NOTE: This article was published in September 2012 and reflects the law as it stands on the date of publication and not at any later date.

Duty to provide information and documentation

(a)           Duty to inform beneficiaries of interests

Firstly, there is a duty to inform a beneficiary, without demand, of the existence and terms of the trust (Hawkesley v May [1956] 1 QB 304) unless, perhaps, the trustees reasonably believe that the beneficiary has no reasonable prospect of obtaining a vested interest. In the case of a discretionary beneficiary, the trustees should take reasonable steps to make the discretionary beneficiary aware of his status. This enables the beneficiary to put his case to the trustees that they should exercise their discretion in his favour. In any case, the trustees are only obliged to make reasonable efforts to locate and inform the beneficiaries. The beneficiaries are entitled to know the names and addresses of the trustees (Murphy v Murphy [1999] 1 WLR 282).

There is a duty to inform the beneficiaries of the general nature of their interests, and of any conditions attached thereto. However, there is no duty to give advice to the beneficiaries as to the legal implications or effect of their interests (Hamar v Pensions Ombudsman [1996] PLR 1, 10-11). Nor is there any obligation to inform the beneficiaries of a breach of trust.

There is no overriding duty of disclosure to a beneficiary who is a child. However, a proper consideration of the exercise of powers of maintenance or advancement may require communication with the parents.

If the failure to provide information has caused loss to the beneficiary, then he may claim equitable compensation, or apply to have the trustees removed.

It is probably ineffective for the settlor to seek to exclude the duty to inform beneficiaries.

(b)           Trust documents

The traditional view was that the beneficiaries had a right to inspect “trust documents”. Certain documents were categorised as “trust documents” which a beneficiary with a proprietary interest was entitled to inspect (Re Londonderry’s Settlement [1965] Ch 918).

Such documents were documents relating to the administration or condition of the trust. Trust documents no doubt included: the trust deed, any supplementary deeds, the trust accounts, receipts as to trustees’ payments, and Opinions of Counsel (unless relating to the trustees’ personal liability to the beneficiaries).

 

(c)  Non-trust documents

However, trust documents did not include confidential documents, particularly those evidencing the trustees’ reasons for the exercise of their discretions. In Re Londonderry’s Settlement a beneficiary, who was dissatisfied with the trustees’ decision to distribute capital amongst the beneficiaries, sought disclosure of the following documentation: minutes of trustees’ meetings, agenda and other documents prepared for those meetings; correspondence between the trustees, the settlor, the trustees’ solicitor, and other persons concerned with the trust. It was held that such documents were not trust documents which the beneficiary was entitled to see.

 

(d)           Nature of beneficial interest

A theme running through the cases was that beneficiaries, with a fixed interest in a trust had a right to see trust documents, because such documents belonged to the trust, in which the beneficiaries had a proprietary interest. The documents were, in a sense, “owned” by the beneficiaries.

Beneficiaries of a discretionary trust, and objects of a fiduciary power of appointment, do not have proprietary interests. The classic view was that such beneficiaries did not have a right to see trust documents, as they only had a hope of benefiting pursuant to the trustees’ discretion. They, therefore, did not own the trust documents. However, this distinction began to break down. In Murphy v Murphy [1999] 1 WLR 282 it was held that a discretionary object was entitled to require trustees to provide information as to the nature and value of trust property, the trust income, and how it had been invested and distributed.

 

(e)           Schmidt v Rosewood Trust Ltd

In Schmidt v Rosewood Trust Ltd  [2003] 2 AC 709 the Privy Council held that there was no automatic bar to a claim by a beneficiary, who was merely the object of a power of appointment, to obtain disclosure of trust documents.

The claimant sought access to information relating to two settlements of which his late father had been the settlor. He was himself the object of a power of appointment, and was also the administrator of his father’s estate, his father having also been the object of a power of appointment vested in the trustees. The trustees resisted disclosure on the basis that the claimant had no proprietary interest in the trust documents. The Privy Council:

• rejected the submission that the claimant had to show a proprietary interest;

 

• determined that it was a matter for the court’s discretion as to whether to order disclosure;

 

• held that the court had a discretion to order, or to refuse, disclosure not only where the claimant is an object of a discretionary trust or power of appointment, but also where the claimant has a fixed interest.

 

(f)         Factors relevant to exercise of discretion

 

There are, therefore, no fixed rules as to whether the court will order disclosure. It is a matter of discretion. In the exercise of their discretion, the court should have regard to:

• the previous types of documents that a beneficiary would have been entitled to see;

 

• the likelihood of receipt of trust property by that beneficiary; and

 

• especially where there are issues of confidentiality, to the competing interests of other beneficiaries, the trustees themselves and third parties.

 

Thus, it is still relevant to consider whether the documents are confidential documents relate to the exercise of the trustees’s discretions (those being the sort of documents to which, historically, beneficiaries have been denied access).

The remoter the claim (e.g. by a potential beneficiary under a wide power of appointment) the potentially more restricted the right to information might become.

Where there are issues as to personal or commercial confidentiality, the court may have to balance the competing interests of different beneficiaries, the trustees themselves, and third parties.

