English High Court considers scope of beneficiaries right to request information from trustees

In the recent case of Lewis v Tamplin ([2018] EWHC 777 Ch) the London High Court was asked to exercise its jurisdiction to supervise trustees in the performance of their obligations by requiring trustees to give disclosure of documents requested by certain beneficiaries. The case also serves as a reminder of the rules regarding privilege between trustees and beneficiaries. We consider this case further below.

Background

Ernest Tamplin and Gladys Tamplin owned a farm as beneficial joint tenants up until Ernest’s death. Following Ernest’s death, Gladys settled the farm on trust on terms that she retained half the equity of the farm and the other half was split between her six children. Gladys subsequently died and her six children were left as beneficiaries to the property in equal shares. Under the terms of the trust the children were able to appoint their individual interest to another person, either in their lifetime or by their will.

Following various births and deaths, two of the children, Charles Edward Tamplin (known as Edward) and Jane Wayne were left as trustees, together with a new trustee – Edward Tamplin’s son Mark Tamplin. The three trustees were the defendants in this case.

In total there were nine beneficiaries, including, Edward Tamplin and Jane Wayne. Of those beneficiaries, three were the claimants in this case: Huw Lewis, Rhys Lewis and Sadie Lougher. Certain other beneficiaries gave witness evidence in support of the claimants, but were not claimants themselves.

The central issue in this case was whether or not, following a request from the beneficiaries, the trustees were under an obligation to disclose documentation regarding the trustees’ decisions in managing the trust such as letters regarding tax advice, the occupiers of the farm, and what income was being generated from the farm. The claimants’ motivation for seeking the documents stemmed from alleged concerns about option agreements that had been entered into by the trustees in respect of the land with potential developers. The land, due to its development potential, was said to have a value in excess of £10 million.

Although the trustees had responded to the claimants’ information requests, they did so some 10 months after the request had been made and, moreover, the claimants alleged that the information provided was inadequate. The claimants therefore sought an order that the defendants disclose the information sought.

Construction of the trust deed

There was also at one stage in the proceedings a secondary issue regarded the status of some of the claimants as beneficiaries. The trustees had been advised by their solicitor that the terms of the trust deed meant that the beneficial interests could not pass on intestacy (only by will) and thus as some children had died intestate, the surviving children’s shares had increased. Whilst this had been resolved prior to the hearing (with the trustees agreeing that the interests could pass on intestacy), the Judge noted that he agreed with this construction.

The Judgment

The Judge considered the general rules regarding the disclosure of information by trustees following the Privy Council case of Schmidt v Rosewood Trust Ltd (Isle of Man) [2003] UKPC 26. This confirmed the following principles:

  • Trustees owe a fiduciary duty to keep beneficiaries informed and this includes providing trust accounts; and
  • Whilst beneficiaries are not entitled to disclosure per se, they have a legitimate expectation to see trust documents in order to hold the trustees to account, and the ability to order disclosure of this falls within the Court’s inherent jurisdiction to supervise trustees in the performance of their duties.

Schmidt v Rosewood also clarified the approach that should generally be taken for different types of documents:

  • Trust documents should generally be disclosed if requested (this includes deeds of appointments and documents which vary the trust);
  • Trust accounts should be disclosed;
  • Settlors’ letters of wishes should be considered but remain confidential documents and there is no presumption to disclose them;
  • Legal advice is privileged against third parties but not beneficiaries if it is paid for from the trust fund;
  • Legal advice relating to trustees’ disputes with beneficiaries is privileged; and
  • The Court may order the disclosure of company documents where the trustees have a controlling shareholding in a company.

The defendants’ case

The Judge considered that the claimants had, prima facie, established that they wanted the information for the right reasons (i.e. to hold the trustees to account) and he therefore considered the defendants’ arguments for resisting disclosure. They made the following main arguments:

  • The beneficiaries already had sufficient information about the trustees’ stewardship of the trust;
  • The disclosure may reveal to beneficiaries the reasons why the trustees had made some management decisions which would mean that the Londonderry principle (Re Londonderry’s Settlement [1965] Ch 918) would apply, and the defendants implied that legal professional privilege may apply;
  • The beneficiaries had to show grounds for “real suspicion” before the Court could make an order for disclosure; and
  • That there was a distinction to be drawn between a request by one beneficiary, in which case an individual beneficiary would not be entitled to review the disclosure, and a request by all beneficiaries, where as a collective the beneficiaries could apply to review documents (Saunders v Vautier [1841] EWHC J82, (1841) 4 Beav 115). The defendants further cited the rule Schmidt, arguing that the Court could only review the decisions made by trustees if no other reasonable trustee could have made that decision.

