sold and the proceeds used in part to pay off estate debts and in part to fund the development of the retained properties. 54 Pemberton Road was developed into flats which were sold off on long leases in 1976 and 1977. 16 Endymion Road was developed into flats between 1984 and 1989. 22 and 24 Lansdowne Road were developed to provide two flats each. The Endymion and Lansdowne Road developments were financed partly through an overdraft on the trust bank account, partly through improvement grants and partly through SB carrying the cost of the work until the trust could pay for it. The trust accounts show that the trust made a loss or only very small profits until 1992. Thereafter the trust rental income began to rise and the trust began to make significant profits from lettings of the developed flats.[11]Between 2002 and 2003, after the present dispute arose, Mr Ellis drew up trust accounts for each of the years since Arthur’s death, based on his working papers, tax returns and the written records to which I have already referred. In these proceedings the parties jointly instructed a single forensic accountancy expert, Mr Steven Segal BSc (Econ) ACA. The parties have broadly speaking accepted his findings.[12]I found Brian to be an honest witness. It is true that he sometimes tried to justify legally unjustifiable actions, but that reflected how he felt. He did not try to put a favourable spin on the facts. He did not allege that matters were or might have been discussed when they had not.[13]It is I believe important to understand Brian’s point of view as to what happened and why. He does not accept that he did anything morally, as opposed to legally, wrong. The plan which he carried out was to develop the trust rental properties through S&A and SB and sell them for the benefit of the trust. He charged the costs of the development (such as the materials and labour costs) to the trust, but charged no profit element for himself. It seemed plain to him that he needed to retain the Yard from which to operate. Because of Arthur’s debts the trust did not yield any profit for many years and Brian believes that is why Clive and Marion showed no interest in it. It was only in the late 1990s when substantial income was being generated and outstanding debts had been settled that Clive and Marion began to question his actions. When it was put to him that he ought to have considered selling all the properties including the Yard at an early stage his reaction was that this was unthinkable. A sale would not have produced the kind of return for the trust that was in fact realised in due course. The evidence was that if all the estate properties had been sold after Arthur’s death the surplus available for investment would have been something in the order of £30,000.[14]Brian took a paternalistic attitude to his siblings as to what was best for the family overall. He did not always understand that there was a conflict with his duty in that S&A and SB were operating from the Yard and carrying out projects in which the trust had no interest as well as the development of trust properties. He regarded the business of SB as being for the benefit of the family, although he was aware that it belonged solely to him. He worked without charge on his siblings’ houses. He developed the trust properties at cost. He saw SB as providing employment for the family as a whole. However, as Marion pointed out, they all worked for the salaries which they earned and she, at least, could have obtained suitable employment elsewhere.[15]Brian, Emily and Marion were the only family members who had any real involvement with the business side of SB and the trust. Clive readily admitted that he was not good at paperwork. He was happy to work as an employee of the business as a hands-on builder. Michael worked as a builder during his lifetime; after his death Catherine did some clerical work for SB.[16]Emily was in her late 50s when Arthur died. She continued to collect rents from the trust properties and perform bookkeeping services for SB and sort out the wages. Indeed she continued to come to the office at the Yard, ostensibly to work, until 1998, but by then she really came for the company only.[17]Marion was described in a note made by her solicitor on 6th February 2002 as “the family’s eyes and ears” and this was a fair summary of her role. She worked for SB for some time, but it is common ground that she was not involved in administering the trust. Although in her evidence Marion sought to distance herself from accounting matters she frequently performed the task of reconciling chequebooks with bank statements (including the trust rental account) and had a reasonable grasp of business matters. However, I accept her evidence that she did not know the details of how the trust was managed. While she knew that SB continued to occupy the Yard she said that she had no idea whether rent was paid because that was the kind of thing which never crossed her mind. It is common ground that SB’s rent-free occupation was never expressly discussed with her, Clive, Michael or Catherine.[18]I was taken in detail to the way in which the Lloyds Bank “rent account no 1”, (that is to say, the bank account into which rents collected from trust properties were paid) was managed (“the rental account”). Sometimes Brian paid for labour and materials for trust developments out of the rental account; often he paid for them himself and charged them to the trust account against the time when liquid funds became available. Both he and Mr Ellis gave evidence, which was unchallenged, that they were aware of, and took account of, the distinction between capital and income expenses. Brian also made what he called “drawings” against the trust account for general business purposes. His evidence, and that of Mr Ellis, was that every year there was a reconciliation showing the state of account between Brian and the trust. Brian said:
“I always tried to ensure that the balance of account was maintained against me, that is to say the Trust owed me money rather than the other way round. I did that to try and keep the overdraft on the trust rental account under control because the Trust did not have the income to cover what was spent.”
