TRUSTEE'S DUTY OF DISCLOSURE
| Date | 01 December 2012 |
| Author | Tsun Hang TEY BCL (Oxford), LLB (KCL), AKC; Barrister (Gray's Inn), Advocate and Solicitor (Malaya), Advocate and Solicitor (Singapore); Associate Professor, Faculty of Law, National University of Singapore. |
| Published date | 01 December 2012 |
The right of beneficiaries to information and the trustee's duty of disclosure tend to accentuate the tension between ensuring that the beneficiaries' proprietary interests in the trust are vindicated and other concerns such as not placing the trustee under duties so onerous as to discourage trusteeship, balancing obligations of confidentiality owed by the trustee to third parties, respecting the settlor's freedom to dispose of his property, and maintaining harmony rather than sowing discord in family trusts. This article analyses the tension, and seeks to chart a way forward
1 There are good reasons why the trustees ought to owe a duty of disclosure to the beneficiaries. Most important is the consideration that without information about a trust and its administration, the beneficiaries will be hampered in their ability to ensure the proper administration of the trust.1 As noted in Armitage v Nurse,2“there is an irreducible core of obligations owed by the trustees to the beneficiaries and enforceable by them which is fundamental to the concept of a trust. If the beneficiaries have no rights enforceable against the trustees there are no trusts”. While documents may be disclosed through the process of discovery in court proceedings, the issue is a non-starter if in the first place the beneficiary's right to monitor its stewardship is rendered nugatory by his lack of knowledge that he has an interest in the trust. Unless the trustees are under a duty to disclose the trust to the
beneficiaries, the very existence of the trust may be unknowable, as well as unknown, to those who alone can hold the trustees to account.32 For the purposes of ascertaining his entitlement under the trust, or of ascertaining if there is misdemeanour, the beneficiary may ask his trustee to disclose information that is often contained in existing documents such as:
(a) the trust deed, deeds of appointment and removal of trustees, and deeds exercising the dispositive powers of the trustees;
(b) trust accounts and reports (such as the actuarial reports and valuation reports) relating to the trust property;
(c) contracts and leases relating to the use and enjoyment of trust property;
(d) the agenda for and minutes of meetings of the trustees;
(e) correspondence between the trustees and beneficiaries, or between trustees and other power holders; and
(f) legal or other professional advice relating to the trust, including the instructions pursuant to which the advice was obtained.
3 The question of the nature of the rights of the beneficiaries – whether they are rights in rem4 or in personam5– has been the subject of debate.6 Following the judgment in Armitage v Nurse, it is a logical extension to view a number of the duties that trustees owe to beneficiaries as falling within the “irreducible core”, and therefore proprietary in nature in order to give effect to the rights of the beneficiaries.
4 In a trust, the beneficiaries are collectively the beneficial owner of the trust assets, and the mark of proprietorship would be the exclusion of the availability of such assets to outsiders of the trust. The duty of the trustees to exclude non-beneficiaries from the enjoyment of the trust assets,7 and the duty to convey the trust assets should all beneficiaries legally make the decision to terminate the trust,8 should therefore sit at the “irreducible core” of the trust. To give effect to these, however, it is pertinent that the beneficiaries are aware of the nature of the trust, with the trustees being accountable.
5 Nonetheless, while it is not generally difficult to reach agreement that trustees should be held accountable, appeals to a broad notion of trustee accountability are not enough to justify disclosure of all documents available to the trustees; to say that accountability is part of the irreducible core of trusteeship9 only begs the question as to what the trustees are actually required to account for.10
6 Issues surrounding the right of the beneficiaries to information and the trustee's duty of disclosure therefore tend to centre on the fundamental notion that a trust is subject to the inherent supervisory jurisdiction of the courts, and that the courts only intervene to ensure the proper administration of the trust. To determine if the court's intervention is for the proper administration of the trust, we must balance, inter alia, the tension between ensuring that the beneficiaries' proprietary interests in the trust are vindicated and other concerns such as not placing the trustees under duties so onerous as to discourage trusteeship, balancing obligations of confidentiality owed by trustees to other third parties such as the settlor11 or as a result of commercial secrets, respecting the settlor's freedom to dispose of his property as he wishes by imposing certain conditions and checks, and maintaining harmony rather than sowing discord in family trusts.12 Therefore, holding the trustees accountable to the beneficiaries is but one façade
that must be taken into account in determining if disclosure should be ordered.137 Prior to Schmidt v Rosewood Trust Ltd14 (“Rosewood”), the trustees clearly had a duty to allow the beneficiaries access to trust documents.15 The classic exposition of the basis of that proposition is encapsulated in the House of Lords decision of O'Rourke v Darbishire16 (“O'Rourke”):
[A beneficiary] is entitled to see all the trust documents because they are trust documents and because he is a beneficiary.