In summary there were two main issues to be decided by the Court. The first was whether the defendants should disclose the information, and the second was whether, assuming the documents would otherwise be ordered to be disclosed, disclosure could be withheld on the basis of legal professional privilege.

The first issue – disclosure

In relation to the first issue, the Judge was satisfied that the beneficiaries claim was for good reason, “to hold the trustees to account, and thus to vindicate their own beneficial interests, by way of an action for breach of trust if need be“. He was not persuaded by the defendants’ arguments.

The Judge held that that the question was not whether there was suspicion but rather whether the Court thinks it is proper to interfere to hold the trustees to account: there is not a threshold of suspicion. However, in the present case, the Judge felt that the facts alleged did certainly give rise to suspicion. The Judge stated that out of the 8 claims made by the claimants, the ones which caused the most suspicion were –

  • The defendants failed to correctly identify who were beneficiaries, which led to financial advantages for the defendants (claim 1);
  • The trustees are liable for breach of trust for making income distributions which did not fairly align with the beneficial interests of the beneficiaries, and for not making distributions to some beneficiaries and making distributions to others (claim 2);
  • The trustees had not attempted to generate income from the land in the interim before it is sold to developers and further, and Edward Tamplin had exploited the land without payment (claim 6); and
  • That the trustees had failed to send the beneficiaries trust accounts, informal updates and formal reports (claim 8).

The Judge also gave examples of the special circumstances which would preclude the beneficiaries from ascertaining an order for disclosure. He held that examples of those special circumstances include:

  • Where the beneficiaries were acting in concert with another potential developer with the intention of passing on the information to that developer;
  • Where the beneficiaries were going to use the information for their personal gain, for example they had a competing business with the trustees; and
  • Where the beneficiaries conduct gave the Court a “genuine concern” about how they would deal with the information.

The Judge did not consider that any of these applied.

The Judge noted that he considered that the defendants’ strict approach as to the meaning of the rule in Saunders v Vautier was incorrect and that “it would also mean that for decades now trustees and beneficiaries had been proceeding on a false basis“.

The Judge did not look favourably upon the fact that the trustees had thus far provided insufficient disclosure, which was only disclosed as a result of the threat of legal proceedings. It was also highlighted that trustees cannot simply serve limited disclosure as a means of avoiding the application of this rule.

The Judge concluded that a prima facie case had been established and therefore ordered that documents be disclosed (although disclosure was not ordered in relation to all the categories sought).

Documents vs information

The Judge emphasised that beneficiaries have a right to hold trustees to account and to ask them for information regarding the performance of their obligations under the trust. If the trustees refuse to divulge such information then the beneficiaries can ask the Court to order the disclosure of documents containing the information, using the Court’s inherent jurisdiction to supervise trustees in performance of their obligations. However, if a request is made for information which is not in documentary form then it is not certain that an order for disclosure will be made. First, the beneficiaries would have to meet the cost of turning the information into a documentary form. Secondly, beneficiaries are not entitled to receive information regarding “why” a trustee made certain decisions.

The second issue – privilege

The issue of privilege was also discussed; the Judge reiterated the position that documents relating to the trustees’ exercise of their obligations under the trust are not protected from disclosure to beneficiaries by legal professional privilege. For instance, professional advice including letters of correspondence and fee arrangements must be disclosed. This advice is only privileged against third parties, but not beneficiaries. The exception is where the documents concern advice which the trustee received in their personal capacity, for instance in relation to a potential breach of trust. The issue of privilege was discussed in our previous blog post regarding the case of Felicity Mary Mackley Blades v Richard Auberon Isaac and Christopher Allen Alexander [2016] EWHC 601.

Comments

Trustees need to carefully consider whether to divulge information, and remember that the Court can order the disclosure of information using its inherent jurisdiction.

Trustees should also note that beneficiaries do not have to prove that there is a “real suspicion“, but rather the Court will decide whether it is proper for them to interfere. Additionally trustees are reminded that the Court may not view it positively if disclosures are only made begrudgingly and upon the imminent threat of legal action.

From the perspective of beneficiaries, they must ensure that document requests are framed properly and not overly wide or seeking information (as opposed to documents).

Richard Norridge
Richard Norridge
Partner
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Gareth Keillor
Gareth Keillor
Of Counsel
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+44 (0)20 7466 2350

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