Facts
Decision
Comment


The Royal Court recently considered a trustee's application seeking the court's blessing for the trustee's refusal to disclose trust information to a former beneficiary?.(1)

Facts

The case was straightforward: documents were being sought not because the former beneficiary wanted to hold the trustee to account, but in support of proceedings that might have involved an attack on the trust assets. The court agreed that it was not in the interests of the beneficiaries as a whole that disclosure be given.

However, the court had to consider its own function in such an application: was it for the court to exercise its own discretion or should its role be limited to reviewing the proposed exercise of the trustee's discretion? The answer to this question is important, as it establishes the test that the court will apply in directions applications concerning disclosure, and therefore how trustees should approach the court. Surprisingly, previous authorities have not been consistent on this matter.

The trustee sought the court's blessing for its decision, applying the well-known principles in In Re The S Settlement,(2) which in essence provide that the court should bless a reasonable decision that has been properly made. However, it has been conversely argued that in matters concerning the disclosure of trust documents, the court may wish to reserve the right to exercise its own discretion and not limit itself to reviewing the trustee's decision.

Decision

In the case at hand, the Royal Court argued that it need not decide between the two approaches, because the trustee would satisfy both tests. Furthermore, it should not decide definitively one way or the other because the point had not been the subject of detailed argument. It therefore expressly left the issue of function open for determination on another occasion.

However, Commissioner Clyde-Smith took the opportunity to issue his own observations on the matter, reviewing both English and Jersey decisions and providing analysis that could be drawn on by whichever court finally decides the issue.

Previous case law
Should the court exercise its own discretion?
The court first analysed the issue of function in In Re Rabaiotti.(3) When considering which trust documents should be disclosed to beneficiaries, a trustee must consider its duty to be accountable. A beneficiary has the right to have the court enforce this fundamental duty. However, does this mean that a beneficiary has the right to see trust documents? This question was considered in Rabaiotti, albeit from the context of whether the court, rather than the trustee, had the discretion to refuse disclosure.

In Rabaiotti the court argued that while trustees were able to refuse to disclose documents, such a decision by a trustee should be combined with an application to the court for directions, which could be brought by either the disappointed beneficiary or the trustee. The judgment went further and suggested that, irrespective of who brings such an application, the function of the court is not to review the decision of the trustees, but to exercise its own discretion (although, confusingly, in doing so it appears to rely on a passage in the Australian case of Rouse,(4) which is actually referring to trustee discretion).

The court also noted that the Privy Council, in Schmidt v Rosewood,(5) appeared to argue that the court could exercise its own discretion, rather than reviewing the decision of the trustees on such an issue.

Article 29 of the Trusts (Jersey) Law 1984 has been interpreted by the Jersey courts to mean that a positive right is conferred on a beneficiary to see documents that relate to the accounts of the trust. The court in Rabaiotti stated that the position under Article 29 is that the beneficiary's right to information is subject to any order of the court. As such, the court may, in appropriate cases, exercise the discretion to refuse to order disclosure. This adds further weight to the argument that the court's function is to exercise its own discretion.

In U v B(6) the court was concerned with an application by a trustee for directions as to the disclosure of information to a settlor. The trustee did not seek the court's blessing, but rather asked the court to exercise its own discretion.

Should the court bless trustee's decision?
Since the ruling in U v B, it has been suggested in a leading trust law textbook(7) that when concerned with issues of disclosure of information to beneficiaries, the court should not exercise its discretion unless the trustee has surrendered its own discretion (eg, for reasons of conflict of interest) or there has been a successful challenge to the trustee's decision. The English case of Breakspear v Ackland,(8) which concerned disclosure of a letter of wishes, supports this line of reasoning, arguing that if the trustee does not surrender its discretion, or if the beneficiary cannot demonstrate that an occasion has arisen justifying interference by the court, the court will treat the application as a blessing application.

Further Jersey support for the Breakspear line of reasoning can be found in S v Bedell Cristin Trustees,(9) where Birt (then deputy bailiff) stated that:

"The Court's role is a supervisory one and it is simply to ensure that decisions taken by trustees are reasonable and lawful. The Court does not simply substitute its own discretion for that of the trustee unless the trustee surrenders its discretion to the Court and the Court agrees to accept such surrender (which it is not obliged to do)."

In short, the Breakspear line of reasoning suggests that unless something has clearly gone wrong or the trustee has surrendered its discretion, discretion remains with the trustee and the court should not interpose its own decision for that of the trustee.

Ruling
Addressing the case at hand, the commissioner acknowledged that it would be unworkable to hold that in every case where trustees decline to disclose documents they must seek the directions of the court (as might be implied by interpreting Article 29 to mean that a beneficiary's right to information is subject to the court's discretion, as held in Rabaiotti).

However, he drew a potential distinction between applications brought in respect of the discharge of a trustee's obligations and those brought in respect of the exercise of powers vested in the trustees under the trust deed or by law. In the latter case, the court should be more astute to ensure that trustees discharge their obligations and not distance itself from that task.

Ultimately, until full argument can be heard on the issue of function, the commissioner held that the court is likely to reserve the right to exercise its own discretion in any application concerning disclosure, in order to ensure the proper protection of beneficiaries. However, the issue has not been closed.

Comment

Directions applications brought by trustees or beneficiaries are relatively commonplace in Jersey. The difference in approaches taken in the past in respect of the important issue of function is therefore surprising. However, the trust industry can take comfort from the fact that the courts are aware of the issue.

It is hoped that a judgment may be imminent that would confirm that the issue of function depends on whether the court is considering the exercise of a trustee's power or the discharge of a trustee's obligations. This would grant trustees the confidence that they are approaching the court on the right basis. In the meantime, it may be best to bring such applications on an either/or basis.

For further information on this topic please contact Edward Mackereth at Ogier by telephone (+44 1534 504 000), fax (+44 1534 504 444) or email (edward.mackereth@ogier.com). The Ogier website can be accessed at www.ogier.com.

Endnotes

(1) Y Trust [2014] JRC 027.

(2) [2001] JRC 154.

(3) In re Rabaiotti 1989 Settlement [2000] JLR 173.

(4) Rouse v 100F Australia Trustees Ltd [1999] 73 SASR 484.

(5) [2003] 2 AC 709.

(6) [2011] JLR 452.

(7) Lewin on Trusts, supplement to 18th edition, para 23-20.

(8) [2008] EWHC 220.

(9) [2005] JRC 109.