It is a basic principle of English law that trustees do not have to reveal their reasons for reaching decisions nor, generally speaking, do they have to disclose documents relating to the decision making process. The approach in recent court cases and Pensions Ombudsman decisions has challenged this position. The purpose of this article is to examine the legal background and set out the position as it stands today in respect of the disclosure of trustee decision making processes. We will look at the statutory obligations as well as the common law obligations and the view of the Pensions Ombudsman.
The Occupational Pension Schemes (Disclosure of Information) Regulations 1996 require trustees to make available particular information to scheme members, contingent beneficiaries and certain third parties. These disclosure requirements do not include minutes of meetings and other related trustee documents.
Under the Occupational Pension Schemes (Scheme Administration) Regulations 1996, trustees must keep written records of all their meetings (including sub-committee meetings). All books and records must be kept for up to six years.
The information which must be recorded includes:
- the date, time and place of each meeting;
- details of trustees invited and attendance as well as attendance of non-trustees such as advisers;
- the decisions reached at the meeting;
- whether the trustees have made any decisions since the last meeting. If so, the time, place, date and substance of the decision plus the trustees involved.
The legal requirements under these regulations align with a classic statement of the legal position regarding trustees’ duties in this area. Historically the law has differentiated between trustees disclosing their reasons and disclosing documents setting out the decision making process.
Re Londonderry’s Settlement (1965)
This case centred on a private family trust. One beneficiary sought to force the disclosure of documents detailing how the trustees had used their discretion to apportion income and capital. The Court of Appeal decided that unless there was evidence which questioned the equity and good faith of the trustees in the exercise of their discretion, the claimant had no right to force the disclosure of documents regarding the distribution of assets. The Court’s refusal to grant disclosure was based on three factors:
- if the trustees’ confidential role was to be subjected to investigation as to whether they had done their job properly their role would be seriously undermined;
- forced disclosure of reasons could make a trustee’s role in the execution of trusts untenable;
- if the veil of confidentiality was removed it would make the recruitment of trustees difficult, if not impossible.
The Court also pointed out that it would not be common sense to rule that whilst trustees cannot be compelled to disclose their reasons for exercising their discretion, once those reasons were written down, the duty to disclose would be triggered.
Wilson v. Law Debenture Trust Corporation (1995)
It was argued in this case that the decision in Re Londonderry’s Settlement should not apply to occupational pension schemes where members had to a certain extent “purchased” their benefits via their contributions. The Judge refused the application and upheld the disclosure principle in Re Londonderry’s Settlement. However, he stressed that the rule against the obligation to disclose reasons was an exception to the principle that absolute beneficiaries are entitled to see the trust documents. He also restricted his judgement to a situation where there was no evidence that trustees had acted improperly. The position would be different if there had been a breach of trust – unless trust documents were subject to professional privilege.
Schmidt v. Rosewood Trust (2003)
This was a decision of the Judicial Committee of the Privy Council relating to a private trust established on the Isle of Man. The Privy Council ruled that:
- as part of the Court’s underlying jurisdiction over trusts, where necessary it may intervene to allow the disclosure of trust documents to beneficiaries;
- no beneficiary has an absolute right to the disclosure of information or documents; and
- the Court does have the right to decide what may be disclosed and to whom.
Lord Walker stated that “no beneficiary…has any entitlement as of right to disclosure of anything which can plausibly be described as a trust document. Especially when there are issues as to personal or commercial confidentiality, the court may have to balance the competing interests of different beneficiaries, the trustees themselves and third parties. Disclosure may have to be limited and safeguards may have to be put in place”.
Despite these qualifications some commentators are of the opinion that trustees will be required to reveal the reasons for the exercise of their discretion. These views have been rejected in a recent Australian case that applied the Re Londonderry’s Settlement principle. However until the decision in Schmidt is tested in a court in England or Wales, its application here remains uncertain and the principle must remain that trustees are protected from any duty to disclose the reasons for their decisions unless ordered to do so by the court.
However, the Pensions Ombudsman has adopted a different approach to this issue and has demanded more transparency on the part of trustees, requiring them to disclose the reasons for their decisions to affected members.
