Re Information About A Trust

• Jurisdiction: Bermuda
• Judge: Zacca P,Evans JA,Ward JA
• Judgment Date: 05 February 2014
• Court: Court of Appeal (Bermuda)
• Docket Number: Civil Appeal 2013 No 8
• Date: 05 February 2014

[2014] Bda LR 5

In The Court of Appeal for Bermuda

Before:

Zacca P; Evans JA; Ward JA

Civil Appeal 2013 No 8

In the Matter of an Application for information about a Trust

Mr D Alexander QC and Mr A Martin for the Appellant

Mr N Hargun and Mr P Smith for the 1^st Respondent

Mr R Ham QC and Mr K Robinson for the 2^nd Respondent

Schmidt v Rosewood Trust LtdELR [2003] 2 AC 709

Armitage v NurseELR [1998] Ch 241

Target Holdings v RedfernELR [1996] AC 421

Chapman v ChapmanELR [1954] AC 429

Foreman v Kingstone [2004] 1 NZLR 841

Breakspear v Ackland [2008] EWHC 220

Re Rabaiotti 1989 SettlementUNK (2000) 2 ITELR 763

Countess Bathurst v Kleinwort Benson (Channel Islands) Trustees [2007] WTLR 959

Jones v Shipping Federation of British ColumbiaUNK (1963) 37 DLR (2d) 273

Hartigan Nominees Pty Ltd v Rydge (1992) 29 NSWLR 405

Tierney v KingUNK [1983] 2 Qd R 580

Trust accounts — Application by a beneficiary — Rights of beneficiaries — Protector's duties — Court's supervisory jurisdiction

The following cases were referred to in the judgment:

JUDGMENT of Evans JA

1. This Appeal is from a judgment of the Chief Justice dated 12 March 2013 and his subsequent Order made on 24 April 2013, on the Application of a beneficiary under a Trust established in Bermuda. The Order requires the Trustee to produce Trust Accounts and related documents to the Applicant, with safeguards intended to maintain their confidentiality and restricting the use that he may make of them. The Application was dated 28 December 2011 and initially was made against the Trustee alone, but on 2 February 2012 an Amended Originating Summons was issued adding the Protector of the Trust as Second Respondent.

2. The Protector, who is also the principal beneficiary of the Trust, brings the appeal, naming the Applicant as First Respondent and the Trustee as Second Respondent.

3. On 9 February 2012 the (former) Chief Justice ordered that the ‘the Court file in respect of these proceedings shall be sealed and not available for inspection by any person without further order of this Court’. For that reason, the judgment now under appeal was given in two parts: first, under the anonymised heading ‘In the matter of an Application for Information about a Trust’, and secondly, a ‘Confidential Appendix to Judgment (Reasons for Ordering Disclosure)’ in which the parties are named and the facts are discussed.

4. We should record that the appeal was heard in open court, with frequent references to the names of the parties and the circumstances of the Trust. We were not asked to make any further order with regard to the confidentiality of the proceedings. However, we are concerned mostly with issues arising from the first, non-confidential, part of the Judgment, and we will consider them anonymously as the Chief Justice did.

5. We shall refer to the Protector as ‘the Appellant’ and to the Respondents as ‘the Applicant’ and ‘the Trustee’ respectively. The Applicant is ‘a beneficiary with an interest that cannot be described as remote or speculative’ (judgment paragraph 1), because ‘as the result of an Irrevocable Deed of Appointment, [he] potentially has an absolute interest in 35% of the Trust the assets of which are believed to be worth in the region of US$1 billion’ (paragraph 7). The Appellant ‘is currently the Principal Beneficiary under the Trust’ (judgment paragraph 7) which we understand refers to the current beneficial interest in the majority (65%) of the Trust assets.

6. We heard the Appeal on 12 —14 November 2013 and gave judgment on 18 November 2013 holding that the Appeal was dismissed, for Reasons to be given in writing. On 22 November 2013 we gave leave to the Appellant to appeal to the Judicial Committee of the Privy Council. Both Respondents consented to that Application.

7. Our Reasons for dismissing the Appeal are substantially those given by the Chief Justice for granting the Application. We give them in our own words, as follows.

Legal Background

8. It is common ground that the Court exercises a supervisory jurisdiction in order to ensure that the affairs of a private trust are conducted lawfully and in accordance with the wishes of the settlor. This enables the Court to require the production of trust documents and information to a beneficiary of the trust. In Schmidt v Rosewood Trust LtdELR[2003] 2 AC 709 (JCPC) Lord Walker said this –

‘51. Their Lordships consider that the more principled and correct approach is to regard the right to seek disclosure of trust documents as one aspect of the court's inherent jurisdiction to supervise, and if necessary to intervene in, the administration of trusts.’

