Beneficiaries' right to receive information from trustees

Lewis v Tamplin

 

 

Considering the scope of a beneficiary's right to information should be at the forefront of trustees' minds following the recent case of Lewis v Tamplin [2018] EWHC 777 Ch. Judge Matthews' judgment in that case contained some useful and practical commentary on a number of issues concerning disclosure obligations.

Background

The dispute centres on a farm in Glamorgan and the settlement of that farm into a trust of land known as the Tamplin Trust.

Settled originally by Mrs Gladys Tamplin, the farm was left to her six children as beneficiaries in equal shares. Following a number of births and deaths, two of the settlor's children (Edward and Jane) were left as trustees, with Edward's son Mark being the third. These trustees were defendants in this case, which was brought by the three beneficiary claimants.

Certain beneficiaries had concerns about option agreements entered into between the trustees and developers in respect of the farm. As such the trustees received a number of requests for documentation regarding the trustees' management of the Tamplin Trust, including tax advice and income statements.

The trustees' response to those requests were, said the claimants, "inadequate", and so a claim was brought  for disclosure of the various documents and other information.

Trustees' Position

The trustees defended the claim on three grounds:

  1. That sufficient information had already been provided;
  2. That the so-called Londonderry principle (from Re Londonderry's Settlement [1965] Ch 918) applied, meaning that the trustees were entitled to withhold the information (because disclosing it would reveal why the trustees had made the decisions they had); and
  3. That beneficiaries, acting collectively, could obtain full disclosure (as an aspect of the rule in Saunders v Vautier) but this had not happened, and the court should not intrude on a trustee's discretion unless the beneficiaries had shown grounds for real suspicion.
Judgment

In his judgment Judge Matthews considered the general rules relating to disclosure of information by trustees - noting the Privy Council case of Schmidt v Rosewood Trust Ltd  [2003] UKPC 26 - and in so doing dismissed all three of the trustees' arguments.

The Judge reiterated that trust documents are not property of the beneficiaries, and that whilst they may not be entitled to disclosure per se, beneficiaries may have a legitimate claim for disclosure to be able to hold trustees to account. The judgment also explored the basis of a beneficiary's right to that information: that being the court's role in supervising trustees, and the fact that trustees owe a fiduciary duty to keep beneficiaries informed (including providing trust accounts).

In response to the trustees' arguments, the Court found the following:

  1. Sufficient information not been provided by the trustees already. Importantly, the Court confirmed that it would not be "satisfied with the 'say-so' of the trustees that [the beneficiaries] had sufficient information already, but will make its own mind up as to whether the information sought should be disclosed".
  2. The Londonderry principle did not apply in these circumstances. The trustees had attempted to argue the practical effect of that principle to be that they should not be obliged to provide information or documents relating to the exercise of their administrative functions. Interestingly, the Court stated clearly that the Londonderry principle applied only to a trustee's dispositive functions, and not its administrative ones, and therefore could not be used as a reason for withholding the documents sought in this case (which did not relate to, say, distributions to beneficiaries).
  3. There is no requirement for the beneficiaries to act unanimously to require information from the trustees, and there is no 'threshold of suspicion'. The judge said that a need for beneficiaries to act collectively to obtain trust information would be "an absurd situation" and mean "that for decades now trustees and beneficiaries had been proceeding on a false basis".

The Court decided in this case – with some minor exceptions – that the information sought should be provided.

Take away points

Trustees ought to be aware that their view of the adequacy of their response to a request for documents may not marry with that of the Court. An objective stance is required, and legal advice should be sought as to what a court may determine to be "insufficient" in the circumstances.

In this case, the Court was unimpressed by the fact that the trustees had provided, in its view, insufficient disclosure to date, and even when it was provided, only once legal proceedings had been threatened. It also made comment as to whether a more helpful approach on the part of the trustees to being transparent on their administration of the assets would have resulted in fewer documents needing to be disclosed, noting that "if the trustees had taken a less confrontational and more co-operative approach at the outset, all this litigation could have been avoided, and fewer documents (perhaps none at all) would now need to be disclosed". This highlights the need to seek appropriate legal advice at an early stage, for example, when information or documents are requested by beneficiaries in an informal setting initially. Doing so may avoid the time and costs of a court hearing on the issue.

This case serves as a useful reminder of the limitations on situations where the disclosure of documents may be withheld. As put by Judge Matthews, in a discretionary trust scenario, where one beneficiary may receive more benefit from a trust than another, the trustees "are justified by practical considerations in withholding their reasons for that exercise. Plainly, that does not apply to a request to trustees for information about the trust".

So while trustees will often be able to withhold the detail of the exercise of their dispositive powers, they may not get the same protection in an administrative context. Even though Guernsey has its own statutory provisions and case law in this area, there is nothing in this case that would point towards the Guernsey Courts taking a materially different approach.

Privilege

Finally, the Court provided useful commentary on the issue of legal privilege and its applicability in circumstances where trust documents have been requested. The trustees originally sought to claim legal professional privilege over all of their communications with their lawyers, before withdrawing from that position before the hearing.

The Judge considered the issue anyway, and confirmed that trustees may only assert legal professional privilege against document-seeking beneficiaries where that legal advice is received by the trustees for the benefit of themselves personally, and which is paid for by them personally as well.

The Judge noted that any legal advice received by the trustees which was paid for out of the funds of the Tamplin Trust and sought for the benefit of that trust as a whole, may be privileged as against third parties but could not be privileged as against the beneficiaries.