8 However, it should be noted at the outset that even pre-Rosewood, there was never a general obligation for the trustees to give full information to those who considered themselves entitled to an equitable interest under the trust. The traditional common law position was that information should be provided only to those with proprietary interest in the trust property,17 and who thus had a right of access to any “trust documents”.18 This right to disclosure is distinguished from the procedural process leading up to litigation known as “discovery”.
9 O'Rourke is the leading case for the above proposition. In O'Rourke, the appellant beneficiary sought to obtain disclosure of documents containing legal advice given to the settlor during his lifetime, and to his executors after his death. He alleged fraud by the settlor's solicitor.19 The court held that a beneficiary was generally entitled to inspect all documents relating to the trust. The court further explained that the beneficiary had such a right because the trust
documents were considered a part of the trust property, and thus, just as the trust belonged to him, so did the documents.20A. Problematic foundation
10 While it seems logical to draw this extension – as the rights of beneficiaries will not have anything to attach to without trust property21– the proposition that the beneficiary's right to information is founded on his having a proprietary interest in the trust document is problematic for two reasons.
11 Firstly, where the person wishing to seek disclosure is the object of a discretionary trust or power – as that person has no identifiable proprietary interest in the trust property22– it would lead to the conclusion that he has no right to disclosure.23 In cases such as Rosewood, where there is no beneficiary with a fixed interest, the effect of the proprietary view of disclosure would be that no one would have a right to information which enabled supervision of the trustees.24
12 Secondly, there is difficulty in determining what is meant by trust documents for the purposes of disclosure – giving rise to the possibility of abuse where the trustees might be given too great a degree of protection by artificially classifying certain documents as not being trust documents. Whereas it might be obvious that the expression “trust documents” is capable of extending beyond the trust deed, it is equally clear that the expression cannot sensibly be used to refer to all documents in existence that relate in some way to the trust.25 The characteristics of trust documents as enumerated by Salmon LJ in
Re Londonderry's Settlement26 (“Londonderry”) – that: (a) they are documents in the possession of the trustees as trustees; (b) they contain information about the trust which the beneficiaries are entitled to know; (c) the beneficiaries have a proprietary interest in the documents and, accordingly, are entitled to see them – are circular in nature,27 and do not go towards establishing with any certainty what is, or is not, a trust document.B. Defences
13 Yet, even if the classification of information results in an initial presumption of disclosure, several defences are available to resist the application of the rule that the beneficiary is entitled to inspect the trust documents simply by virtue of his proprietary interest in them.28 The trustee does not have a general duty to provide information.29 The trustee's duty is limited only to providing information duly requested by a qualified applicant. A beneficiary's right is confined to information that concerns him, including notice of his entitlement under the trust. Even then, the duty only extends to informing sui juris beneficiaries of the trust,30 and there is no duty to explain the terms of the trust to the beneficiaries.31 The right of the beneficiary can be compromised when disclosure involves commercially sensitive documents, or when it is prejudicial to the interests of other beneficiaries.
14 One major limitation on the right to disclosure is that, generally, the trustees are protected from having to give reasons for their exercise of discretion. In Re Beloved Wilke's Charity,32 it was held that as a general rule, “the Court ought not to require persons to state reasons for conduct which they are authorised to pursue”. The trustees are not obliged to provide reasons for their exercise of...
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