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Author: Jo Summers (email@example.com) - 01/08/2006
Previously, much has been said about a beneficiary's right to see trust documents. Trust practitioners will be extremely familiar with the leading British case of Re Londonderry's Settlement (1965). The more recent case of Schmidt v Rosewood Trust (2003) brought Re Londonderry back into the spotlight.
Although cases from overseas are not binding on English courts, it is always interesting to see how courts in other common law jurisdictions deal with similar issues. In tow recent cases, our friends down under have been looking at the question of beneficiaries' rights to trust documents. The first, Graham Crowe v Stevedoring Employees Retirement Fund Pty was heard in 2002. The second, a year later, was Gray v Guardian Trust Australia. Bothe cases were heard in the Australian Supreme Court: Crowe in Melbourne and Gray in New South Wales. The cases of Crowe and Gray are quite different (Crowe relates to a super annuation scheme, Gray to a private family trust), but this article examines them to see what guidance might be given to trustees on the sometimes thorny question of the beneficiaries' right to see trust documents.
Definition of Trust Documents
One of the biggest problems is that there is no single definition of what comprise 'trust documents'. We have not statutory definition and case law is not always entirely specific.
It is worth starting with Re Londonderry, as this judgement was considered in both Crowe and Gray. In Re Londonderry Salmon LJ proposed a rather circular definition that trust documents 'contain information about the trust that the beneficiaries are entitled to know'. We know from Re Londonderry that trustees do not have to reveal the reasoning behind their decision-making. The courts held that, with regard to a discretionary trust, the trustees and not bound to give their motives or reasons for the exercise of their discretionary powers. Anyone practising in the field of contentious trusts may have been amused by the court's view that it would be:
...undesirable to wash the family linen in public, which would be productive only of family strife and also an odium for the trustees.
Danckwerts LJ stated that the benefit from any disclosure of such documentation would be out of proportion in the trouble caused within the family. However, correspondence and documentation between legal advisers and the trustees were held to be generally discloseable.
The Gray Case
The Gray brothers were two beneficiaries in a serious dispute over matters relating to their mother's estate. The arguments had become so extreme that it had come to the point where they were arguing over coffee mugs and an oven dish. The trustee, who was also executor, was doing their best to administer the estate but was coming under a barrage of increasingly demanding requests for information from one of the beneficiaries. The trustee was very aware of the intense disputes between the beneficiaries.
The case before the court was actually a costs claim. Austin J was asked to consider awarding costs in relation to a number of actions and there was a query as to whether certain actions should have been started or continued. This, to an extent, rested on the beneficiary's right to information and to access trust documents. The court held that this would determine whether the actions had been properly investigated or defended. The court considered a number of cases where a beneficiary's right to view trust documentation was either upheld or refused.
Austin J stated that a beneficiary's right to documentation is strongest when it relates to financial information and the administration of the trust. The court upheld the decision in Re Londonderry that is was correct to deny beneficiaries access to documents that would amount to disclosure of the trustees' reasons for exercising a discretionary power. The court concluded that material relating to the trustees' deliberations and advice obtained on exercising the discretionary powers could not properly be regarded as trust documentation.
Moreover, the court felt that there was a difference between demands for documentation and demands for an explanation of the trustees' actions. The former is a request for trust documentation; the latter is not. Austin J also stated that as a trustee has a duty to the beneficiaries as a whole, so it was not correct for a trustee to spend considerable time (and cost) dealing with queries from one demanding beneficiary. Austin J held that the requests made by one of the beneficiaries 'exceeded that permissible volume and frequency of a beneficiary's demand for information'.
The court drew an analogy with s813 of the American Uniform Trust Code (2000). This states that a beneficiary should be kept 'reasonably informed'. However, the court felt it was also reasonable to consider the proportionate time and expenses of dealing with one beneficiary's enquiries. Again, it was noted that the trustee's duty was to the administration of the estate as a whole for the benefit of all the beneficiaries.
The judge made it clear by his costs order that he disapproved of the behaviour of the beneficiaries in this case. Whilst the majority of costs were awarded against them, where costs were awarded against the trustee the judge confirmed that the trustee could rely on the indemnity from the estate as to these costs. The net effect was that personally and through the trust the beneficiaries were liable for all the costs of the actions brought.
The Crowe Case
This case brought by a beneficiary under a superannuation retirement fund. The beneficiary wished to see accounts and obtain an explanation of the source of certain additional moneys received into the fund. This increase had been negotiated with particular employers involved in the fund as part of certain enterprise agreements. The beneficiary also wanted an accounting of a separate reserve fund. This was operated so that high interest rates on accumulation benefits one year could be offset against low rates on other years. The beneficiary requested various documents, including actuarial reports.
The trust deed required actuarial reports to be commissioned by the trustees and copied to 'participating employers' (as defined in the deed) and the trade union. The trustees tried to claim that a supplementary accounting would need to be prepared by an actuary solely to meet the beneficiary's requests. Balmford J stated that she could see no reason why this documentation could not have been prepared by the actuary on payment of a fee. The trustees argued that actuarial reports supplied on demand could cause logistical problems in a scheme with 12,500 members. Balmford J did not, however, accept this problem and even suggested that such reports could be made available by electronic means without much problem.
Balmford J considered a number of cases relating to beneficiaries' rights to see trust documents. She highlighted the case of Re Fairbairn (1967). This case suggested that an inference could be drawn from a trustee's failure to...
These articles were based on the legislation in force at the date of publication. The laws may well have changed since. These articles should not be taken as being or replacing proper legal advice.
This case is important on two levels. From a practical perspective, it is a stark reminder to all trustees of the importance of keeping accurate and up-to-date records of their beneficiaries. Equally the case shows how vital it can be to take out insurance on the winding-up of a trust.
From a technical perspective, the case is important because it confirms, for the first time, that the protection afforded by section 27 of the Trustee Act 1925 can be extended to trustees of pension schemes. However, trustees cannot rely on the s27 protection when they have already had ‘notice’ of a claim. The judgment examines what constitutes notice for these purposes.