United Kingdom Judiciary Speeches

---

You are here: BAILII >> Databases >> United Kingdom Judiciary Speeches >> Mr Justice Lightman, High Court Judge : The Trustees' duty to provide information to Beneficiaries [2003] UKSpeech EMV4Z (21 October 2003)
URL: http://www.bailii.org/uk/other/speeches/2003/EMV4Z.html
Cite as: [2003] UKSpeech EMV4Z

---

[New search] [Help]

---

Mr Justice Lightman
High Court Judge

The Withers Lecture 2003
The Trustees' duty to provide information to Beneficiaries

King's College, London

21 October 2003

---

• Introduction
• Topic of Lecture
• Disclosure of trust information pursuant to request by established beneficiary
• Duty to inform beneficiaries of their entitlement
• Disclosure by executors
• Limitations on duty in trust instrument
• Exemption and exoneration clauses
• Conclusion

---

Introduction

I am honoured to be invited to give this year's lecture. The lecture is prestigious and for this reason for the lecturer a challenging proposition.

Not long after Lord Walker's lecture last year I had occasion to consider the rule in Hastings-Bass in the case of Abacus Trust Co (Isle of Man) v. Barr [2003] Ch 409 ("Abacus"), and if my decision was in any way courageous departing (as I did) from a line of authority and making my own furrow on the question whether a decision successfully challenged on Hastings-Bass grounds was void or voidable, I acknowledge the encouragement to my resolution afforded by Lord Walker's lecture. My decision was not appealed to the Court of Appeal. Instead there was an appeal to the legal profession as a whole by way of legal periodical. I have in mind in particular the article in 17 Trust Law International(2003) 114-128: The Law Relating to Trustees' Mistakes - Where Are We Now? by Mr Brian Green QC, a member of the same stable, Wilberforce Chambers, as leading Counsel for the unsuccessful party in Abacus. Such an appeal has decided advantages over an appeal to the Court of Appeal: (1) there is no requirement of giving notice of the appeal to anyone and the judge has no right to be heard; (2) there is no limitation of the issues raised to those raised before the judge; (3) there is no limitation of the arguments advanced to those advanced before the judge; and (4) there is no further appeal. Judges become accustomed to viewing in silence and with amused (or bemused) detachment the subsequent deconstruction of their judgments. Moses himself, the story reads, when brought back to this world could not recognise in developed Jewish law the founding principles which he had himself laid down.

In Abacus it was not argued before me, and it was not open to me to hold, that the whole Hastings-Bass rule and its basis required reconsideration. To keep the rule within bounds, in the absence of any challenge to the trustee's decision on the ground of mistake, it seemed to me that it must rest on some breach of fiduciary duty, and I expressed the view that the rule merely gave particular expression to the duty of trustees to obtain and take into account available information relevant to the decision which they have to make. Consider The Queen v. The Charity Commissioners ex parte Baldwin [2001] WTLR 137 at 148-9 per Jack Beatson QC. This was of course only the first word on the topic, and I await with interest the further words which plainly will be forthcoming.

Back to top

---

Topic of Lecture

Enough reminiscing of the past. I must now turn to the topic of this lecture, a topic of practical importance and some difficulty which has found (at least until recently) remarkably limited consideration in the authorities, text books and journals. Shortly before I was invited to give this lecture I was troubled as the trustee of a settlement by the question raised how far I was obliged to provide information about the trust to a beneficiary which the beneficiary had no need to know and the provision of which might prove positively harmful to the beneficiary. That experience led me, when I received the invitation, to choose as my topic the extent of the duty of trustees to inform beneficiaries of the existence of their beneficial interests and provide information regarding the trust and its administration.

This provision of information by trustees to their beneficiaries is at the heart of the trust relationship. As Professor Hayton explains in his article "Developing the Obligation Characteristic of the Trust" 2001 LQR 94 at 104, the core element of a trust, for its existence relfecting the irreducible minimum of obligation on trustees, is the right of a beneficiary to enforce the trusteeship, in default of which the beneficial ownership remains with the settlor. As Millett LJ said in Armitage v. Nurse [1998] Ch 241 at 255: "If the beneficiaries have no rights enforceable against the trustees, there are no trusts": i.e. no trusts other than a resulting trust for the settlor. He went on to say that "every beneficiary is entitled to see the trust accounts". This is spelt out by Lindley LJ in Low v. Bouverie [1891] 3 Ch 82 at 99 as an obligation "to give all his cestui que trust" on demand information with respect to the mode in which the trust fund has been dealt with and where it is. The gloss may be added that the beneficiary's right is confined to information which concerns him. If the beneficiary's interest is in capital alone, he may have no interest in the details of the distribution of income. Further the term "beneficiary" may not include the objects of a fiduciary discretionary power. For the view has been expressed that the settlor may confer on or withhold from such objects any accounting or enforcement right: see Underhill & Hayton Law of Trusts 16 ed. 672. Leaving aside for the moment these two matters of detail, it must be plain that the right of enforcement is only rendered effective and meaningful if the beneficiaries first of all know that they are beneficiaries and secondly possess or have access to the required information to render the trustees accountable for their actions. A trust must be both visible to beneficiaries and enforceable by them.

