The trustees’ duty to provide information to beneficiaries.

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THE TRUSTEES’ DUTY TO PROVIDE

INFORMATION TO BENEFICIARIES

Introduction

I am honoured to be invited to give this year’s lecture. The lecture is prestigious and for this reason for the lecturer a challenging proposition.

Not long after Lord Walker’s lecture last year I had occasion to consider the rule in Hastings-Bass in the case of Abacus Trust Co (Isle of Man) v. Barr [2003] 2 WLR 1363 ("Abacus"), and if my decision was in any way courageous departing (as I did) from a line of authority and making my own furrow on the question whether a decision successfully challenged on Hastings-Bass grounds was void or voidable, I acknowledge the encouragement to my resolution afforded by Lord Walker’s lecture. My decision was not appealed to the Court of Appeal. Instead there was an appeal to the legal profession as a whole by way of legal periodical. I have in mind in particular the article in 17 Trust Law International (2003) 114-128: The Law Relating to Trustees’ Mistakes - Where Are We Now? by Mr Brian Green QC, a member of the same stable, Wilberforce Chambers, as leading Counsel for the unsuccessful party in Abacus. Such an appeal has decided advantages over an appeal to the Court of Appeal: (1) there is no requirement of giving notice of the appeal to anyone and the judge has no right to be heard; (2) there is no limitation of the issues raised to those raised before the judge; (3) there is no limitation of the arguments advanced to those advanced before the judge; and (4) there is no further appeal. Judges become accustomed to viewing in silence and with amused (or bemused) detachment the subsequent deconstruction of their judgments. Moses himself, the story

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reads, when brought back to this world could not recognise in developed Jewish law the founding principles which he had himself laid down.

In Abacus it was not argued before me, and it was not open to me to hold, that the whole Hastings-Bass rule and its basis required reconsideration. To keep the rule within bounds, in the absence of any challenge to the trustee’s decision on the ground of mistake, it seemed to me that it must rest on some breach of fiduciary duty, and I expressed the view that the rule merely gave particular expression to the duty of trustees to obtain and take into account available information relevant to the decision which they have to make. Consider The Queen v. The Charity Commissioners ex parte Baldwin [2001] WTLR 137 at 148-9 per Jack Beatson QC. This was of course only the first word on the topic, and I await with interest the further words which plainly will be forthcoming.

TOPIC OF LECTURE

Enough reminiscing of the past. I must now turn to the topic of this lecture, a topic of practical importance and some difficulty which has found (at least until recently) remarkably limited consideration in the authorities, text books and journals. Shortly before I was invited to give this lecture I was troubled as the trustee of a settlement by the question raised how far I was obliged to provide information about the trust to a beneficiary which the beneficiary had no need to know and the provision of which might prove positively harmful to the beneficiary. That experience led me, when I received the invitation, to choose as my topic the extent of the duty of trustees to inform beneficiaries

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of the existence of their beneficial interests and provide information regarding the trust and its administration.

This provision of information by trustees to their beneficiaries is at the heart of the trust relationship. As Professor Hayton explains in his article “Developing the Obligation Characteristic of the Trust” 2001 LQR 94 at 104, the core element of a trust, the indispensable element for its existence, the irreducible minimum of obligation on trustees, is the right of a beneficiary to enforce the trusteeship, in default of which the beneficial ownership remains with the settlor. As Millett LJ said in Armitage v. Nurse [1998] Ch 241 at 255: “If the beneficiaries have no rights enforceable against the trustees, there are no trusts”: i.e. no trusts other than a resulting trust for the settlor. He went on to say that “every beneficiary is entitled to see the trust accounts”. This is spelt out by Lindley LJ in Low v. Bouverie [1891] 3 Ch 82 at 99 as an obligation “to give all his cestui que trust” on demand information with respect to the mode in which the trust fund has been dealt with and where it is. The gloss may be added that the beneficiary’s right is confined to information which concerns him. If the beneficiary’s interest is in capital alone, he may have no interest in the details of the distribution of income. Further the term “beneficiary” may not include the objects of a fiduciary discretionary power. For the view has been expressed that the settlor may confer on or withhold from such objects any accounting or enforcement right: see Underhill & Hayton Law of Trusts 16 ed. 672. Leaving aside for the moment these two matters of detail, it must be plain that the right of enforcement is only rendered effective and meaningful if the beneficiaries first of all know that they are beneficiaries and secondly possess or have access to the required

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information to render the trustees accountable for their actions. A trust must be both visible to beneficiaries and enforceable by them.