 

(g)           Claims by beneficiaries with proprietary rights to trust documents

Even beneficiaries with proprietary rights, e.g. beneficiaries with life interests, or with vested interests in capital, are not automatically entitled to disclosure of documents relating to the trust.

Lord Walker stated (obiter) in Schmidt at 734 that:  “… no beneficiary (and least of all a discretionary object) has any entitlement as of right to anything which can plausibly be described as a trust document”.

In all cases, it is a matter for the court’s discretion whether to compel disclosure.

The insistence that disclosure is a matter for the court’s discretion is, perhaps, not helpful when advising beneficiaries and trustees. It is not clear which beneficiaries are or are not entitled to access, and to what sort of information. It may, therefore, be necessary to go to court to establish whether there is a right of inspection.

In addition, it was previously thought that beneficiaries had a right to inspect trust documents. Now there is no such right. Arguably, this promotes secrecy on the part of trustees.

 

(h)           Documentation containing reasons for trustees’ decisions

 

Historically, trustees were held to be under no duty to give reasons for their decisions, nor to disclose documents containing evidence of their reasons such as documents disclosing:

• the deliberations of trustees as to the manner in which they should exercise their powers and discretions;
• the reasons for any particular exercise of such powers and discretions; and
• the material upon which such reasons were or might have been based.

The justification is that an obligation to disclose such documents might make the lives of trustees intolerable, with the consequence that persons would be reluctant to act as trustees. Nobody could be called upon to accept a trusteeship involving the exercise of discretion unless, in the absence of bad faith, if he were liable to have his motives or reasons called into question either by the beneficiaries or by the court.

In Re Londonderry’s Settlement [1965] Ch 918 the court refused to order disclosure of:

• minutes of trustees’ meetings;
• documents prepared for those meetings,
• correspondence between the trustees and beneficiaries;
• correspondence between trustees; and
• correspondence between the trust’s solicitors and the trustees.

 

Disclosure of such documents would have involved disclosure of the very matters which the trustees were not bound to disclose, namely, their motives and reasons.

 

(i)    Present law as to disclosure of confidential documents

 

Schmidt v Rosewood Trust Ltd  [2003] 2 AC 709 confirms that it is a matter for the court’s discretion as to whether to order disclosure, even of confidential documents. The court may, therefore, order disclosure of documents relating to the exercise of the trustees’ discretions, against the wishes of the trustees. However, that does not mean that it will do so.

It has been recognized by a number of cases since Schmidt that, as a matter of general principle, the court will not order disclosure of documents relating to the trustees’ reasons. This is, in fact, a strong presumption. However, that presumption may be rebutted in exceptional circumstances.

 

(j)             Letters of wishes

 

In Breakspear v Ackland [2008] EWHC 220 the issue was whether a settlor’s letter of wishes (a confidential document relevant to the trustees’ exercise of their discretion) should be disclosed to a beneficiary. The trustees refused disclosure stating that they had reasonable grounds to believe that disclosure would not be in the best interests of the beneficiaries, and that it would be prejudicial to the trustees’ duties to discharge their obligations. The matter came before the court. The trustees justified their refusal to give disclosure on the basis that the letter of wishes contain confidential information, and that disclosure could lead to family discord.

Briggs J confirmed that there was a presumption that a letter of wishes should not be disclosable against the wishes of the trustees. It remained good law that the exercise of discretionary powers by trustees was confidential, and the disclosure of documents relating to the reasons for their decisions were not generally disclosable. However, the court has an overriding discretion to order disclosure in appropriate circumstances. Disclosure was, in fact, ordered.

The key factor was that the trustees proposed to return to the court in the near future to obtain sanction for a proposed distribution of the entire trust fund. The letter of wishes would have to be disclosed on that application. The trustees would then be surrendering any form of confidential protection against disclosure. The beneficiaries would then be given an opportunity to make submissions with full knowledge of the contents of the letters of wishes. It would, therefore, be a waste of time and money to defer disclosure of the letter of wishes for a short period.

The Jersey court took a similar approach in Re Rabaiotti’s Settlement Trusts [2000] JLR 173 in ordering that a letter of wishes should be disclosed to a beneficiary. The court held that there was a presumption that a letter of wishes should not be disclosed. However, there was a discretion to order disclosure where the court is satisfied that it would be “essential” to make such an order. The beneficiary spouse had been ordered by the English divorce court to disclose all letters of wishes in relation to any trusts of which he was a beneficiary. It was in the beneficiary’s interests for the letter to be disclosed in that the wife had seen earlier letters of wishes, and the later letter indicated that the beneficiary’s expectations were limited to income only. If disclosure was not ordered, the English court might conclude that the beneficiary’s interests were greater than they, in fact, were.

 

 

(k)           Summary on letters of wishes/confidential documents

 

The following principles apply:

 

(1)  In principle a letter of wishes/confidential document is not disclosable.

 

(2)  If, therefore, a beneficiary makes a request for the disclosure of a letter of wishes/confidential document, the trustees may refuse without giving reasons.