Shortly after I had decided on this topic, the Privy Council gave its judgment in the case of Vadim Schmidt v. Rosewood Trust Limited [2003] 2 WLR 1520 ("Schmidt"). Lord Walker's seminal analysis of the questions of law raised by the issues in the case goes a long way to clarifying and updating the law, but it necessarily leaves unresolved related questions not addressed and indeed occasions the need for reconsideration of earlier authorities on those questions. My purpose in this lecture is to ventilate some of those questions and venture some thoughts on them in the hope that they may shortly be authoritatively answered.

The authorities as they stand distinguish three different scenarios. The first is where a person seeks trust information as a beneficiary and the question arises whether the trustees are bound to provide him with that information. That was the scenario in Schmidt. The second is where a testator by his will gives legacies or creates trusts. Are the executors under a duty to inform legatees and beneficiaries of the terms of the will so far as they relate to them? The third is where a settlor creates an "inter vivos" trust. What (if any) duty are the trustees of the trust under to inform the beneficiaries of their entitlement under the trust? In the case of each of the three scenarios the further question arises whether any duty imposed on the trustees or executors by the general law can be limited or indeed totally abrogated and whether the trustees and executors can be exonerated in respect of any breach of duty by the provisions of the settlement or will. In some legal systems the answers to all these questions are to be found in a comprehensive statutory code (e.g. The Bahamas Trustee Act 1998), but in the United Kingdom the source lies in case law, ancient and modern.

Back to top

---

Disclosure of trust information pursuant to request by established beneficiary

The starting point today on any claim by a beneficiary for disclosure of trust information must be the judgment of Lord Walker in Schmidt. The facts of that case are highly complicated as are the provisions of the two settlements in respect of which information was sought. It is sufficient to summarise the relevant facts very briefly. The two settlements were established under the law of the Isle of Man, one in 1992 and one in 1995. The claimant's father was the co-settlor and since 1997 the defendant (a trust company) had been the trustee of both settlements. The defendant received as such trustee on the trusts of the two settlements over $105 million. The settlor died unexpectedly and intestate in 1997 and letters of administration to his estate in the Isle of Man were granted to the claimant on the 17th August 1998. According to the claimant his father during his life and the claimant since his father's death were beneficiaries under the settlements and indeed trust monies totalling over US$14.6 million were paid to the claimant as administrator of his father's estate between August and October 1998.

In June 1998 the claimant commenced proceedings in the Isle of Man against the defendant as trustee, its directors and several other defendants alleging breach of trust and breach of fiduciary duty and in July 1998 obtained an order prohibiting any dealings with the assets of the settlements and requiring (by way of discovery) extensive disclosure of information. The disclosure obtained was unsatisfactory, and to obtain fuller disclosure of trust accounts and information about trust assets, in June 1999 the claimant brought the present proceedings claiming entitlement as a beneficiary under the settlements to such disclosure.

The claimant in his personal capacity in the case of one of the settlements was a possible object of a very wide power to add him to the class of beneficiaries. The trustees had a discretion whether to exercise the power, but in view of the terms of a letter of wishes written by his father to the trustees he had a particularly strong claim. The issue raised was whether the object of such a power had a right to apply to the court for an order for such disclosure. Answering this question required determination of the basis on which the jurisdiction to order disclosure rested. There was authority (most particularly in the judgment of Salmon LJ in In Re Londonderry's Settlement [1965] Ch 918 at 937) for the proposition that a beneficiary's right to disclosure of trust documents and information should be regarded as a proprietary right, and that accordingly only beneficiaries with a proprietary interest in the property of the trust (and accordingly in the trust documents and trust information) had any right to disclosure. On this basis it was argued by the trustees in Schmidt by way of defence that a discretionary beneficiary and the possible object of a power of appointment, who had no proprietary interest in the property of the trust (and therefore the trust documents and information), had no such right to disclosure. The Privy Council however rejected this defence holding that the existence of a beneficiary's proprietary interest was not the basis for the jurisdiction to order disclosure to a beneficiary of information relating to the trust. In its place the Privy Council laid down (1) that its true basis was the court's inherent jurisdiction to supervise and (where appropriate) intervene in the administration of trusts; (2) that the jurisdiction could be invoked by any person with an interest in the trust whether proprietary or discretionary, and accordingly both by the object of a discretionary trust or of a fiduciary power; and (3) that the jurisdiction was discretionary in all cases:

"no beneficiary (and least of all a discretionary object) has an entitlement as of right to disclosure of anything which can plausibly be described as a trust document. Especially when there are issues as to personal or commercial confidentiality, the court may have to balance the different interests of different beneficiaries, the trustees themselves and third parties. Disclosure may have to be limited and safeguards may have to be put in place. Evaluation of the claims of a beneficiary (especially of a discretionary object) may be an important part of the balancing exercise which the court has to perform on the materials placed before it. In many cases the court may have no difficulty in concluding that an applicant with no more than a theoretical possibility of benefit ought not to be granted any relief." (para 67).