Pensions Ombudsman’s Determinations
A body of determinations by the Pensions Ombudsman (starting with David Laverick and more recently Tony King) has built up, which reveals that the Ombudsman will not tolerate trustees hiding behind the legal rule in Re Londonderry’s Settlement when members request reasons for trustee decisions.
The first time that the Pensions Ombudsman required reasons to be given was in the case of Blaney. David Laverick first made his approach to this issue known in his initial annual report saying that he would start from a presumption that it is maladministration for the trustees not to provide reasons for a decision, which may adversely affect the person who seeks such reasons.
The case of Allen in 2002 concerned a complaint regarding the trustees’ rejection of a request for an unreduced early retirement pension. The Pensions Ombudsman commented that there was no legal duty on the trustees to make copies of minutes available. However, he determined that failure to do so could amount to maladministration. He concluded that as a matter of good practice, trustees should provide reasons for their decisions. Subject to the need to protect the rights of privacy of individual members, trustees should make the minutes of meetings available to scheme members.
This is a decision of Tony King, the current Pensions Ombudsman, and relates to an ill health early retirement application. Tony King followed his predecessor’s reasoning on the question of trustees’ duties to give reasons for their decisions. Although he did not uphold the complaint and therefore agreed with the trustees’ decision not to award an ill health pension, he nevertheless found them guilty of maladministration for not providing Mr Headley with the reasons for their decision.
It is apparent that the Pensions Ombudsman continues to demand a transparent approach between trustees and scheme members when it comes to the disclosure of reasons for discretionary trustee decisions.
The Data Protection Act 1998
It has been suggested that the rights contained in the Data Protection Act 1998 (the “Act”) could allow members, via a subject access request under the Act, to obtain minutes of trustee meetings, which contain “personal data” about members that was used by the trustees in reaching a decision.
Only personal data can be requested by a member. The right of access to personal data was tested in Durant v. Financial Services Authority (2003). In brief, the Court held that personal data must be biographical in a significant sense and be focused on an individual. Additionally, manual data does not come within the definition of “data” under the Act unless it is stored in a “relevant filing system”. The Court in Durant also looked at the definition of a “relevant filing system” and concluded a manual filing system would be caught by the Act if structured or indexed in such a way as to clearly indicate at the outset whether and where information capable of amounting to the personal data of a particular individual could be easily located.
Thus, there are hurdles for the member to overcome before using his rights under the Act.
The test for what is personal data where the information is stored manually is narrower than previously thought, as a result of the decision in Durant. However, where trustees maintain manual records by reference to members’ names and record decisions on those files, those records are likely to be in a “relevant filing system” for this purpose. Moreover, the definition of “data” in the Act clearly covers processing using computerised filing systems. As such, where the information forms part of a “relevant filing system” or is stored or processed electronically on a computer, trustees wishing to withhold this data may, instead, have to place a greater reliance on the argument that the information does not sufficiently relate to the individual or include the necessary detail to fall within the definition of “personal data”. Trustees should, therefore, closely monitor how personal information concerning decisions relating to specific members is recorded and stored.
How should Trustees proceed?
Trustees must decide whether they should routinely record the reasons for their decisions in their minutes/resolutions and whether those reasons should be disclosed to affected members.
If the reasoning involves personal information about specific members then the trustees should closely scrutinise how that personal information is recorded and stored, in view of those individuals’ rights under the Data Protection Act 1998.
Many believe that the routine disclosure of reasons for decisions would inevitably give rise to more disputes and litigation. There is also concern that trustees may be unwilling to act if the quality of their decision making is under constant surveillance - this echoes the concerns voiced by the Court in Re Londonderry’s Settlement.
Notwithstanding these concerns, trustees should be aware that this issue is usually of relevance in relation to discretionary decisions, for example, ill health early retirement applications and the distribution of death benefits. Any disputes in these cases are more likely to be handled by the Pensions Ombudsman than the courts in view of the fact that the Ombudsman’s arena is cost free.
In these circumstances trustees should pay close attention to the Pensions Ombudsman’s attitude towards disclosure, as they are more likely to be faced with an Ombudsman’s determination than a court order in the event of a dispute. As findings of maladministration are published, trustees would be prudent to disclose the reasons for their decisions in order to avoid any such reprimand from the Ombudsman.