The beneficiary's right, therefore, to demand trust documents and information is correlative to the Court's willingness to order production in the circumstances of the particular case.

9. In Armitage v NurseELR[1998] Ch 241 Millett LJ (as he then was) said –

‘…there is an irreducible core of obligations owed by the trustees to the beneficiaries and enforceable by them which is fundamental to the concept of a trust. If the beneficiaries have no rights enforceable against the trustees there are no trusts.’

10. The Applicant contends, and the Appellant and the Trustee do not dispute, that the beneficiaries' right to demand the production of trust documents is a ‘fundamental’ right of that kind. But the Trust Deed contains express terms which, they say, have the effect of extinguishing the right, or which at least prevent the Applicant from exercising it in the present case. The Applicant's response is that the express terms do not preclude the Court from exercising its supervisory jurisdiction, and that it should do so in the present situation of the Trust.

11. The Trust Deed provides for the appointment of a ‘Protector’, and the Appellant was appointed to that office at the time of a re-arrangement of the Trust in 2002, as a result of which the Applicant obtained his 35% beneficial interest in the Trust. We understand that the role of Protector, also called a ‘Watchdog’ or the ‘Enforcer’ of a Trust is now recognised and accepted as a feature of Trusts where the Settlor does not wish to exercise personal oversight over the administration of the Trust, or where not being a local resident he cannot conveniently do so. An independent third party, either a personal friend or a professional adviser, residing in the locality, can often perform the role and be responsive to his wishes, without acting formally on his behalf.

12. There are few reported judgments on this comparatively recent addition to trusts machinery, but there is a considerable amount of literature regarding it, which is based on practical experience as well as academic learning. It is recognised that a further development has taken place, namely, a beneficiary may be appointed Protector of the Trust, notwithstanding the apparent conflict of interest that may arise. The fact that the Appellant is both the Protector of the Trust and the Principal Beneficiary under it is a central feature of the present dispute, but it is not suggested that the appointment was improperly made.

The Trust Deed

13. Clause 9.2 reads –

‘9.2 Subject to the provisions of clause 24 below and except to the extent that the Trustees (with the prior written consent of the Protector) in their discretion otherwise determine no person or persons shall be provided with or have any claim right or entitlement during the Trust period to or in respect of accounts (whether audited or otherwise) or any information of any nature in relation to the Trust Fund or the income thereof or otherwise in relation to the Trust or the trusts powers or provisions thereof (and whether from the Trustees or otherwise).’

The overriding provisions of clause 24 are –

‘24. The Protector shall have power to request information and accounts from the Trustees (which information and accounts shall forthwith be supplied to the Protector.)’

14. The ‘Protector’ is defined in the Trust Deed as a named company (not a beneficiary) ‘or such other person or persons as may be or become the Protector hereof for the time being in accordance with the provisions hereinafter contained’ (clause 1.8). No Trustee can become the Protector (clause 29.6), but there is no express provision regarding the position of a Protector who is a beneficiary also.

15. Numerous clauses in the Trust Deed give the Protector wide powers in the administration of the Trust and to control and direct the Trustees. Clauses 12.1,17, 25.2 and 28 are quoted in paragraph 6 of the Chief Justice's judgment and they need not be set out in extenso here. In summary, clause 12.1 includes –

‘12.1 In exercising all or any of the powers and discretions (whether fiduciary, dispositive or administrative) conferred on them by this Deed or by law or otherwise in relation to the Trust, the Trustees shall be required to act in accordance with the written directions (if any) of the Protector …’,

and clause 25.2 reads –

‘25.2 The Protector may give directions to the Trustees regarding any action or omission to take action with respect to any asset from time to time forming part of the Trust Fund or otherwise subject to the control of the Trustees …’.

However, both clauses contain a proviso –

‘… (unless such directions conflict with any provisions of this Deed regarding the beneficial interest or entitlements with regard to assets forming part of the Trust Fund or the income thereof) …’.

16. Clause 17 requires the Trustees to keep proper books of account etc. and to ‘have them audited annually or so often as the Protector may otherwise direct by a firm of … accountants of high standing and repute …’.

17. The Protector's role is further defined in clause 28 –

‘28. The Protector shall not owe any fiduciary duty towards and shall not be accountable to any person or persons from time to time interested hereunder or to the Trustees for any act...