In summary (a) the right of a beneficiary is not a right to access to trust documents or information, but an equity incident to his beneficial interest entitling him to invoke the discretionary jurisdiction of the court to require the trustee to make disclosure. In the words of Nicholas Le Poidevin in a valuable article with the enticing title: The Elephant's Child, "Schmidt is one of many instances of the modern tendency of the court to prefer discretion to hard and fast entitlements"; (b) a beneficial interest carries with it this incident whether it is transmissible or non-transmissible (i.e. discretionary) and whether it is the interest of the object of a discretionary trust or that of the object of a power; (c) if the existence of the interest is uncertain e.g. if it depends upon the resolution of an issue of construction of the settlement by the court, the court will (as any rate in any ordinary circumstances) defer any decision whether to give any direction to the trustees to make disclosure until the issue of construction has been decided.

The judgment in Schmidt does not refer to or expressly question or limit the statement of principle by Millett LJ in the Court of Appeal in Armitage v. Nurse already cited that every beneficiary is entitled to see the trust accounts (though Armitage v. Nurse was cited in argument). One would surely expect the Privy Council to make it plain if it intended to overrule so established a line of authority. But on the other hand the principles are stated by the Privy Council in quite general and absolute terms without any qualification, and the view is plainly maintainable that the principles stated override and replace any principles previously applied by the courts. This indeed must be the case if the principles stated by Millett LJ and Lord Walker are not reconcilable. They are only reconcilable if the principles stated by Lord Walker are to be read as applicable where (and only where) the documents and information sought do not constitute "trust accounts" or if the principles stated by Millet LJ to be understood as meaning that, in the case of requests for trust accounts, the trustees' discretion whether to provide them can only lawfully be exercised in favour of doing so. If it is necessary to draw the line between trust accounts (in respect of which beneficiaries have a right of access) and other documents and information (in respect of which they have no right but merely an equity), the exercise may prove extremely hard to draw and prove a trap for the unwary (and indeed the wary). There is not time in this lecture to explore this topic further. I shall concentrate my attention on the information and documents to which the beneficiaries have no right and to which the principles stated by Lord Walker apply.

The decision in Schmidt has a far-reaching impact on the character of the trust documents and information to which a beneficiary can claim access. Authorities have in the past confined access to "trust documents" and generated a degree of learning as to what is and what is not a trust document for this purpose. This exercise can now be seen to be futile. There is for present purposes no distinction in principle between access to trust documents and to trust information which is not in documentary form: both are property of the trust. In practice the requirement of trustees to provide access to existing documents may be less onerous than to provide information not already in documentary form and this may be relevant to the exercise of the court's discretion. It should not be possible for trustees (or a settlor in his statement of wishes) to circumvent the possibility of disclosure by resort to oral communications only. Even as the decision in Schmidt abrogates the need for a sharp or bright dividing line between interests which do and interests which do not carry with them the right to apply for access to documents and information (see para 66), so also it abrogates the need for such a line between documents and information which may and which may not be the subject of an application. All documents relating to the trust and all information held by the trustee as such are trust property and accordingly the possible subject of a direction for disclosure. The question in each case must be whether in the particular circumstances of the case the legitimate requirement of the beneficiary to obtain access is such as to outbalance the competing interests and objections to disclosure of other beneficiaries, the trustees and third parties.

Three examples of situations may be given where this new approach may be apposite.

