Disputes often occur between trustees and beneficiaries of trusts as regards the operation of trusts resulting in a request from the beneficiaries for copies of trust documents. What obligations do the trustees have to disclose the same?
This question was considered in the recent case of Lewis & Others v Tamplin & Others .
The Tamplin Trust
Ernest and Gladys Tamplin had 6 children. They bought Panteg Farm in 1951. When Ernest died in 1985 Gladys arranged to enter into agreements transferring 50% of the equity in the farm to her children in equal shares with Gladys retaining the other half (“the Trust”).
When Gladys died in 1988 her beneficial half share under the Trust passed to her children in equal shares under her will. Accordingly, after her death, the trustees held the land on trust for all the children in equal shares.
By the time the matter came before the court 4 of the children had died, leaving only Edward and Jane still alive who, along with Edward’s son, Mark were the current trustees of the Trust.
The interests of Gladys’ deceased children passed to those entitled on their deaths. However, not all of them had made a will. In these circumstances then the deceased child’s interest passed by way of the rules of intestacy. For a long time, these persons were not recognised by the current trustees of the Trust as being beneficiaries under the Trust, the Trust providing that the beneficiaries should hold their shares “for their own use and benefit absolutely and for them to devise bequeath or appoint during their lifetime or in their will as they individually shall decide”.
The trustees, on advice from their solicitors, persisted in the view that this meant the interests of deceased children could not pass on intestacy. Accordingly, not having been willed to particular persons, those interests simply fell back into the Trust so as to increase the shares of the surviving siblings. Despite numerous requests, the trustees refused to disclose any information or documentation to these persons. As a result an application was made to court for disclosure of Trust documents.
Following judicial determination at an interim hearing the trustees were persuaded to agree in writing that these persons were entitled to inherit and should therefore be recognised as beneficiaries. Thereafter, the trustees held the Trust for a total of 9 beneficiaries in fixed but different shares. Having established their entitlement as beneficiaries the trustees then had to decide what to do about their outstanding requests for information about the Trust and its management.
The farm which was the subject of the Trust comprised some 12.3 acres and had development potential. As such it had an estimated value in excess of £10 million. Options had twice been granted by the trustees to potential developers and it was possible that a third would be granted in the near future. It was largely in respect of the farm’s development potential that the now recognised beneficiaries, the claimants in the court proceedings (“the beneficiaries”) sought additional information and documentation.
In January 2018 the trustees’ solicitors sent the beneficiaries a letter enclosing 12 pages stated to be “trust accounts”. However, despite the Trust being established in 1986 the document only began in 1998 and did not, according to the beneficiaries supply sufficient information regarding the management decisions in relation to the operation of the Trust. Accordingly, they determined to continue with the court proceedings.
Trustees’ opposition to the proceedings
By the time the matter came before the court the beneficiaries in support of disclosure of documentation by the trustees amounted to more than 50% in value of the Trust, the trustees themselves only holding a 44% share in the Trust.
Despite this, the trustees maintained that the beneficiaries had already had sufficient information about their stewardship of the Trust. They also stated that the disclosure sought by the beneficiaries (there being a detailed draft order before the court setting out the categories of documentation sought) might reveal the reasons why the trustees had made the decisions they had as regards the management of the Trust. This, they said, entitled them to apply the so-called Londonberry principle (derived from the case of Londonderry’s Settlement  Ch 918 wherein it was held that the trustees did not need to disclose reasons to a beneficiary as regards the small sums proposed to be distributed to her as to do so could cause family strife, fruitless litigation or make the trustees’ position impossible) and withhold it from the beneficiaries.
The trustees also sought to distinguish the case where one only of several beneficiaries sought disclosure from the case where they all did. In the first case the beneficiary would not be entitled to disclosure whereas in the second they would be so entitled, collectively, as an aspect of the well known rule in the case of Saunders v Vautier  EWHC J82 (the rule laid down in the case being that if all beneficiaries in a trust are all of adult age and under no disability they may require the trustees to transfer the legal estate to them and thereby terminate the trust).
The court heard that the only dealings with the farm had been for the trustees to enter into option agreements with the proposed developer, Redrow. Under the option agreements small initial payments had been made by Redrow to the trustees. The current option was due to expire this year and it was for this reason that the trustees considered it may have to enter into a third option agreement. Copies of the options agreements had by now been disclosed to the beneficiaries together with some further financial documents including, for example, details of their solicitors’ ledger. In total documents comprising some 107 pages had been disclosed.
The trustees said the further information and documentation sought by the beneficiaries went beyond an account and would require the court as the supervisor of the Trust to enquire further into why the option agreements were entered into and why the professionals were employed on a contingency basis, although their counsel submitted that the decision of the trustees could only be reviewed by a court on the basis that no reasonable trustee could come to that conclusion as was held by the Privy Council in the case of Rosewood Trust v Schmidt  2 AC 709.
As a result of this case, the trustees contended that it was a matter for their discretion whether to give information to the beneficiaries and not a matter of right. Accordingly, the court should not interfere with the trustees’ decision to refuse disclosure unless at least the court’s suspicion had been excited. The trustees’ counsel criticised the beneficiaries’ requests for disclosure as nothing more than a fishing expedition aimed at finding ammunition if possible for a breach of trust claim against the trustees.
The trustees’ counsel said it was for the trustees to make decisions as they had the management of the Trust not the beneficiaries who had to show grounds that they may have got the decision wrong before the court could interfere.