Mr Segal’s final evidence was that the balance of that account was £14,831 in Brian’s favour at the date of Emily’s death.[19]One of the claimants’ grievances in this case is that all the rents should have gone to Emily, but that Brian deliberately withheld the account moneys from her. As I have said, the estate as a whole was wrongly administered. Brian did not however dishonestly or covertly misappropriate any moneys from the trust.[20]Brian signed all the cheques on the rental account. Many of the cheques were properly drawn to pay Emily’s living expenses. It was only in the last years of Emily’s life that there was a net balance which could have provided any substantial income for Emily.[21]Mr Segal’s summary of findings includes the following statement:
“Although the Will Trust generated income of some £273,000 in the last 10 years of Emily’s life, her direct drawings were just under £24,000. This compares to the tax of £40,260 paid on the trust income in the same period.”
However, in oral examination Mr Segal explained that he based his calculation of the income figures on his own amended profit and loss accounts. Increases in value of the estate properties over the probate valuation were treated as increases in the income to which Emily was entitled. Thus Mr Segal’s income figures, although accepted as correct, did not represent actual balances in the rental account of money available for distribution.[22]Over the years several cheques made out to or for Marion or Clive were drawn by Marion and signed by Brian at her request. Brian’s evidence was that he knew he was signing cheques for Marion and Clive and he never refused to do so when asked. Marion agreed that he never queried any of these cheques. Unlike money which he drew for SB, Brian did not treat money given to Marion or Clive as repayable. He did not expressly ask Emily’s permission for such payments. When asked by the Court why he thought he could properly make these gifts of what was ultimately Emily’s money Brian said he believed he had a discretion to advance his siblings some of the money to which they would in due course become entitled.[23]Marion accepted in cross-examination that she knew the money belonged to Emily. When she was asked why she accepted cheques in such circumstances she said, on several occasions, words to the effect of “Who wouldn’t, if they were offered £500 [or £1,000, £2,000 or whatever the figure was]?” There was also an incident in which Marion drew a cheque on the rental account for more than £10,000 from the back of a chequebook for money for a holiday for herself and Clive. The stub was wrongly filled in: the payee was incorrect and the amount blank. It was plain, despite her protestations to the contrary, that Marion did not want to draw attention to the fact that a large sum had been drawn from the rental account for her personal benefit.[24]At a later stage, when trust properties started producing significant income and after the assurance from Mr Ellis to which I will refer later, Marion would request relatively large cheques from Brian to be paid to Emily. Brian did not query any of them; he accepted that the net rent was Emily’s to spend as she wished. Frequently, these cheques were passed through Emily’s building society account by Marion and the proceeds paid to Marion or Clive and sometimes Catherine. Marion insisted that this was Emily’s wish and the payments were made on her express instructions. There was no evidence sufficient to undermine her evidence that these payments were freely made by Emily as gifts.[25]It is understandable that the way in which Brian administered the trust gave rise to questions in the minds of Marion, Clive and Catherine. However they did not try to raise any queries with him in the first instance. Instead they consulted a solicitor, Anthony White, with whom they had a meeting on 2nd February 2002. His note of that meeting shows that they suspected Brian of nothing less than having his hand in the till and that they had already raised those suspicions with Emily. Mr White’s Note of the meeting contains the following passages:
“We are instructed each time the Mother becomes ill money disappears for the improvement of the residential property of Brian Sinclair…At each illness of the Mother then the Son’s spending spree increases…. £40,000 from the rent account has not filtered through to the accounts of the family trust but appears to have evaporated on the way and perhaps has been utilised in the latest spending spree in Brian’s house….Brian is not easy to talk to also they could not believe their own brother might have been embezzling the trust monies.”
