| Return to Contents The Rights Of Beneficiaries To Information Concerning A Trust Daniel Hochberg and William Norris The article is prompted in part by the exercise which y Law Commission recently carried out on the question whether Article 25 of the Trusts (Jersey) Law 1984 TJL") ought to be amended, and the consultation paper [1] which it has issued, and also by a recent reported English decision [2] of Neuberger J. Article 25 [3] of the TJL ides: "Trustee may refuse to make disclosure Subject to the terms of the trust and subject to any order of the court, a trustee shall not be required to disclose to any person, any document which - -
discloses his deliberations as the manner in which he has exercised a power or discretion or performed a duty conferred or imposed upon him; or -
discloses the reason for any particular exercise of such power or discretion or performance of duty or the material upon which such reasons shall or might be based; or -
relates to the exercise or proposed exercise of such power or discretion or the performance or proposed performance of such duty; or -
relates to or forms part of the accounts of the trust unless, in a case to which sub-paragraph (d) applies, that person is a beneficiary under the trust not being a charity, or a charity which is referred to by name in the terms of the trust as a beneficiary under the trust." Article 25 does not in terms impose any positive obligations upon trustees as to disclosure. Rather, it negates certain defined obligations, except in certain circumstances which are excluded from that negation. The scope of material which (subject to the terms of the trust or the order of the court) the trustees are not required to disclose is widely stated, particularly in relation to sub-paragraphs (c) and (d), since it is hard to imagine what information a beneficiary might wish to receive which is not related to the exercise of a power or discharge of a duty, or which does not relate to or form part of the accounts of a t very wide meaning was given to the latter expression boyal Court in West v Lazard Brothers & Co. Ltd. [4]and in Surinderpal Singh Bhander v Barclays Private Bank & Trust Co. Ltd. [5] even if xtending to every document relating to a trust (Re a Settlement) [6] ; see also the discussion at paras. 4.2.14 to 4.2.16 of the Consultation Paper. The order for production of accounts in West v Lazard Brothers facilitated the pursuit of the plaintiff’s substantive claim for breach of trust. Article 25 refers in terms only to documents, and not to information ir forms. As a matter of English common law, however, the term "document" has long been given a wide meaning, and if Jersey law follows the English common law approach [7], "document" may be construed in a similarly wide sense. If the proper construction of "document" in Article 25 is more limited, or, if information is not contained within something falling within the wide meaning of "document", a case might arise in which a person sought disclosure from trustees of matters other than documents falling within the meaning of Article 25, claiming that since (a) the negation of a disclosure obligation did not specifically extend to the information he was seeking, and (b) the Article must predicate a general disclosure obligation except where it was specifically negated, it followed that the trustees must be presumed to be subject to a duty to disclose to him the information which he requested. We think that such an argument would be rejected on the grounds that the construction of Article 25 relied upon would be absurd; it cannot have been the intention of the draftsman that the trustees were under an obligation to disclose to such a person every piece of information within their knowledge unless it specifically fell within the excluded categories set out in the Article. We conclude that, in spite of its form, Article 25 confers (or confirms) a right to obtain disclosure only in the narrow circumstances expressly covered by the exception from its general negation, and impliedly operates to exclude such a right in every other case. Article 25 is expressed to be subject to any h the court might make, and subject to the express terms of the trust. If trustees refuse to respond to a request for information, and the information is not otherwise forthcoming [8], then the person seeking such information may have no alternative but to apply to the court for an order compelling the disclosure of the information. Alternatively, the trustees might themselves seek the protection of the court by making an application for directions under Article 47 of the TJL. It seems clear to us that the court has jurisdiction in such a case to disapply the provisions of Article 25, or even to disapply the express provisions of a particular trust deed, and to proceed on different principles. It may be very unusual for the court to do so, but we would expect that the exercise of an