Disclosure Obligations Highlighted by Two Birds

By Nigel Pearmain and Chris Le Quesne, Voisin

The recent judgment of the Royal Court in this case has provided further clarification on the disclosure obligations of former trustees owed to their successors. The Court noted that there appeared to be little authority on the law dealing with the duty of a retiring trustee to hand over documents and information to an incoming trustee and therefore took the opportunity to set out its views concerning the legal position.

The facts of the case arise from historic litigation relating the trusteeship of two trusts, namely the Bird Charitable Trust and the Bird Purpose Trust (the "Trusts"). The assets of the Trusts were the proceeds deriving from the listing of a company on the London AIM market. The businessman behind the listed company was the protector of the Bird Charitable Trust and the enforcer and protector of the Bird Purpose Trust and, along with his family, was added as a beneficiary of the Bird Charitable Trust.

When proceedings were raised in the USA against the businessman, a breakdown in relationship with the trustee of the Trusts at the time (the "Former Trustee") followed thereafter which culminated in the appointment of news protectors and new co-trustees (the "Co-Trustees"). After this was challenged by the Former Trustee, the appointments were ultimately held to be valid by the Royal Court (the "Validity Proceedings"). Additionally, an application to freeze the assets of the trust was made and subsequently lifted (the "Freezing Proceedings"). A new trustee (the "New Trustee") eventually took over as sole trustee of the Trusts in 2010.

Upon taking on the trusteeship, the New Trustee noted that the records and information relating to the legal advice received by the Co-Trustees in connection with the Validity Proceedings and the Freezing Proceedings (the "Legal Advice") appeared to be missing. Consequently it applied to the Court to consider the extent of the New Trustee's entitlement to records and information from the retiring Co-Trustees.

The starting point identified by the Court was that the successor trustee is stepping into the shoes of the retiring trustee and prima facie is entitled to be placed in the same position as the retiring trustee as far as possible. The Court has to Ogier Trustee (Jersey) Limited -v- CI Law Trustees Limited [2006] JRC 158, in which it was noted that "On the transfer of a trusteeship the outgoing trustee is under a duty to co-operate fully and actively in the transfer by making all relevant documents and correspondence available promptly to the incoming trustee and by providing any explanation to questions reasonably raised by the incoming trustee".

While the Court remained satisfied with the presumption that an incoming trustee should be placed in just as good a position in all respects as the outgoing trustee, it acknowledged that the Court nevertheless has a discretion over whether specific documents or information are to be supplied in a particular case, for the following reasons:

1. Obiter in Tiger -v- Barclays Bank Limited [1952] 1 All ER 85 suggested such a discretion (and no other case apart from Ogier was referred to the Court on this issue);

2. The Court felt there must be some element of control as to the reasonableness of requests for information from an incoming trustee i.e. there should be a mechanism by which it could adjudicate a dispute regarding potentially unreasonable requests made of an outgoing trustee; and

3. The existence of a discretion is consistent with the approach of the Privy Council in Schmidt -v- Rosewood Trust Limited [2003] 2 AC 709 over questions of disclosure to a beneficiary (as opposed to a trustee).

The Court also concluded that there was academic concurrence with the notion that it held inherent jurisdiction over such matters, citing Lewin On Trusts (18th Ed): "We consider that the court may, in exercise of the trust supervisory jurisdiction, qualify the ... rights of [a] new trustee to delivery up and disclosure in special circumstances". The Court also observed that authorities regarding disclosure to beneficiaries are generally unlikely to assist with questions of disclosure to incoming trustees due to the differing interests of beneficiaries and trustees (notwithstanding the relevant paragraphs that were identified in Schmidt).

The outcome of this case was that, while in the circumstances the Court did not consider that the Legal Advice would be useful to the future administration of the Trusts, it nevertheless ordered that the Legal Advice be disclosed to the New Trustee. This was because the New Trustee should be able to satisfy itself that the Trusts had been properly administered.

The guidance set out in In the matter of the Bird Charitable Trust and the Bird Purpose Trust will be of assistance to both incoming and outgoing trustees. While it is clear that the Court will listen to questions relating to whether particular documents or information should be disclosed, the onus is on the outgoing trustee to show that it is not reasonably necessary for such disclosure to be made to the incoming trustee. It is accordingly clear that an outgoing trustee should expect to take steps to put the incoming trustee in the same position with regard to information about the trust as the outgoing trustee is in prior to its retirement.

Nigel Pearmain, Advocate
Voisin, Jersey, Channel Islands
E: This email address is being protected from spambots. You need JavaScript enabled to view it.; W: www.voisinlaw.com

Chris Le Quesne
Voisin, Jersey, Channel Islands
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