The first situation is where the settlement purports expressly or impliedly to confer or exclude a right of access to trust documents or information. The question raised is whether those provisions are legally effective or whether access remains a matter of discretion for the court. I would incline to the view that the court's power to supervise and intervene in the administration of a trust cannot (at any rate in any ordinary case) be used to derogate from the rights of access granted by the settlement. On the other hand the court cannot readily countenance any attempt by a settlor to detach from an interest conferred by a settlement what is an ordinary incident of that interest e.g. accounting and enforcement rights and the right to be informed about trust affairs. As I have already said, Professor Hayton has suggested that settlors can exclude the objects of powers of appointment from having any enforcement or accounting rights which are in the ordinary case incidents of their beneficial interests so long as there remain at all times beneficiaries who possess these rights e.g. beneficiaries entitled in default of exercise of the powers. I find it difficult to find a principled basis for this suggestion, though there may be strong practical reasons for it. It would (for example) facilitate effectuating a settlor's intention that (a) beneficiaries entitled in default of the power should indeed become entitled unless exceptional circumstances occasion the exercise of the power in favour of a peripheral object (e.g. a charity); and (b) that the peripheral object should not be entitled to interfere in trust affairs in the meantime. It may be said that the existence of the other beneficiaries possessing accounting and enforcement rights is sufficient to secure the continued enforcement of the trust, but the interest of those beneficiaries may be diametrically opposed to those of the objects of the power. In the circumstances (as it seems to me) a provision in the settlement excluding enforcement or accounting rights and indeed the express exclusion of any right of access to trust documents or information may not (indeed perhaps should not) preclude the object from inviting the court to exercise its jurisdiction to direct disclosure, though no doubt the settlor's wishes may be a relevant factor in the exercise of the court's discretion.

The second situation is where the settlor has provided the trustees with a confidential memorandum of wishes, which, though lacking legal force, sets out how the settlor wishes the trustees to exercise a discretion which he has conferred on them or has orally confided his wishes to them. Lord Walker pointed out how prevalent has become the practice of conferring on trustees wide discretions in favour of a widely defined class of beneficiaries and of confidentially outside the settlement imparting to those trustees the settlor's wishes how those discretions shall be exercised, and that this practice is used as a cloak against transparency securing that the terms of the settlement give no reliable indication of who will in the event benefit from the settlement (see paragraph 1).

The third situation is where a beneficiary seeks disclosure of documents or information revealing the reasoning of the trustees in reaching their decisions how to exercise their discretionary powers. Pre-Schmidt authorities established the principles: (1) that a beneficiary's right to disclosure of trust documents does not extend to confidential documents relating to or revealing the reasoning of the trustees in reaching their decisions how to exercise their discretionary powers relating to distributions of capital or income to beneficiaries: see Londonderry above; and accordingly (2) discretionary beneficiaries are not in general entitled to know how or why the trustee's discretion is not exercised in their favour. To sidestep this limitation on their access to this information, it has been the practice of particularly concerned and committed beneficiaries to sue the trustees for breach of trust in respect of the exercise of the discretion and seek full disclosure of that same information through the disclosure procedure in the action: see Scott v. National Trust [1998] 1 WLR 226 ("Scott"). The device can only succeed if the beneficiaries can establish a prima facie case of breach of trust, that the proceedings are not an abuse of process, and that the court in its discretion should order disclosure.

The climate may be seen to have changed regarding the desirability of the principle that trustees can withhold disclosure of their reasons with total impunity and the refusal of trustees to disclose the reasons for the exercise of their discretion can have repercussions for the trustees. The refusal of trustees to give an explanation for a decision in circumstances calling for an explanation, may support an inference of a breach of trust: see Taylor v. Midland Bank Trust Co Ltd [2002] WTLR 95. There may be a need to give reasons when plainly a reason is called for, e.g. for defeating the legitimate expectation of a beneficiary: see Scott. The climate change is most particularly apparent in the pension field (see Walker J Some Trust Principles in the Pension Context [1996] Pensions Law Reports at 112-3). In the case of a pension trust the Pensions Ombudsman, who is empowered by the Pensions Schemes Act 1993 to give a remedy for "maladministration", has held that it is maladministration to refuse to disclose the reasons for their decision; C Allen [2002] PLR 333. Going beyond this, the limitations on the rights of beneficiaries to scrutinise the reasons for decisions on the exercise of discretion affecting them has been the subject of trenchant criticism. As Pearce & Stevens state in The Law of Trusts and Equitable Obligations 2nd ed. at 620-1:

" there is an inherent inconsistency between the principle of equity that trustees should not act improperly and the absence of any right of beneficiaries to know how decisions are reached and so subjected to proper scrutiny"

And they suggest that today equity should not be bound by 19th century cases (and I would add 20th century cases) which place the interests of trustees above those of beneficiaries and that no discretion should be able to be exercised without proper scrutiny.

I would suggest that the principles stated in earlier cases (and in particular Londonderry) may no longer apply at least with the same stringency since the decision in Schmidt. The court may now, after carrying out the appropriate balancing exercise, in proper cases require disclosure both of confidential memoranda of wishes and of confidential documents. In carrying out the balancing exercise guidance may be found in the judgments of the Court of Appeal (and most particularly the dissenting judgment of Kirby P) in Hartigan Nominees Pty Ltd v. Rydge [1992] 29 NSWLR 405 ("Hartigan").

