In the Matter of an Application for Information about a Trust (Re a Trust)
Introduction:
The judgment of the Supreme Court of Bermuda was delivered in anonymised form so that the parties to the dispute were identified as the Plaintiff and the Protector. The Protector was the Principal Beneficiary of the Trust. The Plaintiff, as a result of an Irrevocable Deed of Appointment, potentially had an absolute interest in 35% of the trust assets, estimated at US$1 billion.
The case concerned the validity of an information control clause and its impact on the inherent powers of a court to supervise the proper administration of a trust. In essence, the Supreme Court was asked two questions:
- Is the information control mechanism contained in the Trust Deed incompatible with the irreducible core of obligations inherent in a trust?
- If the information control mechanism is not incompatible with the irreducible core of obligations, what principles delineate the scope of the Court’s jurisdiction to grant relief in circumstances which entail a departure from the express terms of the trust?
Facts:
The Supreme Court highlighted four key elements of the information control mechanism contained in the Trust Deed:
- It required the Trustees to keep books and records of account which must be independently audited;
- The Protector alone has an express right to receive financial information about the Trust from the Trustees;
- Any other requesting person, including a beneficiary, can only obtain information about the Trustee’s finances from the Trustees with the Protector’s consent;
- The Protector’s power to grant or withhold consent in respect of an information request [by a beneficiary] is a non-fiduciary power and his/her acts or omissions cannot be legally impugned in the absence of fraud or dishonesty on the Protector’s part.
Judgment:
Validity of the Information Control Clause
When interpreted in light of the other provisions contained in the Trust Deed, the Supreme Court held that the information control clause was not invalid as it did not violate the irreducible core of obligations essential for the validity of a trust. In particular, the Court interpreted the clause to neither oust the jurisdiction of the Court or to eliminate the trustees’ duty to account.
Moreover, while recognising that the Protector is expressly empowered by the Trust Deed with the discretion to limit disclosures to beneficiaries, the Court found that the Protector is implicitly required to have regard to the interests of beneficiaries when exercising these non-fiduciary powers. The fourth key element of the information control mechanism – the limitation on losses not resulting from dishonesty or fraud – was interpreted as an indemnification provision in favour of the Protector, which did not have the effect of excluding the Court’s supervisory jurisdiction over the trust by preventing beneficiaries from enforcing its proper administration.
Jurisdiction to order disclosure
Given that the information control mechanism was not invalid on its face, the Supreme Court then considered which principles guide its jurisdiction to order disclosure.
The Court gave due weight to the express reference to an information control mechanism in the Trust Deed suggesting that the breadth of the Court’s jurisdiction cannot be as broad as would be the case if the Trust Deed were silent on the topic. Thus, the Court had to assess whether the information control clause either theoretically and/or practically gives rise to a need for judicial intervention in order to guarantee minimum standards of trustee accountability.
The Court was careful to emphasise how there is nothing repugnant about a mechanism which ensures that the Protector receives information from the Trustees and is conferred a power to veto the disclosure of that information to other persons. Nevertheless, the Court was equally firm in holding that the information control mechanism did not operate to limit the cases in which a beneficiary could invoke the Court’s supervisory jurisdiction in circumstances where the Protector had vetoed an information request made by the beneficiary to the Trustees.
Thus, the Court held that insofar as the Plaintiff can make out a prima facie case that the Court’s intervention to order disclosure is required to meet the minimum standards of trustee accountability, then the Court will exercise its inherent jurisdiction to order disclosure. There is no presumption either in favour or against disclosure, but deference to the terms of the Trust Deed will be given, so that disclosure will be granted only where it is shown to be necessary.
On these facts, P had successfully made out a prima facie case for the Court’s intervention. The conflicts of interest in the Protector’s role and the animosity between the Protector and the Plaintiff meant that the machinery set out in the Trust Deed to ensure adequate access to information had effectively broken down, and was not working in a manner which was substantially consistent with the presumed intention of the settlor. On the other hand, conscious of the risks attendant upon disclosure, the Supreme Court was willing to impose conditions on the disclosure so as to not unduly hinder the trustees’ administration of the trust.
Comment:
The Supreme Court’s judgment in Re a Trust draws a tentative framework for the disclosure of information to beneficiaries in the presence of an information control mechanism. While approving traditional trust orthodoxy – including the notion of an irreducible core of obligations in the trust (Armitage v Nurse [1998] Ch 241) and the doctrinal basis for the beneficiary’s right of information (Schmidt v Rosewood Trust Ltd [2003] 2 AC 709) – the Court adopted a deferential stance towards information control clauses. In the absence of circumstances which effectively break down the information control mechanism, it appears that the Supreme Court of Bermuda will be unwilling to override the express intentions of a settlor and order the disclosure of trust information.