[26]Mr Segal’s evidence showed that there was no embezzlement of that sort. Indeed he accepted in oral evidence that on a proper analysis of the figures it was Brian who had been funding the trust. When cross-examined, both Marion and Clive sought to distance themselves from most of Mr White’s note, denying that they had ever made such allegations. Marion said that she was never asked to approve the Note and that it was quite wrong. However having seen Mr White’s contemporaneous hand-written notes I have no doubt that Marion and Clive did make such allegations and that it was those suspicions which led to them instructing a solicitor. It is notable that the note does not properly distinguish between the business of SB and the trust. The complaint is, in general terms, that the family as a whole was not benefiting from SB’s business.[27]Mr White’s instructions purported to come from Emily (“instructed through her children- we have not yet met”) as well as Marion, Clive and Catherine. It is common ground that Mr White never did take instructions from Emily in person. His note shows that the action he was instructed to take at the meeting in February included “Draft a Statutory Declaration for swearing by the Mother of all the facts, in case she passes away”.[28]Mr White duly drafted a statutory declaration. It was posted to Emily a week or so after the meeting with some blanks which were filled in by Marion. Emily executed it on 22nd February 2002. It contains the following passages:
“4. After Arthur’s death…I was informed the estate including the family business was held on trust for myself for life and then to my four children equally. 5. My Son Clive has worked for the family business for thirty years, my Daughter Marion for the last thirteen and my other Son Michael also worked for the firm during his lifetime. It was always considered the family business. 6. I understood my eldest Son Brian Arthur Sinclair was running the business for the benefit of the business and the family. 7. From time to time Brian would draft letters and bring me the documents to sign which I did trusting him but not fully understanding and sometimes not understanding at all to what I was putting my name to confident that Brian was organising matters for the benefit of the family as a whole. 8. In recent years I could see my children other than Brian were disproportionately not enjoying the proceeds of the family business and it is my concern that the Trust had not been carried out as my late Husband Arthur had intended. I believe that Arthur would have wanted all four children to benefit equally and for myself to enjoy a reasonable standard of living and quality of life during my lifetime. 9. I have asked my Daughter Marion and my Son Clive to make enquiries and to assure me Arthur's wishes are being properly fulfilled by my Son Brian and wish to record that while acting as Trustee of my Trust I did not appreciate what was being done in my name or understand or comprehend the letters and documents I had been asked to sign by my Son Brian. 10. I executed the said documents and letters at my Son Brian's direction and request trusting him that he was looking after all my interests and those of his siblings.” 10. I executed the said documents and letters at my Son Brian's direction and request trusting him that he was looking after all my interests and those of his siblings.”
[29]On 1st April the following year Emily retired as trustee of the trust in favour of the claimants.[30]The claimants say that Emily was aware of and approved the contents of the statutory declaration and the deed of appointment. Brian says that she was acting under the undue influence of the claimants when she executed them. No evidence was taken from the independent Commissioner for Oaths who came to supervise the execution of the statutory declaration and take the oath, nor was there any evidence from the witness to Emily’s signature on the deed of appointment.[31]There is a claim for undue influence in Brian’s pleadings, but it was dropped at trial. Instead, Mr Scott, his Counsel, submitted that Brian wished to rely on the facts as to Marion’s influence over Emily only as part of his general case against the claimants. Some of the cross-examination of the claimants was directed to Marion’s control over Emily’s building society books, the closeness of mother and daughter and Emily’s dependence on Marion in old age. However, no undue influence claim was properly pleaded or otherwise formulated on the ground either of presumed or actual undue influence. I was not taken to authority as to the scope of presumed influence. In my judgment the case as presented at trial was inadequate to prove undue influence, presumed or actual.[32]That said, having heard the evidence and considered the sequence of events, it is plain that Emily’s view of Brian from 2002 onwards reflected what she had been told by Marion and Clive, which I infer was the same as they had told Mr White. At the time of the statutory declaration Emily was in her late 80s and had no independent knowledge about how the trust was being administered. Equally, in the past she had consciously and willingly relied upon Brian as her eldest son in all business matters. He maintained that he explained trust matters to Emily in general terms but he accepted that she had absolute faith in him and would sign whatever she was asked to sign. Emily’s understanding of trust matters[33]One of the matters I have to decide is how much Emily understood about and approved the way in which the trust was administered. All parties agreed that she was first and foremost a housewife and mother. Brian said that she was an intelligent woman who until the late 1990s had a reasonable, although not detailed, grip on business matters. She was a bookkeeper and she used to collect the rents for SB and for Arthur’s properties. He says he discussed trust decisions with her.[34]On the other hand, Marion and Clive said that Emily’s understanding of business matters was at all times very limited and that she did not realise that she even had any entitlement under the trust. She had told them that Arthur had left her nothing. Brian says that she did understand that she had an income interest but that in the early years the trust yielded no profit and that was why she neither expected nor received any income. Marion says that she would tell Emily that she was entitled to the rental income but Emily refused to believe it until one day she asked Mr Ellis, who confirmed the position. After that date payments began to be made to Emily through the cheques drawn by Marion to which I have already referred, some of the proceeds of those cheques being passed on as gifts to Marion and Clive.[35]The overwhelming impression I received of Emily from the evidence on both sides was of a family-minded woman who loved all her children. She was thrifty as regards her own needs but generous to them. She was upset by family quarrels and wanted to keep the peace. Marion related a telling incident in which she had complained about Brian to Emily and Emily had told her “not to rock the boat”. Jacqueline Vinten, Brian’s partner, gave evidence (which I accept) that latterly, although Emily continued to visit frequently, there were some constraints in the conversation. This led Ms Vinten to understand that Marion and Clive had been saying things about Brian’s conduct which had troubled Emily. The one matter about which I have no doubt whatsoever is that Emily would be horrified at this present action, its cost and its public exposure of the rift between her children. Marion and Clive did not issue the proceedings until after Emily’s death. They too must have appreciated the distress proceedings would have caused her.[36]I find that Emily did know that she had an interest in the trust, but did not believe for many years that there was any income available for her. I accept what Brian said in his witness statement as follows:
“After [father] died Mum did not really want to get involved with doing what was required. It was not that she could not do it if she put her mind to it or did not know about it, she just did not like dealing with other people about things and left it to me to sort out things for her. I took on the responsibility to keep the business going, look after the family and deal with father’s estate. No-one else was interested in doing it and the burden fell on me. Mum knew what the position was under the Will and what had to be done…Mum knew she was entitled to the income from the Trust…Mum left things for me to deal with because that is how she wanted things to be dealt with. I told her what I was doing so she knew what was happening. I did not go into all the details of everything as for much of the time she did not really want to know and was happy for me to deal with things for her….She was not incapable and understood most things perfectly well but she did leave things up to me to deal with.”