unrestricted discretion would be carried out on judicial grounds, and that the court would sistance in analagous cases in other jurisdictions, amongst the better known of which are Re Londonderry’s Settlement [9]and Hartigan Nominees Pty. Ltd. v Rydge [10] . It ss to be well recognised that the instigation of hostile litigation, involving discovery of documents, will override considerations of confidentiality, but that discovery cannot be obtained with a view to establishing grounds for instigation such litigation [11] . The Consultation Paper in paragraphs 4.2.16 - 4.2.17 discusses this in the context of the competing interests of preserving confidentiality for the trustees, at least in the context of documents relating to the reasons for the exercise of discretionary powers, and the interests of beneficiaries in knowing that the discretionary powers have not been abused in breach of trust. It is perhaps surprising that the Han Nominees decision was not referred to in the recent English case, Re Murphy’s Settlements [12] . The issue in that ca however, unusual, since the information sought was as to the identity of trustees of a number of settlements which the plaintiff believed (or, in one category, knew) to have been constituted, and of which he believed himself to be a beneficiary [13] . This information he sought from the defendant, whom he believed to be the settlor of some of the settlements, and who also was the personal representative of his deceased wife, whom the plaintiff believed to be the settlor of other such settlements. The proceedings were therefore the very beginning of the chain of information which a claimant would need to establish in order to make out a justiciable claim against the trustees. If he kne identity of the trustees, he would be able to seek information as to his status as a beneficiary, he would be able to seek access to documents which (in Jersey) would fall within sub-paragraph (d) of Article 25, such as trust deeds or deeds of appointment made under the trust deed [14] . Unless he know the identity of the trustees he could get nowhere. lements [15], the plaintiff was the son of the defendant. There were three kinds of settlement. Trust deeds of the first kind of settlement (category "A") were before the court, and it was common ground that the defendant or his late wife had established them. They were in discretionary form, and the power to appoint trustees was (in one case) vested in the defendant; the plaintiff was included in the class of beneficiaries; the class of beneficiaries was relatively small, and the plaintiff was well up the list. The plaintiff was of limited means, and although he had fallen out with his father, he might well be a suitable object for contemplation by the trustees with a view to distribution. The second kind of settlement (category "B") was different. Although there were reasons suggesting to the plaintiff that such settlements had been established, it was at most a matter of speculation, and the plaintiff’s status as a possible beneficiary (assuming that the settlements had been established in the form he suspected) was relatively remote, depending upon the exercise of fiduciary powers by a "council", constituted under the trust deed, by the addition of the plaintiff to a class of beneficiaries identified in the settlements and consisting of eleven individuals, their spouses, their issue, and certain others. The third kind of settlement (category "C") was again different in that the settlements in question had been established by the plaintiff (copies were before the court), but he had been excluded from all benefit under them. His purpose in seeking identification of the present trustees was to facilitate a possible claim that the settlements should be set aside, and the subject matter of them restored to him. Neuberger J ordered that the defendant must disclose the identities of the trustees of the category "A" settlements, subject, in the case of the settlement made by the defendant’s late wife, to his having the opportunity to file further evidence as to any difficulty which he might face or expenditure to which he might by put in complying with the disclosure order. The judge refused to make any order in the case of categories "B" and "C". In reviewing the authorities, the judge found nothing exactly governing the position, and he noted that the order which he made in the category "A" cases went further than any English authority to which he had been referred. He justified his order on the basis of two distinct but overlapping jurisdictions, one being personal and a matter of common law, the other being proprietary and equitable. The personal, common law jurisdictis founded on the Norwich Pharmacal Co. v Customs & Excise Commissioners [16] decision, which imposes upon an innocent person who becomes mixed up in the tortcts of others an obligation to assist the victim of the tortfeasors by giving him full