 

(3)  If the beneficiary applies to the court for disclosure, the court will not normally order disclosure against the wishes of the trustees, in the absence of bad faith on the part of the trustees.

 

(4)  However, if the trustees volunteer reasons, e.g. that disclosure would cause family discord, the court may investigate the rationality or propriety of those reasons. It may, for instance, look at the letter of wishes to see whether there is a rational basis for the trustees’ justification for refusing to disclose. If there is, it will not order disclosure.

 

(5)   However, the court may conclude that there is some other good reason for disclosure, e.g. that the letter of wishes will shortly be disclosed voluntarily by the trustees in any event (Breakspear v Ackland) or that it would be in the interests of the beneficiary and the trust to give disclosure (Re Rabaiotti).

 

 

(l)             Other reasons for ordering disclosure of confidential documents

 

The court might be more influenced to order disclosure if the trustees have volunteered reasons for their decisions, but then refused to disclose the documents containing their reasons (Lewin on Trusts, 18^th Ed., p. 813). This means that trustees may be disinclined to volunteer any reasons at all for their decisions. Not only may they then have to disclose documents evidencing or justifying their reasons, their reasons can then be reviewed by the court.

Trustees who really do not want to give disclosure might, therefore, be best advised not to disclose that there is even a letter of wishes/confidential document in existence. If, by any chance, the beneficiaries discover the existence of a letter of wishes, the trustees should refuse to disclose any information about its contents, or about their reasons for their decisions. This does promote secrecy.

The court is also more likely to order disclosure of material upon which a decision has been based, e.g. investment advice, than evidence of the trustees’ decision-making process, such as minutes of trustees’ meetings.

 

(m)         Non-confidential documents

 

In the case of non-confidential documents, such as the trust deed, deeds of appointment, the trust accounts, receipts as to trustees’ payments etc, the presumption is in favour of disclosure. A beneficiary ordinarily has the right to call upon a trustee for accurate information as the estate of the trust. Trustees should normally be expected to disclose to B1 that they have made a distribution of trust property to B2, if B1 requests that information.

However, there may be reasons for the trustees refusing disclosure, or at least for not giving full disclosure.

The trustees may be justified in refusing to disclose communications between the trustees and other beneficiaries, which involve confidential issues (Schmidt, at para. [67]). Where the beneficiaries are seeking disclosure of documentation relating to the affairs of a company in which the trustees have a shareholding, they would normally only be entitled to the sort of the information to which a shareholder would have access, but not to confidential documents usually unavailable to shareholders. The directors of the company might have a valid objection to disclosing commercially sensitive information.

In an appropriate case, the trustees should consider giving disclosure subject to confidentiality undertakings, or even to redactions.

 

(n)           Full or limited disclosure

In Schmidt Lord Walker said that the court must decide a number of questions:

(a)  Whether the beneficiary should be granted any relief at all;

(b)  If so, what classes of documents should be disclosed;

(c)  Whether those documents should be disclosed completely or with redactions;

(d)  Whether any safeguards should be disclosed on the form of disclosure offered, e.g. undertakings as to the use of the documents.

 

(o)           Legal professional privilege

Legal advice taken by trustees, and paid for out of the trust fund, for their guidance in the administration of the trust, will be subject to legal professional privilege. However, since the privilege exists for the benefit of the beneficiaries, it is no answer to a demand for disclosure.

However, there are exceptions to the general rule that privileged documents should normally be disclosed on demand documentation containing legal advice, i.e:

(a)  as to whether or not to exercise a power in a particular way, being documentation on which the trustees’ reasons were based.

 

(b)  in relation to the trustees’ defence to a claim for breach of trust.

 

(c)  in relation to a dispute between the trustees and a beneficiary, otherwise than in his capacity as a beneficiary.

 

(p)           Disclosure in the course of legal proceedings

 

Trustees will in any event be compelled to give disclosure of documents, pursuant to CPR 31, in the course of their duty of disclosure in litigation where the validity of their actions is challenged. However, the claimant must make out a properly particularised claim, which is more than a fishing expedition, and which would survive a strike-out application.

This may mean that trustees will be compelled to disclose documentation that they are not obliged to disclose as a matter of trust law, including documents containing the reasons for their decisions in a claim where their decision is challenged. If there are likely to be court proceedings, it may, therefore, be prudent to give such disclosure at an early stage.

 

(q)           Voluntary disclosure

 

The trustees can always give voluntary disclosure. The present position appears to be that all beneficiaries have, at least, the right to request (as opposed to a right to receive) disclosure of trust documents by requesting the same from the trustees. The trustees must then consider whether to give disclosure.

Trustees would be advised to consider voluntary disclosure in appropriate cases, if only to avoid adverse inferences being drawn.  Disclosure may assist the trustees in resisting the challenge of beneficiaries to an otherwise surprising decision. Disclosure may also be ordered in the course of subsequent litigation.

Trustees should not refuse to disclose simply because of a fear of being exposed to a claim for breach of trust. Their primary concern should be to maintain personal or commercial confidentiality.

 

Trustees are entitled to require the beneficiaries, requesting disclosure, to pay the trustees’ reasonable costs of disclosure.