The letter from the estate solicitors of 29th October 1973 does state in terms that Emily was entitled to the income (“whether it be from the rent of properties or from reinvestment of the proceeds of sale if any should be sold”) and that this was what was meant by a life interest.[37]Because there was little income from the trust at first, Emily found it hard to comprehend in later years that she was able to draw on relatively substantial sums. She may have thought that payments made for her maintenance were by way of gift from Brian, but I find that it is more likely that she was simply not interested in the source of the money, relying on Brian to look after the family interests. She consciously and deliberately left all trust matters to Brian.[38]Emily knew and approved the fact that Brian, as SB, was occupying the Yard and would not have wanted it to be sold and the proceeds invested to provide an income stream for her. She was for many years the rent collector for the trust properties and (as is evident from numerous pages in her writing) she compiled the cashbooks for SB. In those circumstances I find that she knew that Brian was not paying rent for the Yard. Again, however, she was not interested in the terms of his occupation although I have little doubt that she would have been surprised if it had been suggested to her that he ought to pay rent. She looked at the family interests in the round and expected the Yard to remain as the base from which Brian could support the trust financially by repairing and developing the trust properties. She, as Brian and Arthur before him, regarded SB as the source of the family wealth, even though I find that she, as well as they, knew that the wider family had no direct interest in the business. The statutory declaration suggests the contrary, but it reflects the confusion apparent in the instructions given by Marion, Clive and Catherine to Mr White. In my judgment Emily had lost her grip on business matters by that time and simply adopted the stance taken by Marion, whose help and judgment she had come to rely on. The claimants were plainly, from 2002 onwards, aggrieved by the fact that Brian took all SB’s profits but of course it follows that Brian (as Arthur before him) was exposed to all the risks of the business as well as reaping the benefit. The unsubstantiated credits (“the uncertain sums”)[39]I now turn to the first head of claim by Marion and Clive against Brian. It is common ground that Brian is entitled to reimbursement in respect of works carried out through SB to trust properties. It is said, correctly, that it is for Brian to prove that any sum he has charged to the trust in respect of alleged expenditure on trust property was so spent. It is also said, again correctly, that he faces particular difficulties in so doing in circumstances where he has mixed trust money and trust expenditure with that attributable to his own business.[40]It is also submitted that invoices for materials which do not bear a designation as to the trust property for which those materials were said to be used, and other unsubstantiated items, must result in a surcharge and falsification in respect of that item in the taking of the account. The burden is on Brian to prove proper expenditure properly applied for trust purposes.[41]I agree with this proposition as to the burden of proof but I do not agree (if it be so alleged) that a lack of vouchers inevitably leads to disallowance of an item. I was not referred to any authority on the principles of taking the account in this respect, but it seems to me that the question for the court is the same as that which arises on any other issue on which a party bears the burden of proof: taking all relevant circumstances into account, has he discharged that burden on the balance of probabilities?[42]I should add that Brian, who was described as a hoarder who never throws anything away, has spent a huge amount of time going through boxes of old invoices, dating back to the 1970s, in an effort to track down every bill and invoice relating to the uncertain sums. Even during the course of the trial he managed to find additional invoices and papers which he produced by way of further disclosure in a supplementary bundle.[43]The final position on the issues between the parties on the question of unsubstantiated credits as they subsisted at the time of closing speeches appears in an amended schedule prepared by Miss McDonnell on the claimants’ behalf. I propose to deal with the outstanding items as numbered in that schedule. First there are the two largest items: the improvements to Pemberton Road and repairs to unidentified properties. Item 1: improvements to 54 Pemberton Road. £32,810 claimed (labour £24,916, materials £7,894)[44]Detailed estimates were provided for this work in June 1971, totalling £12,342, as a result of proposals made by Brian to Arthur that the property could be converted from two flats to five. The evidence of Brian and Mr Ellis was that it was not until 1976 that serious work began on this project. By then the scope of the proposed works had changed as there were new building regulations and the rate of inflation had risen to about 25%. Mr Ellis said that he found it unsurprising that a development costed at some £12,000 in 1971 would have actually cost nearly three times that amount by 1977. The last flat was sold on 12th August 1977. The evidence of both Brian and Mr Ellis was that the cost of labour and materials (the works were carried out at cost price) was borne in the first instance by S&A and that S&A were only repaid from the proceeds of sale of the flats.