information, including information as to the identity of the wrongdoers [17] . Counsel for the defendant in Murphy conceded that the Norwich Pharmacal principle should apply equally in cases of breach of trust as in cases of the commission of tort. Neuberger J agreed; but there was no clear evidence that a breach of trust had been committed. The case relied upon principally in rel to the equity jurisdiction was A v C [18] , a decision that, for the purpose of supporting a Mareva injunction already granted in a case of suspected fraud, the court could order discovery or the administration of interrogatories in order to obtain information about the assets held by the defendants. It will be recalled that the granting of any interlocutory injunction, and especially a Mareva injunction with its draconian effects, depends upon evidence clearly establishing a substantive, serious issue of wrongdoing tried. The case lowed on from two unreported English Court of Appeal decisions, London & nty Securities v Caplan [19] and Mediterrania Raffineria Sicilianan Petroli S.p.S. v Mabanaft G.m.b.H. [20] and the better known case of Bankers Trust Co. v Shapira [21] . We would submit that it is hard to draw from these decisions support for the proposition that discovery may be sought from a third party in the absence of any allegation of wrongdoing. The judge lf admitted that no earlier illustration of the exercise of such a jurisdiction had been drawn to his attention, and in Bankers Trust Co. v Shapira [22]Lord Dennieferred to the Norwich Pharmacal principle as an illustration of the jurisdiction which he thought he was exercising, which is an unjustified elision. In A v C [23] Goff J referred to the multiplicity of authorities justifying the court in making orders "with the purpose of ascertaining the whereabouts of the missing trust fund," but the examples which he gave all indicated strong suspicions of wrongdoing; he was not concerned with the extent of the court’s powers where there was no evidence of wrongdoing. The basis of Neuberger J’s decision in the category "A" cases was the proposition that the object of a discretionary power vested in trustees can, if he is aware of its existence, require the trustees to consider exercising the power in his fav was stated by Templeman J in Re Manisty’s Settlement [24] . Neuberger J was also influenced by the fact that counsel for the defendant conceded that the plaintiff, as a discretionary object of the category "A" settlement, was entitled to ask the trustees for information as to the nature and value of the trust property, the trust income, and a the trustees had been investing and distributing it, propositions which he regarded as supported by the Irish authority Chaine-Nickson v Bank of Ireland [25] , and quotations from Underhill and Hayton, Law of Trusts & Trustees (15th edition) page 657, and Snell on Equity (29th edition) pp. 231-2. Those rights would be wholly frustrated if the person entitled to exercise them had no knowledge of the identity of the trustees, and no means of compelling disclosure of their identity by a person who had such knowledge and could easily provide it to the applicant. The judge accordingly willing to preside over the development of an existing child of equity, even though others might see it as the birth of a new one. [26] So far as the category "B" settlements were concerned, it appears that Neuberger J regarded himself as having an equitable jurisdiction to make a disclosure order, but he declined to exercise that jurisdiction in part because the plaintiff’s evidence both in relation to the establishment of such settlements, and in relation to whether he was potentially within the class of persons who could benefit from the discretionary terms of such settlements was no more than speculative. H regarded the application as a "fishing expedition", and quoted from the Massachusetts case of Post v Toledo, Cincinnati and St. Louis Railroad Co. [27] where it was observed that a bill for discovery cannot be used to enable a plaintiff to fish for information of any causes of action he may have against persons other than the defendant, noting that the principle applied in the context both of the personal, discovery jurisdiction and the proprietary, equitable jurisdiction. In the case of the category "C" settlements, the plaintiff’s claim was not as someone potentially entitled as beneficiary under them, but as the settlor, who was excluded from benefit. Unless and until he succeeded in setting aside the settlements, he had no proprietary claim. It followed that only the personal, Norwich Pharmacal discovery jurisdiction was available to the plaintiff. The learned judge declined to exercise that jurisdiction in part because it was unnecessary for the plaintiff in order for his claim to succeed (there were other defendants whom he had already joined in the proceedings); and partly because of the highly speculative nature