In Hartigan the New South Wales Court of Appeal was faced with the question whether a beneficiary was entitled to require the trustees to disclose such a confidential memorandum of wishes. By a majority of 2 to 1 (Kirby P dissenting) the Court of Appeal held that he was not so entitled. The first issue raised was whether the letter was a trust document. The majority held that it was not. Kirby P in his persuasive dissent argued that the letter of wishes for all practical purposes was one of the trust documents, for "it is an essential component of or companion to the trust deed itself" and the trust deed "being understood in the light of the memorandum of wishes is effectively to be taken to be supplemented by it" (page 419). The second issue was whether the court could and should direct its disclosure even if it was not a trust document. The majority adopted the conventional approach that (in the absence of a pleaded allegation of fraud or misconduct) trustees should not be required to disclose confidential information relating to the exercise of a discretion and that this included both a confidential expression of wishes by the settlor and their own confidential deliberations. They quoted observations in Re Londonderry to the effect that it would be intolerable for trustees to be obliged to disclose or reveal the reasons for the exercise of their discretion and highly undesirable for "dirty linen" to be aired in public. But Kirby P in his dissent made a strong plea for greater transparency to ensure that the trustees do their duty and are accountable.

He went on to hold that only by securing such access could the beneficiary fully exercise his rights which included rendering the trustees accountable before the law for the discharge of their duties (page 422E).

The reasoning of Kirby P (now a judge of the High Court of Australia) is in my view compelling that disclosure to beneficiaries of confidential letters of wishes and trustees' deliberations should not be regarded as immune from disclosure, when disclosure is necessary to enable beneficiaries to monitor performance of their duties by trustees and ensure that they are fully and properly informed. A balancing exercise is called for involving an examination of the best interests of the beneficiaries and the views of the trustees must be a relevant consideration. The views of a protector (if any) appointed by the settlor to protect the interests of the beneficiaries should likewise be relevant. But whether the confidence intended by the settlor (or desired by the trustees) should be broken must depend on the merits of the application. If a settlor in arranging his affairs has recourse to a settlement and a confidential letter or indeed a confidential oral communication of wishes, he runs the risk that the due administration of the settlement, the accountability of the trustees and the safeguarding of the interests of the beneficiaries may require the confidence to be broken overridden by those other considerations. Trustees have no right of confidence or privacy as such: it should only be claimed and respected when the need for it outweighs countervailing considerations.

Back to top

---

Duty to inform beneficiaries of their entitlement

Must a beneficiary (and in particular a beneficiary on his attaining full age of 18 years) be informed by trustees of a settlement of his entitlement under the trust and the extent of his entitlement in all circumstances notwithstanding the damage which such disclosure may do to him? There are two sides to the argument. It is a recurrent experience of mankind that, if a person of too young an age knows that he is amply provided for, this may distract him from getting on with his daily life and discourage him from taking all necessary steps to provide for himself or equip himself to do so. The incentive to be self-supporting can be diluted and there may be a risk of a lack of appreciation of the value of money and hard work. On the other hand it may also be fair that a child should know the identity of any settlor and the extent of any provision made for him, whether the provision (present and past) made for him is the generous act of his parents or someone else, and accordingly the extent of his debt to his parents and the settlor, and the prospect and extent of provision in the future. By reason of the strong views held by them executors and trustees can be placed under considerable pressure by well meaning and well intentioned parents to say nothing or as little as possible on this topic. The executors and trustees may likewise consider that the best interest of the beneficiary may require them to say nothing. The question raised is how far it is open to the trustees to take this course and how far to do so exposes them to the risk of proceedings.

Authority establishes the proposition that in the ordinary course a trustee has no duty to volunteer information: his duty is limited to providing information duly requested by a qualified applicant for it: see Megarry V-C in Tito v. Waddell No 2 [1977] Ch 106 at 242-3 and Mahoney JA in Hartigan at 431. But there is both a legal and a practical reason for an exception in case of disclosure of a beneficiary's entitlement. The legal reason is that a beneficiary's right to monitor the stewardship of the trustees is nugatory unless the beneficiary knows that he or she has an interest under an inter vivos settlement or will. Further only if the beneficiary is so informed can any obligation of executors and trustees to provide trust information on request have any substance. As a practical matter beneficiaries may need to know their entitlement to provide information required on applications e.g. for scholarships and grants and social security benefits, for tax returns, matrimonial and child care proceedings, to make informed decisions relating to finance, and to decide whether e.g. to sever a joint tenancy or vary a trust.