The trustees also said the beneficiaries’ interests ran counter to the interests of the Trust generally. It was for the trustees to decide that was so, not the court – the court was entitled to review the trustees’ decision on a so-called Wednesbury grounds (a case which set out the standard of unreasonableness of public-body decisions that would make them liable to be quashed on judicial review) but was not entitled to say that it was wrong. It is of the essence of the Trust that the trustees make the decisions about the collective interests of beneficiaries as beneficiaries. The court’s role was to consider whether there were substantial grounds for considering whether something might have gone wrong with the process which warrants further enquiry.
The beneficiaries’ grounds in support
The beneficiaries contended that the trustees’ attempts to import public law principles was unhelpful in the context of the court’s supervision of the Trust. They contended that there was no such fetter on the court’s powers but in any event, where, as in this case, there was a refusal to disclose documents to which beneficiaries were prima facie entitled it was unreasonable (in the absence of any explanation). The court’s supervisory role, said the beneficiaries, was not merely procedural but substantive. It would be absurd if the court could not correct errors in a decision that had followed the correct procedure.
They further maintained that the proposition that a body of beneficiaries must act together in order to obtain documents was not supported by any authority and further, that there was no authority to excite the suspicion of the court or to raise suspicion on substantial grounds of something having gone wrong before the court could intervene. In any event, the beneficiaries maintained that there were such grounds in this case.
It was also the case, said the beneficiaries, that it was paradoxical that they might need to show there was a case to answer before the trustees had to disclose any documents because it was only on sight of the documents that they would be able to say whether there was something that had to be explained.
The beneficiaries had not been given the reports and updates that had been given to the other beneficiaries. They were now recognised as beneficiaries and accordingly entitled to have sight of the same.
The beneficiaries did have some concerns regarding the legal costs and expenses incurred by the Trust in establishing their status as beneficiaries as well as distributions of income to other beneficiaries but not them and also breach of trust in entering into unenforceable and unreasonable contingency fee arrangements with professional advisers.
In addition, they were concerned as to whether the option agreements and/or compulsory purchase arrangement had been prudently entered into and questioned whether the trustees had committed a breach of trust in failing to generate any income from the farm in the meantime as well as other financial issues relating to the farm.
However, they denied that their disclosure requests amounted to a fishing expedition. The documents being sought here were obvious, they did not fall into any categories which might prove troublesome – for example, where the information sought was commercial sensitive and might assist a beneficiary who was carrying out a competing business. Nor was there any question of legal professional privilege.
As to the Londonberry principle the beneficiaries submitted that only applied to dispositive powers, not administrative powers.
The court did not agree with the trustees’ arguments that it should not order disclosure of particular categories of documents merely because they considered the beneficiaries had already had sufficient information. The beneficiaries, said the court, had the right to hold the trustees to account for their stewardship of the Trust and the performance of the trust obligations that they had accepted. If the beneficiaries ask the trustees for information which they refuse to provide, they may ask the court to order disclosure in the exercise of the court’s jurisdiction to supervise the activities of the trustees.
The court also rejected the argument that if the beneficiaries require information it must be done so collectively under the rule in Saunders v Vautier. The court considered that if it were necessary for all beneficiaries to join together to obtain disclosure from unwilling trustees, the number of successful requests would be very small. Furthermore, it would be impossible for any successful disclosure application to be made in circumstances where there were unborn or minor beneficiaries who could not properly join in such a request. That, said the court, would be an absurd position.
The court also rejected that the so-called Londonderry principle applied to the exercise of administrative powers. If it did so it would mean that no trustees would ever be obliged to disclose professional advice or even other information about, for example, dealings with trust assets because the relevant documents may well disclose reasons why the trustees had acted in a particular way. The court found that that could not be right.
As to the proposition that as a result of the decision in Rosewood v Schmidt the court must get over a threshold before being entitled to interfere with the exercise of the trustees’ discretion to refuse disclosure, this was rejected by the court. In the exercise of its supervisory jurisdiction of the Trust the court is entitled to interfere with a disclosure decision whenever it thinks it proper to do so in order that the beneficiaries may be able to hold the trustees to account.
Having rejected all these arguments the court considered the detailed categories of disclosure sought and, in the main, upheld the beneficiaries’ requests for disclosure of all documents. The court held that the beneficiaries were entitled to much more than had to date been supplied.
In general terms this claim succeeded. The court found that the trustees had taken an extreme and, in the court’s judgment, an indefensible approach to disclosure by putting forward a series of hopeless arguments against giving information to the beneficiaries. Where documents had been disclosed it had been done so very late in the day and only under threat of legal proceedings – indeed, in some cases after the proceedings had started. Had the trustees taken a less confrontational and more co-operative approach at the outset the court proceedings could have been avoided and fewer documents (perhaps none) would have needed to be disclosed. As a result the trustees had to suffer the consequences.
Whilst each case will always turn on its own facts, this case does highlight the need for detailed consideration to be given as regards the disclosure of information and documentation to beneficiaries by trustees – a more co-operative attitude and wider scope to disclosure at the outset may limit the amount of documentation that has to be disclosed. It will certainly limit the trust’s exposure to legal costs. In this respect, it should also be borne in mind that the court retains a wide discretion in relation to costs which may include an order for costs being made against the trustees in their personal capacity.