of the plaintiff’s claim. He observed: "To make an order which enables somebody who has very probably acted improperly so as to enable him to be sued, as in Norwich Pharmacal or Bankers’ Trust Co. v Shapira, is one thing. To require trustees, who have themselves done nothing wrong, to be identified for the purpose of enabling a party to consider whether or not to bring against them proceedings which must, in all conscience, be described as highly speculative, appears to me quite another." Time will tell whether the h of Neuberger J w followed in other cases. Different jurisdictions may well have different approaches [28], but the conclusions which may be drawn from the re-examination of Article 25 of the TJL and Re Murphy’s Settlements [29] are that the courts already have reasonable freedom to develop the law in relation to rights to disclosure of information to beneficiaries, which they are willing to exercise; and that the scope of Article 25 of the TJL, as reasonably interpreted, does not give rise to any need for root and branch reform. The amendment of Article 25 so as to make obligatory a greater degree of secrecy on the part of trustees than the present seems to us to be inconsistent with the policy of a high quality offshore trust jurisdiction, and, if pursued over-enthusiastically, can give rise to questions whether the trusts intended by the settlor have been created. The freedom of settlors to confer on trustees a more extensive right to maintain confidentiality is already contained in Article 25 of the TJL, but is subject to the control of the court so as to prevent its abuse. The need for trustees to be able to exercise wide discretionary powers without having at all times to look over their shoulders is conserved by the present law in England and Jersey. Furthermore we believe that the relatively small number of reported cases in both jurisdictions in which the rights of beneficiaries to information regarding trusts has been seriously in issue, demonstrates that the present state of the law is reasonably well balanced. Daniel A. Hochberg and William V. W. Norris are barristers-at-law, both of 9, Old Square, Lincoln’s Inn, London WC2A 3SR |
| Footnotes - (Top) [1] - "The rights eficiaries to information regarding a trust", Jersey Law Commission Consultation Paper No. 1, February 1998; referred to as "the Consultation Paper" [2] - Re Murphy’ements, [1998] 3 All ER 1 [3] -There is in law no statutory provision analogous to Article 25 of the TJL [4] - 1987-88 14 [5] -April 7th, orted [6] -1994 JLR 139, a [7] - See Phipson on Evth ed. 1990) para. 36-01 for the cases; historically, the term "documents" has comprehended Exchequer tallies, wooden scores used by milkmen and bakers, inscriptions on walls, coffin-plates and rings. More modern examples include tape recordings (R. v Stevenson [1971] 1 WLR 1), television films (Senior v Holdsworth, ex p. Independent Television News Ltd. [1976] QB 23, facsimile transmissions (Hastie and Jenkerson v McMahon [1990] 1 WLR 1575), and computer files (Derby v Weldon (No. 9) [1991] 1 WLR 652) [8] - Other possibilities fhe information include procuring the dismissal of the unforthcoming trustees, and the appointment of sympathetic new trustees in their place: see Tiger v Barclays Bank Ltd. [1952] 1 All ER 85 (C.A.) [9] - [1965] 1 Ch .A.) [10] - [1992] 29 NSWLR 4thorities are briefly and helpfully reviewed in the Consultation Paper as paras. 4.2.3. - 4.2.10 [11] - Re Londonderry’s Settlement at pagr Salmon L.J.; Hartigan Nominees Pty. Ltd. v Rydge [1992] 29 NSWLR 405 at page 437 [12] - [1998] l ER 1 [13] - Save that in on three categories, he was himself the settlor but was excluded from all benefit under the trusts [14] - In England, the benefic be entitled to such information: see Underhill & Hayton, Law of Trusts and Trustees, (15th ed., 1995, pp. 657 et seq.) The duty to be ready with an account is said by Hayton to be fundamental to the existence of the trust (ibid.page 662), so that, if the settlor purports to exclude it, the attempt will either be regarded as repugnant to the trust and unenforceable, or, if enforceable, the trust will be a sham, ineffective as drawn, and the assets held on bare trust for the settlor [15] - [1998] [16] - [1974] 3 [17] - See per Lo page 175 [18] - [1981 956 [19] - May 26th 1978man J [20] - Decembe8, CA [21] - [1980] 1274 [22] - [1980] 1 74 at page 1281 [23] - [1981] Q at pages 958-9 [24] - [1974 at page 25 [25] - [19763 [26] - See 10 [27] - (1887) 11N.Mass S.C.) [28] - Section 23 (1) of the Insts Act of the Cook Islands makes it a criminal offence for any person to divulge or communicate to any other person information relating to the establishment, constitution, business undertaking or affairs of an international trust. Aspects of the Cook Islands’ international trust legislation have received adverse comment from Cook Islands appellate judges, who emanate from New Zealand [29] - [1998] 3 R 1 |