Bird Charitable Trusts: Duty of disclosure of legal advice to an incoming trustee

Bird Charitable Trusts: Duty of disclosure of legal advice to an incoming trustee

Introduction

In the matter of the Bird Charitable Trust and the Bird Purpose Trust [2012] JRC006 concerned an application by the current trustee (the Current Trustee) of two trusts (the Trusts) for an order requiring a former trustee (the Original Trustee) to disclose to the Current Trustee certain legal advice that the Original Trustee had obtained at the cost of the Trusts during the course of its administration.

Facts

The Trusts were both established in 2004 with the Original Trustee as trustee.  On 17 July 2006, an indictment in the United States against the settlor was unsealed.  This indictment charged the settlor with various offences relating to the provision of internet gambling services to US residents.   Once the settlor was indicted and this came to the knowledge of the Original Trustee, the Original Trustee came under an obligation to make a suspicious activity report (SAR) to the police, and having made an SAR, the Original Trustee was unable for some weeks to communicate with the settlor for fear of committing a “tipping off” offence.  This inability to communicate and provide an explanation of why the Original Trustee was unable to act in relation to the Trusts (because of the need to obtain the consent of the police) damaged the relationship between the settlor and the Original Trustee and appeared to lead to a decision by the settlor to sideline the Original Trustee (through various appointments of a new protector and additional trustees (Larona Trust Reg (Larona) and Roenne Trust Corporation (Roenne)) of the Trusts, and a failed attempt to remove the Original Trustee as trustee). 

In March 2007, the Original Trustee issued validity proceedings challenging the validity of the appointments of the protector and the two additional trustees in relation to the Trusts and in May 2007, a saisie judiciare (the saisie) was granted on the application of the Attorney General in respect of the realisable property held by the settlor in Jersey, including the assets of the Trusts.

The Original Trustee retired as trustee in December 2008, and in April 2010, the Current Trustee was appointed co-trustee with Larona and Roenne, who subsequently resigned in September 2010, leaving the Current Trustee as the sole trustee. 

The Current Trustee took delivery of trust documents from Larona and Roenne, but concluded that a number of records were missing.  In particular, for present purposes, it noted that there was no record of the instructions to lawyers or legal advice received in relation to the validity proceedings or the saisie proceedings.  There was no dispute that legal advice on these matters was taken by the Original Trustee or that it was at the cost of the Trusts. 

Accordingly, the Current Trustee sought disclosure from the Original Trustee of the legal advice and the instructions giving rise to that advice (the Legal Advice).

The Decision

The Court rejected an argument that the Legal Advice constituted "trust property" within the meaning of article 34(1) of the Trusts (Jersey) Law, which would have had the effect that disclosure to an incoming trustee was mandated, with the Court having no discretion in the matter.  The Court said that the question of the obligation to disclose legal advice had to be determined under general principles of trust law.

The Court concluded that an outgoing trustee will normally be under a duty to hand over to an incoming trustee all documents and information which relate to the administration of the trust so as to enable the incoming trustee to fulfil his duties.  However, the Court has a discretion to direct that documents or information not be supplied where it is satisfied, in its supervisory role, that this is the appropriate course.  The onus lies on the outgoing trustee to show why the normal rule should not be followed. The Current Trustee argued that it needed to see the Legal Advice for two reasons:

1. the Current Trustee should be aware of the contents of the Legal Advice so that the Trusts would not be in a position where, if similar issues arose again, they would have to take and pay for the same advice all over again.  Accordingly, the Legal Advice should be disclosed because it might be of value in the future administration of the Trusts; and
2. as an incoming trustee, the Current Trustee was under a duty to satisfy itself that the Trusts had been administered in an appropriate manner with due regard to the interests of the beneficiaries.  The legal advice had been expensive and the Current Trustee was entitled to consider whether the expenditure on obtaining it had been properly and reasonably incurred.

The first reason was rejected by the Court - the advice was given to the Original Trustee in the context of a particular factual situation and could not be relevant for the future administration of the Trusts.

However, the Court found that the Original Trustee had not satisfied the burden of showing that the Legal Advice could not be of assistance in relation to the second ground relied upon by the Current Trustee, namely the need to satisfy itself that the Trusts have been properly administered.  The Court's view was that it is entirely proper for an incoming trustee to wish to satisfy itself that sums spent on legal advice were reasonably and properly incurred, and it makes no difference that in this case the information is being sought by the next but one trustee rather than the immediately following trustees (i.e. Larona and Roenne).

As the Original Trustee had not displaced the onus, the Court ordered that the Legal Advice be disclosed to the Current Trustee.

Comment

This decision re-confirms the basic rule that an outgoing trustee must provide to an incoming trustee all documents and information which are necessary for the administration of the trust.  Importantly, however, the judgment does clarify that the Court has a discretion to direct that particular documents or information need not be provided by the outgoing trustee, if the outgoing trustee is able to demonstrate that there are grounds on which to withhold disclosure.  In this case, the magnitude of the legal fees swayed the Court's decision towards ordering disclosure.

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This client briefing has been prepared for clients and professional associates of Ogier. The information and expressions of opinion which it contains are not intended to be a comprehensive study or to provide legal advice and should not be treated as a substitute for specific advice concerning individual situations.

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