Shortly after I had decided on this topic, the Privy Council gave its judgment in the case of Vadim Schmidt v. Rosewood Trust Limited [2003] 2 WLR 1520 (“Schmidt”). Lord Walker’s seminal analysis of the questions of law raised by the issues in the case goes a long way to clarifying and updating the law, but it necessarily leaves unresolved related questions not addressed and indeed occasions the need for reconsideration of earlier authorities on those questions. My purpose in this lecture is to ventilate some of those questions and venture some thoughts on them in the hope that they may shortly be authoritatively answered.

The authorities as they stand distinguish three different scenarios. The first is where a person seeks trust information as a beneficiary and the question arises whether the trustees are bound to provide him with that information. That was the scenario in Schmidt. The second is where a testator by his will gives legacies or creates trusts. Are the executors under a duty to inform legatees and beneficiaries of the terms of the will so far as they relate to them? The third is where a settlor creates an “inter vivos” trust. What (if any) duty are the trustees of the trust under to inform the beneficiaries of their entitlement under the trust? In the case of each of the three scenarios the further question arises whether any duty imposed on the trustees or executors by the general law can be limited or indeed totally abrogated and whether the trustees and executors can be exonerated in respect of any breach of duty by the provisions of the settlement or will. In

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some legal systems the answers to all these questions are to be found in a comprehensive statutory code (e.g. The Bahamas Trustee Act 1998), but in the United Kingdom the source lies in case law, ancient and modern.

DISCLOSURE OF TRUST INFORMATION PURSUANT TO REQUEST BY ESTABLISHED BENEFICIARY

The starting point today on any claim by a beneficiary for disclosure of trust information must be the judgment of Lord Walker in Schmidt. The facts of that case are highly complicated as are the provisions of the two settlements in respect of which information was sought. It is sufficient to summarise the relevant facts very briefly. The two settlements were established under the law of the Isle of Man, one in 1992 and one in 1995. The claimant’s father was the co-settlor and since 1997 the defendant (a trust company) had been the trustee of both settlements. The defendant received as such trustee on the trusts of the two settlements over $105 million. The settlor died unexpectedly and intestate in 1997 and letters of administration to his estate in the Isle of Man were granted to the claimant on the 17th August 1998. According to the claimant his father during his life and the claimant since his father’s death were beneficiaries under the settlements and indeed trust monies totalling over US$14.6 million were paid to the claimant as administrator of his father’s estate between August and October 1998.

In June 1998 the claimant commenced proceedings in the Isle of Man against the defendant as trustee, its directors and several other defendants alleging breach of trust and breach of fiduciary duty and in July 1998 obtained an order prohibiting any dealings with

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the assets of the settlements and requiring (by way of discovery) extensive disclosure of information. The disclosure obtained was unsatisfactory, and to obtain fuller disclosure of trust accounts and information about trust assets, in June 1999 the claimant brought the present proceedings claiming entitlement as a beneficiary under the settlements to such disclosure.

The claimant in his personal capacity in the case of one of the settlements was a possible object of a very wide power to add him to the class of beneficiaries. The trustees had a discretion whether to exercise the power, but in view of the terms of a letter of wishes written by his father to the trustees he had a particularly strong claim. The issue raised was whether the object of such a power had a right to apply to the court for an order for such disclosure. Answering this question required determination of the basis on which the jurisdiction to order disclosure rested. There was authority (most particularly in the judgment of Salmon LJ in In Re Londonderry’s Settlement [1965] Ch 918 at 937) for the proposition that a beneficiary’s right to disclosure of trust documents and information should be regarded as a proprietary right, and that accordingly only beneficiaries with a proprietary interest in the property of the trust (and accordingly in the trust documents and trust information) had any right to disclosure. On this basis it was argued by the trustees in Schmidt by way of defence that a discretionary beneficiary and the possible object of a power of appointment, who had no proprietary interest in the property of the trust (and therefore the trust documents and information), had no such right to disclosure. The Privy Council however rejected this defence holding that the existence of a beneficiary’s proprietary interest was not the basis for the jurisdiction to

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order disclosure to a beneficiary of information relating to the trust. In its place the Privy Council laid down (1) that its true basis was the court’s inherent jurisdiction to supervise and (where appropriate) intervene in the administration of trusts; (2) that the jurisdiction could be invoked by any person with an interest in the trust whether proprietary or discretionary, and accordingly both by the object of a discretionary trust or of a fiduciary power; and (3) that the jurisdiction was discretionary in all cases:

“… no beneficiary (and least of all a discretionary object) has an entitlement ...

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