Back to top

---

Disclosure by Executors

(a) Executors

It is common practice, and indeed good practice, for well-advised executors on assuming office or on obtaining probate to send a copy of the will to each beneficiary named. But the decision of the Court of Appeal in the case of Re Lewis [1904] 2 Ch 656, established that, unless the will otherwise provides, the executors as such have no duty to do so or (more importantly) to inform the beneficiaries of the terms or conditions of any entitlement under the will. The executors must give effect to the provisions of the will. They must pay legatees without awaiting a demand: see Wroe v. Seed (1864) 4 Giffard 424 at 428-9. But they need do no more. (This rule does apply to executors when acting as trustees: see Brittlebank v. Goodwin LR 5 Eq 545 at 550). The facts of the case of Re Lewis vividly demonstrate the draconian consequences of the rule. In that case the testatrix gave her house to her son Evan who was resident in Patagonia and directed that, if he should not return and claim the house, it should pass to the executor. (In those days, the law report records, it took four or five months to communicate with that country). The executor wrote to Evan informing him of the legacy but did not say a word about the requirement that he return home and claim it. Ignorant of that requirement Evan did not return and died without doing so. Evan's estate as claimant in the action sued the executor complaining of the default in notifying Evan and the consequent unjust enrichment of the executor. The Court of Appeal held that the executor had been under no duty to disclose the term of the legacy and was fully entitled to the house under the gift over. The claimant conceded that as a general principle an executor was under no obligation to disclose to a legatee his entitlement under the will, but argued as an exception or qualification to that principle that it did not apply if the executor took a benefit under the legacy and in particular if he took under a gift over in case the legatee did not claim the legacy under the provisions of the will. The Court of Appeal was not accordingly required to determine the correctness of the principle but only of the suggested gloss on it. All members of the court however plainly considered the concession properly made. The only full consideration of the merits of the principle is to be found in the judgment of Romer LJ. He stated that it has been established in Chauncy v. Graydon (1743) 2 Atk 616 that an executor is under no obligation to give notice to a legatee of the terms of a condition of forfeiture attached to a legacy unless the will imposes on him an obligation to do so; that there was no authority for imposing a duty on an executor, and the difficulties of formulating the duty precluded the court from imposing it in the absence of such authority. The difficulties arose because the duty could not be absolute: the executor might not know where the legatee was living; and a duty to take reasonable care was too uncertain. He accordingly declined to impose it. The notion that the duty to take reasonable care is too uncertain to be satisfactory is scarcely maintainable today. As will subsequently appear this is the nature of the duty owed by trustees: uncertainty is no obstacle to the imposition of the duty on them. An alternative explanation for the absence of any duty on the part of the executor was given in the case of Hawkesley v. May [1965] 1 QB 24, namely that a will is a public document available for inspection by anyone interested in doing so and there is accordingly no sufficient need to impose any duty of disclosure on the executors. The latter rationale for the rule laid down in Re Lewis is likewise totally unsatisfying, and (if it ever had force) is totally out-dated today. Who today adopts the practice of regularly visiting the Registry to inspect wills on the off-chance that they may be named as beneficiaries? The closest analogy is the individual obsessed with his own mortality who first thing each day before he decides whether to get up studies the obituary columns in the daily papers to see if his own name appears. The rule in Re Lewis is apt to produce the injustice occasioned (as it did) in the case of Re Lewis (see also The Cancer Research Campaign v. Ernest Browne [1997] STC 1425), has nothing to recommend it and plainly requires reconsideration in the light of modern conditions. Ford's Principles of the Law of Trusts (reissued May 2003) in paragraph 9129 states categorically that so far as any case (and in particular Re Lewis) suggests that a personal representative or trustee is not under a duty to disclose the terms of a legacy or trust to a beneficiary, it is wrong and not binding on any Australian court. In so doing Ford surely marks the way we should also follow. An obligation should be implied to take reasonable and practicable steps to inform beneficiaries (cf. Scally v. Southern Health and Social Services Board [1992] 1 AC 294).

