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Disclosure of trust information

As trusts become more popular as part of estate planning an adviser is likely to come across clients who may be beneficiaries or/and trustees of existing trusts. Extraordinarily it is not uncommon to find that trustees are not totally familiar with the trusts they administer, let alone understand fully their duties and responsibilities. However, more often one comes across an individual who is a beneficiary of a trust but has little information about the trust.

In some cases the relationship between trustees and beneficiaries is not as amicable and open as the beneficiary might like. It is not unknown for things to go wrong. Beneficiaries must be able to hold trustees to account but it is hard, if not impossible, to do this if the beneficiary has no information about what the trustee is required to do and/or what the trustee actually does, not to mention what exactly the beneficiary is entitled to under the trust.

In some cases even a person who is not a beneficiary under a trust may seek disclosure of trust information - this will frequently be the case in matrimonial (divorce) proceedings where one of the spouses has set up a trust which they prefer not to disclose to the other. The situation is even more complicated where the assets and trustees are offshore. As it happens we have two recent decisions on this very point and we will consider these this month.

Can the Data Protection Act help?

In a recent case, the beneficiaries of an offshore trust used the Data Protection Act 1998 (DPA), to get access to trust documents.

The case was Dawson-Damer & Ors v Taylor Wessing LLP[2017] EWCA Civ 4.

The case was brought by beneficiaries of certain offshore trusts established in the Bahamas. The defendant, Taylor Wessing LLP (TW), is a well-known firm of solicitors which advised the trustee of the trusts.

The beneficiaries first attempted to obtain certain documents from the trustee in the Bahamas but were not successful. They then made a "subject access request" (SAR), under the DPA, to TW.

Under the DPA, a data subject (here the beneficiaries) has a right to be informed where personal data (of which he or she is the data subject) is being processed by a data controller (here TW). The data subject is then entitled to certain further information and copies of the data. TW's initial response to the request was that the information requested was subject to legal professional privilege and therefore exempt from disclosure under the DPA.

The beneficiaries applied for a Court order that TW had failed to comply with the SAR but, in 2015,  the High Court agreed with TW's position that (in summary) the legal professional privilege exemption relied on by the firm applied where the documents were not disclosable as between trustees and beneficiaries as a matter of Bahamian law.  There were some other technical points as to whether the purpose of making the SAR was proper or not, in particular TW argued that  the real purpose of obtaining information was to support the legal  proceedings against the trustee in the Bahamas, which was not a 'proper purpose' for making a SAR.

The Court of Appeal decided that the legal professional privilege exemption applied only to documents that would be subject to legal professional privilege as a matter of English law. A data controller in the UK cannot therefore rely on more restrictive foreign rules regarding privilege to avoid complying with a SAR. As such, TW, relying on the fact that it considered the information was covered by the legal professional privilege exemption, had failed to satisfy the Court that complying with the SAR would involve disproportionate effort on its part. Furthermore, there was no limitation in the DPA on the purposes for which a SAR might be made and no rule that a data controller could refuse to comply on the grounds of the requester's 'true motive'.

This case may be seen as a way around the established limitations on the ability of a beneficiary to compel the production of trust documents from a trustee as of right. Obviously the possibility of using the DPA for this purpose will only be relevant where the trustees or their advisers are in the UK.

Disclosure of trust information in divorce proceedings

As a general rule, where a beneficiary of a trust is a party to divorce proceedings, the Courts will have regard to the financial resources of the beneficiary, and any interest under a trust or settlement is regarded as a financial resource.

The basic principle is that a beneficiary's interest under a trust can be relevant in divorce proceedings if either the beneficiary has a vested right to trust assets and/or income, or the trustees operate in any way consistent with the conclusion that, as a matter of fact, they treat the trust assets as the beneficiary's and use them for his or her benefit. This is true regardless of the nature of the trust assets.

What if the divorcing party refuses to disclose the nature of their interests under a trust?

Well, the Court has a power to demand information about trust assets and if the trustees receive a Court order they have no option but to comply. However, what happens if the trust is an offshore trust? Will offshore trustees be obliged to submit to the jurisdiction of UK Courts?

