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Disclosure to Successor Trustees

Rawlinson & Hunter Trustees S.A. v. ITG Ltd

 

The Investec litigation in Guernsey has done much to enrich our trust law, not to mention our trust lawyers.  Numerous points have come before the Royal Court and the Court of Appeal and some are slowly trundling towards the Privy Council.

The latest decision is that of the Deputy Bailiff in Rawlinson & Hunter Trustees S.A. v. ITG Ltd, judgment in which was handed down on 30 January 2017.  It concerns the disclosure or provision of trust documents to an incoming trustee by outgoing trustees, though the terms ‘incoming’ and ‘outgoing’ have to be understood pretty broadly as the application was not launched until five and a half years after the applicant trustee took office.  There is some modest English authority on those points, going back to Tiger v. Barclays Bank Ltd 1 All E.R. 85, but the recent decisions have been elsewhere, hitherto mainly in Jersey.

The general principle is not in doubt and was reaffirmed in Rawlinson & Hunter: a former trustee must deliver up all records, books and papers belonging to the trust and must provide any information reasonably required by the new trustee.  The principle does not usually cause any trouble.  But it may do so where the documents are extremely numerous, so that the task is onerous and expensive, or where the parties are at loggerheads, both features of this case.

The decision recognises that there is a discretion whether or not to make an order – even in the case of physical documents, which the court thought might or might not count as trust property.  Once the incoming trustee points to material which it has not received, the onus shifts to the former trustee to show special circumstances against making an order.  The interest of the decision lies in the discussion of factors for and against doing so.

The factors included the following:

  • There had been a previous order, made in 2011, for the delivery up of certain categories of documents, resulting in the provision of 400 lever-arch files.  The court did not consider that the previous order made it an abuse of process to seek in this application all trust documents not previously disclosed, not least because the possibility of a further application had been raised at that time.  But there seemed to have been little point in making the earlier application if the incoming trustee had not intended to make use of the documents then provided earlier than it did; and that cast doubt on the need for further disclosure.
  • The incoming trustee had been inconsistent in explaining its reasons for making this application.  The court did not accept that it was designed to resolve specific queries previously raised, as it was far broader than necessary for that purpose, and was concerned that the motive was somehow to assist an appeal in another part of the proceedings; but it ultimately concluded that it was only the passage of time which gave that impression.
  • Delay was material but not itself a reason for refusing the application.
  • The incoming trustee had not adequately explained why its administration was being hampered by the absence of the remaining documents but it was entitled to be put in the same position as to knowledge of the trust affairs as the outgoing trustees.
  • The former trustees had admittedly made mistakes in asserting privilege and it was reasonable for the incoming trustee to suspect that there were documents which should have been but had not been disclosed.  The level of mistrust was such that the former trustee had refused to accept sensible suggestions, such as a review by a third party of material for which privilege was claimed.

The court found its decision finely balanced; the former trustees had come close to persuading it that the application should be refused but ultimately the court was not convinced that a special case had been shown to take the case out of the ordinary rule.  Disclosure of what had not been provided under the 2011 order would in principle be ordered.

So we can take these points from the judgment:

  • The general rule is that an incoming trustee is entitled to full disclosure.  Though the court has a discretion whether to compel disclosure by order, a special case has to be shown for refusing it.
  • The incoming trustee is entitled to be put in the same position as the outgoing trustee as to knowledge of the trust affairs but if it has specific concerns it should articulate them adequately and consistently.  Any application should be made promptly.
  • The former trustee should beware of taking an entrenched stance and should be amenable to any practical suggestions for resolving differences.  Resistance to an order will fail in the absence of strong reasons.

 

Nicholas Le Poidevin, Q.C.

New Square Chambers

12 New Square

Lincoln’s Inn

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