(b) Trustees

Whilst remarkably a settlor has been held to owe no duty to disclose the existence of the trust to the trustees or beneficiaries (see Fletcher v. Fletcher (1844) 4 Hare 67), the position in this regard of trustees is quite distinct (and this must include the settlor where he is also a trustee). A trust instrument is a private document which does not have to be registered and its very existence may be known only to the settlor and the trustee or trustees and accordingly the settlor alone if the settlor assumes the office of sole trustee. It was for this reason that the judge in Hawkesley held inapplicable the rule established in the case of executors. Unless the trustees are under a duty to disclose the trust to the beneficiaries, the very existence of the trust may be unknowable as well as unknown to those alone who can enforce it and hold the trustees to account. There is in the circumstances the overriding need to impose on trustees the obligation to disclose the existence of the trust and its provisions to those entitled to enforce it. The question arose in that case whether a beneficiary on attaining full age should be informed by the trustees of his vested interest in possession. The clear and unequivocal answer was in the affirmative. But does the principle apply to all categories of beneficiary? There is no clear guidance in the authorities and no agreement in the text books on the answer to this question. Lewin on Trusts 17th ed paragraph 23-03 says that it is not clear whether adult beneficiaries with reversionary interests, particularly contingent interests, or defeasible vested interests must be given information as soon as the settlement is made (or presumably on attaining majority) or only if and where their interests vest in possession or capital or income becomes payable to them. On the other hand Professor Hayton in the 16th edition of Underhill and Hayton on Trusts and Trustees (at page 674) states that, whether beneficiaries' interests are under fixed or discretionary trusts, whether in income or in capital, or capital and whether vested or contingent, trustees are necessarily under a duty to take reasonably practicable steps to inform beneficiaries of full age and capacity of their beneficial interest, and the duty in principle extends to informing objects of a power of appointment that they are objects. He only excepts objects of powers where (1) they are not intended by the settlor to have the right to require the trustees to consider the cases made by them for an appointment; (2) they are members of a secondary class; or (3) the class is huge. I would summarise the exceptions as cases where the settlor has expressly or impliedly manifested the intention to oust the normal rights of objects (in particular by the character of the provisions of the trust). The duty of disclosure is stated in perfectly general terms in Halsbury's Laws of England 4th ed vol 17(2) para 475 and Snell's Equity 30th ed para 11-47.

In principle, as it seems to me, the views of Professor Hayton are to be preferred. A core obligation of a trustee must be to inform beneficiaries of their rights including their right to monitor his administration of the trust. The decision in Schmidt supports the view that no distinction should be drawn in principle between the rights of discretionary beneficiaries and objects of powers of a fiduciary character. If there is no distinction in respect of the right to apply to the court for disclosure of information, surely no distinction can logically be made in respect of the duty of trustees to inform them of their entitlement. It would surely be remarkable if the object of a discretionary trust or power possessed locus standi to apply to the court for the disclosure of trust information but had no right to be informed of his entitlement under the trust. The limitations on the duty owed to the object of a discretionary power accepted by Professor Hayton find some support in the judgment of Templeman J in Re Manisty's Settlement [1974] Ch 17 at page 24 and of Neuberger J in Murphy v. Murphy [1999] 1 WLR 382. This is not a question addressed by Lord Walker in Schmidt, but he adopted an alternative approach leading to much the same practical effect. He said that, in case of a wide power, the trustees could adopt a sensible approach confining attention to the primary candidates for the exercise of the trustees discretion (see paras 41 and 42); and in relation to an application for disclosure by a discretionary object: "In many cases the court may have no difficulty in concluding that an applicant with no more than a theoretical possibility of benefit ought not to be granted any relief." (para 67). It is suggested that, whichever approach is adopted, disclosure should only be excused where the class of discretionary beneficiaries or possible objects of a power is such as to render the exercise impracticable or of no practicable value. Regard may be had to the size of the trust fund and the cost of the exercise. But questions of cost are matters which the settlor should be assumed to have had in mind when selecting the classess of beneficiaries. Disclosure should surely be made to all the beneficiaries who have a real and practical (as opposed to merely theoretical) interest in the due administration of the trust and a prospect of benefit thereunder. Candidates for the exercise of the discretion in their favour should be informed not least so as to be afforded the opportunity to make representations on their behalf and enable the trustees to make a fully informed decision. If the settlor has selected an individual as a possible beneficiary, the trustees should let him know and have his say unless the trustees can properly decide blind to exclude him from benefit ignoring his possible claim. There can, as it seems to me, be no distinction between the duties of trustees under express, implied or constructive trusts, though a constructive trustee may not appreciate that he is a trustee until the court determines the existence of the trusteeship.

I should add a word on the requirements for compliance with the duty of disclosure to a beneficiary where applicable. The duty of disclosure requires a real disclosure calculated to ensure that the beneficiary fully appreciates the information to be communicated. The sending of a "common form" letter and the obtaining of an acknowledgement of due performance of the duty will be inadequate unless calculated (having regard to the age, intelligence and circumstances of the beneficiary) to be effective. Going through mere forms will be an avoidance, if not an evasion, of the duty. The need for disclosure e.g. of the income entitlement cannot be masked by adopting an investment policy designed to secure in future a capital as opposed to an income return. It will be a breach of the duty in respect of investment of trust assets to exercise it for such an ulterior purpose - and in any event the beneficiary is entitled to an explanation of the exercise.

Back to top

---

Limitations on duty in trust instrument

I turn to the question whether a trustee can be excused by the trust instrument from providing requested information to a beneficiary or disclosing to a beneficiary that he is a beneficiary. Save in the special case of the object of a discretionary power the answer as it seems to me lies in the core character of these obligations under a valid trust. As Professor Hayton says, such a stipulation must be void as repugnant to the trust created. A trust may authorise enforcement by a person other than a beneficiary e.g. the settlor or a protector, but such a right can only be conferred in addition to, but not instead of, the core rights of the beneficiaries, which are inherent in their interests.