[45]Mr Segal gave evidence that, having analysed S&A’s accounts and the total purchases and subcontractor costs set out in those accounts, the costs claimed “could have been incurred”, although S&A should have invoiced for the work by the end of 1977 and did not do so. S&A’s accounts, which Mr Ellis prepared, showed the sum of only £4,921 in respect of ‘sundry debtors and repayments’. Mr Ellis’s explanation was that he did not treat this development as a sale in S & A’s accounts; instead the costs were shown as drawings in the partners’ capital accounts.[46]There is no doubt that the conversion work was done and that it was done for the benefit of the trust. Brian’s evidence was that the total sum of £32,810 was what was in fact spent on 54 Pemberton Road. Mr Ellis was responsible for drawing up the trust accounts for the relevant period, and his working papers show relevant entries for the sums claimed. His evidence as to the manner in which he drew up the original records (on which those trust accounts were based) is important:
“The amounts credited in Brian’s favour in the running account include sums for work done to trust properties, whether repairs or improvements. Again in each case I checked the materials costs and labour costs against the underlying invoices and time sheets at the time I prepared the accounts. I did this each year as time went by in order to deal with the trust’s tax returns. The daily rates were provided by Brian but the hours came from the time sheets maintained as part of Brian’s business records. I [produce] the working papers I have been able to locate which deal with the calculation of these costs. I had hoped I would be able to revisit the materials invoices included in my calculations however that has not been possible as the black Twinlock ledger [“in which job records were kept”, “recording details of the materials invoices” “so that there was a record identifying the source documents relating to each job”] cannot be located. The whole ledger has disappeared.”
[47]I accept Mr Ellis’s evidence that in arriving at the figures in the contemporaneous accounts he had regard to the underlying records and that the trust accounts were therefore based on such records rather than what Brian told him. Under cross-examination Mr Ellis was able to say “with certainty” that the figures brought into the accounts for 54 Pemberton Road did indeed relate to the development of that property.[48]Against this evidence, I balance the fact that there are no extant invoices proving the sum appearing in the accounts. However, as I have said, that is not conclusive. Brian’s evidence was that no separate invoices were in fact issued for 54 Pemberton Road for the simple reason that there was no money in the trust to pay them. Item 6: Unidentified Repairs. Total: £65,374.[49]Mr Segal provided a schedule of these costs broken down by year. He commented that he was unable to check these figures as there were no supporting invoices. Mr Scott took me through each of the items in Mr Segal’s schedule, as follows:• 1974. There are vouchers for the whole of the figure of £2,555 alleged to have been expended by Brian on trust properties in the documents in the supplementary bundle he has now provided.• 1975. Mr Ellis’s working papers relating to this year show a figure of £1,917.10 in the Adjustments column for repairs to trust properties. Brian’s supplementary bundle vouches for £1,447.60 of this sum, relating to 16 Endymion Road, 22 Lansdowne Road and 24 Lansdowne Road.• 1980. The figure of £2,084.27 is claimed. Brian’s supplementary bundle shows that the figure of £2,084.87 was paid in respect of repairs to 16 Endymion Road. It is common ground that this entry (on sheets headed ‘outgoings’ for 1979-1980) is written in Emily’s handwriting.• 1996. Mr Ellis’s working papers show a breakdown of materials for 22 and 24 Lansdowne Road and 16 Endymion Road totalling the £7,120 claimed and there are a number of sales invoices from SB to the letting agents for each of the three properties for specified repair and maintenance works which support this figure.• 1998-2004. In all these years, the figures claimed appear in the repairs Adjustments column of Mr Ellis’s working papers. His workings show the allocation of repair costs for these years to trust properties as follows: 1998: £8,985 to 16 Endymion Road 1999: £1194 to 22 Lansdowne Road, £1909 to 24 Lansdowne Road and £4847 to 16 Endymion Road 2000: £1,126 to 22 Lansdowne Road, £1,493 to 24 Lansdowne Road and £2,231 to 16 Endymion Road 2001: £1,246 to 22 Lansdowne Road, £4,443 to 24 Lansdowne Road and £866 to 16 Endymion Road 2002: £1,189 to 22 Lansdowne Road, £455 to 24 Lansdowne Road and £4,880 to 16 Endymion Road 2003: £2,083 to 22 Lansdowne Road, £6,247 to 16 Endymion Road 2004: £1,721 to 22 Lansdowne Road, £2237 to 24 Lansdowne Road and £2,881 to 16 Endymion Road 2005: £911 to 24 Lansdowne and £3,274 to 16 Endymion Road.• 2005. The whole of the sum of £4,185.58 alleged to have been expended by Brian on trust properties has been vouched for (in respect of 16 Endymion Road and 24 Lansdowne Road) by documents in the trial bundle and in Brian’s supplementary bundle.[50]The question for the Court is whether it is satisfied that Brian has proved his expenditure in relation to items 1 and 6 of Miss McDonnell’s schedule. It is true that Mr Segal’s expert evidence questions all these items and that his evidence has been accepted. However, his remit was a different one from that undertaken by the Court. He analysed the figures with a view to ascertaining whether there were supporting vouchers to prove the payments.