Special article by Robert Colquitt of Cains.
Trustees of private trusts are used to receiving requests from the beneficiaries of the trust for disclosure of trust documents and information.
In such circumstances, the trustee has the benefit of numerous court decisions that provide guidance as to when the beneficiaries should or might be provided with trust information.
The 2003 decision of the Privy Council in Vadim Schmidt v Rosewood Trust Limited remains the most significant legal case in this area, which in broad terms decided that beneficiaries have no absolute right to receive trust documents and information.
balancing exercise
Instead, trustees have to perform a balancing exercise as to whether information should be provided to beneficiaries, including taking into account the status of the requesting beneficiary, any confidentiality and competing interest concerns relating to other beneficiaries, and whether any safeguards need to be imposed.
However, what if you are not the trustee, but instead you are a corporate or trust service provider, assisting in the administration of the affairs of the trust, and you receive a request by a beneficiary to provide him with trust documents and information?
In a recent Isle of Man case, Godfrey v Aston International Limited & Others, the Isle of Man Court considered this issue.
The case concerned a claim brought by a Mr David Godfrey, who described himself as a US qualified lawyer admitted to the bar of the State of California in 1993, and between April 2002 and August 2006 a member of the in-house legal team of Yukos Oil Corporation.
Mr Godfrey asserted that the trusts were set up to make bonus and severance payments to employees for which Yukos Oil was responsible and that Mr Godfrey was a beneficiary of one of the trusts and potentially a beneficiary of the other trust.
Mr Godfrey sought documentation and information from the defendants in respect of two Isle of Man trusts into which he said that at least US$80 million was transferred.
The defendants were not and never had been trustees of the trusts.
Notwithstanding the indications given by the defendants to Mr Godfrey that the defendants held none of the documents he sought, Mr Godfrey nevertheless pursued the case before the court.
At the final court hearing, the defendants queried the jurisdiction of the court to make a disclosure order against them, as effective third party strangers to the trusts, and also queried whether, if the Court decided it had a jurisdiction to make a disclosure order, it was appropriate in the circumstances that such disclosure should be given.
jurisdiction
On the basis of the authority of the English Court in Murphy v Murphy, the Isle of Man Court decided that it did have theoretical jurisdiction to order a third party to disclose trust documents and information in an appropriate case.
The court then proceeded to consider whether or not, in the actual circumstances of Mr Godfrey’s claim, it was appropriate that an order for disclosure be made against the defendants.
In view of a number of factors, and perhaps inevitably in light of the defendants’ evidence that they had none of the documents sought in their possession, the court declined to make any disclosure order against the defendants. Instead, the court made an order in favour of the defendants that Mr Godfrey should pay the defendants’ costs on an indemnity basis.
What then are the conclusions to be taken from this case?
Godfrey provides some encouragement to beneficiaries of trusts that, faced with any refusal by a corporate/trust service provider to provide the documents or information sought in an appropriate case, the Isle of Man court may provide the beneficiaries with an effective remedy.
legal and factual matters
Corporate and trust service providers who are in possession of documents relating to the affairs of a trust, and who find themselves the subject of a request from beneficiaries to provide copies of trust documents, will therefore have to consider a whole host of legal and factual matters upon receipt of such a request.
Certainly, each case will be different, particularly where sensitive commercial or personal information is held and where the potential interests of beneficiaries compete.
One possible approach that the corporate/trust service provider could take would be to provide the documents and information sought by the beneficiary with the written permission of the Trustee and other beneficiaries.
However, such consent may not be forthcoming for any number of reasons.
An alternative scenario would be one where, as in the Godfrey case itself, the trustees and trust no longer exists.
Then, the corporate/trust service provider as the sole target of the request is placed in a difficult position.
Where the trust no longer exists the corporate/trust service provider has no trustee with which to discuss the request.
As a third party, the corporate/trust service provider will most likely be insufficiently appraised of the circumstances of the former trust to make any informed decision as to the propriety of the provision of documents or information.
Mindful of the duties of client confidentiality that would generally exist in relation to the protection of the information beyond the termination of the trust itself, the corporate/trust service provider may have little option but to apply to the court for guidance and assistance,
The potential silver lining for corporate/trust service providers is that beneficiaries/former beneficiaries first line of request will normally be to the trustee itself, whilst the trust and trustee are still in existence.
As the Godfrey case showed, the failure to take that initial step may prove detrimental to the prospects before a court of the beneficiary obtaining information from the third party corporate/trust service provider; that same failure would also place the beneficiary at risk of having to cover the legal costs of the corporate/trust service provider, who incurs legal expenses as a consequence of the beneficiary’s request.
Robert Colquitt is a director of Cains Advocates Limited. He acted for Vadim Schmidt in the context of the Vadim Schmidt v Rosewood Trust Limited case, and also for the successful Defendants in the Godfrey case.