Back to top

---

Exemption and exoneration clauses

One effect of the decision in Schmidt is that trustees are under no absolute duty to provide information requested of them by beneficiaries. The discretion to refuse to disclose certain information requested of them must be exercised in proper responsible fashion. If they improperly exercise their discretion (eg by a failure to take account of a key consideration or in an attempt to delay or frustrate beneficiaries' investigations as to whether ultra vires investments or distributions were made or a duty of care was breached) they will be liable for breach of duty. The onus will ordinarily be on the trustees to explain and justify the exercise of their discretion to withhold relevant information. Their improper failure promptly to provide the information may provoke proceedings for a direction requiring provision of the information, an order for their removal as trustees and an adverse order for costs. It may even make them liable to restore to the trust fund the value that would not have been lost if the relevant information had been provided promptly enabling urgent safeguarding measures to be taken. Thus there is some small scope for application of exemption or exoneration clauses .

There is more scope in cases where trustees (or executors) fail to disclose the existence of their beneficial interest to beneficiaries whose claim may be a personal one relating to a lost opportunity. The trustees' failure may prima facie constitute a breach of duty and exemption and exoneration clauses may come into play. Such clauses cannot as a matter of trust law exclude from protection a fraudulent breach of trust. For this purpose actual fraud connotes at the minimum an intention on the part of the trustee to pursue a particular course of action either knowing that it is contrary to the interests of the beneficiaries or being recklessly indifferent whether it is contrary to their interest or not:

"It is the duty of a trustee to manage the trust properly and deal with it in the interest of the beneficiaries. If he acts in a way which he does not honestly believe is in their interests, he is acting dishonestly. It does not matter whether he stands or thinks he stands to gain personally from his actions." Millett LJ in Armitage v. Nurse [1998] Ch 241 at 251 D-E.

On the other hand exemption and exoneration clauses can validly protect trustees from liability in case of wilful default. Accordingly if a trustee dishonestly withholds disclosure of information to a beneficiary, he will expose himself, whatever the provisions of the trust to a claim for breach of trust. But if a trustee withholds disclosure in the perceived best interest of a beneficiary, though his conduct may constitute a deliberate breach of trust and a wilful default, he may still be able to invoke the protection of an exclusion clause which excludes liability for wilful default (see Woodland Ferrari v. UCL Group [2003] Ch 115) unless no honest or reasonable trustee in his shoes could have had such a perception: Walker v. Stones [2001] QB 902 (CA on appeal to HL). But the fact that non-disclosure to a beneficiary e.g. on obtaining full age and a vested interest in possession may not constitute a breach of trust, may not be the end of the story. The beneficiary may become obliged to disclose the existence of his interest e.g. in his tax return or court proceedings. The trustees cannot be a party to any breach of such obligation. Still less can they take steps to "cover up" his entitlement by obtaining "blind" his signature to a tax return revealing his entitlement or to a general power of attorney. The trustee is likely to be held duty bound to ensure that the beneficiary is fully informed before he signs the document in question.

Back to top

---

Conclusion

The duties of disclosure to beneficiaries of trustees and executors both of the provisions of the will or trust affecting them and of the trust affairs and accounts are related obligations. They are both expressions of the obligations of a fiduciary to make full disclosure. A settlor or testator having recourse to a trust or will to create a settlement must as part of the price for that privilege accept that beneficiaries need to be informed to monitor and enforce performance by the trustees and executors of their duties so far as they relate to them. If the settlor or testator chooses to create a large body of beneficiaries, he must expect wide dissemination of trust information. Mr Christopher McCall QC eloquently puts it in his article entitled: The End of the Trust as a Disappearing Trick? a settlor cannot have his cake and eat it. He cannot create a trust, but deprive beneficiaries of the incidental rights essential for the constitution of a valid trust. So far as the law does admit of exceptions, those exceptions should be narrowly drawn and clearly justified by countervailing interests.

I should however add a word of caution to those who hear or read this lecture. A judge who expresses his view of the law without the assistance of counsel's argument is like a mariner who sails dangerous straits without a pilot. He has no such warning as he is accustomed to receiving from that source of shoals or other navigational hazards. Not merely may it be unsafe to rely on what I say without such assistance, but it should not be assumed that, if ever an issue such as is touched on in this lecture comes before me in my judicial capacity, possessed with that assistance even I shall take the same view.

Please note that speeches published on this website reflect the individual judicial office-holder's personal views, unless otherwise stated. If you have any queries please contact the Judicial Communications Office.