[51]The Court is entitled to take into account Brian’s credibility, how his figures were arrived at and to what extent they are corroborated by evidence from Mr Ellis. Mr Ellis is a professional man who gave his evidence in a measured and cogent manner. I have accepted the evidence of his witness statement as to the manner in which he prepared contemporaneous accounts of the transactions with trust properties.[52]I have seen no evidence to suggest that Brian ever did anything other than note exact and proper figures for his expenditure. Mr Segal’s evidence was that where he could find supporting invoices, the costs shown in the accounts accorded with the invoices and time sheets. When documents have been subsequently discovered, they invariably support Mr Ellis’s accounts. Many of the uncertain items claims have been abandoned as and when supporting invoices were found. As far as the Endymion and Lansdowne Road properties are concerned, it has transpired that Mr Ellis’s figures were correct. In view of the availability of Mr Ellis’s original working papers, and his evidence as to the manner in which he compiled the original accounts on which the trust accounts were founded, I accept that Brian has, on the balance of probabilities, established his entitlement to payment of all the uncertain items listed at 1 and 6 of the schedule. Item 8: Payment of £750 to outgoing tenant of 78 Seymour Road[53]Both Brian and Mr Ellis gave evidence that this payment was made and there is evidence that there was a tenant, Mrs Wass, at 78 Seymour Road before the sale. SB’s cashbook shows that the sum of £750 was indeed paid to Mrs Wass. This item is therefore sufficiently vouched. Item 9: Payment of £1,500 to outgoing tenant of 54 Pemberton Road[54]Mr Segal’s figures show a compendious figure of £34,310 in relation to 54 Pemberton Road. Brian and Mr Ellis both attest to the fact that £1,500 of this sum represented a payment to induce the tenant of that property to leave. There is no documentary evidence vouching for such a payment. However there is again evidence that there was a tenant at the property before the development into flats. Although Mr Segal was unable to check the payment I am satisfied that it was made. Item 11: Furniture and fittings: £1,231[55]Again, a payment is recorded in Mr Ellis’s accounts. There is evidence that the properties were let furnished. Payments to the letting agents of £5,000 for furniture for Endymion Road (the former item 12) are recorded in the SB cashbook.Again, I accept Mr Ellis’s evidence. Item 13: Insurance for trust properties: £5,517[56]There is correspondence establishing that from 1996 onwards buildings insurance for 16 Endymion Road and 22 and 24 Lansdowne Road remained with the Saffron Walden Building Society. There were difficulties in changing insurers after subsidence claims in respect of 16 Endymion Road. Brian obtained, at a discount, a block insurance policy including cover for all the contents of the remaining trust propertiesfrom Minet Insurance. The figure claimed comes from a breakdown between the properties subsequently obtained from the insurers for accounting purposes. Mr Ellis’s evidence states that Brian had arranged buildings and contents insurance through his own broker and paid them from his own account. The correspondence provides some support for this statement. It therefore seems to me that these sums relate to, and have been properly apportioned between, the trust properties. Item 15: Loan repayment in 1987: London and Essex Building Society: £140[57]Mr Segal commented that he had not seen the statements for the relevant account and therefore could not verify the payment. Mr Ellis’s accounts refer to a repayment of £140 to the Saffron Walden and Essex Building Society, which was the name of the London & Essex after 1979. This payment appears to be on the same footing as the other repayments to Saffron Walden made directly from the trust bank account in the same year. The sum is relatively trivial and I see no reason to doubt Mr Ellis’s analysis in the accounts for the Court’s purposes. Proceeds of sale of 78 Seymour Road in 1978[58]The evidence shows that when 78 Seymour Road was sold, a cheque for the proceeds (£6,804) was paid to Emily as trustee. Brian is asked to account for this sum as Emily was not a capital beneficiary. However, it does not appear that Brian ever received or dealt with these moneys. There is no evidence that the cheque, or a cheque or cash of any similar sum, was ever paid into any bank account belonging to Brian. Brian denies ever having had cash in such a large sum. The claimants alleged that the cheque could not have been converted by Emily as she did not have any account at the relevant time into which the cheque could have been paid. However, it emerged in evidence that Emily did in fact have an account at the Eastern Counties Building Society so that any suggestion that Brian may have dealt with the cheque is mere speculation after all these years. In my judgment he is not accountable for this sum. Brian’s claims Payments to Catherine, Marion and Clive[59]By contrast, however, Brian made a number of payments to Catherine from his own resources to equalise sums that were paid to Marion and Clive out of the rental account. It was accepted by Marion and