The recent case,In the matter of the A Limited Furbs and the B EBT[2017] 21/2017, decided in the Guernsey Royal Court, provides helpful clarification on this matter.

The general approach in the Channel Islands so far has been that trustees of a discretionary trust should normally resist submission to the jurisdiction of a foreign court. In this case, however, the Court decided that in certain circumstances (for example where the trustee has limited discretion, such as in this case) submission may be appropriate to assist the foreign Court although trustees should be encouraged to apply to their "home" Court for directions before deciding whether to submit to the jurisdiction of an overseas Court.

Accordingly, the judge sanctioned the trustee's submission to the jurisdiction of the English Court in the underlying divorce proceedings. The facts of the case are interesting as the circumstances, involving funds accumulated in an offshore FURB, are probably not unusual.

Background to the case

The case arose during the course of divorce proceedings in the English Courts. The wife sought to join the trustee of a Guernsey trust (the "FURBS") in the divorce proceedings in England for the purposes of disclosure; she wanted to know what assets were held on trust. She obtained a Court order from the High Court in England against the trustee of the FURBS.

On receipt of the order, the trustee made an application to the Guernsey (i.e. its "home") Court for directions on whether or not to submit to the jurisdiction of the English Court. It did this because Guernsey law contains so-called "firewall provisions" which confer exclusive jurisdiction on the Royal Court in relation to matters of Guernsey trusts under the Trusts (Guernsey) Law 2007.

The FURBS held substantial assets, including a number of properties used by the divorcing couple. The whole of the trust fund was held under the terms of the FURBS for the husband as the sole member of the FURBS.

Relevant case law

The Guernsey Judge reviewed the relevant case law under Jersey law as there had been no prior cases on this point in Guernsey.

In the caseIn the matter of the H Trust[2006] JRC 057, which involved a discretionary trust, a couple divorcing in England were among the beneficiaries and the wife obtained an order joining the trustee to the English proceedings.

The trustee sought directions from the Jersey Royal Court which decided that the roles of the two Courts (i.e. the English and the Jersey Courts) are very different; the English Court being concerned to do justice between the two spouses while the role of the Jersey Court was to consider and approve decisions in the interests of all the trust beneficiaries.  Accordingly, the Jersey Court decided against submission to English jurisdiction.

The decision also indicated that if a trustee were to submit to the jurisdiction of the foreign Court, it would lose the protection of the firewall provisions under Jersey law. This happened in another case,In the matter of the A and B Trusts2007 JLR 444, where the trustee intervened in proceedings in the English High Court without first seeking directions from the Jersey Court. It then sought approval from the Jersey Court regarding its ongoing participation in the matrimonial proceedings. The Jersey Court refused to make the order sought. Submission to the jurisdiction of the English Court meant that there was scope for full disclosure in respect of the trusts concerned to be ordered in the proceedings and the loss of the protection provided by the Jersey firewall legislation.

The Guernsey decision

Despite the Jersey cases pointing away from a trustee submitting to the jurisdiction of an overseas Court, the Guernsey judge considered that the nature of the FURBS was such that its trustee was in a different position from the trustee of a discretionary trust. Had the trust in question been a "standard" family discretionary trust with a class of beneficiaries extending beyond the divorcing couple, the judge said he would probably have followed the reasoning inH Trustand concluded that it was best for the trustee not to submit to the jurisdiction of the English Court.

However, the judge found that, on reading of the FURBS trust instrument, the trustee had no discretion to exercise - all it was required to do is to make arrangements to pay a pension to the husband or, if the husband so elected, to provide him with a lump sum.   The judge concluded that this was one of those exceptional cases where submission to the jurisdiction of the foreign Court was permissible and appropriate and therefore sanctioned the trustee's submission to the jurisdiction of the English Court.

The nature of the trust clearly made all the difference.

COMMENT

We have covered the rules on what information a trust beneficiary is entitled to see in PFS articles about two years ago but we have also had a new case since then on this subject, namely RNLI and others v Headley and McCole(2016). We will cover this is a separate article.

The subject of offshore trusts is also timely, what with the Client Notification Letters and the changes to non-domicile taxation and so we will come back to this topic again. Meanwhile, the issues outlined above should be borne in mind when advising clients on trust issues which have an offshore aspect.