Clive in cross-examination that Brian should be indemnified out of the trust for putting all the children on an equal footing. It has also been accepted that sums paid to Marion, Clive and Catherine from the rental account should be treated as advancements and brought into account on final distribution. This does not however include the gifts from Emily; as I have found, no case was made out to disturb these gifts. For the avoidance of doubt, however, I find that Marion and Clive should account for the payment of £10,016 drawn in October 2003 as it has not been established that this was a gift from Emily. Emily’s mortgage payments[60]The rental account was insufficient to make mortgage payments for Emily’s houses so Brian made them for her. Mr Ellis included the payments in a schedule under the heading “A. Sinclair Will Trust, payments” as a debit to the drawings account and a credit to Brian. I am told that none of them has been repaid. Mr Segal’s view was that these payments were not properly chargeable to the trust and were a matter between Brian and Emily’s estate.[61]Brian now claims that these payments, totalling £71,552, be brought into the account. I accept that in making the payments Brian never had any intention of making a gift to Emily. I also accept that the claimants did not concern themselves with these payments. In these circumstances Brian could only charge the payments against income arising during Emily’s lifetime. In my judgment he is able to do that, but he may not charge the payments against capital. Any surplus income is payable to him as Emily’s executor in any event and he can adjust accounts between himself and her through her estate. The rental account and the Standard Life account[62]It may be that a further account will have to be taken, if the parties cannot agree, as to the balance owing on these accounts. The Yard[63]The action started as, and still contains, a claim by Clive and Marion for possession and sale of the Yard, invoking s. 14 and 15 of the Trusts of Land and Appointment of Trustees Act 1996 (“the 1996 Act”). The claim is countered by a claim by Brian to a proprietary interest in the Yard and also by a defence of laches. Laches[64]I will deal briefly with the defence of laches. It seems to me that no such defence applies to an action for possession of the trust property in the circumstances of this case: the Yard either belongs to the trust or there is some proprietary interest in Brian. I find that delay does not prevent an application for possession on the facts of this case, although it could be a relevant circumstance to be taken into account under s. 15 of the 1996 Act in deciding whether and if so when to order a sale. The case is distinguishable from the well-known authorities on laches in relation to purchases by a trustee in breach of the self-dealing rule. Proprietary estoppel[65]Brian’s principal claim is to retain the Yard at least until he attains the age of 75, on the basis of proprietary estoppel or a constructive trust. There are three main elements of such a claim: assurance, reliance and detriment. There must have been a representation or assurance made to the person claiming the interest, a reasonable reliance on it by the claimant and detriment to the claimant in consequence of his reliance.[66]The evidence is unchallenged that Brian personally spent some £50,000 on improvements to the Yard in 1983, 1984 and 1988-1992. He entered into a loan agreement with Haringey Council on condition that the loan moneys were applied to completing unfinished works to the Yard. He has personally paid more than £9,000 in capital repayments and more than £36,000 in interest under the mortgage. All those works have increased the capital value of the Yard from £100,000 to £270,000 at today’s values. Brian claims that the money was spent on the basis of a common understanding that he would occupy the Yard rent-free for the purposes of his business as long as he required to do so on payment of the outgoings.[67]As I have said, Brian accepts that his occupation was never discussed and thus that nothing was said to that effect. However, he relies on a number of factors. First, the length of time over which his occupation has subsisted unchallenged. From Arthur’s death until the end of 1979 S&A occupied the Yard, and from 1980 until 2006, SB did so without any question being raised about the nature or terms of the occupation. The outgoings were never paid by the trust but by Brian through S&A and then SB.[68]Much emphasis is placed on the fact that when Marion and Clive were appointed trustees they took no steps to obtain possession or rent until after Emily’s death. When they did eventually write seeking possession their solicitors’ letter of 5th July 2006 referred to “an informal arrangement that does not involve the payment of rent” and asserted a tenancy at will. On Brian’s behalf Mr Scott relied on the statement by Oliver J in Taylor Fashions v. Liverpool Victoria Trustees Ltd [1982] QB 133 at 151H:
“…the application of the principle requires a very much broader approach which is directed rather at ascertaining whether, in particular individual circumstances, it would be unconscionable for a party to be permitted to deny that which, knowingly or unknowingly, he has allowed or encouraged another to assume to his detriment than to inquiring whether the circumstances can be fitted within the confines of some preconceived formula serving as a universal yardstick for every form of unconscionable behaviour.”
[69]Mr Scott also relies on that part of the recent decision of the House of Lords in Thorner v. Majors [2009] UKHL 18 which examines the character or quality of the representation which has to have been made to the claimant for the equity to be raised. The emphasis in that case was on the meaning of what was said and done as reasonably understood by the claimant, rather than what was intended by the defendants: see Lord Hoffmann at paragraph 3, Lord Rodger at paragraph 26 and Lord Neuberger at paragraph 75-86.[70]That case was however about what was expressly said by way of assurance. It was not a ‘standing-by’ case. I do not think that there is any general rule against granting relief to a trustee (even a trustee with the legal interest in the property) against his beneficiaries. In a family situation such as the present it would in my judgment be possible in principle for a trustee to acquire an interest as against the beneficiaries. Each case depends on its own facts.[71]However, Brian was at all material times a trustee in occupation of the Yard for his own, as well as trust, purposes in clear breach of the rule against self-dealing. Although lack of informed consent or acquiescence by defendants may not be fatal to a claim for proprietary estoppel, the question of knowledge assumes particular importance where the claimant is himself in breach of duty. In deciding whether a beneficiary has stood by in such a manner as to raise an expectation in the claimant, the authorities as to what constitutes acquiescence are in my judgment highly relevant. While a beneficiary might acquiesce without being aware of his legal rights, ignorance is one of the factors which should be taken into account: see per Oliver J in Taylors Fashions case at 152 A-B approved in Cobbe v. Yeoman’s Row Management Limited [2008] 1 WLR 1752.[72]Marion, Clive, Catherine and Michael were aware that Brian was in occupation of the Yard. They were also aware that works were being carried through S&A and SB out to the Yard and to other properties owned by the trust. However, none of them was aware of the amounts expended on improvements or repairs. None of these beneficiaries gave consent to Brian to occupy the Yard and they were all unaware of the terms on which he did so. It was not seriously argued that by reason of the employment of Marion, Clive, or Michael in SB they acquired any knowledge of the workings of the trust. Brian accepted that he never discussed trust business or his development plans with any of them. They had no legal advice as to their rights or as to how the trust should be managed. In my judgment, Brian is not entitled to a proprietary interest in the Yard. I accept Miss McDonnell’s submission that in the above circumstances his argument that it is unconscionable for the claimants to deny his claim is bound to fail. Possession and sale[73]The fact that Brian has been guilty of self-dealing for more than 30 years does not mean that he should be entitled to continue to do so. I propose to hear submissions separately on whether, and if so when, possession should be ordered under the 1996 Act for the purpose of effecting a sale. Occupation rent[74]The separate question arises whether Brian is bound to pay a notional rent for his occupation: see Re Howlett [1949] Ch 767. While I accept that the capital beneficiaries did not acquiesce in his occupation, in my judgment for the reasons I have already given Emily, as income beneficiary, did. She also acquiesced in his actions in her capacity as trustee and was undoubtedly herself in breach of trust in delegating all trust decisions to Brian, failing to appoint a second trustee and failing to supervise what was being done. The question does not strictly arise as to whether she could pass on any such claim to Brian as her delegate. She could not be sued as trustee since it was she who lost income as a result of non-payment of rent. The issue is whether she acquiesced as beneficiary. In my view she did, but the fact that she deliberately left all matters of trust administration to Brian emphasises her inability to complain in her own beneficial right. In my judgment therefore, Brian is liable to the trustees to pay a notional rent for his occupation of the Yard, but only after Emily’s death.[75]It seems to me that Brian’s improvements to the Yard, being undertaken primarily for the benefit of his own business (and for which he would probably have had to pay if SB had rented property) are a windfall to the trust and he is not entitled to claim the value of them back in the account between the parties. However, in all the circumstances of the case I accept Mr Scott’s submission that Brian should only pay a rent (for the period since Emily’s death) related to the unimproved value of the Yard in accordance with the figures provided by the Expert Mr Ray Arrowsmith FRICS A Clarb in his report dated 1st September 2008. I take into account the fact that no allowance has been made for Brian’s own time and effort in improving the trust properties and that the work done by SB in that regard was charged at cost only. Again, in those circumstances, I order that Brian pay simple interest only on such rental payments. Section 61 Trustee Act 1925[76]Mr Scott submitted that Brian ought to be excused breaches of trust pursuant to this section, on the basis that he has acted honestly and reasonably. In my judgment s. 61 has no application as the claim against him is not for breach of trust, but on the basis of a liability to account for benefits he has retained.